<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------------------------------
FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 1995.
OR
TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
/ / THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to .
--------- --------
Commission File Number 0-11392
SPAN-AMERICA MEDICAL SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
South Carolina 57-0525804
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
70 Commerce Center
Greenville, South Carolina 29615
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (803) 288-8877
Not Applicable
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's of common
stock, as of the latest practical date.
Common Stock, No Par Value - 3,271,737 shares as of May 5, 1995
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<PAGE> 2
INDEX
SPAN-AMERICA MEDICAL SYSTEMS, INC.
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
- - - - - - -------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - April 1, 1995 and
October 1, 1994................................................. 3
Consolidated Statements of Income - three and six months
ended April 1, 1995 and April 2, 1994........................... 4
Consolidated Statements of Cash Flows - six months ended
April 1, 1995 and April 2, 1994................................. 5
Notes to Consolidated Financial Statements - April 1, 1995.......... 6
Item 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations.............. 9
PART II. OTHER INFORMATION.............................................. 13
- - - - - - ---------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES............................................................... 14
- - - - - - ----------
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SPAN-AMERICA MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 1, OCTOBER 1,
1995 1994
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 1,467,064 $ 1,557,542
Marketable securities 2,076,697 1,956,039
Accounts receivable, net of allowances of $363,000 at
April 1, 1995 and $341,500 at October 1, 1994 4,747,950 3,909,025
Inventories - Note B 2,460,580 2,722,976
Prepaid expenses and other 257,887 327,981
----------- -----------
Total Current Assets 11,010,178 10,473,563
Property and equipment, Net - Note C 5,861,207 6,251,133
Costs in excess of fair value of net assets acquired,
net of accumulated amortization of $140,373 at April 1,
1995 and $109,006 at October 1, 1994 1,723,207 1,543,723
Other assets - Note D 1,765,528 1,745,646
----------- -----------
$20,360,120 $20,014,065
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,744,642 $ 1,724,891
Accrued and sundry liabilities 933,411 1,026,307
Current portion of long-term debt 70,375 70,375
----------- -----------
Total Current Liabilities 2,748,428 2,821,573
Long-term Debt, less current portion 321,531 356,719
Deferred Income Taxes 773,000 773,000
Deferred Compensation 1,175,312 1,143,493
Shareholders' Equity
Common Stock, no par value, 20,000,000 shares
authorized; issued and outstanding 3,271,737 shares at
April 1, 1995 and 3,226,997 shares at October 1, 1994 4,679,657 4,432,931
Additional paid-in capital 145,834 145,834
Retained Earnings 10,908,264 10,767,609
----------- -----------
15,733,755 15,346,374
Less guaranteed ESOP obligation 391,906 427,094
----------- -----------
Total Shareholder's Equity 15,341,849 14,919,280
----------- -----------
$20,360,120 $20,014,065
=========== ===========
</TABLE>
Note: The Balance Sheet at October 1, 1994 has been derived from the audited
financial statements at that date.
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
SPAN-AMERICA MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 1, April 2, April 1, April 2,
1995 1994 1995 1994
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 7,725,672 $8,132,576 $14,634,506 $15,850,418
Cost of Goods Sold 5,722,903 5,725,291 10,651,342 11,021,536
----------- ---------- ----------- -----------
Gross Profit 2,002,769 2,407,285 3,983,164 4,828,882
Selling and Marketing
Expenses 1,168,469 1,012,291 2,335,586 1,947,343
General and Administrative
Expenses 662,243 715,541 1,296,824 1,366,160
----------- ---------- ----------- -----------
Income from Operations 172,057 679,453 350,754 1,515,379
Other (expense)/ income:
Interest expense (8,826) (18,203)
Investment income and other 72,393 59,367 136,313 127,895
----------- ---------- ----------- -----------
72,393 50,541 136,313 109,692
----------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 244,450 729,994 487,067 1,625,071
Provision For Income Taxes-
Note E 92,700 278,000 183,000 618,000
----------- ---------- ----------- -----------
NET INCOME $ 151,750 $ 451,994 $ 304,067 $ 1,007,071
=========== ========== =========== ===========
Earnings Per Common Share -
Note F $ .05 $ .13 $ .09 $ .29
Dividends per Common Share $ .025 $ .025 $ .05 $ .05
Weighted Average Shares
Outstanding 3,268,737 3,453,107 3,259,272 3,470,321
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
