Span-America Medical Systems, Inc. (NASDAQ:SPAN) today reported
its results for the second fiscal quarter ended April 1, 2017. Net
sales for the second quarter of fiscal 2017 were up 3% to $15.2
million compared with $14.9 million in the second quarter of fiscal
2016. Net income for the second quarter of fiscal 2017 rose 126% to
$1.7 million compared with $758,000 in the second quarter of fiscal
2016 and benefited from a higher sales volume in the medical
segment, a more profitable sales mix and a $732,000 non-recurring,
after-tax gain (approximately $0.26 per diluted share) from life
insurance proceeds. Net income per diluted share rose 121% to $0.62
in the second quarter of fiscal 2017 compared with $0.28 in the
second quarter of fiscal 2016.
Second Quarter Results
Sales for the second quarter of fiscal 2017 were $15.2 million
compared with $14.9 million in the second quarter of fiscal 2016.
The sales increase came entirely from our medical segment and was
partly offset by a sales decline in our custom products segment.
Sales in the medical segment increased by 18% to $12.9 million
compared with $11.0 million in the second quarter last year. Sales
in the custom products segment were down by 41% to $2.3 million in
the second quarter of this year compared with $3.9 million in the
second quarter last year. Operating income increased by 21% to $1.4
million in the second quarter this year compared with $1.2 million
in the same quarter last year due to higher sales volume in the
medical segment and a more profitable sales mix during the second
quarter of fiscal 2017 compared with the same quarter last
year.
Net income for the second quarter of fiscal 2017 increased by
126% to $1.7 million compared with $758,000 in the second quarter
of last year. Results for the second quarter of fiscal 2017
included a $732,000 non-recurring, after-tax gain (approximately
$0.26 per diluted share) from life insurance proceeds. There was no
comparable gain in the prior year. Earnings per share increased
121% in the second quarter to $0.62 per diluted share compared with
$0.28 per diluted share in the second quarter last year. The
increases in net income and earnings per share were the result of
higher sales volume in the medical segment, a more profitable sales
mix and the non-recurring gain from life insurance proceeds.
Medical Segment – Total
medical sales were $12.9 million in the second quarter of fiscal
2017, an 18% increase compared with $11.0 million in the second
quarter last year. The increase in medical sales came primarily
from our medical beds and therapeutic support surface product
lines. Span-Canada sales increased by 59% to $3.6 million in the
second quarter of fiscal 2017 compared with $2.3 million in the
same quarter last year. Span-Canada benefited from higher sales
volume related to the provincial budget year-end in March. Second
quarter sales also included several significant orders from our
traditional long-term care customer base as well as from our
customers in the government and export markets.
Sales of pressure management product lines increased by 7% to
$9.3 million compared with $8.7 million in the second quarter last
year. Sales of therapeutic support surfaces increased by 7% to $6.7
million compared with $6.3 million in the second quarter last year.
Sales of all other pressure management product lines as a group
increased by 7% to $2.6 million in the second quarter of fiscal
2017 compared with $2.4 million in the second quarter of fiscal
2016. Sales were up in all of our major pressure management product
lines in the second quarter except Selan®, which decreased by
3%.
Custom Products Segment –
Total custom products sales were down by 41% to $2.3 million in the
second quarter of fiscal 2017 compared with $3.9 million in the
second quarter of fiscal 2016. Consumer bedding sales make up the
larger part of the custom products segment and were down by 57% to
$1.3 million in the second quarter of fiscal 2017 compared with
$2.9 million in the second quarter of fiscal 2016. The decrease in
consumer sales in the second quarter was due entirely to the loss
of our consumer business with Sinomax, which we announced in April
2016, following Sinomax’s decision to in-source the manufacturing
of these products after opening its first manufacturing facility
located in the U.S. Sales to Sinomax were approximately $1.9
million in the second quarter of last fiscal year.
Sales from our industrial product lines, included within the
custom products segment, increased by 6% to $1.0 million in the
second quarter of fiscal 2017 compared with $977,000 in the same
quarter last year. Most of our industrial sales growth in the
second quarter came from customers in the packaging market.
Earnings – Total gross
profit level increased 13% to $5.9 million compared with $5.2
million in the second quarter last year. The gross margin
percentage also increased to 38.5% compared with 34.9% in the same
quarter last year. The increases in gross profit level and margin
were the result of a large shift in sales mix to the higher-margin
medical segment from the custom products segment due to strong
growth in medical sales combined with a decrease in consumer
sales.
