Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended September 27, 1997
OR
[ ] TRANSITION 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 No.)
70 Commerce Center
Greenville, South Carolina 29615
(Address of principal executive offices)
Registrant's telephone number, including area code: (864) 288-8877
-------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- ----------------------------------------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
- ------------------------------------------
Common Stock, no par value
- ------------------------------------------------------------------------------
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 period 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant computed by reference to the last price at which the stock was
sold on December 17, 1997 was $19,375,098.
The number of shares of the registrant's common stock, no par value,
outstanding as of December 15, 1997 was 3,097,838.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Shareholders are incorporated by
reference into Parts I and II, and portions of the Company's Definitive Proxy
Statement for the annual shareholder's meeting to be held February 3, 1998 are
incorporated by reference into Part III.
- ------------------------------------------------------------------------------
PART I
Item 1. Business
BACKGROUND
Span-America Medical Systems, Inc. (the "Company" or "Span-America"),
was incorporated under the laws of the state of South Carolina on September 21,
1970. The Company manufactures and distributes a variety of polyurethane foam
products and contract packaging products for the medical, consumer and
industrial markets.
Span-America commenced operations in 1975 as a manufacturer of
polyurethane foam patient positioners. During the next several years, the
Company expanded its product lines to produce lapidus (flat foam) and convoluted
foam mattress overlays for the wound care market. Wound care products aid in the
treatment or prevention of decubitus ulcers, commonly known as bed sores or
pressure ulcers. In the late 1970's the Company also began producing foam
products for industrial applications, primarily to utilize excess manufacturing
capacity. In 1985, the Company introduced its patented Geo-Matt mattress overlay
in the health care market which became the Company's leading product. At the
same time, the Company began selling its mattress overlay products to the
consumer market segment. Span-America's foam products (including replacement
mattresses described below) made up approximately 81% of the Company's total net
sales in fiscal 1997.
To diversify its operations and to capitalize upon its familiarity and
contacts within the health care industry, Span-America entered the contract
packaging business in 1987. These initial contract packaging operations were
based on a three-year commitment to supply Baxter Healthcare Corporation
("Baxter") with all of its contract packaging requirements. This agreement
expired during the first quarter of fiscal 1991. The Company currently provides
contract packaging services to a variety of customers throughout the United
States. During fiscal 1997, contract packaging products accounted for
approximately 19% of total net sales.
The Company entered the replacement mattress segment of the pressure
ulcer care market in fiscal 1992 through the acquisition of Healthflex, Inc. The
Company is currently marketing the PressureGuard line of replacement mattresses
directly to hospitals, long-term care facilities, and home health care dealers.
The Company's long-term strategy is to become a leading health care
manufacturer specializing in wound care products used
1
in the prevention and treatment of pressure ulcers. A majority of the Company's
medical products are currently directed toward wound care applications, and the
Company is actively seeking to develop or acquire new products which are in this
market segment. The Company also seeks to further develop and manufacture
consumer and industrial applications of its medical products.
The Company's products are distributed primarily in the United States
and to a lesser degree in several foreign countries. Total export sales during
fiscal 1997 were approximately $1,300,000 or 4% of total net sales.
INDUSTRY SEGMENT DATA
The industry segment data included in Note 15 to the Company's audited
consolidated financial statements for the year ended September 27, 1997,
presented on pages 20 - 21 of the 1997 Annual Report is incorporated herein by
reference.
MEDICAL PRODUCTS
Span-America's principal medical products consist of support surfaces
(polyurethane foam mattress overlays, non-powered therapeutic replacement
mattresses, and powered therapeutic replacement mattresses), patient
positioners, a.nd seating products. These products are marketed to all health
care settings, including acute care hospitals, long term care facilities, and
home health care providers. The company also sells these products on a limited
basis in Canada. Sales of medical products represented 45% of sales in 1997,
1996, and 1995 respectively.