SPAN-AMERICA MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
April 1, April 2,
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 304,067 $1,007,071
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 547,824 548,839
Provision for losses on accounts receivable 23,750 67,750
Loss on sale and disposal of property,
plant and equipment 27,854
Gain on sale of other assets (3,640)
Increase in cash value of life insurance (91,005) (52,267)
Deferred compensation 31,819 (51,293)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (875,791) (303,034)
Decrease (Increase) in inventory 262,396 (668,357)
Decrease (Increase) in prepaid
expenses and other current assets 125,847 (114,064)
(Decrease) Increase in accounts
payable and accrued expenses (73,145) 82,473
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 279,976 517,118
INVESTING ACTIVITIES
Purchases of marketable securities (107,542)
Purchases of property,plant and equipment (140,706) (97,255)
Proceeds from sale of property, plant and
equipment 63,000
Payments for other assets (25,544) (23,670)
Proceeds from sale of other assets 3,750
---------- ----------
NET CASH (USED FOR) INVESTING ACTIVITIES (207,042) (120,925)
FINANCING ACTIVITIES
Principal payments on long-term debt (161,657)
Dividends paid (163,412) (174,050)
Payment of note payable (73,956)
Purchase and retirement of Common Stock (553,800)
---------- ----------
NET CASH (USED FOR) FINANCING ACTIVITIES (163,412) (963,463)
---------- ----------
(DECREASE) IN CASH AND CASH EQUIVALENTS (90,478) (567,270)
Cash and cash equivalents at beginning
of period 1,557,542 2,226,912
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $1,467,064 $1,659,642
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
SPAN-AMERICA MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 1, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six
months periods ended April 1, 1995 are not necessarily indicative of the
results that may be expected for the year ended September 30, 1995. For
further information, refer to the Company's annual report on Form 10-K for the
year ended October 1, 1994.
NOTE B - INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
April 1, October 1,
1995 1994
---------- ----------
<S> <C> <C>
Raw Materials $1,853,522 $1,633,937
Work in Process 19,754 18,454
Finished Goods 587,304 1,070,585
---------- ----------
$2,460,580 $2,722,976
========== ==========
</TABLE>
6
<PAGE> 7
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment, at cost, is summarized by major classification as
follows:
<TABLE>
<CAPTION>
April 1, October 1,
1995 1994
----------- -----------
<S> <C> <C>
Land $ 317,343 $ 317,343
Land Improvements 240,016 240,016
Buildings 3,613,216 3,613,216
Machinery & Equipment 7,994,973 8,042,247
Furniture & Fixtures 583,787 577,168
Automobiles 9,520 9,520
Leasehold Improvements 92,420 88,001
----------- -----------
12,851,275 12,887,511
Less Accumulated Depreciation 6,990,068 6,636,378
----------- -----------
$ 5,861,207 $ 6,251,133
=========== ===========
</TABLE>
NOTE D - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
April 1, October 1,
1995 1994
---------- ----------
<S> <C> <C>
Patents and trademarks, net of accumulated
amortization of $330,319 at April 1, 1995 and
$283,830 at October 1, 1994 $ 702,019 $ 723,769
Cash value of life insurance policies 870,021 779,016
Terminated contract rights, net of accumulated
amortization of $146,140 at April 1, 1995 and
$116,912 at October 1, 1994. 146,140 175,368
Other 47,348 67,493
---------- ----------
$1,765,528 $1,745,646
========== ==========
</TABLE>
7
<PAGE> 8
NOTE E - INCOME TAXES
The provision for income taxes is based on the Company's estimate of the
taxes expected to be due for the full fiscal year.
NOTE F - EARNINGS PER COMMON SHARE
Earnings per common share are computed using the weighted average number of
shares outstanding. The effect of common stock equivalents on earnings per
share is not material. Future contingent shares have not been included in a
fully diluted earnings per share calculation as their effect would be
anti-dilutive.
NOTE G - FAIR VALUE DISCLOSURES
In December 1991 the Financial Accounting Standards Board (FASB) issued
Statement No. 107, "Disclosure about Fair Value of Financial Instruments."
Companies with less than $150 million in total assets are required to provide
the disclosures for fiscal years ending after December 15, 1995. Accordingly,
the Company would be required to adopt this Statement no later than its 1996
fiscal year. Early adoption of this Statement is permitted. The Company
presently does not intend to implement this statement early.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the second quarter of fiscal 1995 declined to $7.7 million
(5%) compared to $8.1 million in the second quarter of fiscal 1994. For the
year to date in fiscal 1995, net sales fell 8% to $14.6 million from $15.9
million in the same period last year. The sales decrease for the second
quarter resulted mainly from lower unit sales of contract packaging products.