Selling and marketing expenses increased by 4% to $2.7 million
compared with $2.6 million in the second quarter of 2016. R&D
expenses increased by 3% to $283,000 due to normal
quarter-to-quarter fluctuations in our product development costs in
the medical segment. Administrative expenses increased by 27% to
$1.4 million due to higher professional fees (approximately
$114,000) associated with the recently announced proposed
acquisition of Span-America by Savaria Corporation.
Operating income rose 21% in the second quarter of fiscal 2017
to $1.4 million compared with $1.2 million in the same quarter last
year and benefited from higher sales volume in the medical segment
and a more profitable sales mix during the second quarter of fiscal
2017 compared with the same quarter last year.
Net non-operating income rose to $737,000 in the second quarter
of fiscal 2017 compared with a net non-operating loss of $53,000 in
the second quarter of fiscal 2016. As previously announced on
February 2, 2017, the Company realized a gain of $732,000 from life
insurance proceeds as a result of the death of Span-America founder
and former CEO, Don Spann. The gain from the insurance proceeds
contributed approximately $0.26 per diluted share after taxes to
second quarter earnings.
Net income for the second quarter increased by 126% to $1.7
million compared with $758,000 in the second quarter last year.
Earnings per diluted share rose 121% to $0.62 in the second quarter
of fiscal 2017 compared with $0.28 in the second quarter of fiscal
2016. The increases in net income and earnings per share were the
result of higher sales volume in the medical segment, a more
profitable sales mix and the non-recurring gain from life insurance
proceeds. Excluding the gain from life insurance proceeds, diluted
earnings per share for the second quarter of fiscal 2017 would have
been $0.35 per share, a 25% increase compared with $0.28 per share
in the second quarter of fiscal 2016.
Year-to-Date Results
For the first half of fiscal 2017, total sales were down 16% to
$30.4 million compared with $36.3 million in fiscal 2016. The
decrease in sales came entirely from the custom products segment
and was caused by two events. First, we had a $6.1 million seasonal
promotion of consumer products that took place in the first half of
fiscal 2016 and was not repeated in the first half of fiscal 2017.
Second, we lost our consumer business with Sinomax, as announced in
April 2016 and described above, following Sinomax’s decision to
in-source the manufacturing of these products after opening its
first manufacturing facility located in the U.S. last year.
First half fiscal 2017 sales in the medical segment increased by
14% to $25.4 million compared with $22.4 million in the first half
of fiscal 2016. Most of the year-to-date increase in medical sales
came from Span-Canada, where sales of our medical beds and related
products were up 35% to $6.7 million compared with $5.0 million in
the first half of fiscal 2016. Sales within our pressure management
product lines increased by 8% during the first half of fiscal 2017
to $18.8 million compared with $17.4 million in the first half of
fiscal 2016. Within this product group, sales of therapeutic
support surfaces increased by 10%, and sales of all other pressure
management product lines increased by 3%.
Custom products sales decreased by 64% in the first half of
fiscal 2017 to $5.0 million compared with $13.9 million in the
first half of fiscal 2016. Consumer sales decreased 76% in the
first half of fiscal 2017 to $2.9 million compared with $12.1
million in the same period of fiscal 2016. The decrease in consumer
sales came entirely from the loss of the Sinomax business and the
seasonal promotion as described above. Sales of our industrial
products, included in the custom products segment, were up 11% to
$2.1 million in the first half of fiscal 2017 compared with $1.9
million in the first half of fiscal 2016.
Operating income for the first half of fiscal 2017 increased by
3% to $2.8 million compared with $2.7 million in the first half of
fiscal 2016. The increase was the result of higher medical sales
volume and a more profitable sales mix during the first half of
fiscal 2017 compared with the same period in fiscal 2016.
Net non-operating income rose to $771,000 in the first half of
fiscal 2017 compared with $55,000 in the first half of fiscal 2016.
The increase was due primarily to the gain from life insurance
proceeds of $732,000, or approximately $0.26 per diluted share
after taxes.
Net income for the first half of fiscal 2017 rose by 41% to $2.7
million compared with $1.9 million in the first half of fiscal
2016. Earnings per share increased by 41% to $0.97 per diluted
share in the first half of fiscal 2017 compared with $0.69 per
diluted share during the same period last year. The increase in
earnings for the first half of fiscal 2017 was mainly the result of
higher medical sales volume, a more profitable sales mix and the
gain from life insurance proceeds.
Acquisition Announcement
As announced on May 1, 2017, Span-America has reached an
agreement to be acquired by Savaria Corporation, an Alberta, Canada
corporation (“Savaria”) (TSX: SIS). Please see Span-America’s
current report on Form 8-K dated May 1, 2017 and filed with the SEC
on May 1, 2017 for more information about this proposed
transaction.
Due to the Agreement to be Acquired by Savaria Corporation,
Span-America Will Not Conduct an Investor Call on May 5,
2017.
