SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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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 December 30, 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.
(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
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (803) 288-8877
Not Applicable
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 class
of common stock, as of the latest practical date.
Common Stock, No Par Value - 3,221,213 shares as of 2/2/96
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<PAGE>
INDEX
SPAN-AMERICA MEDICAL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - December 30, 1995 and
September 30, 1995...........................................3
Statements of Income - Three months ended
December 30, 1995 and December 31, 1994..................4
Statements of Cash Flows - Three months ended
December 30, 1995 and December 31, 1994..................5
Notes to Financial Statements - December 30, 1995...........6
Item 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations...8
PART II. OTHER INFORMATION.........................................11
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..........................................................12
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SPAN-AMERICA MEDICAL SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, September 30,
1995 1995
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 875,692 $ 1,242,396
Securities available for sale 3,180,069 2,876,449
Accounts receivable, net of allowances of
$392,000 at December 30, 1995 and
$355,000 at September 30, 1995 4,059,988 4,446,913
Inventories - Note B 3,107,290 2,800,896
Prepaid expenses and other 183,023 221,929
---------- ----------
Total Current Assets 11,406,062 11,588,583
Property and Equipment, net - Note C 5,392,086 5,457,350
Costs in excess of fair value of net assets
acquired, net of accumulated
amortization of $190,630, at December 30, 1995 and
$172,383 at September 30, 1995 1,909,708 1,691,197
Other Assets - Note D 1,962,578 1,876,573
---------- ----------
$20,670,434 $20,613,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,561,014 $ 1,651,796
Accrued and sundry liabilities 1,003,152 1,325,334
Current portion of long-term debt 70,375 70,375
---------- ----------
Total Current Liabilities 2,634,541 3,047,505
Long-term Debt, less current portion 268,750 286,344
Deferred Income Taxes and Compensation 1,878,305 1,844,517
Shareholders' Equity
Common Stock, no par value, 20,000,000 shares
authorized; issued and
outstanding 3,225,608 shares at December 30, 1995
and 3,175,437 shares at September 30, 1995 4,461,878 4,225,122
Additional paid-in capital 145,834 145,834
Retained earnings 11,620,251 11,421,100
---------- ----------
16,227,963 15,792,056
Less guaranteed ESOP obligation 339,125 356,719
---------- ----------
Total Shareholders' Equity 15,888,838 15,435,337
---------- ----------
$20,670,434 $20,613,703
</TABLE>
Note: The Balance Sheet at September 30, 1995 has been derived from
the audited financial statements at that date.
See Notes to Financial Statements.
3
<PAGE>
SPAN-AMERICA MEDICAL SYSTEMS, INC.
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
Dec. 30, Dec. 31,
1995 1994
Net Sales $7,049,185 $6,908,834
Cost of Goods Sold 4,956,491 4,928,439
---------- ----------
Gross Profit 2,092,694 1,980,395
Selling and Marketing
Expenses 1,111,834 1,167,117
General & Administrative Expenses 615,506 634,581
---------- ----------
Income from Operations 365,354 178,697
Other (expense) Income:
Interest Expense (7,988)
Investment Income
and Other 90,426 63,920
---------- ----------
82,438 63,920
---------- ----------
INCOME BEFORE INCOME TAXES 447,792 242,617
Provision For Income Taxes 168,000 90,300
----------- ----------
NET INCOME $ 279,792 $ 152,317
========== ==========
Earnings Per Share of
Common Stock - Note F $ .09 $ .05
========== ==========
Dividends Per Common Share $ .025 $ .025
========== ==========
Weighted Average Shares Outstanding 3,205,209 3,249,807
========== ==========
See Notes to Financial Statements.
4
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SPAN-AMERICA MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
Dec. 30, Dec. 30,
1995 1994
---------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $279,792 $152,317
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 254,888 272,302
Provision for losses on accounts receivable 38,000
Loss on disposal of property, plant
and equipment 10,636 16,091
Increase in cash value of life insurance (36,029) (71,006)
Deferred compensation 33,787 6,980
Changes in operating assets and liabilities:
Accounts receivable 344,165 (85,509)
Inventory (306,394) 159,057
Prepaid expenses and other current assets (14,564) (6,209)
Accounts payable and accrued expenses (412,967) (466,283)
-------- ----------
NET CASH PROVIDED BY/(USED FOR) OPERATING ACTIVITIES 191,314 (22,260)
INVESTING ACTIVITIES
Purchases of marketable securities (800,000)
Proceeds from the sale of marketable securities 499,868
Purchases of property, plant and equipment (141,316) (41,035)
Proceeds from sale of property, plant and equipment 60,000
Payments for other assets (35,929) (12,780)
---------- --------
NET CASH (USED FOR)/PROVIDED BY INVESTING ACTIVITIES (477,377) 6,185
FINANCING ACTIVITIES
Dividends paid (80,641) (81,618)
--------- ----------
NET CASH (USED FOR) FINANCING ACTIVITIES (80,641) (81,618)
--------- ----------
(DECREASE) IN CASH AND CASH EQUIVALENTS (366,704) (97,693)
Cash and cash equivalents at beginning of period 1,242,396 1,557,542
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $875,692 $1,459,849
========== ==========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
SPAN-AMERICA MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
December 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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 month period ended December 30, 1995
are not necessarily indicative of the results that may be expected for the year
ended September 28, 1996. For further information, refer to the Company's Annual
Report on Form 10-K for the year ended September 30, 1995.
