Note 1 - Significant Accounting Policies	12 Months Ended
Oct. 01, 2016
Notes to Financial Statements
Significant Accounting Policies [Text Block]	1. SIGNIFICANT ACCOUNTING POLICIES Description of Business Span - America Medical Systems, Inc. (the “Company,” “we,” or “Span - America”), located in Greenville, SC, manufactures and distributes therapeutic support surfaces, mattress overlays, patient positioners, seating cushions, skin care products and fall prevention products for the medical market and pillows, mattress pads and various foam products for the custom products market throughout the United States and Canada. Our wholly - owned subsidiary, Span Medical Products Canada Inc. (“Span - Canada”), located in Beamsville, Ontario, Canada, manufactures and sells medical bed frames and distributes related in - room furnishing products, including bedside furniture, chairs, tables and over - bed tables for use in the long - term care market. We are operating Span - Canada under the registered business name M.C. Healthcare Products (“M.C. Healthcare”). Principles of Consolidation The consolidated financial statements include the accounts of the Company and Span - Canada, its wholly - owned subsidiary. Significant inter - entity accounts and transactions have been eliminated. Cash and Cash Equivalents We consider all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. Depending on market conditions, we may maintain a centralized cash management program whereby our excess cash balances are invested in commercial paper and are considered cash equivalents. Cash balances in our accounts usually exceed federally insured limits. Accounts Receivable We provide credit in the normal course of business and perform ongoing credit evaluations on certain of our customers, but we generally do not require collateral to support these receivables. We also establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote. Inventories Our inventories are valued at the lower of cost (first - in, first - out method) or market. Property and Equipment Property and equipment is stated at cost. Maintenance, repairs and minor replacements that do not improve or extend the useful lives of assets are expensed when incurred. Depreciation is computed using the straight - line method. Estimated useful lives for buildings and land improvements range from 5 to 35 years. The estimated useful lives of all other property and equipment range from 3 to 10 years. For income tax purposes, substantially all depreciation is computed using accelerated methods. Goodwill and Intangibles Intangible assets are amortized using the straight - line method. Costs of patents are amortized over 17 years, and trademarks are amortized over 10 years. Trade names, non - competition agreements and customer relationships associated with the asset acquisition of M.C. Healthcare are being amortized over periods of 2.0 to 11.8 years, which represent the estimated remaining useful lives of the identifiable intangible assets at the time of the acquisition. Goodwill, or costs in excess of the fair value of net assets, was acquired from three separate acquisitions. Annually as of the end of our fiscal year, we review goodwill for impairment. We also review long - lived assets and the related intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. See Note 5 - Goodwill and Note 6 - Intangibles. Foreign Currency Translation Span - Canada uses the Canadian dollar as its functional currency. The assets and liabilities of Span - Canada are translated into U.S. dollars at the year - end exchange rate. Revenues and expenses are translated at weighted average exchange rates. The resulting translation adjustments are recorded as a separate component of shareholders' equity in “Accumulated Other Comprehensive Loss.” Revenue Recognition We recognize revenue when title and risk of loss pass to the customer and collection is reasonably assured. Our sales prices are fixed at the time revenue is recognized. There are no customer acceptance provisions, and the right to return exists only in cases of damaged product, non - compliance with customer specifications or warranty claims. Taxes collected from customers and remitted to government authorities are recorded on a net basis (excluded from revenues). We have applied the accounting and disclosure requirements of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104. Advertising Costs Advertising costs are expensed as incurred. Shipping and Handling Costs Shipping and handling costs that are not reimbursed by customers are charged to selling and marketing expenses and were approximately $2,215,000 in fiscal 2016, $2,113,000 in fiscal 2015, and $2,123,000 in fiscal 2014. Customer Rebates We offer rebates to our distributors based on predetermined sales targets. These rebates vary by the type of product sold and by distributor and are based on a percentage of the applicable sales target. The rebate expense is charged as a reduction of gross sales. Rebate expense and the associated liability are calculated and recorded as the rebate - related revenue is recognized. Earnings Per Share of Common Stock Earnings per share of common stock are computed based on the weighted average number of shares outstanding during each period. Stock - Based Compensation We measure and recognize compensation expense for all stock - based payments at fair value. Stock - based payments include stock option grants. We grant options to purchase common stock to some of our employees under various plans at prices equal to the market value of the stock on the dates the options are granted. New shares of stock are issued upon share option exercise. We do not have treasury stock. The fair value of each option grant is estimated on the date of grant using the Black - Scholes