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 January 31, 20102011
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 0-13200
Astro-Med, Inc.
(Exact name of registrant as specified in its charter)
Rhode Island | 05-0318215 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
600 East Greenwich Avenue, West Warwick, Rhode Island | 02893 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (401) 828-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
None | None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by checkmark 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 statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”,filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x
The aggregate market value of the registrant’s voting common equity held by non-affiliates at July 31, 200930, 2010 was approximately $30,256,008$41,038,746 based on the closing price on the Nasdaq Global Market on that date.
As of April 1, 201012, 2011 there were 7,204,2167,289,228 shares of Common Stock (par value $0.05 per share) of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive Proxy Statement for the 20102011 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.
FORM 10-K ANNUAL REPORT
Page | ||||||
PART I | ||||||
Item 1. | 3-7 | |||||
Item 1A. | 7-10 | |||||
Item 1B. | 10 | |||||
Item 2. | 10 | |||||
Item 3. | 10 | |||||
Item 4. | 10 | |||||
PART II | ||||||
Item 5. | 11-13 | |||||
Item 6. | 13 | |||||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13-20 | ||||
Item 7A. | 20 | |||||
Item 8. | 20 | |||||
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 20 | ||||
Item | 21 | |||||
Item 9B. | 21 | |||||
PART III | ||||||
Item 10. | 22-23 | |||||
Item 11. | 23 | |||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters | 23 | ||||
Item 13. | Certain Relationships, Related Transactions and Director Independence | 24 | ||||
Item 14. | 24 | |||||
PART IV | ||||||
Item 15. | 25-26 |
ASTRO-MED, INC.
Forward-Looking Statements
Information included in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, but rather reflect our current expectations concerning future events and results. We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “continues,” “may,” “will,” and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and factors include, but are not limited to, those factors set forth in this Annual Report on Form 10-K under “Item 1A. Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The reader is cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Annual Report on Form 10-K.
General
Unless otherwise indicated, references to “Astro-Med,” the “Company,” “we,” “our” and “us” in this Annual Report on Form 10-K refer to Astro-Med, Inc. and its consolidated subsidiaries.
Astro-Med, Inc. designs, develops, manufactures and distributes a broad range of specialty printers and data acquisition and analysis systems, including both hardware and software, which incorporate advance technologies.technologies in order to acquire, store, analyze and present data in multiple formats. Target markets for products of the Company include aerospace, apparel, automotive, avionics, chemicals, computer peripherals, communications, distribution, food and beverage, general manufacturing, life sciences, packaging and transportation.
The Company’s products are distributed through its own sales force and authorized dealers in the United States. We sell to customers outside of the United States and Canada and in Western Europe, andprimarily by using authorized dealers elsewhere in the world.and international sales representatives, who are managed from our foreign sales offices. Approximately 30% of the Company’s sales in fiscal 20102011 were to customers located outside the United States.
We operate our business through three operating segments, Astro-Med Test & Measurement (T&M), QuickLabel Systems (QuickLabel) and Grass Technologies (Grass). Financial information by business segment and geographic area appearappears in Note 10 to the Consolidated Financial Statements of this Annual Report on Form 10-K. The following description of our business should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on pages 1713 through 2520 of this Annual Report on Form 10-K.
Description of Business
Product Overview
Astro-Med, Inc. develops and manufactures specialty printers and data acquisition systems. We sell our products under the brand names Astro-Med® Test & Measurement (T&M), Grass® Technologies (Grass®), and QuickLabel® Systems (QuickLabel®).
Products sold under the Astro-Med® Test & Measurement brand acquire and record data and print the output onto charts or electronic media. Products sold under the Grass® brand electronically capture and record neurological data that is used to analyze and diagnose disorders such as epilepsy and sleep apnea. Products sold under the QuickLabel® brand make labels used in product packaging and automatic identification applications.
The Company supplies a range of products that include hardware, software and consumables to customers who are in a variety of industries.
Astro-Med Test & Measurement products include ruggedized printers and data acquisition systems. Current Astro-Med® T&M products include the TMX™ high-speed data acquisition system, ToughWriter® ruggedized cockpit printers, ToughSwitch® Ethernet switches, the TMX™ data acquisition systems, the Dash® series data recorders, and the Everest® telemetry recorders.
ToughWriter® ruggedized cockpit printers are used in the flight deck and in the cabins of military and commercial aircraft to print hard copies of airport maps, flight itineraries, weather maps, gate information, and ground communications. ToughSwitch® Ethernet switches are used in commercial and military aircraft and military vehicles to connect multiple computers or Ethernet devices together. These products are ruggedized to comply with rigorous military and commercial flightworthiness standards for operation under extreme environmental conditions. The Company is currently furnishing ToughWriter® cockpit printers for theseveral airplanes made by Airbus, A380, the Airbus A400M, theBoeing, Bombardier, Global 5000, the Bombardier Global Express XRS, the Boeing C-17, B-787, B-777, B-747, B-767, and the Lockheed C-130.Lockheed.
The Company’s family of portable data recorders, including the recently-released TMX™ and the Dash® series (Dash 2EZ+, Dash 8Xe, Dash 8HF, Dash 8XPM, Dash 18X, Dash 20HF, and Dash 32HF) are used as maintenance and troubleshooting instruments in pulp and paper mills, metal mills, power generating plants, automotive R&D centers, manufacturing plants, and for long-term testing in aerospace applications. The new TMX™ data acquisition system is designed for data capture of long-term testing in automotive, aerospace, and other industrial applications where the ability to monitor high channel counts, and accept and view a wide variety of input signals, including time-stamped and synchronized video capture data and audio notation, is important.
The Everest® telemetry recorders are used widely in the aerospace industry to monitor and track space vehicles, aircraft, missiles and other systems in flight. Everest® data recorders are used principally in the telemetry sector of the aerospace industry, where they are used to monitor parameters from an aircraft or space vehicle during flight test and vehicle launch.
Products sold under the Grass® Technologies brand include neurophysiological recording instruments, software, stimulators, electrode preps, consumable products, and Grass’ industry-renowned electrodes. Grass® equipment detects and amplifies neurophysiological signals for acquisition, review, and analysis via special Grass® software.
Grass® clinical equipment is primarily sold into the Sleep Disorders (PSG), Routine/Ambulatory EEG, and Long-Term Epilepsy Monitoring (LTM) diagnostic markets, and is sold to hospitals, free-standing clinics, and private physicians’ offices. Current Grass® clinical products include the SleepTrek®3 at-home sleep screener, a small lightweight physiological data recorder, the FDA-listed Grass® S12X Cortical Stimulator for cortical stimulation mapping to aid in cortical resection procedures, the TREA® ambulatory EEG recorder, the SleepTrek®3 at-home sleep screener, a small lightweight physiological data recorder, and TWin® Neurotrac-III Neuromonitoring Software for computing and displaying long-term trends during continuous EEG monitoring in the ICU, NICU, OR, and Seizure Monitoring units.
Grass® research products consist of square pulse stimulators; including the S88X dual-output with digital controls model and the SD9 student research model, as well as amplifiers, including the LP511 high performance AC model and P122 AC/DC Strain Gage model as well as the 15LT Amplifier System. Customers of the Grass® research line are typically university research centers or pharmaceutical companies engaged in drug research. The Grass® consumable products are comprised predominantly of sensing devices used to collect physiological data and are utilized with the systems described above.
Products sold under the QuickLabel® brand include short-run, digital color label printers developed for in-house label printing, labeling software, label and tag substrates, label printing inks including thermal transfer ribbons, toners, and inkjet inks; custom label printing services, and a range of printer accessories. The breadth of the product line allows QuickLabel sales and support staff to serve customers at virtually every level of their label printing needs.
With its broad range of entry-level, mid-range, and high-performance digital label printers, QuickLabel Systems is able to provide its customers a continuous path to upgrade to new labeling products. QuickLabel® products are primarily sold to end-user manufacturers, processors, and retailers who label products on a just-in-time basis, private label, contract package, or label products in foreign languages for export markets. These end-users can benefit from the time and cost-savings of digitally printing their own labels on-demand. Industries that commonly benefit from short-run label printing include apparel, chemicals, cosmetics, food and beverage, medical products, and pharmaceuticals, among many other packaged goods.
Current QuickLabel® models include the Vivo!®, Touch, a patented electrophotographic color label printer developed to print on continuous rollstock for in-house label printing;full-color variable information labels in an office or factory; the Zeo!®, an entry-level inkjet label printer developed in partnership with Hewlett-Packard; and the Xe series of digital color label printers utilizing thermal transfer technology, including the QLS-4100 Xe, QLS-2000 Xe and QLS-3000 Xe. The Xe Series of label printers are unique in the industry in that they can be directly integrated with automated production lines and represent a novel, patented application of multi-color thermal transfer technology, which was historically only commercialized in single-color barcode label printers. QuickLabel also sells and supports its own Pronto!® family of barcode printers/monochrome printers which utilize single color-thermal transfer label printing technology.
Technology
The core technologies of Astro-Med relate to (1) acquiring data, (2) conditioning the data, (3) displaying the data on hard copy, monitor or electronic storage media, and finally (4) analyzing the data.
We are continually improving the performance and functionality of our core technologies, enabling us to lead the competition with innovative products.
Patents and Copyrights
Astro-Med holds a number of product patents in the United States and in foreign countries. The Company copyrights its software and registers its brand trademarks. While we consider our patents to be important to the operation of our business, we do not believe that any existent patent, license, trademark or other intellectual property right is of such importance that its loss or termination would have a material adverse effect on the Company’s business taken as a whole.
Manufacturing and Supplies
Astro-Med designs its products and manufactures many of the component parts. The balance of the parts required for manufacture of our products are produced to our specifications by suppliers. Raw materials required for the manufacture of products, including parts produced to our specifications, are generally available from numerous suppliers. However, we do obtain certain components of our products and certain finished products from sole sources.
Product Development
Astro-Med maintains an active program of product research and development. During fiscal 2010, 20092011 and 2008,2010, we incurred costs of $4,819,533, $4,884,767$5,020,000 and $4,589,022,$4,820,000, respectively, on Company-sponsored product
development. We are committed to product development as a requisite to our organic growth and expect to continue our focus on research and development efforts in fiscal 20112012 and beyond.
Marketing and Competition
The Company competes worldwide in many markets including clinical and research diagnostics; specialty printing systems; and data acquisition and analysis. We retain a competitive position in our respective markets by
virtue of proprietary technology, product reputation, delivery, technical assistance, and service to customers. We market our products worldwide by advertising and promotion using major national and international trade journals, scientific meetings and trade shows, direct mailing campaigns, and the internet.
Our products are sold by direct field sales persons as well as independent dealers and representatives. In the United States, the Company has factory-trained direct field sales people located in major cities from coast to coast specializing in either Astro-Med® T&M products, QuickLabel® products, or Grass Technologies® Technologies products. Additionally, we have direct field sales and service centers in Canada, France, Germany and the United Kingdom staffed by our own employees. In the remaining parts of the world, Astro-Med utilizes approximately 60 independent dealers and representatives selling and marketing our products in 8050 countries.
Astro-Med has a number of competitors in each of the markets that it serves. In the T&M area, we believe that we lead the field in data acquisition systems. In the digital color label printing field, we believe we lead the world in color label printing technology, and we were the first to market an electrophotographic color label printer capable of printing on continuous rollstock.
Our Grass Technologies® Technologies products are devoted to clinical applications in electroncephalography (EEG), polysomnography (PSG), and Long Term Epilepsy Monitoring (LTM). There are approximately ten companies that compete in one or more of the three modalities (EEG, PSG, LTM), but none are the clear leader. We believe we offer superior products based upon our long history and pioneering efforts in the field since 1935. Unlike most of our competitors, Astro-Med designs, manufactures and produces complete systems including transducers, amplifiers, sensors and Windows-based application software. Additionally, we produce a range of life science products for the research market many of which eventually find their way into clinical applications.
No single customer accounted for 10% or more of our net sales in any of the last threetwo fiscal years.
International Sales
In fiscal 2010, 20092011 and 2008,2010, net sales to customers in various geographic areas outside the United States, primarily in Canada and Western Europe, amounted to $19,735,000, $21,823,000$20,402,000 and $21,892,000,$19,735,000, respectively.
Order Backlog
Astro-Med’s backlog fluctuates regularly. It consists of a blend of orders for end user customers as well as original equipment manufacturer customers. Manufacturing is geared to forecasted demands and applies a rapid turn cycle to meet customer expectations. Accordingly, the amount of order backlog doesmay not indicate future sales trends. Backlog at January 31, 2011 and 2010 was $7,114,000 and 2009 was $5,675,000, and $6,405,000, respectively.
Employees
As of January 31, 2010,2011, Astro-Med employed approximately 425423 people. We are generally able to satisfy our employment requirements. No employees are represented by a union. We believe that employee relations are good.
Other Information
The Company’s business is not seasonal in nature. However, our sales are impacted by the size of certain individual transactions, which can cause fluctuations in sales from quarter to quarter.
Most of the Company’s products are generally warranted for one year against defects in materials or workmanship. Warranty expenses have generally averaged approximately $400,000$570,000 a year for the last five fiscal years.
Available Information
We make available free of charge on our Internet website (www.astro-medinc.com) the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to
those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities Exchange Commission. These filings are also accessible on the SEC’s website at http://www.sec.gov.
The following risk factors should be carefully considered in evaluating Astro-Med because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating results, liquidity and financial condition. If any such risks occur, Astro-Med’s business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline, and you may lose all or part of your investment.
Continued depressedDepressed general economic conditions and uncertainties in the global credit and equity markets may adversely affect Astro-Med’s results of operation and financial position.
Our business is sensitive to changes in general economic conditions, both inside and outside the U.S. Worldwide financial markets have experienced extreme disruption in the past year, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades and declining valuations of investments. These disruptionsfew years which are likely to have an ongoing adverse effect on the world economy. We are unable to predict how long the economic downturn will last. Continuinglast or the strength or duration of an economic recovery. A continuing and/or a return to an economic downturn and financial market disruptions may adversely impact our business resulting in:
Reduced demand for our products realized by diminished new orders and increases in order cancellations;
Increased risk of excess and obsolete inventories;
Increased pressure on the prices for our products and services;
Greater difficulty in collecting accounts receivables; and
Greater risk of impairment to the value and liquidity of our investment portfolio.
Astro-Med’s operating results and financial condition could be harmed if the markets into which we sell our product decline or do not grow as anticipated.
Any decline in our customers’ markets or in their general economic conditions, including declines related to the current market disruptions as described above, would likely result in a reduction in demand for our products. For example, although we have experienced weaknessmeasured progress in all segments during the current fiscal year caused largely2011 as sales have increased from prior years, we are still affected by the
continued global economic downturn as some of our customers areremain reluctant to make capital equipment purchases and are limiting consumable product purchases to quantities necessary to satisfy immediate needs with no provisions to stock supplies for future use. Also, if our customers’ markets decline, we may not be able to collect on outstanding amounts due to us. Such declines could harm our results of operations, financial position and cash flows and could limit our ability to continue to remain profitable.
