Span-America Reports Results for First Quarter of Fiscal 2008

GREENVILLE, S.C.--(Business Wire)--Span-America Medical Systems, Inc. (NASDAQ:SPAN) today reported a
2% increase in net sales to $13.7 million and a 2% increase in net
income to $1.04 million, or $0.36 per diluted share, for the first
quarter ended December 29, 2007, compared with the first quarter of
last fiscal year. Income from continuing operations declined 13% to
$1.1 million, or $0.37 per diluted share, compared with $1.2 million,
or $0.44 per diluted share, in the first quarter last year.

"Our first quarter performance benefited from higher sales in the
custom products segment compared with last year," stated Jim Ferguson,
president and chief executive officer of Span-America Medical Systems.
"Sales in our medical segment were even with last year. Our medical
order volume was strong in the first quarter and came from a broad
base of customers, but we did not have the large orders from long-term
care customers to layer on top of our base business that we have seen
during the last several quarters.

"Span-America's income from continuing operations was down
compared with the first quarter of last year due to the addition of
interest expense, an increase in R&D costs to fund new medical
products and a less profitable sales mix that included a lower
percentage of medical products. The added interest expense this year
comes from the remaining balance of the debt that we incurred in June
2007 to pay the special cash dividend of $13.9 million, or $5.00 per
share. We originally borrowed $5.7 million. Since that time, we have
used our strong cash flow from operations to pay down a total of $3.0
million of the debt, including $1.0 million in the first quarter of
fiscal 2008."

First Quarter Results

Sales in the first quarter of fiscal 2008 rose 2% to $13.7 million
compared with $13.4 million in the first quarter of last year. The
major contributor to sales growth was the custom products segment, up
7% to $4.1 million compared with $3.8 million in last year's first
quarter. Medical segment sales were flat compared with last year at
$9.6 million and accounted for 70% of total sales, down from 72% in
the first quarter of last year.

The majority of sales growth in the custom products segment was
due to higher sales of our fusion mattress pad sold to Wal-Mart and
other retailers through our marketing partner, Louisville Bedding
Company. Consumer sales, the largest part of the custom products
segment, were up 9% to $3.2 million compared with $3.0 million in the
year-ago quarter. Consumer sales benefited from the addition of our
fusion product line to more Wal-Mart stores during the quarter,
partially offset by slower sales to Wal-Mart in the month of December
as they reduced their on-hand inventory of our products.

Sales of industrial products, also included in the custom products
segment, increased 1% to $849,000 in the first quarter of fiscal 2008.
Industrial sales growth was generated from new business and existing
customers.

Medical segment sales were flat at $9.6 million compared with the
first quarter of fiscal 2007. "We made progress in growing sales of
our proprietary therapeutic support surfaces, our largest product
group," continued Mr. Ferguson. "Therapeutic support surfaces were up
3% and accounted for 75% of medical sales in the first quarter of
2008. Sales to Hill-Rom, our largest medical segment customer, were up
about 5% to $2.4 million compared with last year."

Sales growth leaders within the therapeutic support surface
product line included Span-America's PressureGuard(R) Easy Air(R)
low-air-loss support surfaces and the Geo-Mattress(R) line of
non-powered therapeutic support surfaces. Sales of seating products
were up 5% on the continued success of our new Short Wave(TM) seat and
back cushion. Sales of Selan(R) skin care products increased 6% during
the quarter. Offsetting the sales growth in the medical segment were
sales declines in mattress overlays, which were down 3%, and patient
positioners, which were down 12%.

First quarter gross profit was $4.6 million compared with $4.8
million in the first quarter last year. Gross margin was 34.0% of net
sales in the first quarter of fiscal 2008 compared to 35.6% of net
sales in the first quarter last year. The reductions in gross profit
and gross margin from last year were primarily related to a higher
percentage of lower margin consumer product sales compared with the
first quarter of fiscal 2007 and a less profitable mix of sales within
the medical segment.