MATTRESS OVERLAYS. Span-America produces a variety of foam mattress
overlays, including convoluted and lapidus foam pads and its patented
Geo-Matt(R) overlay. Mattress overlays comprised approximately 25% of the
Company's total net sales in fiscal 1997. These products are designed to provide
patients with greater comfort and assist in treating patients suffering from
burns or pressure ulcers. Span-America's overlay products are mattress pads as
compared to complete mattresses and are marketed as less expensive alternatives
to generally higher priced air and water mattresses. The mattress overlays are
designed for single patient use.
The Geo-Matt mattress overlay, which was introduced in 1985, represents
the Company's single largest product in terms of revenues. Geo-Matt was designed
in conjunction with clinical studies performed by the Institute for
Rehabilitation and Research at the Baylor College of Medicine. The product's
patented design includes over 800 individual cells which are cut
2
to exacting tolerances on computer controlled equipment to create a
sophisticated and clinically effective mattress surface.
The Company's mattress overlays disperse body heat, increase air
circulation beneath the patient, and reduce moisture build-up in order to
prevent the development or promote the healing of pressure ulcers. Their
convoluted or geometrically contoured construction also significantly reduces
shearing faces while evenly distributes the patient's body weight, thereby
minimizing the pressure that causes ulcers.
REPLACEMENT MATTRESSES. Span-America's non-powered therapeutic
replacement mattresses (as distinguished from overlays) are of two types.
Geo-Mattress(R) products are single density or multi-layered foam mattresses
topped with the same segmented Geo-Matt surface used in the Company's overlays.
These mattresses are sold as an alternative to standard inner-spring and
all-foam mattresses found facility-wide in acute and long term care settings. A
version is also made specifically for use in home health care.
The Company's more complex non-powered replacement mattresses consist
of products from the PressureGuard(R) Series. The PressureGuard design was
acquired through the acquisition of Healthflex in February 1992. The original
design combines a polyurethane foam shell and static air cylinders to form a
replacement mattress that incorporates the comfort and pressure relieving
features of both mattress overlays and more sophisticated dynamic mattresses.
This original design, which the company later used as the basis for powered
versions (see below) was further refined via a complete technical upgrade of all
PressureGuard components in November 1997. In conjunction with this upgrade,
some models were renamed to better reflect their function.
In addition to the non-powered, static PressureGuard(R) Renew
(formerly PressureGuard II), the company also offers the PressureGuard(R) CFT.
This model incorporates patented design principles of constant force technology.
First introduced as the CustomCare mattress in June of 1995, the PressureGuard
CFT is unique in that it is a dynamic support surface that rivals very expensive
powered surfaces, yet requires no power source of any kind.
The company's powered therapeutic replacement mattresses consist of the
remaining models in the PressureGuard Series. In November 1993, the Company
received FDA 510K marketing approval for its PressureGuard(R) IV mattress
system. Building on the comfort and support of the original PressureGuard
design, PressureGuard IV was designed as a sophisticated, powered system
3
for providing pressure reduction and patient comfort, with the added ability to
turn the patient. The system was designed to automatically sense the patient's
weight and position, and to continually adjust the pressures appropriately while
slowly and quietly repositioning the patient at angles up to 30 degrees in
cycles of up to two hours. The newly upgraded version, renamed the
PressureGuard(R) TurnSelect, incorporates all of these capabilities, as well as
several additional features. Of particular note is a pendant-operated,
microprocessor-controlled motion system built into the mattress, instead of
hanging on the bed frame as a separate unit.
Another powered system in the PressureGuard line is the
PressureGuard(R) APM, a simpler but very effective alternating pressure
mattress. Originally introduced as the DynaGuard, in November 1994, the APM is
targeted primarily at the home care market. The latest addition to the
PressureGuard line, launched in November 1997, is the PressureGuard(R) Site
Select. The Site Select includes many of the features of the Turn Select,
including the built in microprocessor-controlled motion system. However, instead
of turning the patient, the Site Select is designed to give the caregiver the
ability to selectively adjust the pressure at particular body sites based on
patient need. Like the Turn Select, it is completely programmable through a
hand-held pendant. All of the powered products in the PressureGuard Series are
sold primarily through home health care equipment dealers for daily rental in
acute, long term, and home care settings. During fiscal 1997, replacement
mattresses and related products made up approximately 12% of total net sales.