Astro-Med’s actions to reduce costscost reduction and operational efficiency programs may not achieve the intended results
Changing economic and business conditions may dictate that we undertake a plan of cost and operational efficiency reductions. We cannot be certain that these programs will achieve their intended results. Additionally, these programs may be misplaced or insufficient for purposes of positioning us for further growth, in which our long-term competitive position may suffer. Failure of these programs, if any, could have a long-termmaterial adverse effectaffect on our business.
The continued decline and uncertainty in economic conditions has required us to take steps to reduce our costs by implementing a Company–wide cost reduction initiative which began in the first quarter of fiscal 2010 and includes wage and salary freezes, layoffs and a general reduction in hours worked by the production staff. This cost reduction initiative will remain in effect until the Company determines otherwise. We can not, however, be certain that this initiative will achieve its intended results. It is also possible that the cost reduction initiative could have the effect of reducing our talent pool and available resources and, consequently, could have long-term effects on our business by decreasing or slowing improvements in our products, affecting our ability to respond to customers, limiting our ability to increase production quickly if and when the demand for our products increases, and limiting our ability to hire and retain key personnel. Any of these circumstances could adversely affect our results of operations and financial position.
Astro-Med faces significant competition and our failure to compete successfully could adversely affect our results of operations and financial condition.
We operate in an environment of significant competition, driven by rapid technological advances, evolving industry standards, frequent new product introductions and the demands of customers to become more efficient. Our competitors range from large international companies to relatively small firms. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution and customer service and support. Our success in future performance is largely dependent upon our ability to compete successfully in the markets we currently serve and to expand into additional market segments. Additionally, current competitors or new market entrants may develop new products with features that could adversely affect the competitive position of our products. To remain competitive, we must develop new products, services and applications and periodically enhance our existing offerings. If we are unable to compete successfully, we could lose market share and important customers to our competitors which could materially adversely affect our results of operations and financial position.
Astro-Med’s future revenue growth depends on our ability to introduce new products and services on a timely basis and achieve market acceptance of these new products and services.
The markets for our products are characterized by rapidly changing technology and accelerating product introduction cycles. Our future success depends largely upon our ability to address the rapidly changing needs of our customers by developing and supplying high-quality, cost-effective products, product enhancements and services on a timely basis and by keeping pace with technological developments and emerging industry standards. The success of our new products will also depend on our ability to differentiate our offerings from our competitors’ offerings,offerings; price our products competitively,competitively; anticipate our competitor’s development of new products; and maintain high levels of product quality and reliability. Astro-Med spends a significant amount of time and effort related to the development of our Ruggedized and Color Printer products as well as our Test and Measurement products. Failure to further develop any of our new products and their related markets as anticipated could adversely affect our future revenue growth and operating results.
Astro-Med’s failure to successfully manage the transition between our new products and our older products may adversely affect our results of operations and financial position.
As Astro-Med introduces new or enhanced products, we must successfully manage the transition from older products to minimize disruptions in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. When Astro-Med
introduces new or enhanced products that feature higher-performance and new technological options, we face numerous risks relating to product transitions, including the inability to accurately forecast demand, address new or higher product cost structures and manage different sales and support requirements due to the type of complexity of the new products. In addition, any customer uncertainty regarding the timeline for rolling out new products or Astro-Med’s plan for future support of existing products may negatively impact customer purchase decisions.
For certain components and assembled products, Astro-Med is dependent upon single or limited source suppliers. If these suppliers do not meet demand, either in volume or quality, then we could be materially harmed.
If the supply of a key component or assembled products were to be delayed or curtailed or, in the event a key manufacturing or sole vendor delays shipment of such components or completed products, our ability to ship products in desired quantities and in a timely manner would be adversely affected. Our business, results of operations and financial position could also be adversely affected, depending on the time required to obtain sufficient quantities from the original source or, if possible, to identify and obtain sufficient quantities from an alternative source.
Additionally, if any single or limited source supplier becomes unable or unwilling to continue to supply these components or assembled products in required volumes, we will have to identify and qualify acceptable replacements or redesign our products with different components. Alternative sources may not be available, or product redesign may not be feasible on a timely basis. Any interruption in the supply of or increase in the cost of the components and assembled products provided by single or limited source suppliers could have a material adverse affect on our business, results of operations and financial position.
Economic, political and other risks associated with international sales and operations could adversely affect Astro-Med’s results of operations and financial position.
Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. Revenue from international operations, which includes both direct and indirect sales to customers outside the U.S. accounted for approximately 30% of our total revenue for fiscal year 20102011 and we anticipate that international sales will continue to account for a significant portion of our revenue. In addition, many of our employees, suppliers, job functions and facilities are located outside the U.S. Accordingly, our future results could be harmed by a variety of factors, including:
Interruption to transportation flows for delivery of parts to us and finished goods to our customers;
Customer and vendor financial stability;
Changes in foreign currency exchange rates;
Changes in a specific country’s or region’s environment including political, economic, regulatory or other conditions;
Trade protection measures and import or export licensing requirements;
Negative consequences from changes in tax laws;
Difficulty in staffing and managing widespreadinternational operations;
Differing labor regulations;
Differing protection of intellectual property;
Unexpected changes in regulatory requirements; and
Geopolitical turmoil, including terrorism and war.
Astro-Med’s profitability is dependent upon our ability to obtain adequate pricing for our products and to improve our cost structure.
Our success depends on our ability to obtain adequate pricing for our products and services which provides a reasonable return to our shareholders. Depending on competitive market factors, future prices we obtain for our products and services may decline from previous levels. In addition, pricing actions to offset the effect of currency devaluations may not prove sufficient to offset further devaluations or may not hold in the face of customer resistance and/or competition. If we are unable to obtain adequate pricing for our products and services, our results of operations and financial position could be materially adversely affected.
We are continually reviewing our operations with a view towards reducing our cost structure, including but not limited to downsizing our employee base, exiting certain businesses, improving process and system efficiencies and outsourcing some internal functions. In the first quarter of fiscal 2010, management initiated a Company-wide cost reduction program in response to the continued depressed economic conditions. From time to time we also engage in restructuring actions
to reduce our cost structure. If we are unable to maintain our cost base at or below the current level and maintain process and systems changes resulting from current cost reduction and prior restructuring actions, our results of operations and financial position could be materially adversely affected.
Astro-Med’s results of operation may suffer if our manufacturing capacity does not match the demand for our products.
Because we cannot immediately adapt our production capacity and related cost structures to rapidly changing market conditions, when demand does not meet our expectations, our manufacturing capacity will likely exceed our production requirements. If, during a general market upturn or an upturn in one of our segments, we cannot increase our manufacturing capacity to meet product demand, we will not be able to fulfill orders in a timely manner. This inability could materially and adversely limit our ability to improve our results. By contrast, if during an economic downturn we had excess manufacturing capacity, then our fixed costs associated with excess manufacturing capacity would adversely affect our income.
Third parties may infringe our intellectual property and we may suffer competitive injury or expend significant resources enforcing our rights.
Astro-Med’s success depends in part on our proprietary technology. We rely on various intellectual property rights, including patents, copyrights, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish our proprietary rights. If we do not enforce our intellectual property rights successfully our competitive position may suffer which could harm our results of operation and financial position.
Our patents, copyrights, trademarks and other intellectual property rights may not provide us a significant competitive advantage. We may need to spend significant resources monitoring our intellectual property rights and we may or may not be able to detect infringement by third parties. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. In some circumstances, enforcement may not be available to us because an infringer has a dominant intellectual property position or for other business reasons. In addition, competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies.
Astro-Med could incur liabilities as a result of installed product failures due to design or manufacturing defects.
Astro-Med could incur liabilities as a result of installed product failures due to design or manufacturing defects. Our products may have defects despite testing internally or by current or potential customers. These defects could result in among other things, a delay in recognition of sales, loss of sales, loss of market share, failure to achieve market acceptance or substantial damage to our reputation. We could be subject to material claims by customers, and may need to incur substantial expenses to correct any product defects.
Astro-Med depends on the ongoing service of its senior management and ability to attract and retain other key personnel.
Our success depends to a significant degree upon the continuing contributions of key management, sales, marketing, research and development and manufacturing personnel, many of whom we would have difficulty replacing. We believe that our future success will depend in large part upon our ability to attract and retain highly skilled engineers and management, sales and marketing personnel. Failure to attract and retain key personnel could have a material adverse affect on our business, results of operations or financial position.
Astro-Med is subject to laws and regulations; failure to address or comply with these laws and regulations could harm our business and adversely affect our results of operations.
Our operations are subject to laws, rules, regulations, including environmental regulations, government policies and other requirements in each of the jurisdictions in which we conduct business. Changes in laws, rules, regulations, policies or requirements could result in the need to modify our products and could affect the demand for our products, which may have an adverse impact on our future operating results. In addition, we must comply with new regulations restricting our ability to include lead and certain other substances in our products. If we do not comply with applicable laws, rules and regulations we could be subject to costs and liabilities and our business may be adversely impacted.
A number of our products from our Grass Technologies product group are subject to regulation by the United States Food and Drug Administration (“FDA”) and certain similar foreign regulatory agencies. If we or any of our suppliers or distributors fail to comply with FDA and other applicable regulatory requirements or are perceived potentially to potentially have failed to comply, we may face, among other things, adverse publicity affecting both us and our customers; investigations or notices of non-compliance; fines, injunctions and civil penalties; partial suspensions or total shutdown of production facilities or the imposition of operating restrictions; increased difficulty in obtaining required FDA clearances or approvals; seizures or recalls of our products or those of our customers, and/or the inability to sell our products.
Astro-Med sells medical equipment to customers who rely on certain third party reimbursement rates.
We cannot be certain that third party reimbursement rates and policies will continue in the future. Any change in reimbursement rates and policies could adversely impact our profitability.
Adverse conditions in the global banking industry and credit markets may adversely impact the value of our investments or impair our liquidity.
At the end of fiscal 2010,2011, we had cash and cash equivalents of approximately $14$8 million invested or held in a mix of money market funds, time deposit accounts and bank demand deposit accounts. The continued disruptions in the financial markets may, in some cases, result in an inability to access assets such as money market funds that traditionally have been viewed as highly liquid. Any failure of our counterpart financial institutions or funds in which we have invested may adversely impact our cash and cash equivalent positions and, in turn, our results of operations and financial position. As of January 31, 2010,2011, we also had an approximate $10$13 million portfolio of securities available for sale. This portfolio consists of state and municipal securities with various maturity dates, as well as an auction rate security. Allall of which have a credit rating of AA or above at the securities in the portfolio are triple AAA rated at original purchase date; however, a failure of the issuerany of any such commercial paperthese securities may result in an adverse impact on theour portfolio.
Astro-Med may not be able to effectively integrate businesses or assets acquired.
We may identify and pursue acquisitions of complementary companies and strategic assets, such as customer bases, products and technology. However, there can be no assurance that we will be able to identify suitable acquisition opportunities. In December 2009, we acquired Label Line Ltd. (Label Line), a manufacturer of labels and tags which has become part of our QuickLabel Systems brand. In any acquisition that we complete, including the recent acquisition of Label Line, we cannot be certain that:
We will successfully integrate the operations of the acquired business with our own;
All the benefits expected from such integration will be realized;
Management’s attention will not be diverted or divided, to the detriment of current operations;
Amortization of acquired intangible assets will not have a negative effect on operating results or other aspects of our business;
Delays or unexpected costs related to the acquisition will not have a detrimental effect on our business, operating results and financial condition;
Customer dissatisfaction with, or performance problems at, an acquired company will not have an adverse effect on our reputation; and
Respective operations, management and personnel will be compatible.
In certain instances as permitted by applicable law and NASDAQ rules, acquisitions may be consummated without seeking and obtaining shareholder approval, in which case shareholders will not have an opportunity to consider and vote upon the merits of such an acquisition. Although we will endeavor to evaluate the risks inherent in a particular acquisition, there can be no assurance that we will properly ascertain or assess such risks.
Business interruptions could adversely affect Astro-Med’s business.
Our operations and the operations of our suppliers, contract manufacturers and customers are vulnerable to interruptions by fire, earthquake, hurricane, power loss, telecommunications failure, terrorism and other events beyond our control. Although we carry insurance for property damage and business interruption, we do not carry insurance for interruptions or potential losses arising from terrorism. In the event that a material business interruption occurs that affects Astro-Med, its suppliers, contract manufacturers or customers, shipments could be delayed and our business and financial results could be harmed. Also, our third party insurance coverage will vary from time to time in both type and amount depending on availability, cost and our decisions with respect to risk retention. Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain third party insurance. If our third party insurance coverage is adversely affected or to the extent we have elected to self-insure, we may be at a greater risk that our operations will be harmed by a catastrophic loss.
Item 1B.Unresolved Staff Comments
None
The following table sets forth information regarding the Company’s principal owned properties, all of which are included in the consolidated balance sheet appearing elsewhere in this report.
Location | Approximate Square Footage | Principal Use | ||||
West Warwick, Rhode Island, USA | 135,500 | Corporate headquarters, research and development, manufacturing, sales and service | ||||
Rockland, Massachusetts, USA | 36,000 | Manufacturing | ||||
Slough, England | 1,700 | Sales and service |
Astro-Med also leases facilities in various other locations. The following information pertains to each location:
Location | Approximate Square Footage | Principal Use | ||||
Asheboro, North Carolina, USA | 75,000 | Manufacturing | ||||
Brossard, Quebec, Canada | 7,900 | Manufacturing, sales and service | ||||
Rodgau, Germany | 6,835 | Manufacturing, sales and service | ||||
Trappes, France | 2,164 | Sales and service | ||||
Schaumburg, Illinois, USA | 1,131 | Sales | ||||
El Dorado Hills, California, USA | 273 | Sales | ||||
Newport Beach, California, USA | 151 | Sales |
We believe our facilities are well maintained, in good operating condition and generally adequate to meet our needs for the foreseeable future.
In November 2009, Astro-Med was awarded a $1,391,000 judgment related to a lawsuit filed by the Company against a former employee and a competitor business. At issue in the lawsuit was the violation of a non-competition agreement which the former employee had signed as a condition of employment with Astro- Med. The $1,391,000 judgment includes both punitive and exemplary damages, as well as attorney fees (all of which have been previously expensed) and related interest earned on the judgment and was recorded as a gain on legal settlement in the Company’s consolidated income statement for the fiscal year ended 2010. In November 2009, the Company also filed a motion to amend the original judgment to include additional legal fees of $73,000. This motion was granted on February 12, 2010. On February 17, 2010, the Company collected a total of $1,495,000 related to this legal proceeding, which includes the $1,391,000 gain on legal settlement which was recorded in the fourth quarter of fiscal 2010 and $104,000 for interest and the additional attorney fees as granted by the February 12, 2010 motion. The $104,000 will be recorded as a gain on legal settlement in the Company’s consolidated income statement for the first quarter of fiscal 2011.
There are no pending or threatened legal proceedings against the Company believed to be material to the financial position or results of operations of the Company.
