CNS, Inc. Reports Strong Second Quarter Revenue and Earnings Growth

Business Wire, Nov 2, 2006

* Second quarter sales increased by 37% versus the prior year quarter.

* Earnings per share increased 56% versus the prior year quarter.

* Breathe Right([R]) domestic sales increased 24% driven by new advertising campaigns.

* FiberChoice([R])sales increased 87% driven by two new products.

* Breathe Right international sales increased 46% driven by strong consumer demand.

* On October 8, 2006, CNS and GlaxoSmithKline plc (GSK) entered into a definitive agreement for GSK to acquire CNS for $37.50 per share in cash.

MINNEAPOLIS -- CNS, Inc. (NASDAQ:CNXS), the Breathe Right([R]) company, today announced strong results for the second quarter of fiscal year 2007 ended September 30, 2006.

Net sales for the second quarter were $35.8 million, an increase of 37% compared to $26.1 million in the prior year period. Net income was $6.9 million, or $0.47 per fully diluted share, up 56% per fully diluted share compared to net income of $4.5 million, or $0.30 per fully diluted share in the second quarter of fiscal 2006. After adjusting for the impact of stock-based compensation expense, proforma net income in the second quarter of fiscal 2006 was $4.3 million, or $0.29 per fully diluted share (see attached reconciliation of GAAP to non-GAAP disclosures).

For the first six months of fiscal 2007, CNS reported net sales of $65.2 million, up 31% compared to $49.6 million in the first six months of last year. Net income for the first half of fiscal 2007 rose 22% to $10.4 million, or $0.71 per fully diluted share, versus $8.6 million, or $0.57 per fully diluted share in the prior-year period. After adjusting for the impact of stock-based compensation expense, proforma net income for the first six months of fiscal 2006 was $8.1 million or $0.54 per fully diluted share.

"We are very pleased with our second quarter results. We delivered strong revenue growth from the FiberChoice([R]) brand as well as the Breathe Right([R]) brand, both domestically and internationally," said Marti Morfitt, CNS' president and CEO. "This profitable growth resulted from deploying tested, proven growth strategies and tactics such as new advertising messages to drive the growth of Breathe Right([R]) nasal strips, and the launch of new products to expand the FiberChoice brand.

CNS is focused on a number of key initiatives to grow the Breathe Right and FiberChoice brands in fiscal 2007, including:

* Continued expansion of Breathe Right nasal strips both domestically and in overseas markets, using tested, proven growth strategies;

* Year round advertising of Breathe Right nasal strips as a solution for consumers' chronic nasal breathing conditions outside of the cold/flu season;

* Increasing FiberChoice sales with strong support for our new fortified fiber products as we develop the "Fiber for Health" platform;

* Expansion of the Breathe Right brand leadership in the snore relief segment with the launch of Breathe Right([R]) Snore Relief[TM] throat rinse;

* Continued development our pipeline of new products; and

* Continued development and testing of new marketing tactics for both the Breathe Right and FiberChoice brands.

The gross margin rate for the 2007 second quarter was 73.1%, up from the prior year period's gross margin rate of 70.7%, primarily due to lower cost of goods sold and a price increase on FiberChoice products effective February 2006. Advertising and promotion expense for the fiscal 2007 second quarter was $10.2 million compared to $6.9 million in the second quarter of fiscal 2006. Higher levels of advertising and promotion expense resulted from our strategy to position Breathe Right nasal strips as a year-round treatment for consumers' chronic nasal breathing conditions, as well as increased advertising for the FiberChoice brand and its two new fortified fiber products.

CNS generated $9.9 million in cash from operations during the six-month period ended September 30, 2006 and ended the second quarter with $61 million in cash and marketable securities and no debt.

Second-Quarter Product Results

Domestic Breathe Right([R]) sales in the fiscal 2007 second quarter grew 24% to $22.9 million, compared to prior year sales of $18.4 million. The growth is attributable to our successful strategy to promote year-round Breathe Right([R]) nasal strip usage with two new advertising campaigns. One campaign features Bruce Johnson, the inventor of the Breathe Right nasal strip. The second campaign is targeted to snorers and features our "How Snoring Works" demonstration.

International sales of Breathe Right products in the fiscal 2007 second quarter rose 46% to $4.4 million versus sales of $3.0 million in the second quarter of last year. Sales increased in all major markets including Europe, Canada and Japan.

FiberChoice([R]) sales grew 87% to $8.5 million in the second quarter compared to $4.5 million in the prior year period. Effective advertising and trade promotions delivered strong consumer demand for the FiberChoice line of products, including FiberChoice([R]) plus Calcium and Fiber Choice([R]) Weight Management which were launched in February 2006.