PATIENT POSITIONERS. Span-America's specialty line of patient
positioners is sold primarily under the trademark Span-Aids(R). Span-Aids
accounted for approximately 11% of the Company's net sales in fiscal 1997. This
is the original product line of the Company and consists of over 300 different
foam items which aid in relieving the basic patient positioning problems of
elevation, immobilization, muscle contracture, foot drop and foot or leg
rotation. Span-Aids patient positioners hold the patient's body in
orthopedically correct positions, provide greater patient comfort and tend to
promote healing for long-term comatose patients or those with a flaccid or
immobilized condition. The positioners also aid in the prevention of pressure
ulcers by promoting more effective dispersion of pressure, heat and moisture.
Span-Aids are intended for single-patient use throughout the patient's entire
treatment program. Among the Span-Aids products presently marketed are abduction
pillows, body aligners, head supports, limb elevators and various foot and wrist
positioners.
4
Span-America's patient positioners are sold primarily to hospitals and
long-term care facilities by several national medical products distributors.
Span-Aids are believed by the Company to be one of the most effective patient
positioning devices available in the health care market, as compared to pillows,
rolled towels and other similar materials traditionally used by nursing
personnel to position immobilized patients. Span-Aids are constructed of
open-cell polyurethane foam which allows air to circulate next to the patient's
skin, thereby reducing extensive heat and moisture build-up.
Most Span-Aids body positioners are pressure packaged to reduce the
amount of storage space required by hospitals and other facilities which utilize
them. This patented packaging method reduces the package size by as much as 75%
while protecting the positioners from dust and contamination during
transportation and storage.
SEATING PRODUCTS. The final category of medical products made by
Span-America consists of seating cushions and related products that address the
needs of the patient when in the seated position. The Company's offerings can be
subdivided into three main types. Seating products made specifically as an aid
to wound healing include the ISCH-DISH(R) and SACRAL DISH(R) pressure relief
cushions. Seating products made for patient positioning and general pressure
management include the ISCH-DISH Thin and the Geo-Matt Contour cushion,
introduced in June 1997, which combines positioning aid with the Company's
proprietary Geo-Matt anti-shearing surface. Seating products designed to address
pressure management without additional positioning benefits include the Gel-T(R)
cushion and the Geo-Matt(R) and Geo-Matt(R) PRT wheelchair cushions. The Gel-T
is a gel/foam combination cushion popular with elderly patients. The Geo-Matt
and Geo-Matt PRT cushions incorporate the Geo-Matt surface.
DISTRIBUTOR RELATIONSHIP. During fiscal 1997, approximately 29% of the
Company's medical foam products were sold to Allegiance Health Care Corporation
which distributes these products to hospitals nationwide. Span-America has
maintained a distribution relationship with Allegiance (formerly Baxter) for 18
years. In September 1996, Baxter spun off its healthcare distribution and cost
management business to create Allegiance. The Company's distribution agreement
has been transferred to Allegiance, and management expects the change to have no
negative impact on the Company's sales to Allegiance.
5
CONSUMER PRODUCTS
Span-America's consumer products consist primarily of convoluted
mattress overlays and specially designed pillows for the consumer bedding
market. The Company's principal consumer mattress overlays are produced under
private labels for J.C. Penney and Target Stores. The majority of the Company's
consumer bedding products are marketed by Pillowtex, which sells the products to
department stores and mass merchandisers throughout the United States. From 1986
until 1996 the Company had an exclusive agreement with Pillowtex for the
distribution of certain of its consumer foam products. That agreement was
terminated October 31, 1996. The termination agreement provides that Pillowtex
will continue to sell the Company's products on an exclusive basis to existing
customers through October 1998. After that time, Pillowtex is free to sell
competing products to the Company's existing customers and Span-America is free
to sell its consumer products through other distributors. Management believes
its current relationship with Pillowtex is good, and does not expect the
termination of the agreement to result in reduced sales to Pillowtex in fiscal
1998. Although the Company plans to continue its present relationship with
Pillowtex indefinitely, management cannot currently predict the impact on sales
to Pillowtex in fiscal 1999 and beyond, following the end of the termination
period. See "Major Customers" for further information on Pillowtex.