option pricing model with the following weighted average assumptions for grants made in fiscal 2011: risk - free interest rate of 2.54%; dividend yield of 2.50%; volatility factor of the expected market price of our common stock of 43.02%; and a weighted average expected life of the options of 9.0 years. We have not made any stock option grants since fiscal year 2011. Fiscal Year Our fiscal year ends on the Saturday nearest to September 30. Fiscal year 2016 was a 52 - week year. Fiscal years 2015 and 2014 were 53 - week and 52 - week years, respectively. Fiscal year 2017 will be a 52 - week year. Income Taxes The liability method is used in accounting for federal and state income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are projected to be in effect when the differences are expected to reverse. The Company’s practice is to recognize interest and penalties, if any, related to income tax matters as part of income tax expense. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes and the disclosure of contingent assets and liabilities. Although these estimates are based on our knowledge of current events and actions planned for the future, the estimates may ultimately differ from actual results. Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued a standard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five - step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued a standard to delay the effective date by one year. In accordance with this delay, the new standard is effective for us beginning in the first quarter of fiscal 2019. Early adoption is permitted, but not before the original effective date of the standard. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We are currently assessing the impact this standard will have on our consolidated financial statements as well as the method by which we will adopt the new standard. In July 2015, the FASB issued a new standard regarding the measurement of inventory. Under this standard, inventory that is measured using the first - in, first - out ("FIFO") or average cost methods is required to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This standard does not impact inventory measured on a last - in, last - out ("LIFO") method. It will be effective for us beginning in fiscal 2017. We are currently assessing the impact this standard will have on our consolidated financial statements. In November 2015, the FASB issued Accounting Standards Update ("ASU") 2015 - 07, "Balance Sheet Classification of Deferred Taxes (Topic 740)." Current guidance requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position; however, the new guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. We are currently assessing the potential impact of this new accounting pronouncement on the Company's statement of financial position. In January 2016, the FASB issued ASU 2016 - 01, “Financial Instruments?—?Overall (Subtopic 825 - 10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This standard modifies how entities measure equity investments and present changes in the fair value of financial liabilities; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; changes presentation and disclosure requirements, and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available - for - sale securities in combination with the entity’s other deferred tax assets. ASU 2016 - 01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. We do not expect that the adoption of this ASU will have any impact on the Company’s statement of operations. In February 2016, the FASB issued ASU 2016 - 02, Leases (Topic 842). ASU 2016 - 02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further, the standard also requires a finance lease to recognize both an interest expense and an amortization of the associated expense. Operating leases generally recognize the associated expense on a straight line basis. ASU 2016 - 02 requires the Company to adopt the standard using a modified retrospective approach and adoption for reporting periods beginning after December 15, 2018. We are currently evaluating the impact that ASU 2016 - 02 will have on the Company’s financial position, results of operations and cash flows. In March 2016, the FASB issued ASU 2016 - 09 that changes the accounting for certain aspects of share - based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. We are currently evaluating the impact ASU 2016 - 09 will have on our consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016 - 13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides guidance for the accounting for credit losses on instruments within its scope. The amendments provide guidance on reporting credit losses for assets held at amortized cost basis and available - for - sale debt securities. The amendments require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments also require that credit losses on available - for - sale debt securities be presented as an allowance. The amendments should be applied on either a prospective transition or modified - retrospective approach depending on the subtopic. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. In August 2016, the FASB issued ASU 2016 - 15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this update are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We are currently assessing the impact of the future adoption of this standard on our consolidated Statements of Cash Flows. Other accounting standards that have been issued or proposed by the FASB or other standards - setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption. Subsequent Events In preparing these consolidated financial statements, we have evaluated events and transactions for potential recognition or disclosure through the issuance of the financial statements.

SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Span - America Medical Systems, Inc. (the “Company,” “we,” or “Span - America”), located in Greenville, SC, manufactures and distributes therapeutic support surfaces, mattress overlays, patient positioners, seating cushions, skin care products and fall prevention products for the medical market and pillows, mattress pads and various foam products for the custom products market throughout the United States and Canada. Our wholly - owned subsidiary, Span Medical Products Canada Inc. (“Span - Canada”), located in Beamsville, Ontario, Canada, manufactures and sells medical bed frames and distributes related in - room furnishing products, including bedside furniture, chairs, tables and over - bed tables for use in the long - term care market. We are operating Span - Canada under the registered business name M.C. Healthcare Products (“M.C. Healthcare”).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and Span - Canada, its wholly - owned subsidiary. Significant inter - entity accounts and transactions have been eliminated.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity when purchased of

three

months or less to be cash equivalents. Depending on market conditions, we

may

maintain a centralized cash management program whereby our excess cash balances are invested in commercial paper and are considered cash equivalents. Cash balances in our accounts usually exceed federally insured limits.

Accounts Receivable

We provide credit in the normal course of business and perform ongoing credit evaluations on certain of our customers, but we generally do not require collateral to support these receivables. We also establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.

Inventories

Our inventories are valued at the lower of cost

(first

- in,

first

- out method) or market.

Property and Equipment

Property and equipment is stated at cost. Maintenance, repairs and minor replacements that do not improve or extend the useful lives of assets are expensed when incurred. Depreciation is computed using the straight - line method. Estimated useful lives for buildings and land improvements range from

years. The estimated useful lives of all other property and equipment range from

years. For income tax purposes, substantially all depreciation is computed using accelerated methods.

Goodwill and Intangibles

Intangible assets are amortized using the straight - line method. Costs of patents are amortized over

years, and trademarks are amortized over

years. Trade names, non - competition agreements and customer relationships associated with the asset acquisition of M.C. Healthcare are being amortized over periods of

2.0

11.8

years, which represent the estimated remaining useful lives of the identifiable intangible assets at the time of the acquisition. Goodwill, or costs in excess of the fair value of net assets, was acquired from

three

separate acquisitions. Annually as of the end of our fiscal year, we review goodwill for impairment. We also review long - lived assets and the related intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets

may

not be recoverable. See Note

- Goodwill and Note

- Intangibles.

Foreign Currency Translation

Span - Canada uses the Canadian dollar as its functional currency. The assets and liabilities of Span - Canada are translated into U.S. dollars at the year - end exchange rate. Revenues and expenses are translated at weighted average exchange rates. The resulting translation adjustments are recorded as a separate component of shareholders' equity in “Accumulated Other Comprehensive Loss.”

Revenue Recognition

We recognize revenue when title and risk of loss pass to the customer and collection is reasonably assured. Our sales prices are fixed at the time revenue is recognized. There are no customer acceptance provisions, and the right to return exists only in cases of damaged product, non - compliance with customer specifications or warranty claims. Taxes collected from customers and remitted to government authorities are recorded on a net basis (excluded from revenues).

We have applied the accounting and disclosure requirements of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No.

104.

Advertising Costs

Advertising costs are expensed as incurred.

Shipping and Handling Costs

Shipping and handling costs that are not reimbursed by customers are charged to selling and marketing expenses and were approximately

$2,215,000

in fiscal

2016,

$2,113,000

in fiscal

2015,

and

$2,123,000

in fiscal

2014.

Customer

Rebates

We offer rebates to our distributors based on predetermined sales targets. These rebates vary by the type of product sold and by distributor and are based on a percentage of the applicable sales target. The rebate expense is charged as a reduction of gross sales. Rebate expense and the associated liability are calculated and recorded as the rebate - related revenue is recognized.

Earnings Per Share of Common Stock

Earnings per share of common stock are computed based on the weighted average number of shares outstanding during each period.

Stock - Based Compensation

We measure and recognize compensation expense for all stock - based payments at fair value. Stock - based payments include stock option grants. We grant options to purchase common stock to some of our employees under various plans at prices equal to the market value of the stock on the dates the options are granted. New shares of stock are issued upon share option exercise. We do not have treasury stock.

The fair value of each option grant is estimated on the date of grant using the Black - Scholes option pricing model with the following weighted average assumptions for grants made in fiscal

2011:

risk - free interest rate of

2.54%;

dividend yield of

2.50%;

volatility factor of the expected market price of our common stock of

43.02%;

and a weighted average expected life of the options of

9.0

years. We have not made any stock option grants since fiscal year

2011.

Fiscal Year

Our fiscal year ends on the Saturday nearest to

September

30.