The decline in year-to-date sales was mainly attributable to lower unit and
dollar volume of the Company's health care foam overlay products. Net income
for the second quarter of 1995 was $151,750 ($.05 per share) compared to net
income of $452,000 ($.13 per share) during the same period in 1994. The second
quarter earnings brought year-to-date net income for fiscal 1995 to $304,000
($.09 per share) as compared to $1,007,000 ($.29 per share) in fiscal 1994. The
decrease in net income resulted from the combination of lower health care foam
sales and higher selling expenses during the first two quarters of fiscal 1995.
The Company's health care foam sales decreased by 5% to $3.3 million in
the second quarter this year from $3.4 million in the same quarter last year
due mainly to a decline in unit sales of foam overlays. For the year to date
in fiscal 1995, health care foam sales decreased by 20% to $6.5 million from
$8.2 million in the same period last year for the same reason. Management
expects that sales of health care foam overlay products will decline slightly
during the remainder of fiscal 1995. However, sales of other health care
products are expected to increase, offsetting the majority of the expected
declines in foam overlay sales.
Sales of the Company's health care foam products to Baxter Healthcare
Corporation, one of the Company's largest customers, have been impacted during
the last four quarters by Baxter's decision in February 1994 to begin carrying
a competing line of foam products. Baxter continues to carry the Company's
health care foam products, but not on an exclusive basis as they did prior to
February 1994. The Company's sales to Baxter are expected to continue at
current levels during the remainder of fiscal 1995. During the last year, the
Company has been successful in establishing
9
<PAGE> 10
relationships with other national and regional distributors. Sales of health
care products to these new customers during the remainder of fiscal 1995 are
expected to be higher than the comparable periods last year.
Sales of consumer foam products rose during the second quarter by 10% to
$2.2 million from $2.0 million in the same period last year while year to date
sales increased 27% to $3.5 million from $2.7 million. Most of the increase
was due to higher unit sales volume of consumer foam mattress pads. Management
expects that consumer foam sales will be higher in fiscal 1995 as compared to
fiscal 1994.
Industrial foam sales increased by 31% in the second quarter of fiscal
1995 to $805,000 from $613,000 in the same quarter last fiscal year. For the
year to date, industrial sales rose 38% to $1.6 million from $1.2 million in
fiscal 1994. The second quarter and year to date increase was primarily the
result of higher sales to existing customers. Industrial foam sales in fiscal
1995 are expected to be higher than in fiscal 1994.
Contract packaging sales decreased 31% to $1.4 million from $2.0 million
in the second quarter of fiscal 1995 due to a lower volume of health care and
consumer contract packaging products. Year to date contract packaging sales
decreased 19% in 1995 to $3.0 million from $3.8 million in the same period in
1994. Management expects that contract packaging sales will be similar in
fiscal 1995 to those in fiscal 1994.
The Company's gross profit declined approximately 17% to $2.0 for the
second quarter of 1995 from $2.4 million in the second quarter of fiscal 1994.
The gross margin percentage for the second quarter of fiscal 1995 decreased to
26% from 30% in the second quarter last year. Year-to-date gross profit
decreased by 18% to $4.0 million in the first six months of this fiscal year
from $4.8 million for the same period last year. The year-to-date gross margin
percentage decreased to 27% from 30% last year. The decreases in gross profit
level and margin were due to lower sales volume during the first two quarters
of fiscal 1995 and to a less profitable product mix as consumer foam products
represented a larger portion of total sales than in the same two quarters of
1994. Management expects the Company's gross margin percentage for fiscal 1995
to be lower than that of fiscal 1994.
10
<PAGE> 11
Sales and marketing expenses increased by 15% to $1.2 million in the second
quarter of fiscal 1995 compared to $1.0 million in the same quarter last year.
For the year to date in fiscal 1995, these expenses increased by 20% to $2.3
million as compared to $1.9 million in the same period last year. The majority
of the increase in sales and marketing expenses occurred in the medical foam
portion of the business and was the result of the Company's change from using a
single exclusive distributor to using multiple national distributors to sell
its health care foam products. Total sales and marketing expenses for the full
1995 fiscal year are expected to be higher than those of fiscal 1994.
General and administrative expenses declined by 7% for the second quarter of
fiscal 1995 to $662,000 as compared to $716,000 in the second fiscal quarter of
last year. Fiscal 1995 year to date general and administrative expenses
decreased by $69,000 or 5% to $1.3 million compared to the first six months of
fiscal 1994. General and administrative expenses for the full 1995 fiscal year
are expected to be slightly lower than in fiscal 1994.
The Company had no interest expense in the first two quarters of 1995 as
compared to $18,000 during the first two quarters of fiscal 1994. The decline
was the result of scheduled long-term debt repayments during the 1994 fiscal
year. The Company made the final scheduled payment of its remaining industrial
revenue bond debt in 1994. The remaining long-term bank debt is related to the
Company's Employee Stock Ownership Plan.