In 1990, Span-America introduced its TerryFoam(R) comfort products
which are designed to be used on all types of outdoor furniture. Formerly
produced by contract manufacturers according to the Company's specifications,
these products are now manufactured by the Company. They are being sold and
distributed directly by Span-America to retailers nationwide.
Consumer products represented approximately 27% of the Company's total
net sales in fiscal 1997 as compared to 24% in 1996 and 23% in 1995.
INDUSTRIAL PRODUCTS
Span-America's industrial products consist primarily of foam packaging
and cushioning materials. The Company also produces foam products which are used
for flotation, sound insulation and gasketing purposes. The majority of these
products are made to order according to customer specifications instead of being
made to stock. To date, most of the Company's industrial sales have been in the
specialty packaging segment of the industrial foam market. The Company currently
has one full-time sales
6
representative and several manufacturers representatives selling its foam
fabrication capabilities to the industrial market. Its customers represent a
wide variety of markets, including the photographic film, durable goods,
electronics and sports equipment industries. The industrial foam segment of the
business made up approximately 10% of the Company's net sales in fiscal 1997,
10% in 1996 and 12% in 1995.
CONTRACT PACKAGING PRODUCTS
Span-America's contract packaging products are principally single-use
flexible packettes containing various chemicals which are used for cleaning,
sterilizing or lubricating purposes. Approximately 19% of the Company's fiscal
1997 sales were contract packaging products as compared to 21% in 1996 and 1995.
Contract packaging products are generally foil pouches containing a piece of
non-woven cloth which has been saturated with substances such as alcohol or
iodine. The Company markets its contract packaging capabilities principally to
large health care and pharmaceutical companies. Since the Company's main
function is that of a contract manufacturer, it primarily relies on the
distribution networks of its customers.
The Company's contract manufacturing facilities include a high quality
water filtration system, liquid/gel blending facilities and equipment which
fills flexible packettes with a variety of chemicals, powders, gels, swab sticks
and other products. Span-America utilizes high-speed horizontal and vertical
"form, fill and seal" packaging machines to produce a significant portion of the
contract packaging products. The Company also provides bottle (liquid) filling
services to its customers.
Although Span-America functions primarily as a contract manufacturer of
flexible packaging products, it also produces a line of such products under its
own Span-Care brand, consisting principally of single-use towelettes, swabs and
gels. The Company employs one sales representative and a manufacturers
representative to sell this Span-Care line to hospitals and alternate site
facilities, including long-term care facilities and home health care
distributors.
The Company also manufactures contract packaging products for the
consumer market segment. These items consist mainly of health and beauty aid
products such as towelettes, lotions and powders. Span-America acts as a
contract manufacturer of these products, blending and packaging them according
to customer specifications. They are sold and distributed by Span-America's
customers to a variety of retail outlets in the United States.
7
COMPETITION
MEDICAL. In the medical market segment, the Company faces significant
competition for sales of its foam mattress overlays. The competition for
convoluted mattress overlays is primarily based on price and delivery. For other
foam mattress overlay products (such as the Geo-Matt overlay), the competition
is based mainly on product performance and quality. However, to a lesser extent,
the competition for Geo-Matt type overlays is also based on price and delivery.
Competition with respect to the Company's Span-Aid products is primarily based
on price. However, a secondary source of competition for patient positioners
results from alternative methods such as the use of pillows and other devices to
position patients.
The Company believes that it is among the top five suppliers of foam
mattress overlays and patient positioners to the health care market. The
Company's primary competitors in the health care market include Bio Clinic
(division of Sunrise Medical), Dermacare, and Medline.