Span-America will not be hosting an investor conference call and
webcast related to the announcement of second quarter financial
results due to its entry into the agreement to be acquired by
Savaria Corporation. Investors may find a detailed report of the
company’s second quarter and year-to-date financial results in the
tables below.
About Span-America Medical Systems, Inc.
Span-America manufactures and markets a comprehensive selection
of pressure management products for the medical market, including
Geo-Matt®, PressureGuard®, Geo-Mattress®, Custom Care®, Span+Aids®,
Isch-Dish®, Risk Manager® and Selan® products. Through our
wholly-owned subsidiary Span Medical Products Canada Inc., we
manufacture and market the Encore®, Advantage and Rexx beds as
well as related in-room furnishing products for the long-term care
market. We also supply custom foam and packaging products to the
consumer and industrial markets. Span-America’s stock
is traded on The NASDAQ Global Market under the
symbol “SPAN.” For more information, please visit
www.spanamerica.com.
Important additional information will be filed with the U.S.
Securities and Exchange Commission
This announcement is not a recommendation, an offer to purchase,
or a solicitation of an offer to sell shares of Span-America stock.
Savaria has not yet commenced the tender offer for shares of
Span-America stock described in this announcement. Upon
commencement of the tender offer, Savaria will file with the U.S.
Securities and Exchange Commission (SEC) a tender offer statement
on schedule TO and related exhibits, including an offer to
purchase, letter of transmittal, and other related documents.
Following commencement of the tender offer, Span-America will file
with the SEC a solicitation/recommendation statement on Schedule
14D-9. These documents will contain important information about
Savaria, Span-America, the transaction, and related matters.
Investors and security holders are urged to read each of these
documents carefully when they are available. Investors and security
holders will be able to obtain free copies of the tender offer
statement, the tender offer solicitation/recommendation statement
and other documents filed with the SEC by Savaria and Span-America
through the web site maintained by the SEC at www.sec.gov. In
addition, investors and security holders will be able to obtain
these documents by contacting the information agent named in the
tender offer materials.
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of the federal securities laws. Statements regarding
future events and developments and Span-America’s future
performance, as well as management’s current expectations, beliefs,
plans, estimates or projections relating to the future, are
forward-looking statements within the meaning of these laws.
Forward-looking statements are statements that do not relate
strictly to historical or current facts. These statements may
include words such as “guidance,” “anticipate,” “estimate,”
“expect,” “forecast,” “project,” “plan,” “intend,” “believe,”
“confident,” “may,” “should,” “can have,” “likely,” “future” and
other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial
performance or other events.
Examples of such statements in this press release include
without limitation statements regarding the planned completion of
the tender offer and the merger described above. These
forward-looking statements are subject to a number of risks and
uncertainties. Among the important factors that could cause actual
results to differ materially from those indicated by such
forward-looking statements are: (a) uncertainties as to the
percentage of Span-America’s stockholders tendering their shares in
the tender offer, (b) the possibility that competing offers will be
made, (c) the possibility that various closing conditions for the
tender offer or the merger may not be satisfied or waived,
including that a governmental entity may prohibit or delay the
consummation of the merger, (d) the effects of disruption caused by
the transaction making it more difficult to maintain relationships
with employees, vendors and other business partners, (e) the risk
that stockholder or other litigation in connection with the tender
offer or the merger may result in significant costs of defense,
indemnification and liability, (f) the inability to achieve
anticipated sales growth in the medical and custom products
segments, (g) the possibility of a loss of a key customer or
distributor for our products, (h) risks related to international
operations and foreign currency exchange associated with
Span-America’s Canadian subsidiary, (i) the possibility of
having material uncollectible receivables from one or more key
customers or distributors, (j) the potential for volatile
pricing conditions in the market for polyurethane foam, (k) raw
material cost increases, (l) the possibility that some or all
of our medical products could be determined to be subject to the
2.3% medical device excise tax imposed by the Affordable Care Act,
(m) the potential for lost sales due to competition from
low-cost foreign imports, (n) changes in relationships with large
customers or key suppliers, (o) uncertainty about whether or not we
will be awarded or continue to be awarded one-time seasonal
promotions with major retailers, which can have a large impact on
annual revenues and earnings, (p) the impact of competitive
products and pricing, (q) government reimbursement changes in
the medical market, (r) FDA and Health Canada regulation of medical
device manufacturing, and (s) other risk factors detailed in
Span-America’s Annual Report on Form 10-K for the fiscal
year ended October 1, 2016 and other filings with the SEC, which
can be found at the SEC’s website www.sec.gov.