Item 5. | Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Astro-Med’s common stock trades on The NASDAQ Global Market under the symbol “ALOT.” The following table sets forth the range of high and low closing prices and dividend data, as furnished by NASDAQ, for the years ended January 31:
High | Low | Dividends Per Share | High | Low | Dividends Per Share | ||||||||||||||||
2011 | |||||||||||||||||||||
First Quarter | $ | 8.05 | $ | 7.31 | $ | 0.07 | |||||||||||||||
Second Quarter | $ | 7.75 | $ | 6.93 | $ | 0.07 | |||||||||||||||
Third Quarter | $ | 7.49 | $ | 6.60 | $ | 0.07 | |||||||||||||||
Fourth Quarter | $ | 7.95 | $ | 6.90 | $ | 0.07 | |||||||||||||||
2010 | |||||||||||||||||||||
First Quarter | $ | 7.00 | $ | 4.60 | $ | 0.06 | $ | 7.00 | $ | 4.60 | $ | 0.06 | |||||||||
Second Quarter | $ | 6.24 | $ | 5.01 | $ | 0.06 | $ | 6.24 | $ | 5.01 | $ | 0.06 | |||||||||
Third Quarter | $ | 7.38 | $ | 5.17 | $ | 0.06 | $ | 7.38 | $ | 5.17 | $ | 0.06 | |||||||||
Fourth Quarter | $ | 7.69 | $ | 6.07 | $ | 0.06 | $ | 7.69 | $ | 6.07 | $ | 0.06 | |||||||||
2009 | |||||||||||||||||||||
First Quarter | $ | 10.00 | $ | 8.34 | $ | 0.06 | |||||||||||||||
Second Quarter | $ | 10.38 | $ | 8.25 | $ | 0.06 | |||||||||||||||
Third Quarter | $ | 10.00 | $ | 6.00 | $ | 0.06 | |||||||||||||||
Fourth Quarter | $ | 7.39 | $ | 5.55 | $ | 0.06 |
Astro-Med had approximately 306302 shareholders of record as of April 1, 2010,2011, which does not reflect shareholders with beneficial ownership in shares held in nominee name.
Stock Performance Graph
The graph below shows a comparison of the cumulative total return on the Company’s common stock against the cumulative total returns for the NASDAQ Composite Index and the NASDAQ Electronic Index for the period of five fiscal years ended January 31, 2010.2011. The NASDAQ Composite Index is calculated using all companies trading on the NASDAQ Global Select, NASDAQ Global Market and the NASDAQ Capital Markets through January 31, 2010.2011. The Index is weighted by the current shares outstanding and assumes dividends reinvested. The NASDAQ Electronic Index, designated as the Company’s peer group index, is comprised of companies classified as electronic equipment manufacturers.
Cumulative Total Returns* | Cumulative Total Returns* | |||||||||||||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||||||||||||||||||||
Astro-Med, Inc. | $ | 100.00 | $ | 110.48 | $ | 142.79 | $ | 135.82 | $ | 100.26 | $ | 103.99 | $ | 100.00 | $ | 129.25 | $ | 122.94 | $ | 90.75 | $ | 97.89 | $ | 98.24 | ||||||||||||||||||
NASDAQ Electronic Index | $ | 100.00 | $ | 110.89 | $ | 115.91 | $ | 109.78 | $ | 65.61 | $ | 101.69 | $ | 100.00 | $ | 104.52 | $ | 99.00 | $ | 59.16 | $ | 91.70 | $ | 109.54 | ||||||||||||||||||
NASDAQ Composite Index | $ | 100.00 | $ | 112.83 | $ | 121.39 | $ | 118.51 | $ | 59.05 | $ | 85.97 | $ | 100.00 | $ | 68.67 | $ | 105.04 | $ | 52.33 | $ | 76.81 | $ | 97.68 |
* | Assumes $100 invested on February 1, |
Dividend Policy
Astro-Med began a program of paying quarterly cash dividends in fiscal 1992 and has paid a dividend for 7478 consecutive quarters. During fiscal 2010, we paid a quarterly dividend of $0.06 per share. On March 15, 2010, the Board of Directors voted to increase the quarterly dividend by $.01 per share to $0.07 per share beginning with the first quarter of fiscal 2011, and as such, has paid a dividend of $0.28 per share for fiscal 2011.
Stock Repurchases
On August 16, 2004, Astro-Med announced that its Board of Directors had approved the repurchase of 600,000 shares of common stock. This is an ongoing authorization without any expiration date.
During the fourth quarter of fiscal 2010,2011, the Company made the following repurchases of its common stock:
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Total Number of Shares Repurchased | Average Price paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Be Purchased Under The Plans or Programs | |||||||||||||
October 31 – November 27 | 100,000 | $ | 7.03 | 100,000 | 254,089 | |||||||||||
November 28 – December 25 | — | — | — | 254,089 | ||||||||||||
December 26 – January 31 | — | — | — | 254,089 |
Item 6.Selected Financial Data
The following financial data with respectWe are a “smaller reporting company” and, as such, are not required to our results of operations, per share and financial condition data for each of the five fiscal years in the period ended January 31, 2010 set forth below has been derived from our audited consolidated financial statements. The selected financial information presented below should be read in conjunction with the Consolidated Financial Statements and related notes thereto and “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations” included inprovide this Annual Report on Form 10-K.information.
(Dollars in Thousands, Except Per Share Amounts)
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||
Results of Operations: | |||||||||||||||||
Net Sales | $ | 64,031 | $ | 71,783 | $ | 72,371 | $ | 65,519 | $ | 59,301 | |||||||
Cost of Sales | 37,403 | 40,715 | 41,260 | 38,521 | 34,643 | ||||||||||||
Gross Profit | 26,628 | 31,068 | 31,111 | 26,998 | 24,658 | ||||||||||||
Selling and Marketing | 15,342 | 16,942 | 17,126 | 15,437 | 14,143 | ||||||||||||
General and Administrative | 4,503 | 4,615 | 4,682 | 3,884 | 3,317 | ||||||||||||
Research & Development | 4,820 | 4,885 | 4,589 | 4,187 | 4,043 | ||||||||||||
Restructuring Charge | — | — | 515 | — | — | ||||||||||||
Operating Expenses | 24,665 | 26,442 | 26,912 | 23,508 | 21,503 | ||||||||||||
Gain on Legal Settlement | 1,391 | — | — | — | — | ||||||||||||
Gain on Sale of Real Estate, Net of Related Costs | — | — | — | 5,252 | — | ||||||||||||
Operating Income | 3,354 | 4,626 | 4,199 | 8,742 | 3,155 | ||||||||||||
Investment Income | 227 | 489 | 611 | 649 | 337 | ||||||||||||
Other, Net | 101 | (538 | ) | 244 | 234 | (90 | ) | ||||||||||
Income Before Income Taxes | 3,682 | 4,577 | 5,054 | 9,625 | 3,402 | ||||||||||||
Income Tax Provision | 916 | 1,613 | 744 | 3,566 | 851 | ||||||||||||
Net Income | $ | 2,766 | $ | 2,964 | $ | 4,310 | $ | 6,059 | $ | 2,551 | |||||||
Per Share: | |||||||||||||||||
Net Income per Common Share—Basic | $ | 0.39 | $ | 0.42 | $ | 0.63 | $ | 0.90 | $ | 0.39 | |||||||
Net Income per Common Share—Diluted | $ | 0.38 | $ | 0.40 | $ | 0.57 | $ | 0.82 | $ | 0.35 | |||||||
Dividends Declared per Common Share | $ | 0.24 | $ | 0.24 | $ | 0.20 | $ | 0.20 | $ | 0.13 | |||||||
Financial Condition: | |||||||||||||||||
Working Capital | $ | 41,709 | $ | 40,119 | $ | 39,411 | $ | 34,294 | $ | 31,222 | |||||||
Total Assets | $ | 64,676 | $ | 62,155 | $ | 61,699 | $ | 58,001 | $ | 49,647 | |||||||
Long-Term Debt | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Shareholders’ Equity | $ | 53,819 | $ | 51,471 | $ | 49,355 | $ | 45,958 | $ | 40,301 |
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Astro-Med is a multi-national enterprise, which designs, develops, manufactures, distributes and services a broad range of products that acquire, store, analyze and present data in multiple formats. The Company organizes its structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. It markets and sells its products and services through the following three sales product groups:
Test and Measurement Product Group (T&M)—represents a suite of telemetry recorder products sold to the aerospace and defense industries, as well as portable data acquisition recorders, which offer diagnostic and test functions to a wide range of manufacturers including automotive, energy, paper and steel fabrication. In addition, T&M also includes a suite of ruggedized printer products designed for military and commercial applications to be used in the avionics industry to print weather maps, communications and other critical flight information.
QuickLabel Systems Product Group (QuickLabel)—offers hardware, software and mediaconsumable products that create on demand color labels and store and produce images in color or non-color formats on a broad range of media substrates.
Grass Technologies Product Group (Grass)—centers on diagnostic and monitoring products that serve the clinical neurophysiology markets, as well as a range of biomedical instrumentation products and consumable supplies focused on the life sciences markets.
Astro-Med markets and sells its products and services globally through a diverse distribution structure of sales personnel, manufacturing representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets.
Our growth strategy centers on organic growth through product innovation made possible by research and development initiatives, as well as strategic acquisitions that fit into existing core businesses. Research and development activities are funded and expensed by the Company at approximately 7.5%7.1% of annual sales for fiscal 2010.
Although Astro-Med has experienced measured progress in fiscal 2010 as earnings have incrementally improved each quarter, our current year results continue to reflect the effects of the global recession in all of our markets and product lines as customers are reluctant to make capital equipment purchases and are limiting consumable product purchases to quantities necessary to satisfy immediate needs. We have responded to this worldwide recession and uncertainty in the global economy by implementing a Company-wide cost reduction initiative which began in the first quarter of fiscal 2010 and includes wage and salary freezes, layoffs and a general reduction in hours worked by production staff. Astro-Med is continuing all research and development activities as planned, as we believe that the development of new products and the enhancement of existing products will promote future growth and profitability for the Company.2011. We also continue to invest in sales and marketing initiatives by expanding the existing sales force and increasing spending on various marketing campaigns.campaigns to achieve our goals of sales growth and increased profitability notwithstanding today’s challenging economic environment.
Results of Operations
($ in thousands) | 2010 | 2009 | 2008 | |||||||||||||||||||||
Net Sales | As a % of Total Net Sales | % Change Over Prior Year | Net Sales | As a % of Total Net Sales | % Change Over Prior Year | Net Sales | As a % of Total Net Sales | |||||||||||||||||
T&M | $ | 14,247 | 22.2 | % | (9.8 | )% | $ | 15,796 | 22.0 | % | (4.3 | )% | $ | 16,505 | 22.8 | % | ||||||||
QuickLabel | 33,294 | 52.0 | % | (11.0 | )% | 37,398 | 52.1 | % | (2.0 | )% | 38,144 | 52.7 | % | |||||||||||
Grass | 16,490 | 25.8 | % | (11.3 | )% | 18,589 | 25.9 | % | (4.9 | )% | 17,722 | 24.5 | % | |||||||||||
Total | $ | 64,031 | 100.0 | % | (10.8 | )% | $ | 71,783 | 100.0 | % | (0.8 | )% | $ | 72,371 | 100.0 | % | ||||||||
T&M QuickLabel Grass Total($ in thousands) 2011 2010 Net
Sales As a % of
Total Net Sales % Change
Over Prior Year Net
Sales As a % of
Total Net Sales $ 14,837 20.9 % 4.1 % $ 14,247 22.2 % 39,500 55.6 % 18.6 % 33,294 52.0 % 16,679 23.5 % 1.1 % 16,490 25.8 % $ 71,016 100.0 % 10.9 % $ 64,031 100.0 %
Fiscal 20102011 compared to Fiscal 20092010
Astro-Med’s sales in fiscal 20102011 were $64,031,000, down 10.8% from the$71,016,000, representing a 10.9% increase as compared to prior year’s sales of $71,783,000.$64,031,000. Domestic sales of $44,296,000 decreased 11.3%$50,614,000 increased 14.3% from the prior year sales of $49,960,000.$44,296,000. International shipments of $19,735,000$20,402,000 have also declined 9.6%increased 3.4% as compared to previous year’s sales of $21,823,000. Unfavorable$19,735,000 despite a $392,000 negative impact due to foreign exchange of $744,000 accounts for 33.3% of the fiscal 2010 international sales decline from the prior year.rates.
Hardware sales in fiscal 20102011 were $28,303,000, down 18.0% from$28,686,000, a nominal increase as compared to prior year’s sales of $28,303,000. The increase in hardware sales in the current year as compared to the prior year was primarily due to the demand for T&M’s new TMX line as well as the 12.6% increase in sales of the Ruggedized product line within T&M product group. Also contributing to the increase in current year sales was the 7.0% increase in sales of QuickLabel printers and the 13.1% increase in Grass Technologies’ clinical line of diagnostic systems, especially Long Term Epilepsy Monitoring Systems. However, the increase in the current year’s hardware sales was tempered by lower sales of T&M’s recorder and data acquisition product lines, as well as lower sales of Grass Technologies’ research line of products.
Consumable sales in fiscal 2011 were $37,113,000, representing a 20.1% increase compared to prior year sales of $34,521,000 as customers have deferred capital acquisitions during$30,904,000. The overall increase in consumable sales for the current “Great Recession”, however these resultsyear was primarily due to sales in the QuickLabel product group which were tempered by a 7.4%up $5,530,000 or 21.4% as compared to prior year’s sales. QuickLabel’s increased level of consumable sales in the current year is due to an increase in bothconsumable demand from the Company’s installed base of T&M’s Everestprinter customers, as well as label shipments from the Asheboro, North Carolina business, acquired in December 2009. Also contributing to the increase in consumable sales for the current fiscal year was a 10.5% increase in Grass’ electrodes and Ruggedizedcreams product line sales, as well as a 9.8%39.5% increase in the sales of Grass Medical ResearchT&M’s chart paper product lines as compared to the prior year.
Consumable sales in fiscal 2010 were $30,904,000, representing a 3.5% decrease compared to prior year sales of $32,027,000. This decline was due to our customers reducing their consumable purchases and adjusting to a JIT purchasing policy on inventory items. Notwithstanding these results, we experienced significant growth in our Vivo! and Zeo! supply line which was up 40.4% as compared to the prior year.line.
Service and other sales revenue in fiscal 20102011 were $4,824,000, a 7.9% decrease$5,217,000, an 8.2% increase compared to prior year sales of $5,235,000$4,824,000 due to lower freight and parts revenue offset by a slightan overall increase in ourfreight, service and repairsrepair revenue.
The Company achieved $26,628,000$28,666,000 in gross profit for fiscal 20102011 and generated a gross profit margin of 41.6%40.4% as compared to prior year’s gross profit margin of 43.3%41.6%. The decline in gross profit margin for the current year is due to unfavorable mix of lower margin products included in our net sales, volume, product mixas well as higher manufacturing costs and manufacturing underabsorption.lower factory absorption at our West Warwick and Asheboro facilities.