The competition in the therapeutic replacement mattress market is based
on product performance, price and durability. Potential customers typically
select a product based on these criteria after conducting a formal clinical
evaluation of sample mattresses for periods of one to six months. A secondary
source of competition results from alternative products such as mattress
overlays which are significantly less expensive than replacement mattresses.
The market for therapeutic replacement mattresses has developed
principally during the last seven years and is currently dominated by five
suppliers: BG Industries, Hill-Rom, Comfortex, DermaCare, and Bio Clinic. BG
Industries utilizes Allegiance to distribute its mattresses primarily to
hospitals. The other competitors use their own sales representatives to sell
directly to hospitals, distributors, and long-term care facilities nationwide.
Many of the Company's competitors in the health care segment are larger
and have greater resources than Span-America.
CONSUMER. In the consumer market segment, Span-America has encountered
significant competition for its mattress pad and pillow products. The
competition is principally based on price, which is largely determined by foam
density and thickness. However, competition also exists due to variations in
product design and packaging. There are presently a number of companies with the
manufacturing capability to produce similar bedding products. The Company's
primary competitors in this market are
8
Crain Industries, ER Carpenter and Foamex, all of which are larger than
Span-America.
INDUSTRIAL. The Company also has a number of competitors in the
industrial foam market, including UFP Technology, Hibco and Foam Design. Some of
these competitors are larger and have greater resources than Span-America. The
competition for industrial foam products is largely based on price. In some
instances, however, design and delivery capabilities are as important as the
price of the product.
CONTRACT PACKAGING. A significant level of competition has been
experienced in the markets into which the medical contract packaging products
are sold. This competition is based mainly on price, quality and manufacturing
capability. Many of the contract packaging products have the characteristics of
commodity products and thus can be produced at several manufacturing facilities
in the United States. The Company's chief competitors in this market are
PDI/Nice Pak, Packaging Coordinators, Paco, Marietta Packaging and Clinipad.
There is also significant competition for the Company's contract
packaging products sold in the consumer market. The main bases for this
competition are quality, capacity and breadth of manufacturing capabilities.
There are currently many companies, some larger and with greater resources than
Span-America, which have the capability to produce equivalent products.
9
MAJOR CUSTOMERS
The Company has a business relationship with Allegiance Health Care
Corporation ("Allegiance"), formerly Baxter Healthcare Corporation, to
distribute certain of its foam and contract packaging products. In fiscal 1997
sales to Allegiance amounted to approximately 13% of the Company's total net
sales and approximately 29% of the Company's sales to the medical foam segment.
Span-America also has a relationship with Pillowtex Corporation to distribute
certain of its consumer foam products. Sales to Pillowtex during fiscal 1997
made up approximately 15% of the Company's net sales and approximately 57% of
sales in the consumer foam segment. The Company has a relationship with another
customer to manufacture specific contract packaging products for the consumer
market segment. Sales to this customer comprised approximately 4% of the
Company's fiscal 1997 net sales and 23% of the contract packaging segment sales
during the same period.
The loss of any of the customers described above could have a material
adverse effect on the Company. See "Distributor Relationship" on page 5,
"Consumer Products" on page 6, and "Competition" on pages 7 and 9 for more
information on major customers.
SEASONAL TRENDS
Some seasonality can be identified in certain of the Company's medical
foam, consumer foam and contract packaging products. However, the fluctuations
have minimal effect on the Company's operations because of offsetting trends
among these product lines. Span-America has not experienced any seasonal
fluctuations in its industrial segment.
The most seasonal of the Company's products is the TerryFoam line of
chaise and chair pads. Demand for shipments of these products generally is
highest in January through April of each year as retail stores begin stocking
their summer merchandise. The impact of this seasonality on the Company will
depend largely on the volume of sales achieved for this product line. During
previous fiscal years, the seasonality of TerryFoam products has had only a
minor impact on the Company's operations.