We disclaim any obligation to update publicly any
forward-looking statement, whether as a result of new information,
future events or otherwise. We are not responsible for changes made
to this document by wire services or Internet services.
SPAN-AMERICA MEDICAL SYSTEMS, INC. Consolidated
Statements of Income (Unaudited)
Three
Months Ended Six Months Ended April 1, April 2, April 1, April 2,
2017 2016 % Chg. 2017 2016 % Chg. Net sales $ 15,225,876 $
14,852,629 3 % $ 30,448,505 $ 36,304,811 -16 % Cost of goods sold
9,365,049 9,661,793 -3 %
19,021,175 25,630,674 -26 % Gross profit
5,860,827 5,190,836 13 % 11,427,330 10,674,137 7 % 38.5 % 34.9 %
37.5 % 29.4 % Selling and marketing expenses 2,729,712
2,618,800 4 % 5,363,018 5,146,132 4 % Research and development
expenses 282,551 275,220 3 % 538,381 569,164 -5 % General and
administrative expenses 1,445,499 1,136,626
27 % 2,731,626 2,242,196 22 %
4,457,762 4,030,646 11 % 8,633,025 7,957,492 8 % Operating
income 1,403,065 1,160,190 21 % 2,794,305 2,716,645 3 % 9.2 % 7.8 %
9.2 % 7.5 % Non-operating income (expense): Foreign currency (loss)
gain (7,066 ) (49,917 ) 86 % 28,093 67,435 -58 % Interest expense -
(60 ) 100 % - (5,144 ) 100 % Gain from insurance policies 731,623 -
n/a 731,623 - n/a Other 12,853 (3,464 ) 471 %
11,346 (7,435 ) 253 % Net non-operating income
(expense) 737,410 (53,441 ) 1480 % 771,062 54,856 1306 %
Income before income taxes 2,140,475 1,106,749 93 % 3,565,367
2,771,501 29 % Income taxes 427,000
349,000 22 % 889,000 871,000 2 %
Net income $ 1,713,475 $ 757,749 126 % $ 2,676,367
$ 1,900,501 41 % 11.3 % 5.1 % 8.8 % 5.2 % Net
income per common share: Basic $ 0.62 $ 0.28 121 % $ 0.97 $ 0.70 39
% Diluted 0.62 0.28 121 % 0.97 0.69 41 % Dividends per
common share $ 0.16 $ 0.16 0 % $ 0.32 $ 0.32 0 % Weighted
average shares outstanding: Basic 2,755,625 2,728,633 1 % 2,755,625
2,727,380 1 % Diluted 2,774,408 2,755,109 1 % 2,772,477 2,753,490 1
% Supplemental data: Depreciation expense $ 185,691 $
220,808 -16 % $ 365,684 $ 427,689 -14 % Amortization expense 78,797
78,659 0 % 159,126 158,733 0 %
SPAN-AMERICA MEDICAL SYSTEMS, INC. Consolidated Balance
Sheets April 1, October 1, 2017 2016 (Unaudited) (Note)
Assets Current assets: Cash and cash equivalents $ 7,273,691
$ 3,752,945 Accounts receivable, net of allowances 7,434,230
8,079,500 Inventories 7,370,775 7,437,442 Deferred income taxes -
459,159 Prepaid expenses 1,482,097 879,108
Total current assets 23,560,793 20,608,154 Property
and equipment, net 4,058,844 4,116,070 Goodwill 3,909,945 3,937,676
Intangibles, net 1,862,297 1,989,899 Other assets 266,026 2,909,740
Deferred tax asset 242,000 - $
33,899,905 $ 33,561,539
Liabilities and
Shareholders' Equity Current liabilities: Accounts payable $
2,497,838 $ 2,410,376 Accrued and sundry liabilities
2,436,472 3,583,457 Total current liabilities
4,934,310 5,993,833 Deferred tax liability 48,873 266,715
Deferred compensation 245,174 289,394
Total long-term liabilities 294,047 556,109
Total liabilities 5,228,357 6,549,942
Shareholders' equity: Common stock, no par value, 20,000,000 shares
authorized; issued and outstanding shares 2,755,625 April 1, 2017
and October 1, 2016 373,803 373,803 Additional paid-in capital
6,025 6,025 Retained earnings 30,928,313 29,133,746 Accumulated
other comprehensive loss (2,636,593 ) (2,501,977 )
Total shareholders' equity 28,671,548
27,011,597 $ 33,899,905 $ 33,561,539
Note: The Balance Sheet at October 1, 2016 has been
derived from the audited financial statements at that date.
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Span-America Medical Systems, Inc.Jim Ferguson, 864-288-8877,
ext. 6912President and Chief Executive Officer
Span America (NASDAQ:SPAN)
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