Operating expenses for the current year were $24,664,000,$26,011,000, representing a 6.7% decrease5.5% increase from prior year’s operating expenses of $26,442,000.$24,664,000. Specifically, selling and marketing expenses decreased 9.4%increased 8.8% from prior year to $15,342,000$16,690,000 in fiscal 2010,2011, representing 24.0%23.5% of sales, a slight increasedecrease as compared to the prior year’s 23.6%24.0% of sales. The decreaseincrease in selling and marketing was primarily the result of lowerincreases in wages, benefits and benefits, lower commissions due to personnel additions and lowersales growth. The increase in sales and marketing was also impacted by the increase in travel spending.spending for fiscal 2011. General and administrative (G&A) expenses declined 2.4%4.5% from prior year to $4,503,000$4,300,000 in fiscal 2010.2011. The reduced G&A expense was primarily due to lowera decrease in banking and professional service fees as compared to the prior year. Funding of research & development (R&D) in fiscal 2010 decreased 1.3%2011 has increased 4.1% to $4,820,000. This$5,020,000. The increase in R&D for fiscal 2011 is primarily due to the
increase in outside services and is consistent with the Company’s focus on development of new products and enhancement of existing products to promote future growth. The R&D spending level for fiscal 2011 represents 7.1% of spending represents 7.5% ofnet sales, higher thana slight decrease from the prior year’s level of 6.8%7.5%.
In fiscal 2010,2011, the Company recognized a $1,391,000$104,000 gain on legal settlement for interest and attorney fees recognized as a result of damages collected from a lawsuit filed against a former employee and competitor business.
InvestmentOther income in fiscal 20102011 was $227,000,$24,000, down from $489,000$328,000 in fiscal 2009. The decrease in2010. This lower level of other income is a result of lower investment income, during fiscal 2010 was due to lower overall interest rates, available. Other income was $101,000 in fiscal 2010 as compared to other expense of $538,000 in fiscal 2009. The current year increase in other income is primarily attributable towell as foreign exchange gainslosses recognized in the current year due to the continued strengthening of the U.S. dollar during the year, as well as the recognition ofUS dollar. Additionally, other income for fiscal 2010 included a $112,000 gain on bargain purchase related to the December 2009 acquisition of Label Line.our Asheboro facilities.
Astro-Med’s fiscal 2011 pretax income was reduced by approximately $333,000 related to stock-based compensation expense as compared to fiscal 2010 pretax income which was reduced by approximately $414,000 in stock-based compensation expense. During fiscal 2009, Astro-Med’s pretax income was reduced by approximately $472,000 in stock-based compensation expense.
During fiscal 2010,2011, the Company recognized income tax expense of $916,000$722,000 and had an effective tax rate of 24.9%25.9%. The current year’s income tax expense includes:includes a benefit of $241,000 related to the resolution of a previously uncertain tax position and a benefit of $143,000 related to a favorable adjustment in the filing of the prior year’s tax returns. This compares to income tax expense of $916,000 and an effective tax rate of 24.9% in fiscal 2010 which includes 1) a benefit of $335,000 related to the resolution of a previously uncertain tax position as a result of the conclusion of an IRS examination of the Company’s Federal Returnsfederal returns for the fiscal year 2008; 2) a benefit of $88,000 related to the difference in foreign tax rates; and 3) a
benefit of $25,000 related to differences between the prior year tax provision and the actual return as filed. This compares to income tax expense of $1,613,000 and an effective tax rate of 35.2% in fiscal 2009 which includes an expense of $59,000 related to a discrete payment of additional state franchise tax and a benefit of $27,000 related to differences between the prior year tax provision and the actual return as filed.
Net income for fiscal 2011 was $2,062,000 providing a return of 2.9% on sales and generating an EPS of $0.28 per diluted share. Included in net income is a $63,000 gain, net of tax, related to the settlement of a legal matter equal to $0.01 per diluted share; $241,000 tax benefit pertaining to previously uncertain tax positions realized equal to $0.03 per diluted share and a $143,000 tax benefit relating to a favorable adjustment in the filing of the prior year’s tax returns equal to $0.02 per diluted share. On a comparative basis, fiscal 2010 net income was $2,766,000 providing a return of 4.3% on sales and generating an EPS of $0.38 per diluted share. Included in fiscal net income for 2010 is a $904,000 gain, net of tax, related to the settlement of a legal matter equal to $0.12 per diluted share; a $335,000 tax benefit pertaining to previously uncertain tax positions realized equal to $0.05 per diluted share; and a $112,000 gain on bargain purchase related to the acquisition of Label Line equal to $0.02 per diluted share. On a comparative basis, fiscal 2009’s net income was $2,964,000 providing a return of 4.1% on sales and an EPS of $0.40 per diluted share.
Fiscal 2009 compared to Fiscal 2008
Astro-Med’s sales in fiscal 2009 were $71,783,000, down 0.8% from the prior year’s sales of $72,371,000. Domestic sales of $49,960,000 decreased 1.0% from the prior year sales of $50,479,000. The lower revenue was driven by T&M domestic sales which declined 6.5% from the prior year, due to lower sales of Ruggedized products, partially offset by an increase in shipments of Everest and Dash products. The decrease in domestic sales in fiscal 2009 was tempered by an increase in both QuickLabel and Grass domestic sales. International shipments of $21,823,000 were flat over previous year’s sales of $21,892,000, as increases in T&M and Grass sales of 6.0% and 14.1%, respectively, were tempered by an 8.0% decline in QuickLabel sales. The impact of foreign exchange rate changes added approximately $272,000 or 1.2% in sales through the international channel for fiscal 2009 when compared to the prior year.
Hardware sales in fiscal 2009 were $34,521,000, down 1.7% from the prior year sales of $35,128,000. The decrease from prior year was driven by lower sales of T&M’s Ruggedized products, QuickLabel’s color printer systems and Grass EEG systems. Increased hardware sales for fiscal 2009 as compared to prior year were attributable to T&M’s Dash and Everest and Grass diagnostic sleep product lines.
Consumable sales in fiscal 2009 were $32,027,000, relatively flat compared to prior year sales of $31,986,000, as the increase in Grass product lines was offset by lower sales of consumable products in T&M’s and QuickLabel’s product lines.
Service and related products in fiscal 2009 were $5,235,000, flat compared to prior year sales of $5,257,000, as the increase in repair revenues was offset by the lower service and freight revenue.
Gross profit for fiscal 2009 was $31,068,000, comparable to the prior year’s gross profit of $31,111,000. Astro-Med realized a gross profit margin of 43.3% as compared to prior year’s gross margin of 43.0%. The Company was able improve its gross profit margin for fiscal 2009 as compared to the prior year due to sales mix and manufacturing cost reductions, especially freight and warranty expense.
Operating expenses for fiscal 2009 were $26,442,000, approximately flat with the prior year’s operating expenses of $26,397,000 (excluding the prior year $515,000 restructuring charge related to the closure of the sales and service centers located in Italy and the Netherlands). Specifically, selling and marketing expenses decreased 1.0% to $16,942,000 in fiscal 2009, representing 23.6% of sales, relatively flat from the prior year’s 23.7% of sales. The decrease in selling and marketing was primarily the result of lower benefits, as well as lower commissions and travel spending. G&A expenses decreased 1.4% to $4,615,000 in fiscal 2009 primarily due to a decrease in benefits as compared to prior year. Spending on R&D in fiscal 2009 increased 6.5% to $4,885,000. This level represents 6.8% of sales, higher than the prior year’s level of 6.3%. The increase in R&D during fiscal 2009 is primarily due to purchases of outside software engineering services.
Investment income in fiscal 2009 was $489,000, down from $611,000 in fiscal 2008. The decrease in investment income during fiscal year 2009 was due to lower overall interest rates available, as well as the Company’s investments in tax-exempt municipal bonds. Other expense was $538,000 in fiscal 2009 as compared to other income of $244,000 in fiscal 2008. The decrease is attributable to foreign exchange losses due to the strengthening of the U.S. dollar during the second half of the year.
Astro-Med’s fiscal 2009 pretax income was reduced by approximately $472,000 in stock-based compensation expense. During fiscal 2008, Astro-Med’s pretax income was reduced by approximately $585,000 in stock-based compensation expense.
During fiscal 2009 the Company incurred an income tax expense of $1,613,000 and had an effective tax rate of 35.2%. Fiscal 2009 income tax expense includes an expense of $59,000 related to a discrete payment of additional state franchise tax and a benefit of $27,000 related to differences between the prior year tax provision and the actual return as filed. This compares to an income tax expense of $744,000 and an effective tax rate of 14.7% in fiscal 2008 which includes: 1) a benefit of $167,000 related to the completion of an IRS examination, 2) a benefit of $319,000 related to changes in uncertain R&D and foreign tax credit positions, 3) an expense of $40,000 related to differences between the prior year tax provision and the actual return as filed and 4) tax benefits of $938,000 related to the restructuring and closing of the sales and service centers located in Italy and the Netherlands.
Net income for fiscal 2009 was $2,964,000 reflecting a return on sales of 4.1% and generating an EPS of $0.40 per diluted share. On a comparative basis, fiscal 2008 net income was $4,310,000 providing a return of 6.0% on sales and an EPS of $0.57 per diluted share which includes $0.06 of favorable tax benefits and $0.05 of favorable adjustments related to the restructuring of the sales and service centers located in Italy and the Netherlands.
Segment Analysis
Astro-Med reports three segments consistent with its sales product groups: Test & Measurement (T&M), QuickLabel Systems (QuickLabel) and Grass Technologies (Grass). Segment performance is evaluated based on the operating segment’s profit before corporate and financial administration expenses.
The following table summarizes selected financial information by segment:
(Dollars in thousands) | Net Sales | Segment Operating Profit | Segment Operating Profit as a % of Net Sales | Net Sales | Segment Operating Profit | Segment Operating Profit as a % of Net Sales | ||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||||||||||||||||
T&M | $ | 14,247 | $ | 15,796 | $ | 16,505 | $ | 1,148 | $ | 2,463 | $ | 3,056 | 8.1 | % | 15.6 | % | 18.5 | % | $ | 14,837 | $ | 14,247 | $ | 1,200 | $ | 1,148 | 8.1 | % | 8.1 | % | ||||||||||||||||||||||
QuickLabel | 33,294 | 37,398 | 38,144 | 2,517 | 3,664 | 4,222 | 7.6 | % | 9.8 | % | 11.1 | % | 39,500 | 33,294 | 1,847 | 2,517 | 4.7 | % | 7.6 | % | ||||||||||||||||||||||||||||||||
Grass | 16,490 | 18,589 | 17,722 | 2,217 | 2,553 | 1,583 | 13.4 | % | 13.7 | % | 8.9 | % | 16,679 | 16,490 | 3,358 | 2,217 | 20.1 | % | 13.4 | % | ||||||||||||||||||||||||||||||||
Total | $ | 64,031 | $ | 71,783 | $ | 72,371 | 5,882 | 8,680 | 8,861 | 9.2 | % | 12.1 | % | 12.2 | % | $ | 71,016 | $ | 64,031 | 6,405 | 5,882 | 9.0 | % | 9.2 | % | |||||||||||||||||||||||||||
Corporate Expenses | 3,919 | 4,054 | 4,147 | 3,749 | 3,919 | |||||||||||||||||||||||||||||||||||||||||||||||
Gain on Legal Settlement | 1,391 | — | — | 104 | 1,391 | |||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Charges | — | — | 515 | |||||||||||||||||||||||||||||||||||||||||||||||||
Operating Income | 3,354 | 4,626 | 4,199 | 2,760 | 3,354 | |||||||||||||||||||||||||||||||||||||||||||||||
Other Income (Expense), Net | 328 | (49 | ) | 855 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other Income, Net | 24 | 328 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income Before Income Taxes | 3,682 | 4,577 | 5,054 | 2,784 | 3,682 | |||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Provision | 916 | 1,613 | 744 | 722 | 916 | |||||||||||||||||||||||||||||||||||||||||||||||
Net Income | $ | 2,766 | $ | 2,964 | $ | 4,310 | $ | 2,062 | $ | 2,766 | ||||||||||||||||||||||||||||||||||||||||||
Test & Measurement
T&M’s sales decreased 9.8%increased 4.1% in fiscal 20102011 to $14,247,000$14,837,000 from $15,796,000$14,247,000 in the prior year. The increase is primarily attributable to the demand for the new TMX product line, as well as, the double-digit growth in the Ruggedized printer product line. The current year as our industrial customers have continued to defer purchases of monitor recorders during this economic slowdown. Within the product group, we achieved sales growth of 7.4% from the Everest and Ruggedized product lines; however, these increases were offsetincrease is tempered by a 27.8% decreasedeclining sales in the Dash line of portable recorders as compared to the prior year. Operating expenses were 2.6% lower in fiscal 2010data acquisition and recorder product lines as compared to the prior year. T&M’s segment operating profit was $1,148,000$1,200,000 in fiscal 2010,2011, as compared to prior year’s segment operating profit of $2,463,000. The decrease in fiscal 2010 segment operating profit resulted in operating profit margin of 8.1% as compared to fiscal 2009 operating profit margin of 15.6%.$1,148,000. The fiscal 2010 decline2011 increase in operating profits is an outgrowth of lowerhigher sales volume and higher manufacturing costs.
T&M’s sales decreased 4.3% in fiscal 2009 to $15,796,000 from $16,505,000 in the prior year. Within the product group, the Ruggedized product sales were down 21.3% from the prior year due to delays in the deployment of the new Airbus A380 and the Boeing 787 commercial aircraft. However, sales from the Everest and Dash product line grew 30.9% and 2.3%, respectively, from the prior year. Fiscal 2009lower selling and marketing expensesexpenses. Despite the slight increase in as a percent of sales were up slightly fromoperating profit, the prior year. T&M’sfiscal 2011 segment operating profit was $2,463,000 inmargin remained at 8.1%, comparable to the fiscal 2009, as compared to prior year’s segment operating profit of $3,056,000. The decrease in fiscal 2009 segment operating profit resulted in2010 operating profit margin of 15.6% as compared to fiscal 2008 operating profit margin of 18.5%8.1%. The decrease in segment operating profit for fiscal 2009 was due to lower sales volume and higher manufacturing costs.