PATENTS AND TRADEMARKS
The Company holds 36 federally registered trademarks, including
SPAN-AMERICA, SPAN-AIDS, GEO-MATT, SPAN-CARE, PRESSUREGUARD, and ISCH DISH.
Other federal registration applications are presently pending. The Company
believes that these trademarks are readily identifiable in their respective
markets and add value to the Company's product lines.
10
The Company also holds 52 United States patents and 5 foreign patents
relating to various components of its patient positioners, mattress overlays,
and replacement mattresses. Additional patent applications have been filed.
Management believes that these patents are important to the Company. However,
while the Company has a number of products covered by patents, there are
competitive alternatives available which are not covered by these patents.
Therefore, the Company does not rely solely on its patents to maintain its
competitive position in the marketplace.
Span-America's principal patents include the patents on its
PressureGuard and CustomCare replacement mattress, its Geo-Matt overlay and its
Span-Aids patient positioners. The Company's Geo-Matt and PressureGuard patents
have remaining lives of 10 and 12 years, respectively. The Company's Span-Aids
patents have remaining lives ranging from 1 to 12 years.
RAW MATERIALS AND BACKLOG
Polyurethane foam, foil packaging, various chemical solutions and
non-woven cloth account for approximately 80% of Span-America's raw materials.
In addition, the Company uses corrugated shipping cartons, polyethylene plastic
packaging material and hook-and-loop fasteners. The Company believes that its
basic raw materials are in adequate supply and are available from many suppliers
at competitive prices.
As of September 27, 1997, Span-America had unshipped orders of
approximately $2.6 million which represents a 13% increase compared to a backlog
of $2.3 million at fiscal year end 1996. All orders in the current backlog will
be filled in the 1998 fiscal year.
EMPLOYEES
On September 27, 1997, the Company had 255 full-time employees,
including 6 officers. Of these employees, 29 were executive or management
personnel, 14 were administrative and clerical personnel, 15 were sales
personnel and 191 were manufacturing employees. The Company is not a party to
any collective bargaining agreement, and has never experienced an interruption
or curtailment of operations due to labor controversy. Management believes that
its relations with its employees are good.
11
SUPERVISION AND REGULATION
The Federal Food, Drug and Cosmetic Act, and regulations issued or
proposed thereunder, provide for regulation by the Food and Drug Administration
(the "FDA") of the marketing, manufacture, labeling, packaging and distribution
of medical devices, including the Company's products. These regulations require,
among other things, that medical device manufacturers register with the FDA,
list devices manufactured by them, and file various types of reports. In
addition, the Company's manufacturing facilities are subject to periodic
inspections by regulatory authorities and must comply with "good manufacturing
practices" as required by the FDA and state regulatory authorities. The Company
believes that it is in substantial compliance with applicable regulations and
does not anticipate having to make any material expenditures as a result of FDA
or other regulatory requirements.
ENVIRONMENTAL MATTERS
The Company's manufacturing operations are subject to various
government regulations pertaining to the discharge of materials into the
environment. Span-America believes that it is in compliance with applicable
regulations. The Company does not anticipate that continued compliance will have
a material effect on the Company's capital expenditures, earnings or competitive
position.
Item 2. Properties
The Company's principal office and manufacturing facility is owned by
the Company and located in Greenville, South Carolina. This facility contains
approximately 125,000 square feet and is located on a 13 acre site. The Company
also leases approximately 60,000 square feet of warehouse space in Greenville
for $12,500 per month until the lease expires in May 1998.
The Company produces foam mattress overlays for the medical and
consumer markets in a 40,000 square foot facility in Norwalk, California. The
lease rate is $15,615 per month and expires in December 1997. Management expects
to renew this lease effective January 1, 1998.
The South Carolina and California facilities are considered suitable
and adequate for their intended purposes.