Selling and marketing expenses were down 5% during the quarter
primarily due to lower shipping costs. R&D expenses increased by 35%
due to new product development efforts in the medical segment.
Administrative expenses rose by 9% due to higher insurance expense and
lower income on cash value of corporate-owned life insurance.

Operating income declined 8% to $1.6 million compared with $1.8
million last year due primarily to the less profitable product mix and
the increases in R&D and administrative expenses.

Net non-operating expense was $30,000 in the first quarter of
fiscal 2008 compared with net non-operating income of $89,000 in the
first quarter last year. The $119,000 swing to a net non-operating
expense was due to lower investment income and the addition of
interest expense, both of which resulted from the payment in June 2007
of a $13.9 million special dividend. To fund the special dividend, the
Company liquidated its short-term investments and borrowed $5.7
million in long-term debt.

Net income for the first quarter was up 2% to $1.04 million, or
$0.36 per diluted share, compared with $1.02 million, or $0.36 per
diluted share in the same quarter last year and benefited from the
exit of the safety catheter segment that is now treated as a
discontinued operation. The loss from the discontinued operation was
$17,000, or $0.01 per share, in the first quarter of fiscal 2008
compared with a loss of $199,000, or $0.07 per share, in the same
quarter last year.

In November 2007, we announced a program to repurchase up to 5%
(139,000 shares) of our outstanding common stock. From the
announcement date of November 28th through the end of the first
quarter, we repurchased 11,193 shares at a total cost of $129,000. We
intend to continue to repurchase Company stock from time to time in
the open market or in private transactions, depending on market and
Company conditions. The stock repurchase program may be suspended or
discontinued at any time.

Outlook for Fiscal 2008

"Our outlook for the remainder of fiscal 2008 is positive,"
commented Mr. Ferguson. "In the medical business, we expect sales of
our branded products to grow modestly during the remainder of the
fiscal year. We plan to continue to focus on gaining new customers and
developing new, innovative medical products. As we have previously
announced, our exclusive agreement to supply private label products to
Hill-Rom is set to expire in May 2008. At this time, we cannot predict
how the expiring contract will affect total medical sales for the
remainder of fiscal 2008. However, we value our relationship with
Hill-Rom and expect to continue to supply products to them up to and
after the agreement expiration date. After the agreement expires, we
expect to continue to supply Hill-Rom on an order-by-order basis.

"We expect continued sales growth in the custom products segment
primarily from the fusion mattress pad and Wal-Mart's expansion of the
number of stores carrying the product.

"We are satisfied with many aspects of our first quarter
performance and feel good about the outlook for our business for the
remainder of the year. Overall, we believe we are in a good position
to have a solid year of sales and earnings results in fiscal 2008,"
concluded Mr. Ferguson.

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(R), PressureGuard(R), Geo-Mattress(R), Span+Aids(R),
Isch-Dish(R), and Selan(R) products. The Company also supplies 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, visit www.spanamerica.com.

Forward-Looking Statements

We have made forward-looking statements in this release regarding
our expectations for future sales and earnings performance. We wish to
caution the reader that these statements are only predictions. Actual
events or results may differ materially as a result of risks and
uncertainties facing our Company, including: (a) changes in our
existing manufacturing agreement with Hill-Rom, which is our largest
customer in the medical segment, (b) the loss of a key customer or
distributor for our products, (c) the inability to achieve anticipated
sales volumes of medical or custom products, (d) the potential for
volatile pricing conditions in the market for polyurethane foam, (e)
raw material cost increases, (f) the potential for lost sales due to
competition from low-cost foreign imports, (g) changes in
relationships with large customers, (h) the impact of competitive
products and pricing, (i) government reimbursement changes in the
medical market, (j) FDA regulation of medical device manufacturing,
and (k) other risks referenced from time to time in our Securities and
Exchange Commission filings. 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.