QuickLabel Systems
QuickLabel Systems sales decreased 11.0%increased 18.6% in fiscal 20102011 to $33,294,000$39,500,000 from sales of $37,398,000$33,294,000 in the prior year. The lower sales volume was evidentincrease in QuickLabel’scurrent year is primarily attributable to the consumable product line of digital printers which declined 37.1% in fiscal 2010 as compared toincreased $5,530,000 or 21.4% from the prior year. This current year decline isWithin the consumables line, label and tag product line sales made a result of constraints placed on capital equipment purchases by our industrial customerssignificant contribution to the overall growth rate, due to the world wide recession and has affectednewly acquired Asheboro, North Carolina business, as well as the product line’s previous growth rate. Consumable product sales fared better thanincreased base of installed printers placed in service. QuickLabel’s hardware sales in the current fiscal year, as sales volume declined only 2.5% as compared to the prior year. Notwithstanding QuickLabel’s sales decline, we are encouraged by the continued double digit growth in demand realized in the Vivo! & Zeo! linesline of product supplies. The sales growth of these supplies is due toprinters also reported an increase in current year revenue. The 6.8% increase in hardware sales was primarily driven by the installed basegrowth in the color printer line, with unit contributions of printers placed in service duringsales from the second half of fiscal 2009.new Vivo! Touch product line. QuickLabel’s fiscal 20102011 segment operating profit was $2,517,000$1,847,000 reflecting a profit margin of 7.6%4.7%, compared to prior year’s segment profit margin of 9.8%7.6%. The decline in operating margin for fiscal 20102011 is due to unfavorable mix of lower margin products included in our net sales, volumehigher manufacturing costs and product mix.
QuickLabel Systems sales decreased 2.0% in fiscal 2009 to $37,398,000 from sales of $38,144,000 in the prior year. The fiscal 2009 sales decline was primarily due to a 6.3% decrease in printer systems and a 1.7% decrease in service and other sales. Media sales within the product group for fiscal 2009 were flatlower factory utilization, as compared to the prior year. Fiscal 2009 selling and marketing expenseswell as, a percent of sales were up slightly from the prior year. QuickLabel segmenthigher operating profit was $3,664,000 during fiscal 2009 compared to the prior year’s segment operating profit of $4,222,000. The decrease in fiscal 2009 segment operating profit resulted in operating profit margin of 9.8% as compared to fiscal 2008 operating profit margin of 11.1%. The decrease in segment operating profit for fiscal 2009 as compared to the prior year was driven by lower printer sales and increased selling and R&D spending.expenses.
Grass Technologies
Grass sales decreased 11.3% in fiscal 20102011 were $16,679,000 as compared to $16,490,000 from $18,589,000 in the prior year. Current year hardwareThis year’s sales decreased 15.6%represent a slight increase over prior year’s sales as a result of the increase in Grass’ Clinical line of diagnostic products including EEG, Sleep Systems and Long-Term Epilepsy monitoring which reported a 13.1% increase as compared to the prior year. This decline is primarily dueAlso making a positive contribution to lower sales involume during the clinical current year was the
line of diagnostic Sleep Systemsconsumable products of electrodes and creams which have been adversely affected by the economic downturn and lower funding sources currently being experienced by hospitals, laboratories and research facilities; however, the declinereported a 10.3% growth in the hardware line has been slightlysales as compared to prior year. The current year increase in Grass sales was tempered by the increase31.6% decrease in the Medical Research Instrument product line.line of products, as well as a 6.0% decrease in service and other revenue. Grass consumable sales for the current year declined 4.1%operating profit increased 51.5% to $3,358,000 resulting in a 20.1% profit margin as compared to the prior year. Grass operating profit of $2,217,000 during fiscal 2010 declined 13.2% from the prior year and resulted in a current year segment operationyear’s profit margin of 13.4% as compared to 13.7% reported in the prior year.. The decreasedincreased profitability is an outgrowth of lowerfavorable product mix of higher margin products included in net sales, volume.
Grass sales increased 4.9% in fiscal 2009 to $18,589,000 from $17,722,000 in the prior year. The product group’s increase in sales for fiscal 2009 was achieved through growth of the clinical products (EEG, Sleep and Long Term Monitoring diagnostic products) of 10% and the consumable products of creams and electrodes of 7.3%, partially offset by a decrease in the service and other product lines of 10.2%. Grass segment operating profit was $2,553,000 during fiscal 2009. The increase in fiscal 2009 segment operating profit resulted in operating profit margin of 13.7% as compared to fiscal 2008 operating profit margin of 8.9%. The improvement from fiscal 2008 segment operating profit was due to the sales increase in the clinical diagnostic systems, especially sleep applications,well as lower manufacturing costs better production absorption and lower field selling and customer serviceoperating expenses. The improved operating profits were tempered somewhat from higher R&D spending.
Liquidity and Capital Resources
The Company expects to finance its future working capital needs, capital expenditures and acquisition requirements through internal funds.funds and believes that cash provided by operations will be sufficient to meet our operating and capital needs for at least the next twelve months. To the extent our capital and liquidity requirements are not satisfied internally, we may utilize a $3.5$5.0 million revolving bank line of credit which was entered into on December 1, 2010 with Wells Fargo Bank, all of which is currently available. Borrowings under this line of credit bear interest at LIBOR Advantage Rate plus 200either a fluctuating rate equal to 75 basis points.points below the base rate, as defined in the agreement, or at a fixed rate equal to 150 basis points above LIBOR.
Astro-Med’s Statements of Cash Flows for each of the threetwo years ended January 31, 2010, 20092011 and 20082010 are included on page 38.33. Net cash flowflows provided by operating activities was $1,110,000 in fiscalthe current year 2010 was $5,850,000. Thecompared to net cash flow provided by operations is attributedoperating activities of $5,850,000 in the previous year. The declining cash flows are primarily related to higher working capital requirements. Accounts receivables increased to $11,112,000 at January 31, 2011, as compared to $9,173,000 at January 31, 2010. The accounts receivable collection cycle increased to 54 days sales outstanding at January 31, 2011 as compared to 49 days outstanding at prior year end due to the positive cash flow generated from net income and from the reductions in accounts receivable and inventory balances of $871,000 and $1,113,000, respectively. Cash flow from operating activities was lowered by funding accounts payable and accrued expenses of $510,000. The increase in working capital is in supportslower paying customers. Inventory balances increased to $14,405,000 at January 31, 2011, compared to $12,039,000 at the end of the Company’s growth.previous year due to the build up of inventory in anticipation of QuickLabel’s new product launch. Inventory days on hand also increased to 124 days on hand at the end of the current quarter from 114 days at year end.
Net cash flow used in investing activities for fiscal 20102011 was $1,524,000$5,404,000 which included cash used for capital expenditures of approximately $1,622,000$2,090,000 including $853,000$1,187,000 for building improvements, $427,000$499,000 for information technology, $189,000machinery and equipment, $220,000 for tools and dies, $138,000 for information technology and $153,000$46,000 for machineryfurniture and equipment. Cash used for investing activities for fiscal year 2010 also included $1,450,000 for the acquisition of the Label Line business.fixtures.
Net cash flow used by financing activities was $1,149,000$2,141,000 in fiscal 2010.2011. During the year the Company paid dividends of $1,713,000.$2,036,000 and purchased $976,000 of the Company’s stock. Also during the current year, the Company generated $488,000$672,000 in cash through the exercise of employee stock options and Employee Stock Purchase Plan transactions and $76,000 in excess tax benefits resulting from share-based compensation.transactions.
Dividends paid for fiscal 2011 and 2010, 2009were $2,036,000 and 2008, were $1,713,000, $1,678,000 and $1,380,000, respectively. The Company’s annual dividend per share was $0.28 in fiscal 2011 and $0.24 in fiscal 2010 and 2009 and $0.20 in fiscal 2008.2010. Since the inception of the common stock buy back program in fiscal 1997, the Company has repurchased 1,149,3351,420,010 shares of its common stock. At January 31, 2010,2011, the Company has the Board of Directors’ authorization to purchase an additional 392,289254,089 shares of the Company’s common stock in the future.
Contractual Obligations, Commitments and Contingencies
Astro-Med is subject to contingencies, including legal proceedings and claims arising out of its businesses that cover a wide range of matters, such as: contract and employment claims; workers compensation claims; product liability claims; warranty claims; and claims related to modification, adjustment or replacement of component parts of units sold. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, we believe that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations. It is possible, however, that results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the Company’s control.
Critical Accounting Policies and Estimates
Astro-Med’s discussion and analysis of financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements. These judgments and estimates are based on the Company’s historical experience, current trends and information available from other sources, as appropriate. If different conditions result from those assumptions used in our judgments, the results could be materially different from
our estimates. We believe the following are our most critical accounting policies as they require significant judgments and estimates in the preparation of our financial statements:
Revenue Recognition: The majority of our product sales are recorded at the time of shipment, when legal title has transferred and risk of loss passes to the customer, when persuasive evidence of an arrangement exists, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured. When a sale arrangement involves training or installation, the deliverables in the arrangement are evaluated to determine whether they represent separate units of accounting. This evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered. The total fee from the arrangement is allocated to each unit of accounting based on its relative fair value. Fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately.
Revenue is recognized when revenue recognition criteria for each unit of accounting are met. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled. All of our equipment contains embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole as it is not sold separately or marketed separately and its production costs are minor as compared to those of the hardware system. Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied.
Astro-Med recognizes revenue for non-recurring engineering (NRE) fees for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue.
Infrequently, the Company receives requests from customers to hold product being purchased from us for the customers’ convenience. We recognize revenue for such bill and hold arrangements provided the transaction meets the following criteria: a valid business purpose for the arrangement exists; risk of ownership of the purchased product has transferred to the buyer; there is a fixed delivery date that is reasonable and consistent with the buyer’s business purpose; the product is ready for shipment; the payment terms are customary; we have no continuing performance obligation in regards to the product and the product have been segregated from our inventories.
Warranty Claims and Bad Debts: Provisions for the estimated costs for future product warranty claims and bad debts are recorded in cost of sales and general and administrative expense, respectively, at the time a sale is recorded. The amounts recorded are generally based upon historically derived percentages while also factoring in any new business conditions that might impact the historical analysis such as new product introduction for warranty and bankruptcies of particular customers for bad debts. We also periodically evaluate the adequacy of our reserves for warranty and bad debts recorded in its consolidated balance sheet as a further test to ensure the adequacy of the recorded provisions. Warranty and bad debt analysis often involves subjective analysis of a particular customer’s ability to pay. As a result, significant judgment is required in determining the appropriate
amounts to record and such judgments may prove to be incorrect in the future. We believe that our procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to the actual amounts.
Inventories:Inventories are stated at the lower of cost (first-in, first-out) or market. The Company records provisions to write-down obsolete and excess inventory to its estimated net realizable value. The process for evaluating obsolete and excess inventory consists of analyzing the inventory supply on hand and estimating the net realizable value of the inventory based on historical experience, current business conditions and anticipated future sales. We believe that our procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to actual experience.
Income Taxes: A valuation allowance is established when it is “more-likely-than- not”“more-likely-than-not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence must be considered, including our performance, the market environment in which we operate, length of carryforward periods, existing sales backlog and future sales projections. If actual factors and conditions differ materially from the estimates made by management, the actual realization of the net deferred tax assets or liabilities could vary materially from the amounts previously recorded. At January 31, 2010,2011, the Company has provided valuation allowances for future tax benefits resulting from certain R&D tax credits which could expire unused.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions. Although guidance on the accounting for uncertain income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what we have estimated, our income tax expense could be materially impacted.
Long-Lived Assets and Goodwill: The impairment of long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.
Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is considered to be impaired when the net book value of a segment exceeds its estimated fair value. Fair values are established using a discounted cash flow methodology based on the long-range planning forecast.
Share-Based Compensation: Share-based compensation expense is based on the estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model. Our estimate of share-based compensation requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options) the risk free interest rate and the Company’s dividend yield. The stock price volatility assumption is based on the historical weekly price data of our common stock over a period equivalent to the weighted average expected life of our options. Management evaluated whether there were factors during that period which were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. In determining the expected life of the option grants, the Company has observed the actual terms of prior grants with similar characteristics and the actual vesting schedule of the grant and has assessed the expected risk tolerance of different option groups. The risk-free interest rate used in the model is based on the actual U.S. Treasury zero coupon rates for bonds matching the expected term of the option as of the option grant date. The dividend assumption is based upon the prior year’s average dividend yield. No compensation expense is recognized for options that are forfeited for which the employee does not render the requisite service.
Recent Accounting Pronouncements
Reference is made to Note 1 of our Consolidated Financial Statements included herein.
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
The registrant is a smaller reporting company and is not required to provide this information.
Item 8.Financial Statements and Supplementary Data
The consolidated financial statements required under this item are submitted as a separate section of this report on the pages indicated at Item 15(a)(1). The supplementary data regarding quarterly results of operations is set forth in the following table.
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in Thousands, Except Per Share Amounts)
2011 | ||||||||||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||||||||||
Net Sales | $ | 17,077 | $ | 17,753 | $ | 18,329 | $ | 17,857 | ||||||||||||||||||||||
Gross Profit | $ | 6,865 | $ | 7,024 | $ | 7,401 | $ | 7,376 | ||||||||||||||||||||||
Net Income | $ | 430 | (1) | $ | 323 | $ | 792 | (3) | $ | 517 | ||||||||||||||||||||
Net Income Per Common Share—Basic | $ | 0.06 | $ | 0.04 | $ | 0.11 | $ | 0.07 | ||||||||||||||||||||||
Net Income Per Common Share—Diluted | $ | 0.06 | (2) | $ | 0.04 | $ | 0.11 | (4) | $ | 0.07 | ||||||||||||||||||||
2010 | 2010 | |||||||||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||||||
Net Sales | $ | 14,677 | $ | 16,416 | $ | 16,658 | $ | 16,280 | $ | 14,677 | $ | 16,416 | $ | 16,658 | $ | 16,281 | ||||||||||||||
Gross Profit | $ | 5,813 | $ | 6,951 | $ | 7,059 | $ | 6,805 | $ | 5,813 | $ | 6,951 | $ | 7,059 | $ | 6,805 | ||||||||||||||
Net Income (Loss) | $ | (231 | ) | $ | 585 | $ | 683 | $ | 1,729 | (1) | $ | (231 | ) | $ | 585 | $ | 683 | $ | 1,728 | (5) | ||||||||||
Net Income (Loss) Per Common Share—Basic | $ | (0.03 | ) | $ | 0.08 | $ | 0.10 | $ | 0.24 | $ | (0.03 | ) | $ | 0.08 | $ | 0.10 | $ | 0.24 | ||||||||||||
Net Income (Loss) Per Common Share—Diluted | $ | (0.03 | ) | $ | 0.08 | $ | 0.09 | $ | 0.23 | (2) | $ | (0.03 | ) | $ | 0.08 | $ | 0.09 | $ | 0.23 | (6) | ||||||||||
2009 | ||||||||||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||||||||||
Net Sales | $ | 18,687 | $ | 19,784 | $ | 17,681 | $ | 15,631 | ||||||||||||||||||||||
Gross Profit | $ | 8,187 | $ | 8,681 | $ | 7,647 | $ | 6,553 | ||||||||||||||||||||||
Net Income | $ | 898 | $ | 1,154 | $ | 649 | $ | 263 | ||||||||||||||||||||||
Net Income Per Common Share—Basic | $ | 0.13 | $ | 0.16 | $ | 0.09 | $ | 0.04 | ||||||||||||||||||||||
Net Income Per Common Share—Diluted | $ | 0.12 | $ | 0.15 | $ | 0.09 | $ | 0.04 |
(1) | First quarter fiscal year 2011 net income includes gain on legal settlement, net of taxes of $63,000. |
(2) | First quarter fiscal year 2011 diluted net income per common share includes a gain on legal settlement, net of tax of $0.01. |
(3) | Third quarter fiscal year 2011 net income includes a tax benefit of $241,000 related to the resolution of a previously uncertain tax position and a benefit of $143,000 recorded as a result of a favorable adjustment in the filing of the prior year’s tax returns. |
(4) | Third quarter fiscal year 2011 diluted net income per common share includes and a tax benefit of $0.03 related to the resolution of a previously uncertain tax position and a tax benefit of $0.02 recorded as a result of a favorable adjustment in the filing of the prior year’s tax returns. |
(5) | Fourth quarter fiscal year 2010 net income includes a gain on legal settlement, net of taxes, of $904,000; a gain on bargain purchase related to the acquisition of Label Line of $112,000; and a tax benefit of $335,000 recorded as a result of the resolution of a previously uncertain tax position. |
Fourth quarter fiscal year 2010 diluted net income per common share includes a gain on legal settlement, net of taxes of $0.12; a gain on bargain purchase of $0.02; and a tax benefit of $0.04 recorded as a result of the resolution of a previously uncertain tax position. |
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.(T)Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective at January 31, 20102011 to ensure that the information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.