12
Item 3. Legal Proceedings
From time to time the Company is a party to various legal actions
arising in the normal course of business. However, management believes that as a
result of legal defenses and 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 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's 1997 fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
The stock price information contained under "Quarterly Financial Data"
within the table and the information set forth below the table on page 7 of the
Company's 1997 Annual Report is incorporated herein by reference. In addition,
the information under "Stock Information" on the inside back cover of the
Company's 1997 Annual Report is incorporated herein by reference.
Item 6. Selected Financial Data
The information contained in the "Selected Financial Information" on
page 6 of the Company's 1997 Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Financial Analysis
Management's Discussion and Financial Analysis on pages 8 through 10 of
the Company's 1997 Annual Report are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company included on pages 11 through 22
of the Company's 1997 Annual Report are incorporated herein by reference.
13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Information required under Items 10, 11, 12 and 13 of Part III is
incorporated herein by reference to portions of the definitive Proxy Statement
filed or to be filed with the Securities and Exchange Commission on or prior to
120 days following the end of the Company's 1997 fiscal year under the headings
"Election of Directors," "Business Experience of Nominees and Directors,"
"Executive Officers," "Compensation of Directors and Executive Officers,"
"Certain Transactions," and "Security Ownership of Certain Beneficial Owners and
Management."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report beginning on page F-1.
(3) Listing of Exhibits
3.1 Amendment to the Company's by-laws dated April 25, 1995:
Incorporated by reference to Exhibit 3(ii) to the Company's
quarterly report on Form 10-Q for the quarter ended
July 1, 1995.
14
4.1 Specimen of Common Stock certificate: Incorporated by reference to
Exhibit 1 to the Form S-8, Commission File No. 33-32896.
4.2 The Registrant hereby agrees to furnish to the Securities and
Exchange Commission upon request a copy of any instrument with
respect to long-term debt not being registered in a principal
amount less than 10% of the total assets of the Registrant on
a consolidated basis.
10.1 Patent Assignment and Royalty Agreement between Donald C.
Spann and the Company, with letter amendment thereto:
Incorporated by reference to Exhibit 10(c) to the Form S-18.
10.2 1987 Stock Option Plan: Incorporated by reference to Exhibit
10 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 2, 1987, Commission File No. 0-11392.
10.3 Employee Stock Ownership Plan - Summary Plan Description: Incorporated
by reference to Exhibit 10.6 to the 1990 10-K.
10.4 1991 Stock Option Plan: Incorporated by reference to Exhibit 10.6 to
the 1991 10-K.
10.5 Retirement Agreement dated February 6, 1991 between the Company and
Donald C. Spann: Incorporated by reference to Exhibit 10.7 to the
1991 10-K.
10.6 Contract between the Company and Healthflex, Inc. dated February 28,
1992: Incorporated by reference to Exhibit 2.1 to the February 28, 1992
Form 8-K.
10.7 Contract between the Company and BriGam, Inc. dated October 16, 1992
terminating a royalty agreement: Incorporated by reference to Exhibit
10.10 to the Company's annual report on Form 10-K for the fiscal year
ended October 3, 1992, Commission File No. 0-11392.
10.8 Voluntary Resignation Agreement dated July 30, 1993 between the Company
and Donald C. Spann: Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1993.
10.9 Employment Agreement dated February 28, 1992 between the Company and
John W. Wilkinson: Incorporated by
15
reference to Exhibit 28A to the Current Report on Form 8-K (the
"February 28, 1992 Form 8-K") filed by the Company with the Commission
on February 28, 1992.
10.10 Consulting Agreement dated August 1, 1994 between the Company and John
W. Wilkinson: Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 2, 1994.
10.11 Agreement for Sale and Purchase of Assets By and Among Span-America
Medical Systms, Inc., Embracing Concepts, Inc. and Edmund K. Maier
February 6, 1996 Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1996.
10.12 Resignation Agreement dated September 1, 1996 between the Company and
Charles B. Mitchell. Incorporated by reference to exhibit 10.12 to the
1996 10-K.
10.13 License and Distribution Agreement dated October 22, 1996 between the
Company and Pillowtex Corporation. Incorporated by reference to Exhibit
10.13 to the 1996 10-K.
