Span-America Medical Systems (SPAN)

Outlook for Fiscal 2009

“Our long-term outlook for Span-America remains positive based on the company’s strong medical product lines and our ability to leverage our manufacturing capabilities through expanded sales of custom products,” stated Mr. Ferguson. “We expect to finish fiscal 2009 with solid sales and earnings performance in our fourth fiscal quarter. We believe medical sales will remain steady as spending caution among our customers is balanced with several potential growth opportunities in the quarter. Our consumer sales should continue to benefit from the Sam’s Club business in the near term, but industrial sales will likely be down compared with the fourth quarter of last year.

“Span-America’s financial position continues to be strong, despite the soft economy. We remain focused on investing in research and development to spur new product introductions, creating enhancements to existing products and improving our manufacturing efficiencies. We believe we are in an excellent position to create additional value for our shareholders as the economy improves,” concluded Mr. Ferguson.

Outlook for Fiscal 2009

“We believe sales and earnings will improve in the second half of fiscal 2009 compared with the first half of the year, assuming no further significant declines in the economy,” commented Mr. Ferguson. “Our second half sales in the custom products segment will benefit from a new program with Sam’s Club. We originally expected the Sam’s business to start in March 2009, but it was briefly delayed at the customer’s request and has now begun in April. This new business should contribute positively to our performance in the third and fourth fiscal quarters this year.

“In the medical segment, we expect modest sales growth in our branded business throughout the remainder of the fiscal year, but that will be at least partially offset by lower private label sales. We also expect to benefit from sales of new products, like the Risk Manager, as well as additions to our support surface and positioner product lines that we plan to introduce later this year.

“Overall, we feel like the business performed well in a challenging market environment during the first half of fiscal 2009. Looking forward, we are confident about how the company is positioned for continued growth as the economy improves,” concluded Mr. Ferguson.

Outlook for Fiscal 2009

“We expect to see continued growth in sales of our branded medical products in fiscal 2009 due to new customers added since last year and new products scheduled for release,” commented Mr. Ferguson. “We continue to invest in product development projects and new technologies that are expanding and improving our product lines. For fiscal 2009, we plan to enhance our PressureGuard line of support surfaces with major upgrades and launch a high-end fall protection product, a new line of patient positioners, an advanced fabric for mattress covers and a new non-powered, convertible support surface.

“In the custom products segment, we expect growth in the consumer bedding business, beginning around April 2009 as a result of a new program with Sam’s Club. We are pleased to get this new piece of business and expect it will increase our consumer bedding sales in the last half of fiscal 2009. Sales of our industrial products are likely to remain weak for the next few quarters due to the slow economy. Our industrial product lines tend to be the most directly affected by slowing manufacturing activity in our region and the economy in general,” continued Mr. Ferguson.

“Our financial position remains strong with excellent cash flow from operations and no long-term debt. During the first quarter, we paid off the remainder of our bank debt. We originally borrowed $5.7 million in June 2007 to partially fund a special dividend of $13.9 million. As a result of our strong earnings and cash flow since then, we have repaid the entire balance in only 18 months.

“Our outlook for the year remains tempered by the soft economy. However, we believe Span-America is a resilient business that will perform comparatively well even in a weak market environment. We plan to continue investing in our sales, marketing and product development efforts in 2009 to put the company in the best position to benefit from a stronger economy. Our long-term outlook for Span-America is very positive, and we remain focused on our primary goal of creating value for our shareholders,” concluded Mr. Ferguson.

Outlook for Fiscal 2009

“We are focused on expanding our distribution of medical products to build future sales,” continued Mr. Ferguson. “We are also working with our marketing partner, Louisville Bedding Company, to add more retailers to carry our line of consumer bedding products. We expect to report modest sales growth in fiscal 2009 as a result of expanded sales and marketing programs.

“Our earnings expectations for fiscal 2009 will be shaped largely by our sales growth and the effects of raw material prices in the coming year. We have experienced significant swings in foam costs in the last two years. Foam is the largest component of our raw material cost, and the recent reductions in oil prices should put downward pressure on petrochemicals and have a positive effect on foam pricing as we enter fiscal 2009; however, foam costs have been very difficult to predict in the past.

“We believe our strong financial position will provide Span-America with increased flexibility to address market changes in the future. We continue to invest in new product development and improving our manufacturing efficiencies. We expect these initiatives will be an important part in building future shareholder value,” concluded Mr. Ferguson.