During the first six months of fiscal 1995, the Company paid dividends of
$163,400, or 54% of net income for the period. This amount represented two
quarterly dividends of $.025 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $280,000 during the first six
months of fiscal 1995, which was used to fund its investing and financing
activities. The Company's working capital increased by $610,000 or 8% during
the six months ended April 1, 1995. The change was caused primarily by
increases in accounts receivable which were partially offset by a decline in
inventories during fiscal 1995. The Company's current ratio increased to 4.0
at April 1, 1995 from 3.7 at fiscal year end 1994.
11
<PAGE> 12
Accounts receivable, net of allowances, increased by $839,000 (21%) to $4.7
million as a result of a higher sales level in March as the Company is at the
peak of it's TerryFoam season. Accounts receivable from TerryFoam sales have a
longer collection time than the Company's other product lines. Also,
collection times for medical sales are increasing due to increased sales to
home health care dealers. All of the Company's accounts receivable are
unsecured.
Inventory, net of reserves, declined by $262,000, or 10%, during the first two
quarters of fiscal 1995 to $2.5 million. The decrease reflects normal monthly
fluctuations in raw material and finished goods inventory. Management expects
a slight increase in inventory levels during the remainder of fiscal 1995.
Net property and equipment decreased by $390,000 or 6%, during the first six
months of fiscal 1995. The change resulted primarily from normal depreciation
expense. Management expects that capital expenditures during fiscal 1995 will
be slightly less than those in fiscal 1994.
Other non-current assets rose by $20,000 during the first half of fiscal 1995.
The majority of the change was due to an increase in the cash surrender value
of life insurance policies.
Costs in excess of the fair value of net assets acquired, net of accumulated
amortization increased by approximately $180,000. The change was primarily due
to the Company's issuance in November 1994 of 37,740 shares of its common stock
at an approximate market value of $211,000 as an additional purchase price
pursuant to the agreement by which the Company acquired Healthflex in February
1992.
The Company's trade accounts payable increased by $20,000 during the first two
quarters of fiscal 1995 while accrued and sundry liabilities decreased by
$93,000 (9%). The decrease in accrued liabilities was mainly the result of
reductions in income tax payable and accrued incentive compensation during
fiscal 1995.
IMPACT OF INFLATION
Inflation was not a significant factor for the Company during the first two
quarters of fiscal 1995. Higher inflation rates could impact the Company
through higher raw material costs. The Company's profit margin could be
adversely affected to the extent that the Company is unable to pass along to
its customers any increased costs.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company and its subsidiary are from time to time parties to
various legal actions arising in the normal course of business.
However, management believes that as a result of legal defenses and
insurance arrangements, and indemnification provisions with parties
believed to be financially capable, there are no proceedings
threatened or pending against the Company that, if determined
adversely, would have a material adverse effect on the business or
the Company's operations or financial position.
ITEM. 2. Changes in Securities -
None
ITEM 3. Defaults Upon Senior Securities -
None
ITEM 4. Submission of Matters to a Vote of Security Holders -
None
ITEM 5. Other Information
On February 10, 1995, the Company reported that it signed a
non-binding letter of intent to acquire B.G. Industries, Inc., a
privately held manufacturer of therapeutic replacement mattresses.
On March 9, 1995, the Company announced that its negotiations to
acquire B.G. Industries had been terminated by mutual agreement
between both companies.
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (For SEC use only)
(b) None.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
/s/ Richard C. Coggins
----------------------------
Richard C. Coggins
Vice President - Finance
/s/ Charles B. Mitchell
-----------------------------
Charles B. Mitchell
President and Chief Executive
Officer
DATE: May 12, 1995
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SPAN-AMERICA MEDICAL SYSTEMS, INC. FOR THE SIX MONTHS
ENDED APRIL 1, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> APR-01-1995
<CASH> 1,467
<SECURITIES> 2,077
<RECEIVABLES> 5,111
<ALLOWANCES> 363
<INVENTORY> 2,461
<CURRENT-ASSETS> 11,010
<PP&E> 12,851
<DEPRECIATION> 6,990
<TOTAL-ASSETS> 20,360
<CURRENT-LIABILITIES> 2,748
<BONDS> 0
<COMMON> 4,680
0
0
<OTHER-SE> 10,662
<TOTAL-LIABILITY-AND-EQUITY> 20,360
<SALES> 14,635
<TOTAL-REVENUES> 14,771
<CGS> 10,651
<TOTAL-COSTS> 14,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 487
<INCOME-TAX> 183
<INCOME-CONTINUING> 304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 304
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