NOTE B - INVENTORIES
The components of inventories are as follows:
December 30, September 30,
1995 1995
Raw Materials $2,476,786 $2,140,095
Work in Process 56,101 17,513
Finished Goods 574,403 643,288
--------- ----------
$3,107,290 $2,800,896
========== ==========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment, at cost, is summarized by major classification as
follows:
December 30, September 30
1995 1995
Land $ 317,343 $ 317,343
Land Improvements 240,016 240,016
Buildings 3,622,455 3,613,216
Machinery & Equipment 8,138,474 8,047,499
Furniture & Fixtures 601,467 591,024
Automobiles 9,520 9,520
Leasehold Improvements 92,420 92,420
---------- ----------
13,021,695 12,911,038
Less Accumulated Depreciation 7,629,609 7,453,688
---------- ----------
$ 5,392,086 $ 5,457,350
========== ==========
6
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NOTE D - OTHER ASSETS
Other assets consist of the following:
Dec. 30, Sept. 30,
1995 1995
Patents, net of accumulated
amortization of $402,868 at
December 30, 1995 and $378,190 at
September 30, 1995 $ 695,635 $ 684,384
Cash value of life insurance
policies 1,050,785 1,014,756
Terminated contract rights,
net of accumulated amortization
of $189,982 at December 30, 1995 and
$175,368 at September 30, 1995. 102,298 116,912
Other 113,860 60,521
----------- ----------
$1,962,578 $1,876,573
========== ==========
NOTE E - 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 shares have not been included in a fully
diluted earnings per share calculation as their effect would be
anti-dilutive.
NOTE F - HEALTHFLEX CORPORATION
On September 23, 1995 Healthflex Corporation was merged with Span-America
Medical Systems, Inc.
NOTE G - SUBSEQUENT EVENT-ACQUISITION OF EMBRACING CONCEPTS, INC.
On February 8, 1996, the Company acquired the assets of Embracing Concepts,
Inc., a privately held manufacturer of therapeutic seating cushions
headquartered in Rochester, New York. The purchase price was approximately
$590,000 and was funded from the Company's existing cash reserves. In 1995,
Embracing Concepts had annual sales of approximately $440,000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1996 increased by
2% to $7.0 million compared to $6.9 million in the first quarter of fiscal
1995. The sales increase came primarily from the medical segment of the
business. Net income for the first quarter of fiscal 1996 increased by 84%
to $280,000 ($.09 per share) from $152,000 ($.05 per share) in the first quarter
of fiscal 1995. The increase in net income resulted from the combination of
higher medical sales and lower selling expenses during the first quarter of
fiscal 1996 than in the first quarter of 1995.
The Company's medical sales increased by 9% to $3.5 million in the
first quarter this year from $3.2 million in the same quarter last year due
mainly to an increase in unit sales of foam products and dynamic mattresses.
Management expects that sales of medical products will be higher in fiscal
1996 than in fiscal 1995.
Sales of consumer products during the first quarter rose by 6% to $1.3
million from $1.2 million in the same period last year. Most of the increase was
due to higher unit sales volume of consumer foam mattress pads. Management
expects that consumer foam sales will increase during the next two quarters of
fiscal 1996 primarily due to higher sales of TerryFoam products.
Contract packaging sales decreased 8% to $1.5 million from $1.6 million
in the first quarter of fiscal 1996 due to a lower volume of consumer contract
packaging products. Management expects that contract packaging sales will be
slightly higher in fiscal 1996 compared to fiscal 1995.
Industrial foam product sales decreased by 12% in the first quarter of
fiscal 1996 to $715,000 from $812,000 in the same quarter last fiscal year. The
decrease was primarily the result of lower sales to an existing customer.
Industrial foam sales in fiscal 1996 are expected to be slightly higher than
in fiscal 1995.