Our management, includingBecause of the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls orinherent limitations, internal control over financial reporting willmay not prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the designor detect misstatements. Also, projections of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, noany evaluation of controls can provide absolute assuranceeffectiveness to future periods are subject to risk that all control issues and instances of fraud, if any, within Astro-Med have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.deteriorate.
Management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) as of January 31, 2010.2011. Based on this assessment, the principal executive officer and principal financial officer believe that as of January 31, 2010,2011, the Company’s internal control over financial reporting was effective based on criteria set forth by COSO in “Internal Control-Integrated Framework.”
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporarythe rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Controls over Financial Reporting
There have been no significant changes in the Company’s internal control over financial reporting during our most recent fiscal quarter that hashave materially affected, or isare reasonably likely to affect our internal control over financial reporting.
Nothing to Report
Item 10.Directors, Executive Officers and Corporate Governance
The response to this item is incorporated by reference to the Company’s definitive proxy statement for the 20102011 annual meeting of shareholders.
The following is a list of the names and ages of, and the positions and offices presently held by, all executive officers of the Company. All officers serve at the pleasure of the Board of Directors.
Name | Age | Position | ||||
Albert W. Ondis | 85 | Chairman, Chief Executive Officer and Director | ||||
Everett V. Pizzuti | 74 | President, Chief Operating Officer and Director | ||||
Joseph P. O’Connell | 67 | Senior Vice President, Treasurer and Chief Financial Officer | ||||
Elias G. Deeb | 68 | Vice President—Media Products | ||||
Gordon Bentley | 64 | Vice President—Information Technology | ||||
Michael J. Sullivan | 60 | Vice President and Chief Technology Officer | ||||
Michael M. Morawetz | 51 | Vice President—International Branches | ||||
Stephen M. Petrarca | 48 | Vice President—Instrument Manufacturing | ||||
Erik J. Mancyak | 35 | Vice President and Corporate Controller |
Mr. Ondis has been a Director and Chief Executive Officer since he founded the Company in 1969. He was previously President and the Chief Financial Officer (Treasurer) of the Company from 1969 to 1985.
Mr. Pizzuti was previously a Vice President of the Company and has been functioning as President and Chief Operating Officer since 1971.
Mr. O’Connell joined the Company in 1996. He previously held senior financial management positions with Cherry Tree Products Inc., IBI Corporation and Avery Dennison Corporation. Mr. O’Connell is also Assistant Secretary of the Company. He was appointed to the position of Senior Vice President in 2007.
Mr. Deeb has held the position identified since 1987. In 1985, he was named General Manager—Media Products after having been Vice President and General Manager since 1981 of a business sold by the Company in 1984.
Mr. Bentley was appointed Vice President of Information Technology in 2007. He was previously Director of Information Technology and held other various operations positions since joining the Company in 1980.
Mr. Sullivan was appointed Vice President and Chief Technology Officer in 2000. He is an electronic engineer and has been with the Company since 1983.
Mr. Morawetz was appointed Vice President International Branches in 2006. He was previously the General Manager of Branch Operations for the Company’s German Subsidiary, having joined the Company in 1989.
Mr. Petrarca was appointed Vice President of Instrument Manufacturing in 1998. He has previously held positions as General Manager of Manufacturing, Manager of Grass Operations and Manager of Grass Sales. He has been with the Company since 1980.
Mr. Mancyak was appointed Vice President of the Company on April 1, 2011. He also holds the position of Corporate Controller and Principal Accounting Officer to which he was appointed in January 2009. He has served as Assistant Corporate Controller of the Company sincefrom July 1, 2008 to January 2009 and prior to that was an Accounting Manager of the Company beginning July 1, 2005. Prior to June 30, 2005, Mr. Mancyak was Senior Treasury Analyst at American Power Conversion and an auditor at the international accounting firm of KPMG LLP.
Code of Ethics
The Company has adopted a Code of Ethics which applies to all directors, officers and employees of the Company, including the Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”) and Corporate Controller, as supplemented by a Code of Ethical Conduct for the Chief Executive Officer and Senior Financial Officers, which meets the requirements of a “code of ethics” as defined in Item 406 of Regulation S-K. A copy of the Code of Ethics will be provided to shareholders, without charge, upon request directed to Investor Relations or can be obtained on the Company’s website, (www.astro-medinc.com), under the heading “Corporate Governance—Charters.” The Company will disclose any amendment to, or waiver of, a provision of the Codes for the CEO, COO, CFO, Controller or persons performing similar functions by posting such information on its website and filing a Form 8-K as required under the rules of the NASDAQ Global Market.
Item 11.Executive Compensation
The response to this item is incorporated by reference to the Company’s definitive Proxy Statement for the 20102011 Annual Meeting of Shareholders.
The information set forth under the heading “Compensation Committee Report” in the Company’s definitive Proxy Statement is furnished and shall not be deemed as filed for purposes of Section 18 of the Securities Act of 1934, as amended, and is not deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
The response to this item is incorporated by reference to the Company’s definitive Proxy Statement for the 20102011 Annual Meeting of Shareholders.
Equity Compensation Plan Information
The following table sets forth information about the Company’s equity compensation plans as of January 31, 2010:2011:
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans | |||||||||||||||
Equity Compensation Plans Approved by Security Holders | 1,688,951 | (1) | $ | 6.24 | 811,500 | (2) | 1,219,183 | (1) | $ | 7.03 | 726,500 | (2) | |||||||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | — | — | — | |||||||||||||||
Total | 1,688,951 | (1) | $ | 6.24 | 811,500 | (2) | 1,219,183 | (1) | $ | 7.03 | 726,500 | (2) |
(1) | Includes |
(2) | Shares under the Astro-Med, Inc. 2007 Equity Incentive Plan. |
Additional information regarding these equity compensation plans is contained in Note 7 to the Company’s Consolidated Financial Statements included in Item 15 hereto.
Item 13.Certain Relationships, Related Transactions and Director Independence
The response to this item is incorporated by reference to the Company’s definitive Proxy Statement for the 20102011 Annual Meeting of Shareholders.
Item 14.Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the Company’s definitive Proxy Statement for the 20102011 Annual Meeting of Shareholders.
Item 15.Exhibits and Financial Statement Schedule
(a)(1)Financial Statements:
The following consolidated financial statements of Astro-Med, Inc. and subsidiaries are incorporated by reference in Item 8:
Page | ||
| ||
Consolidated Balance Sheets as of January 31, | ||
Consolidated Statements of Operations—Years Ended January 31, | ||
Consolidated Statements of Cash Flows—Years Ended January 31, | ||
(a)(2)Financial Statement Schedule: | ||
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.
(a)(3)Exhibits:
Exhibit Number | ||
(3A) | Articles of Incorporation of the Company and all amendments thereto (filed as Exhibit No. 3A to the Company’s report on Form 10-Q for the quarter ended August 1, 1992 and by this reference incorporated herein). | |
(3B) | By-laws of the Company as amended to date (filed as Exhibit No. 3B to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2008 and by this reference incorporated herein). | |
(4) | Specimen form of common stock certificate of the Company (filed as Exhibit No. 4 to the Company’s report on Form 10-K for the year ended January 31, 1985 and by this reference incorporated herein). | |
(10.1) | Astro-Med, Inc. 1993 Incentive Stock Option Plan filed as Exhibit 4.3 to Registration Statement on Form S-8, Registration No. 333-24127, and incorporated by reference herein.* | |
(10.2) | Astro-Med, Inc. Non-Employee Director Stock Plan filed as Exhibit 4.3 to Registration Statement on Form S-8, Registration No. 333-24123, and incorporated by reference herein.* | |
(10.3) | Astro-Med, Inc. 1997 Incentive Stock Option Plan, as amended, filed as Exhibit 4.3 to Registration Statements on Form S-8, Registration Nos. 333-32315, 333-93565 and 333-44414, and incorporated by reference herein.* | |
(10.4) | Astro-Med, Inc. 1998 Non-Qualified Stock Option Plan, as amended, filed as Exhibit 4.3 to Registration Statement on Form S-8, Registration Nos. 333-62431 and 333-63526, and incorporated by reference herein.* | |
(10.5) | Astro-Med, Inc. 2007 Equity Incentive Plan as filed as Appendix A to the Definitive Proxy Statement filed on Schedule 14A for the 2007 annual shareholders meeting and incorporated by reference herein.* | |
(10.6) | Astro-Med, Inc. Management Bonus Plan (Group III) filed on Form 8-K on March 19, 2010 and by this reference incorporated herein.* | |
(10.7) | Astro-Med, Inc. Management Bonus Plan—Vice President International Branches filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended January 31, 2009 and by this reference incorporated herein.* | |
(21) | List of Subsidiaries of the Company. | |
(23.1) | Consent of Ernst & Young LLP. | |
(23.2) | Consent of Grant Thornton LLP. | |
(31.1) | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
(31.2) | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
(32.1) | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
(32.2) | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Management contract or compensatory plan or arrangement. |
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.
ASTRO-MED, INC. (Registrant) | ||||||
Date: April | By: | / | ||||
(Albert W. Ondis, Chairman) |
Each person whose signature appears below constitutes and appoints each of Albert W. Ondis, Everett V. Pizzuti or Joseph P. O’Connell, or any of them, each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resolution, for such person and in his name, place and stead, in any and all capacities in connection with the annual report on Form 10-K of Astro-Med, Inc. for the year ended January 31, 20102011 to sign any and all amendments to the Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute, may lawfully do or cause to be done by virtue hereof.
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 and on the date indicated.
Name | Title | Date | ||
/S/ ALBERT W. ONDIS Albert W. Ondis | Chairman, Chief Executive Officer and Director | April | ||
/S/ EVERETT V. PIZZUTI Everett V. Pizzuti | President, Chief Operating Officer and Director | April | ||
/S/ JOSEPH P. O’CONNELL Joseph P. O’Connell | Senior Vice President, Treasurer and | April | ||
/S/ ERIK J. MANCYAK Erik J. Mancyak | Vice President and Corporate Controller | April | ||
/S/ JACQUES V. HOPKINS Jacques V. Hopkins | Director | April | ||
/S/ HERMANN VIETS Hermann Viets | Director | April | ||
/S/ GRAEME MACLETCHIE Graeme MacLetchie | Director | April |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Astro-Med, Inc.
We have audited the accompanying consolidated balance sheetssheet of Astro-Med, Inc. and subsidiaries (the “Company”) as of January 31, 2010 and 2009,2011 and the related consolidated statements of operations, comprehensive income and changes in shareholders’ equity, and cash flows for eachthe year then ended. Our audit also included the financial statement schedule listed in the index at Item 15(a)(2) as it relates to the year ended January 31, 2011. These financial statements and schedule are the responsibility of the three yearsCompany’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Astro-Med, Inc. and subsidiaries as of January 31, 2011 and the results of its operations and its cash flows for the year in the period ended January 31, 2010.2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule as it relates to the year ended January 31, 2011, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Providence, Rhode Island
April 18, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of
Astro-Med, Inc.