Fiscal year

2016

was a

- week year. Fiscal years

2015

and

2014

were

- week and

- week years, respectively. Fiscal year

2017

will be a

- week year.

Income Taxes

The liability method is used in accounting for federal and state income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are projected to be in effect when the differences are expected to reverse. The Company’s practice is to recognize interest and penalties, if any, related to income tax matters as part of income tax expense.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes and the disclosure of contingent

assets and liabilities. Although these estimates are based on our knowledge of current events and actions planned for the future, the estimates

may

ultimately differ from actual results.

Recently Issued Accounting Standards

May

2014,

the Financial Accounting Standards Board (“FASB”) issued a standard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a

five

- step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract.

August

2015,

the FASB issued a standard to delay the effective date by

one

year. In accordance with this delay, the new standard is effective for us beginning in the

first

quarter of fiscal

2019.

Early adoption is permitted, but not before the original effective date of the standard. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We are currently assessing the impact this standard will have on our consolidated financial statements as well as the method by which we will adopt the new standard.

July

2015,

the FASB issued a new standard regarding the measurement of inventory. Under this standard, inventory that is measured using the

first

- in,

first

- out ("FIFO") or average cost methods is required to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This standard does not impact inventory measured on a last - in, last - out ("LIFO") method. It will be effective for us beginning in fiscal

2017.

We are currently assessing the impact this standard will have on our consolidated financial statements.

November

2015,

the FASB issued Accounting Standards Update ("ASU")

2015

07,

"Balance Sheet Classification of Deferred Taxes (Topic

740)."

Current guidance requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position; however, the new guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for annual reporting periods beginning after

December

15,

2016,

including interim periods within that reporting period. Early adoption is permitted. We are currently assessing the potential impact of this new accounting pronouncement on the Company's statement of financial position.

January

2016,

the FASB issued ASU

2016

01,

“Financial Instruments?—?Overall (Subtopic

825

10):

Recognition and Measurement of Financial Assets and Financial Liabilities.” This standard modifies how entities measure equity investments and present changes in the fair value of financial liabilities; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; changes presentation and disclosure requirements, and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available - for - sale securities in combination with the entity’s other deferred tax assets. ASU

2016

is effective for fiscal years beginning after

December

15,

2017,

including interim periods within those fiscal years. Early application is permitted. We do not expect that the adoption of this ASU will have any impact on the Company’s statement of operations.

February

2016,

the FASB issued ASU

2016

02,

Leases (Topic

842).

ASU

2016

requires the lessee to recognize assets and liabilities for leases with lease terms of more than

twelve

months. For leases with a term of

twelve

months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further, the standard also requires a finance lease to recognize both an interest expense and an amortization of the associated expense. Operating leases generally recognize the associated expense on a straight line basis. ASU

2016

requires the Company to adopt the standard using a modified retrospective approach and adoption for reporting periods beginning after

December

15,

2018.

We are currently evaluating the impact that ASU

2016

will have on the Company’s financial position, results of operations and cash flows.

March

2016,

the FASB issued ASU

2016

that changes the accounting for certain aspects of share - based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after

December

15,

2016,

and interim periods within those years. Early adoption is permitted. We are currently evaluating the impact ASU

2016

will have on our consolidated financial statements and related disclosures.

June

2016,

the FASB issued ASU

2016

13,

“Financial Instruments — Credit Losses (Topic

326):

Measurement of Credit Losses on Financial Instruments,” which provides guidance for the accounting for credit losses on instruments within its scope. The amendments provide guidance on reporting credit losses for assets held at amortized cost basis and available - for - sale debt securities. The amendments require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments also require that credit losses on available - for - sale debt securities be presented as an allowance. The amendments should be applied on either a prospective transition or modified - retrospective approach depending on the subtopic. The amendments in this update are effective for fiscal years beginning after

December

15,

2019,

including interim periods within those annual periods. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.

August

2016,

the FASB issued ASU

2016

15,

“Statement of Cash Flows (Topic

230):

Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this update are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2017.

Early adoption is permitted, including adoption in an interim period. We are currently assessing the impact of the future adoption of this standard on our consolidated Statements of Cash Flows.

Other accounting standards that have been issued or proposed by the FASB or other standards - setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

Subsequent Events

In preparing these consolidated financial statements, we have evaluated events and transactions for potential recognition or disclosure through the issuance of the financial statements.