-0-
*T
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Statements of Income (Unaudited)

Three Months Ended
-------------------------
Dec. 29, Dec. 30,
2007 2006
(Note) % Chg
------------ ------------ -----

Net sales $13,664,207 $13,432,477 2%
Cost of goods sold 9,017,252 8,654,131 4%
------------ ------------
Gross profit 4,646,955 4,778,346 -3%
34.0% 35.6%

Selling and marketing expenses 1,994,113 2,094,224 -5%
Research and development expenses 192,821 143,010 35%
General and administrative expenses 822,257 753,936 9%
------------ ------------
3,009,191 2,991,170 1%

Operating income 1,637,764 1,787,176 -8%
12.0% 13.3%

Non-operating income (expense):
Investment income and other 19,441 89,143 -78%
Interest expense (49,436) - n/a
------------ ------------
Net non-operating income (expense) (29,995) 89,143 -134%

Income from continuing operations
before income taxes 1,607,769 1,876,319 -14%
Income taxes on continuing operations 546,000 657,000 -17%
------------ ------------
Income from continuing operations 1,061,769 1,219,319 -13%
7.8% 9.1%

(Loss) from discontinued operations,
net of income taxes (16,878) (198,818) 92%
------------ ------------

Net income $ 1,044,891 $ 1,020,501 2%
============ ============

Income from continuing operations per
common share:
Basic $ 0.38 $ 0.46 -16%
Diluted 0.37 0.44 -16%

(Loss) from discontinued operations
per common share:
Basic $ (0.01) $ (0.07) 92%
Diluted (0.01) (0.07) 92%

Net income per common share:
Basic $ 0.38 $ 0.38 -2%
Diluted 0.36 0.36 -1%

Dividends per common share $ 0.08 $ 0.06 33%

Weighted average shares outstanding:
---------------------------------------
Basic 2,774,103 2,667,228 4%
Diluted 2,896,717 2,802,381 3%

Supplemental Data
---------------------------------------
Depreciation expense included in
continuing operations $ 149,853 $ 144,590 4%
Amortization expense included in
continuing operations 16,995 17,662 -4%

Note: Amounts for the three months ended December 30, 2006 have been
reclassified to show the safety catheter segment as a discontinued
operation.
*T

-0-
*T
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Balance Sheets

Dec. 29, Sept. 29,
2007 2007
(Unaudited) (Note)
----------- -----------

Assets
Current assets:
Cash and cash equivalents $ 559,823 $ 808,864
Accounts receivable, net of allowances 6,959,835 7,195,288
Inventories 4,269,506 3,997,585
Deferred income taxes 997,000 997,000
Prepaid expenses 202,798 97,395
----------- -----------
Total current assets 12,988,962 13,096,132

Property and equipment, net 6,518,673 6,536,842
Goodwill 1,924,131 1,924,131
Other assets 2,458,019 2,411,803
----------- -----------
$23,889,785 $23,968,908
=========== ===========

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,165,792 $ 2,146,138
Accrued and sundry liabilities 3,709,241 3,503,436
----------- -----------
Total current liabilities 5,875,033 5,649,574

Long-term debt 2,700,000 3,700,000
Deferred income taxes 38,000 38,000
Deferred compensation 784,001 793,667
----------- -----------
Total liabilities 9,397,034 10,181,241

Shareholders' equity
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding
shares 2,764,251 (Dec. 29, 2007) and
2,775,444 (Sept. 29, 2007) 1,595,626 1,724,225
Additional paid-in capital 539,773 528,945
Retained earnings 12,357,352 11,534,497
----------- -----------
Total shareholders' equity 14,492,751 13,787,667
----------- -----------

$23,889,785 $23,968,908
=========== ===========

Note: The Balance Sheet at September 29, 2007 has been derived from
the audited financial statements at that date.
*T

Span-America Medical Systems, Inc.
Jim Ferguson, 864-288-8877, ext. 6912
President and Chief Executive Officer

Copyright Business Wire 2008