We have audited the accompanying consolidated balance sheet of Astro-Med, Inc. and subsidiaries (the “Company”) as of January 31, 2010 and the related consolidated statements of operations, comprehensive income and changes in shareholders’ equity, and cash flows the year then ended. Our auditsaudit of the basic financial statements includeincluded the financial statement schedule listed in the index appearing under Item 15(a)(2). as it relates to the year ended January 31, 2010. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.audit.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Astro-Med, Inc. and subsidiaries as of January 31, 2010, and 2009, and the results of their operations and their cash flows for each of the three years in the periodyear then ended, January 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule as it relates to the year ended January 31, 2010, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ GRANT THORNTONGRANT THORNTON LLP
Boston, Massachusetts
April 9, 2010, except with respect to
Note 17 as to which the date
is April 18, 2011
CONSOLIDATED BALANCE SHEETS
As of January 31, 20102011 and 20092010
2010 | 2009 | 2011 | 2010 | |||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash and Cash Equivalents | $ | 14,155,096 | $ | 10,978,553 | $ | 7,720,135 | $ | 14,155,096 | ||||||||
Securities Available for Sale | 9,605,216 | 10,234,713 | 12,910,232 | 9,605,216 | ||||||||||||
Accounts Receivable, net of reserves of $518,789 in 2010 and $576,735 in 2009 | 9,172,857 | 9,246,140 | ||||||||||||||
Accounts Receivable, net of reserves of $546,870 in 2011 and $518,789 in 2010 | 11,111,974 | 9,172,857 | ||||||||||||||
Inventories | 12,039,306 | 12,826,427 | 14,404,914 | 12,039,306 | ||||||||||||
Prepaid Expenses and Other Current Assets | 2,246,789 | 1,653,484 | 975,928 | 2,246,789 | ||||||||||||
Deferred Tax Assets | 2,648,294 | 3,083,345 | ||||||||||||||
Deferred Tax Assets (as revised – See Note 17) | 2,577,166 | 2,455,672 | ||||||||||||||
Total Current Assets | 49,867,558 | 48,022,662 | 49,700,349 | 49,674,936 | ||||||||||||
PROPERTY, PLANT AND EQUIPMENT | ||||||||||||||||
Land and Improvements | 1,210,463 | 1,210,463 | 1,210,463 | 1,210,463 | ||||||||||||
Buildings and Improvements | 12,566,362 | 11,610,375 | 13,011,082 | 12,566,362 | ||||||||||||
Machinery and Equipment | 22,553,840 | 20,766,182 | 23,926,971 | 22,553,840 | ||||||||||||
36,330,665 | 33,587,020 | 38,148,516 | 36,330,665 | |||||||||||||
Less Accumulated Depreciation | (24,340,083 | ) | (22,757,543 | ) | (25,606,561 | ) | (24,340,083 | ) | ||||||||
Total Property, Plant and Equipment, net | 11,990,582 | 10,829,477 | 12,541,955 | 11,990,582 | ||||||||||||
OTHER ASSETS | ||||||||||||||||
Securities Available for Sale | — | 890,925 | ||||||||||||||
Intangible Assets, net | 403,056 | — | 331,389 | 403,056 | ||||||||||||
Goodwill | 2,336,721 | 2,336,721 | 2,336,721 | 2,336,721 | ||||||||||||
Other | 78,127 | 75,465 | 88,799 | 78,127 | ||||||||||||
Total Other Assets | 2,817,904 | 3,303,111 | 2,756,909 | 2,817,904 | ||||||||||||
TOTAL ASSETS | $ | 64,676,044 | $ | 62,155,250 | $ | 64,999,213 | $ | 64,483,422 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts Payable | $ | 2,885,067 | $ | 2,352,084 | ||||||||||||
Accounts Payable (as revised – See Note 17) | $ | 2,748,293 | $ | 2,386,305 | ||||||||||||
Accrued Compensation | 2,019,644 | 2,060,628 | 2,179,448 | 2,019,644 | ||||||||||||
Other Accrued Expenses | 1,584,357 | 1,602,670 | 1,750,515 | 1,584,357 | ||||||||||||
Income Taxes Payable | 318,930 | 441,275 | ||||||||||||||
Deferred Revenue | 787,988 | 695,240 | ||||||||||||||
Income Taxes Payable (as revised – See Note 17) | 36,979 | 211,419 | ||||||||||||||
Other Current Liabilities | 654,905 | 582,596 | - | 654,905 | ||||||||||||
Deferred Revenue | 695,240 | 864,400 | ||||||||||||||
Total Current Liabilities | 8,158,143 | 7,903,653 | 7,503,223 | 7,551,870 | ||||||||||||
Deferred Tax Liabilities | 2,056,393 | 1,939,234 | 2,060,418 | 2,056,393 | ||||||||||||
Other Long Term Liabilities | 642,612 | 840,878 | 1,146,978 | 642,612 | ||||||||||||
TOTAL LIABILITIES | 10,857,148 | 10,683,765 | 10,710,619 | 10,250,875 | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
SHAREHOLDERS’ EQUITY (as revised – See Note 17) | ||||||||||||||||
Preferred Stock, $10 Par Value, Authorized 100,000 shares, None Issued | — | — | — | — | ||||||||||||
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 8,322,844 shares in 2010 and 8,191,767 shares in 2009 | 416,146 | 409,593 | ||||||||||||||
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 8,660,270 shares in 2011 and 8,322,844 shares in 2010 | 433,017 | 416,146 | ||||||||||||||
Additional Paid-in Capital | 34,712,369 | 33,740,936 | 36,586,226 | 34,712,369 | ||||||||||||
Retained Earnings | 26,403,248 | 25,349,964 | 26,842,890 | 26,816,899 | ||||||||||||
Treasury Stock, at Cost, 1,165,706 shares in 2010 and 2009 | (8,030,335 | ) | (8,030,335 | ) | ||||||||||||
Treasury Stock, at Cost, 1,414,981 shares in 2011 and 1,165,706 shares in 2010 | (9,840,052 | ) | (8,030,335 | ) | ||||||||||||
Accumulated Other Comprehensive Income | 317,468 | 1,327 | 266,513 | 317,468 | ||||||||||||
Total Shareholders’ Equity | 53,818,896 | 51,471,485 | 54,288,594 | 54,232,547 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 64,676,044 | $ | 62,155,250 | $ | 64,999,213 | $ | 64,483,422 | ||||||||
See Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the years in the three-year period ended January 31 2010
2010 | 2009 | 2008 | 2011 | 2010 | ||||||||||||||
Net Sales | $ | 64,031,261 | $ | 71,783,338 | $ | 72,371,434 | $ | 71,016,111 | $ | 64,031,261 | ||||||||
Cost of Sales | 37,403,698 | 40,715,201 | 41,260,692 | 42,349,870 | 37,403,698 | |||||||||||||
Gross Profit | 26,627,563 | 31,068,137 | 31,110,742 | 28,666,241 | 26,627,563 | |||||||||||||
Costs and Expenses: | ||||||||||||||||||
Selling and Marketing | 15,342,339 | 16,941,932 | 17,126,027 | 16,690,197 | 15,342,339 | |||||||||||||
General and Administrative | 4,502,504 | 4,615,207 | 4,681,610 | 4,300,525 | 4,502,504 | |||||||||||||
Research and Development | 4,819,533 | 4,884,767 | 4,589,022 | 5,020,020 | 4,819,533 | |||||||||||||
Restructuring Charges | — | — | 514,955 | |||||||||||||||
Operating Expenses | 24,664,376 | 26,441,906 | 26,911,614 | 26,010,742 | 24,664,376 | |||||||||||||
Gain on Legal Settlement | 1,390,603 | — | — | 104,448 | 1,390,603 | |||||||||||||
Operating Income | 3,353,790 | 4,626,231 | 4,199,128 | 2,759,947 | 3,353,790 | |||||||||||||
Other Income (Expense): | ||||||||||||||||||
Other Income: | ||||||||||||||||||
Investment Income | 227,209 | 488,816 | 610,574 | 49,040 | 227,209 | |||||||||||||
Other, Net | 101,211 | (537,615 | ) | 244,164 | (25,373 | ) | 101,211 | |||||||||||
328,420 | (48,799 | ) | 854,738 | 23,667 | 328,420 | |||||||||||||
Income before Income Taxes | 3,682,210 | 4,577,432 | 5,053,866 | 2,783,614 | 3,682,210 | |||||||||||||
Income Tax Provision | 916,363 | 1,613,445 | 744,028 | 721,845 | 916,363 | |||||||||||||
Net Income | $ | 2,765,847 | $ | 2,963,987 | $ | 4,309,838 | $ | 2,061,769 | $ | 2,765,847 | ||||||||
Net Income Per Common Share—Basic | $ | 0.39 | $ | 0.42 | $ | 0.63 | $ | 0.28 | $ | 0.39 | ||||||||
Net Income Per Common Share—Diluted | $ | 0.38 | $ | 0.40 | $ | 0.57 | $ | 0.28 | $ | 0.38 | ||||||||
Weighted Average Number of Common Shares Outstanding—Basic | 7,135,293 | 6,987,531 | 6,884,972 | 7,271,403 | 7,135,293 | |||||||||||||
Dilutive effect of options outstanding | 239,999 | 450,301 | 647,277 | 198,357 | 239,999 | |||||||||||||
Weighted Average Number of Common Shares Outstanding—Diluted | 7,375,292 | 7,437,832 | 7,532,249 | 7,469,760 | 7,375,292 | |||||||||||||
Dividends Declared Per Common Share | $ | 0.24 | $ | 0.24 | $ | 0.20 | $ | 0.28 | $ | 0.24 | ||||||||
See Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN
SHAREHOLDERS’ EQUITY
For each of the years in the three-year period ended January 31 2010
2010 | 2009 | 2008 | 2011 | 2010 | ||||||||||||||||
Comprehensive Income: | ||||||||||||||||||||
Net Income | $ | 2,765,847 | $ | 2,963,987 | $ | 4,309,838 | $ | 2,061,769 | $ | 2,765,847 | ||||||||||
Other Comprehensive Income (Loss), net of taxes and reclassification adjustments | ||||||||||||||||||||
Other Comprehensive Income (Loss), net of taxes and reclassification adjustments: | ||||||||||||||||||||
Foreign currency translation adjustments | 328,125 | (627,007 | ) | 285,115 | (65,677 | ) | 328,125 | |||||||||||||
Unrealized gain (loss) on securities available for sale | (11,984 | ) | (20,919 | ) | 77,669 | 14,722 | (11,984 | ) | ||||||||||||
Other comprehensive income (loss) | 316,141 | (647,926 | ) | 362,784 | (50,955 | ) | 316,141 | |||||||||||||
Comprehensive Income | $ | 3,081,988 | $ | 2,316,061 | $ | 4,672,622 | $ | 2,010,814 | $ | 3,081,988 | ||||||||||
Shareholders’ Equity | ||||||||||||||||||||
Common Stock: | ||||||||||||||||||||
Balance at beginning of year | $ | 409,593 | $ | 402,668 | $ | 395,270 | $ | 416,146 | $ | 409,593 | ||||||||||
Par value from issuance of common stock | 6,553 | 6,925 | 7,398 | |||||||||||||||||
Par value from the exercise of employee stock options | 7,029 | 6,553 | ||||||||||||||||||
Employee option exercise and buyback | 9,842 | — | ||||||||||||||||||
Balance at end of year | $ | 416,146 | $ | 409,593 | $ | 402,668 | $ | 433,017 | $ | 416,146 | ||||||||||
Additional Paid-In Capital: | ||||||||||||||||||||
Balance at beginning of year | $ | 33,740,936 | $ | 32,363,277 | $ | 30,638,755 | $ | 34,712,369 | $ | 33,740,936 | ||||||||||
Net proceeds from issuance of common stock | — | — | 28,248 | |||||||||||||||||
Proceeds from the exercise of employee stock options | 480,957 | 786,261 | 794,745 | 505,609 | 480,957 | |||||||||||||||
Share-based compensation | 414,399 | 472,425 | 585,328 | 333,240 | 414,399 | |||||||||||||||
Tax benefit of employee stock options | 76,077 | 133,755 | 316,201 | 384,503 | 76,077 | |||||||||||||||
Net cost of shares issued to employee stock ownership plan | — | (14,782 | ) | — | ||||||||||||||||
Contribute treasury shares to employee stock options plan | 10,773 | — | ||||||||||||||||||
Employee option exercise and buyback | 639,732 | — | ||||||||||||||||||
Balance at end of year | $ | 34,712,369 | $ | 33,740,936 | $ | 32,363,277 | $ | 36,586,226 | $ | 34,712,369 | ||||||||||
Retained Earnings: | ||||||||||||||||||||
Balance at beginning of year | $ | 25,349,964 | $ | 24,064,440 | $ | 22,282,495 | $ | 26,816,899 | $ | 25,349,964 | ||||||||||
Adoption of the provisions in ASC 740 related to uncertain tax positions | — | — | (1,147,634 | ) | ||||||||||||||||
Correction of overstated liabilities (Note 17) | — | 413,651 | ||||||||||||||||||
Balance at beginning of year, as revised | 26,816,899 | 25,763,615 | ||||||||||||||||||
Net income | 2,765,847 | 2,963,987 | 4,309,838 | 2,061,769 | 2,765,847 | |||||||||||||||
Dividends paid | (1,712,563 | ) | (1,678,463 | ) | (1,380,259 | ) | (2,035,778 | ) | (1,712,563 | ) | ||||||||||
Balance at end of year | $ | 26,403,248 | $ | 25,349,964 | $ | 24,064,440 | ||||||||||||||
Balance at end of year, as revised | $ | 26,842,890 | $ | 26,816,899 | ||||||||||||||||
Treasury Stock: | ||||||||||||||||||||
Balance at beginning of year | $ | (8,030,335 | ) | $ | (8,124,715 | ) | $ | (7,644,647 | ) | $ | (8,030,335 | ) | $ | (8,030,335 | ) | |||||
Shares issued to employee stock ownership plan | — | 94,380 | — | 148,605 | — | |||||||||||||||
Purchase of common stock | — | — | (480,068 | ) | ||||||||||||||||
Purchase of treasury stock | (975,682 | ) | — | |||||||||||||||||
Purchase of common stock from related parties | (982,640 | ) | — | |||||||||||||||||
Balance at end of year | $ | (8,030,335 | ) | $ | (8,030,335 | ) | $ | (8,124,715 | ) | $ | (9,840,052 | ) | $ | (8,030,335 | ) | |||||
Accumulated Other Comprehensive Income: | ||||||||||||||||||||
Balance at beginning of year | $ | 1,327 | $ | 649,253 | $ | 286,469 | $ | 317,468 | $ | 1,327 | ||||||||||
Other comprehensive income (loss) | 316,141 | (647,926 | ) | 362,784 | (50,955 | ) | 316,141 | |||||||||||||
Balance at end of year | 317,468 | 1,327 | 649,253 | 266,513 | 317,468 | |||||||||||||||
Total Shareholders’ Equity | $ | 53,818,896 | $ | 51,471,485 | $ | 49,354,923 | $ | 54,288,594 | $ | 54,232,547 | ||||||||||
See Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years in the three-year period ended January 31 2010
2010 | 2009 | 2008 | 2011 | 2010 | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net Income | $ | 2,765,847 | $ | 2,963,987 | $ | 4,309,838 | $ | 2,061,769 | $ | 2,765,847 | ||||||||||
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: | ||||||||||||||||||||
Depreciation and Amortization | 1,467,058 | 1,405,710 | 1,587,246 | 1,575,935 | 1,479,003 | |||||||||||||||
Share-Based Compensation | 414,399 | 472,425 | 585,328 | 333,240 | 414,399 | |||||||||||||||
Deferred Income Tax Provision (Benefit) | 435,890 | 333,712 | (606,930 | ) | ||||||||||||||||
Deferred Income Tax (Benefit) Provision | (134,386 | ) | 435,890 | |||||||||||||||||
Excess Tax Benefit From Share-Based Compensation | (76,077 | ) | (133,755 | ) | (316,201 | ) | (384,503 | ) | (76,077 | ) | ||||||||||
Legal Settlement Receivable | (1,390,603 | ) | — | — | 1,495,051 | (1,390,603 | ) | |||||||||||||
Gain on Bargain Purchase from Acquisition of Label Line Business | (111,503 | ) | — | — | — | (111,503 | ) | |||||||||||||
Gain on Sale of Security | (41,776 | ) | — | — | ||||||||||||||||
Loss (Gain) on Sale of Securities Available for Sale | 30,961 | (41,776 | ) | |||||||||||||||||
Changes in Assets and Liabilities, Net of Impact of Acquisition: | ||||||||||||||||||||
Accounts Receivable | 871,315 | 3,515,143 | (648,605 | ) | (1,939,117 | ) | 871,315 | |||||||||||||
Inventories | 1,112,777 | 1,224,192 | (1,981,821 | ) | (2,365,609 | ) | 1,112,777 | |||||||||||||
Accounts Payable and Accrued Expenses | (510,153 | ) | (1,906,203 | ) | 134,260 | 633,685 | (510,153 | ) | ||||||||||||
Income Taxes Payable | 688,098 | (290,152 | ) | (261,942 | ) | (290,837 | ) | 688,098 | ||||||||||||
Other | 224,375 | (630,143 | ) | (89,617 | ) | 93,375 | 212,430 | |||||||||||||
Net Cash Provided by Operating Activities | 5,849,647 | 6,954,916 | 2,711,556 | 1,109,564 | 5,849,647 | |||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Proceeds from Sales/Maturities of Securities Available for Sale | 8,254,248 | 10,379,215 | 8,101,737 | 9,644,039 | 8,254,248 | |||||||||||||||
Purchases of Securities Available for Sale | (6,706,050 | ) | (9,687,066 | ) | (7,413,000 | ) | (12,957,711 | ) | (6,706,050 | ) | ||||||||||
Additions to Property, Plant and Equipment | (1,622,326 | ) | (1,664,927 | ) | (4,734,191 | ) | (2,089,858 | ) | (1,622,326 | ) | ||||||||||
Acquisition of Label Line Business | (1,450,000 | ) | — | — | — | (1,450,000 | ) | |||||||||||||
Net Used in Investing Activities | (1,524,128 | ) | (972,778 | ) | (4,045,454 | ) | ||||||||||||||
Net Cash Used in Investing Activities | (5,403,530 | ) | (1,524,128 | ) | ||||||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans | 487,510 | 793,186 | 830,391 | 672,016 | 487,510 | |||||||||||||||
Cash Settlement of Stock Options | (186,054 | ) | — | |||||||||||||||||
Purchases of Treasury Stock | — | — | (480,068 | ) | (975,682 | ) | — | |||||||||||||
Excess Tax Benefit from Share-Based Compensation | 76,077 | 133,755 | 316,201 | 384,503 | 76,077 | |||||||||||||||
Dividends Paid | (1,712,563 | ) | (1,678,463 | ) | (1,380,259 | ) | (2,035,778 | ) | (1,712,563 | ) | ||||||||||
Net Cash Used in Financing Activities | (1,148,976 | ) | (751,522 | ) | (713,735 | ) | (2,140,995 | ) | (1,148,976 | ) | ||||||||||
Cash Designated for Real Estate Purchase Transferred (from) to Long Term Investments | — | — | 3,200,000 | |||||||||||||||||
Net Increase in Cash and Cash Equivalents | 3,176,543 | 5,230,616 | 1,152,367 | |||||||||||||||||
Net (Decrease) Increase in Cash and Cash Equivalents | (6,434,961 | ) | 3,176,543 | |||||||||||||||||
Cash and Cash Equivalents, Beginning of Year | 10,978,553 | 5,747,937 | 4,595,570 | 14,155,096 | 10,978,553 | |||||||||||||||
Cash and Cash Equivalents, End of Year | $ | 14,155,096 | $ | 10,978,553 | $ | 5,747,937 | $ | 7,720,135 | $ | 14,155,096 | ||||||||||
Supplemental Information: | ||||||||||||||||||||
Cash Paid (Received) During the Period for: | ||||||||||||||||||||
Income Taxes, Net of Refunds | $ | (164,318 | ) | $ | 1,589,250 | $ | 1,958,549 | $ | 1,080,994 | $ | (164,318 | ) | ||||||||
Non-Cash Items: | ||||||||||||||||||||
Demonstration Equipment Transferred to Inventory from Property, Plant and Equipment | $ | — | $ | — | $ | 674,035 | ||||||||||||||
Reclassification of Investment Securities to Non-Current Assets | $ | — | $ | 890,925 | $ | — | ||||||||||||||
Accrual of Earnout on Purchase of Business | $ | 142,200 | $ | — | $ | — | $ | — | $ | 142,200 |
See Notes to the Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2011 and 2010
Note 1—Summary of Significant Accounting Policies
Basis of Presentation—: The accompanying financial data has been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and is in conformity with U.S. generally accepted accounting principles. Our fiscal year end is January 31. Unless otherwise stated, all years and dates refer to our fiscal year.