The Company's gross profit increased by 6% to $2.1 million in the first
quarter of fiscal 1996 from $2.0 million in the first quarter last year. In
addition, the gross profit margin percentage increased to 29.7% from 28.7%. The
increases in gross profit level and gross margin percent were due to the higher
sales volume during the first quarter of fiscal 1996 and to lower
manufacturing costs in the consumer and contract packaging segments. Management
expects that the Company's gross margin percentage for
8
<PAGE>
fiscal 1996 will be slightly higher than that of fiscal 1995.
Sales and marketing expenses decreased by $55,000 (5%) to $1.1 million
in the first quarter of fiscal 1996 compared to the same quarter last year. The
decrease was due primarily to lower selling expenses in the medical segment.
Total sales and marketing expenses for fiscal 1996 are expected to be slightly
higher than those of fiscal 1995.
General and administrative expenses decreased by $19,000 (3%) in the
first quarter of fiscal 1996 compared to the first quarter of fiscal 1995.
General and administrative expenses for the full 1996 fiscal year are expected
to be slightly higher than those of fiscal 1995.
Non-operating income increased by 41% to $90,000 in the first quarter of fiscal
1996 as compared to $64,000 in the same quarter last year. The majority of the
increase was due to higher interest income from investments and to higher
royalty income received on sales of a patented syringe licensed to Becton
Dickinson. Management expects non-operating income to increase slightly in
fiscal 1996.
During the first quarter of fiscal 1996, the Company paid
dividends of $81,000, or 29% of net income. This payment represented one
quarterly dividend of $.025 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of approximately $191,000
during the first quarter of fiscal 1996. In addition, working capital expanded
by $230,000 or 3%, during the three months ended December 30, 1995. The increase
in working capital was caused primarily by lower accrued liabilities. The
Company's current ratio increased to 4.3 at December 30, 1995 from 3.8 at fiscal
year end 1995.
Accounts receivable, net of allowances, declined 8% to $4.1 million at
the end of the first quarter of 1996 as compared to $4.5 million at the end of
fiscal 1995. All of the Company's accounts receivable are unsecured.
Inventories increased by $306,000, or 11%, during the first quarter of
fiscal 1996 to $3.1 million. The increase reflects normal monthly fluctuations
in raw material and finished goods inventories. Management expects a slight
decrease in inventory levels during fiscal 1996.
Net property and equipment decreased by $65,000, or 1%, during
9
<PAGE>
the first three months of fiscal 1996. The change resulted primarily from normal
depreciation expense and capital expenditures. Management expects that capital
expenditures during fiscal 1996 will be higher than those of fiscal 1995.
Goodwill, net of accumulated amortization, increased by $219,000. The
change was primarily due to the Company's issuance in October of 50,171 shares
of its common stock at an approximate market value of $237,000 as additional
purchase price pursuant to the agreement by which the Company acquired
Healthflex in February 1992. Other assets increased slightly to $2.0 million as
compared to $1.9 million at fiscal year end 1995.
The Company's trade accounts payable declined by $91,000 or 5% as
compared to fiscal year end 1995. Accrued and sundry liabilities declined by
$322,000 or 24% because of declines in accrued compensation and property tax
expense.
IMPACT OF INFLATION
Inflation was not a significant factor for the Company during the first
quarter of fiscal 1996. 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.
On February 8, 1996, the Company acquired the assets of Embracing
Concepts, Inc., a privately held manufacturer of therapeutic seating cushions
headquartered in Rochester, New York. The purchase price was approximately
$590,000 and was funded from the Company's existing cash reserves. In 1995,
Embracing Concepts had annual sales of approximately $440,000.
10
<PAGE>
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, insurance arrangements, 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 financial position of the
Company.
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 8, 1996, the Company acquired the assets of Embracing Concepts,
Inc., a privately held manufacturer of therapeutic seating cushions
headquartered in Rochester, New York. The purchase price was approximately
$590,000 and was funded from the Company's existing cash reserves. In 1995,
Embracing Concepts had annual sales of approximately $440,000.
ITEM 6. Exhibits & Reports on Form 8-K
(a) None
(b) None
11
<PAGE>
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: February 12, 1996
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1995
<PERIOD-END> DEC-30-1995
<CASH> 876
<SECURITIES> 3,180
<RECEIVABLES> 4,452
<ALLOWANCES> 392
<INVENTORY> 3,107
<CURRENT-ASSETS> 11,406
<PP&E> 13,022
<DEPRECIATION> 7,630
<TOTAL-ASSETS> 20,670
<CURRENT-LIABILITIES> 2,635
<BONDS> 0
0
0
<COMMON> 4,461
<OTHER-SE> 11,427
<TOTAL-LIABILITY-AND-EQUITY> 20,670
<SALES> 7,049
<TOTAL-REVENUES> 7,140
<CGS> 4,956
<TOTAL-COSTS> 6,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 448
<INCOME-TAX> 168
<INCOME-CONTINUING> 280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