10.14 1997 Stock Option Plan
10.15 1997 Long Term Incentive Stock Option Plan
13.1 1997 Annual Report to Shareholders.
23.0 Consent of Ernst and Young LLP.
27.0 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
fourth quarter of the fiscal year ended September 27, 1997.
(c) Exhibits
The exhibits required by this section of Item 14 are attached
hereto or incorporated by reference.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page F-1.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Brien Laing December 12, 1997
Brien Laing, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities on the date indicated.
/s/ James D. Ferguson President, Chief Executive Officer
James D. Ferguson (Principal Executive Officer)
/s/ Richard C. Coggins Chief Financial Officer and Director
Richard C. Coggins (Principal Financial Officer)
/s/ Gwendolyn L. Randolph Controller
Gwendolyn L. Randolph
/s/ Roy W. Black Director
Roy W. Black
/s/ Thomas F. Grady, Jr. Director
Thomas F. Grady, Jr.
/s/ Thomas D. Henrion Director
Thomas D. Henrion
/s/ Douglas E. Kennemore __ Director
Douglas E. Kennemore, M.D.
/s/ Brien Laing Director
Brien Laing
/s/ J. Ernest Lathem _ Director
J. Ernest Lathem, M.D.
/s/ James M. Shoemaker, Jr. Director
James M. Shoemaker, Jr.
/s/ Robert A. Whitehorne _ Director
Robert A. Whitehorne
December 12, 1997
17
Annual Report on Form 10-K
Items 14 (a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year Ended September 27, 1997
Span-America Medical Systems, Inc.
Greenville, South Carolina
F-1
Span-America Medical Systems, Inc.
Form 10-K - Item 14(a)(1) and (2)
List of Financial Statements and Financial Statement Schedules
The following financial statements of Span-America Medical Systems, Inc.
included in the annual report of the registrant to its shareholders for the year
ended September 27, 1997 are incorporated by reference in Item 8:
Balance Sheets - September 27, 1997 and September 28, 1996.
Statements of Income - Years ended September 27, 1997,
September 28, 1996, and September 30, 1995.
Statements of Shareholders' Equity - Years ended September 27, 1997,
September 28, 1996, and September 30, 1995.
Statements of Cash Flows - Years ended September 27, 1997,
September 28, 1996, September 30, 1995
Notes to Financial Statements - September 27, 1997
The following financial statement schedule of Span-America Medical Systems,
Inc. is included in Item 14(d):
Schedule VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-2
Schedule VIII - Valuation and Qualifying Accounts
Span-America Medical Systems, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D. COL. E
ADDITIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Description Balance at (1) (2)
Beginning of Period Charged to Costs Charged to Other Deductions-Describe Balance at End
and Expenses Accounts - Describe of Period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended September 27, 1997
Deducted from asset accounts:
Reserve for uncollectible
accounts $245,000 $217,000 $64,000(a) $398,000
Reserve for discounts 174,000 68,000(b) 242,000
-------------------------------------------------------------------------------------------------
Totals $419,000 $217,000 $68,000 $64,000 $640,000
=================================================================================================
Year Ended September 28, 1996
Deducted from asset accounts:
Reserve for uncollectible
accounts $205,000 $113,000 $73,000(a) $245,000
Reserve for discounts 150,000 24,000(b) 174,000
-----------------------------------------------------------------------------------------------
Totals $355,000 $113,000 $24,000 $73,000 $419,000
-----------------------------------------------------------------------------------------------
Year Ended September 30, 1995
Deducted from asset accounts:
Reserve for uncollectible
accounts $225,000 $ 24,000 $44,000(a) $205,000
Reserve for discounts 116,500 33,500(b) 150,000
------------------------------------------------------------------------------------------------
Totals $341,500 $24,000 $33,500 $44,000 $355,000
================================================================================================
- ---------------
(a) Uncollectible accounts written off.
(b) Net increase in sales discounts charged to income as a reduction of sales.