Principles of Consolidation: The consolidated financial statements include the accounts of Astro-Med, Inc. and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.
Reclassification:Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.
Use of Estimates: The presentation of financial statements in conformity with generally accepted accounting principles in the U.S. requires management to make estimates and assumptions that affect these financial statements and accompanying notes. Some of the more significant estimates relate to the allowances for doubtful accounts and credits, inventory valuation, impairment of long-lived assets and goodwill, income taxes, share-based compensation and warranty reserves. Management’s estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcome of these matters. Consequently, actual results could differ from those estimates.
Subsequent Events—We have evaluated subsequent events through the date of filing of this Annual Report on Form 10-K with the SEC.
FASB Establishes Accounting Standards Codification: Effective August 2, 2009, Astro-Med adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles” (“the Codification”). The Codification represents a major restructuring of accounting and reporting standards and is designed to simplify user access to all authoritative U.S. generally accepted accounting principles (“GAAP”) by providing this literature in a topically organized structure. The Codification is not intended to change GAAP, but it will change the way GAAP is organized and presented. The Codification is now the official single source of authoritative U.S. GAAP. All existing accounting standards are superseded and all other accounting guidance not included in the Codification will be considered non-authoritative. The Codification also includes all relevant SEC guidance organized using the same topical structure in separate sections within the Codification. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issue Task Force Abstracts, but instead will issue Accounting Standard Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right as they serve only to update the Codification, provide background information about the guidance and provide the basis for conclusions on the change(s) in the Codification. The principal impact on our financial statements is limited to disclosures, as all references to authoritative accounting literature will now be referenced in accordance with the Codification.
Cash and Cash Equivalents: Highly liquid investments with an original maturity of 90 days or less are considered to be cash equivalents. Similar investments with original maturities beyond three months are classified as securities available for sale. Cash of $1,651,247$1,102,809 and $1,031,861$1,651,247 was held in foreign bank accounts at January 31, 20102011 and 2009,2010, respectively.
Securities Available for Sale: Securities available for sale are carried at fair value based on quoted market prices, where available. The difference between cost and fair value, net of related tax effects, is recorded as a component of accumulated other comprehensive income in shareholders’ equity.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets (land improvements—10 to 20 years; buildings and improvements—10 to 45 years; machinery and equipment—3 to 10 years). Depreciation expense for fiscal 2011 and 2010 was $1,500,000.
Revenue Recognition: The majority of Astro-Med’s product sales are recorded at the time of shipment, when legal title has transferred and risk of loss passes to the customer, when persuasive evidence of an arrangement exists, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured in accordance with the requirements in Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition in Financial Statements.” When a sale arrangement involves training or installation, the deliverables in the arrangement are evaluated to determine whether they represent separate units of accounting in accordance with SAB 104 and ASC 605-25, “Revenue Recognition—Multiple-Element Arrangements.” This evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered. The total fee from the arrangement is allocated to each unit of accounting based on its relative fair value. Fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately. Revenue is recognized when revenue recognition criteria for each unit of accounting are met. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled. All of our equipment contains embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole as
it is not sold separately or marketed separately and its production costs are minor as compared to those of the hardware system. Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Discounts from list prices are recorded as a reduction to sales. Amounts billed to customers for shipping and handling fees are included in sales while related shipping and handling costs are included in cost of sales.
Infrequently, Astro-Med recognizes revenue for non-recurring engineering (NRE) fees for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue. NRE fees have not been significant in the periods presented herein.
Infrequently, Astro-Med receives requests from customers to hold product purchased from us for the customer’s convenience. Revenue is recognized for such bill and hold arrangements in accordance with the requirements of SAB No. 104 which requires, among other things, the existence of a valid business purpose for the arrangement; the transfer of ownership of the purchased product; a fixed delivery date that is reasonable and consistent with the buyer’s business purpose; the readiness of the product for shipment; the use of customary payment terms; no continuing performance obligation by us and segregation of the product from our inventories.
Research and Development Costs: The Company complies with the guidance provided in FASB ASC 730, “Research and Development” by charging any costs to expense when incurred, as well as by disclosing in the financial statements the amount of R&D charged to expense. These charges include: salaries and benefits, external engineering service costs, engineering related information costs and supplies. The Company also complies with ASC 985-20, “Costs of Computer Software to be Sold, Leased or Marketed” and ASC 350-40, “Internal-Use Software” in accounting for the costs of software either developed or acquired.
Foreign Currency: The financial statements of foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars at year-end exchange rates with the translation adjustment recorded as a component of accumulated comprehensive
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
income in shareholders’ equity. Revenues and costs are translated at average exchange rates during the year. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our German subsidiary since its undistributed earnings are considered to be permanently invested. Our net foreign exchange gains (losses) were $27,000, $(474,000)$(44,000) and $141,000$27,000 for fiscal 2011 and 2010, 2009 and 2008 respectively.
Advertising: Astro-Med expenses advertising costs as incurred. Advertising costs including advertising production, trade shows and other activities are designed to enhance demand for our products and amounted to approximately $1,193,000, $1,271,000$1,187,000 and $1,135,000$1,193,000 in fiscal 2010, 20092011 and 2008,2010, respectively.
Health Insurance Reimbursement Reserve: Astro-Med reimburses a portion of employee health insurance deductibles and co-payments. The total reimbursement amounted to approximately $538,000 and $411,000 in 2011 and $252,000 in 2010, and 2009, respectively. We accrued approximately $135,000 and $100,000 at January 31, 2011 and 2010, and 2009,respectively, for estimated outstanding reimbursements due to employees, including a reserve for incurred but not reported amounts.
Long-Lived Assets: Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with the guidance provided in ASC 360, “Property, Plant and Equipment.” Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.
Goodwill: Goodwill impairment reviews are performed in accordance with the provision of ASC 350, “Goodwill and Other.” Management evaluates the recoverability of goodwill annually or more frequently if
events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are established using a discounted cash flow methodology based on the long-range planning forecast. We have completed our most recent impairment review as of January 31, 20102011 and determined that goodwill is not impaired.
Income Taxes: Astro-Med uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of the assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. At January 31, 20102011 and 2009,2010, a valuation allowance was provided for deferred tax assets attributable to certain state R&D credit carryforwards.
On February 1, 2007, Astro-Med adoptedaccounts for uncertain tax positions in accordance with the guidance provided in ASC 740, “Accounting for Income Taxes” in regards to the accounting for uncertain tax positions.Taxes.” This guidance describes a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken in a tax return and requires recognition of tax benefits that satisfy a more-likely-than-not threshold. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Net Income Per Common Share: Net income per common share has been computed and presented in accordance with the guidance provided in ASC 260, “Earnings per Share.” Basic net income per share is based on the weighted average number of shares outstanding during the period. Diluted net income per share is based
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
on the basic weighted average number of shares and potential common shares for stock options outstanding during the period using the treasury stock method. In fiscal years 20102011 and 2009,2010, there were 796,592752,397 and 395,758796,592 options that were not included in the computation of diluted net income per common share because their inclusion would be anti-dilutive.
Allowance for Doubtful Accounts: In circumstances where we are aware of a customer’s inability to meet its financial obligations, an allowance is established. The majority of accounts are individually evaluated on a regular basis and allowances are established to state such receivables at their net realizable value. The remainder of the allowance is based upon historical write-off experience and current market assessments.
Fair Value of Financial Instruments: Financial instruments consist mainly of cash and cash equivalents, investment securities, accounts receivable and accounts payable. The carrying amount reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment securities, all of which are available for sale, are carried in the consolidated balance sheets at fair value based on quoted market prices, when available.
Comprehensive Income: In accordance with the guidance provided in ASC 220, “Comprehensive Income,” we report the change in net assets during the period from non-owner sources by major components and as a single total. The consolidated statement of comprehensive income has been included with the consolidated statement of shareholders’ equity on page 37.32. Accumulated other comprehensive income at January 31, 20102011 consists of net unrealized lossesgains on available for sale securities of $6,134$8,586 and net translation gains on foreign operations of $323,602.$257,927.
Share-Based Compensation: We account for stock options granted to employees and directors using the FASB guidance included in ASC 718, “Stock Compensation.” Effective as of February 1, 2006, we adopted the “modified prospective” transition method provided in ASC 718. Under this method, share-based compensation is recognized in the consolidated statement of operation for share-based payment awards granted prior to, but not yet vested as of February 1, 2006, based on the grant date fair value estimated in accordance with prior authoritative guidance and for share basedshare-based payment awards granted subsequent to February 1, 2006, based on the grant date fair value estimated in accordance with the provisions of ASC 718.
In accordance with ASC 718, share-based compensation expense is based on the estimated fair value of each option on the date of grant using the Black-Scholes option-pricing model. Our estimate of share-based compensation requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), the risk-free interest rate and the Company’s dividend yield. The stock price volatility assumption is based on the historical weekly price data of our common stock over a period equivalent to the weighted average expected life of our options. Management evaluated whether there were factors during that period which were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. In determining the expected life of the option grants, the Company has observed the actual terms of prior grants with similar characteristics and the actual vesting schedule of the grant and has assessed the expected risk tolerance of different option groups. The risk-free interest rate is based on the actual U.S. Treasury zero coupon rates for bonds matching the expected term of the option as of the option grant date. The dividend assumption is based upon the prior year’s average dividend yield. No compensation expense is recognized for options that are forfeited for which the employee does not render the requested service.
The cash flow from the tax benefits that are a result of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as a cash inflow from financing activities and a
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
cash outflow from operating activity in accordance with the guidance provided by ASC 718. Tax deductions from certain stock option exercises are treated as being realized when they reduce taxes payable in accordance with relevant tax law.
Recent Accounting Pronouncements:
Fair Value Measurements
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures About Fair Value Measurement,” which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-06 is effective for annual periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. We do not expect the adoption of ASU 2010-06 to have a material impact on our consolidated financial position or results of operations.
Revenue Recognition
In October 2009, the FASB issued ASU 2009-13, “Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” and ASU 2009-14, “Software (Topic 985)—Certain Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force.” ASU 2009-13 provides amendments to the criteria in Subtopic 605-25 for separating consideration in multiple-deliverable arrangements. The amendments in this update established a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 also eliminates the residual method of allocating arrangement consideration. ASU 2009-14 removes (1) tangible products containing software components and (2) non-software components that function together to deliver the tangible products essential functionality from the scope of software revenue guidance (ASC 965-605). ASU 2009-14 also provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the impact of adopting these updates on our consolidated financial position and results of operations.
Other Accounting Changes
In May 2009, the FASB issued guidance included in ASC 855, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. In particular, the guidance addresses: the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. This guidance became effective for interim and annual reporting periods ending after June 15, 2009. The adoption diddo not expect them to have a material impact on our consolidated financial position orand results of operations.
Except for ASU’s discussed above, all other ASUs issued by the FASB as of the filing date of this Annual Report on Form 10-K are not expected to have a material effect on our consolidated financial statements.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 2—Acquisition
On December 15, 2009, Astro-Med completed the acquisition of substantially all of the assets of Label Line Ltd., a manufacturer of labels and tags located in Asheboro, North Carolina. Label Line is part of Astro-Med’s QuickLabel Systems brand and is reported as part of the QuickLabel segment. The results of Label Line’s operations have been included in the consolidated financial statements of the Company since the acquisition date.
The cash purchase price of the acquisition was $1,450,000. In addition to the $1,450,000 cash purchase price, the Company hashad also agreed to payment of a potential earnout totaling up to $200,000 to the former owners of Label Line. Payment of this contingent consideration is based on the Label Line business’ ability to exceed certain revenue targets during the 24 month period subsequent to the acquisition. Based on a model provided by our professional independent valuation provider, theThe estimated fair value of this earnout was $142,000 as of the acquisition date. No earnout was paid in fiscal 2011, as the Label Line business product sales did not exceed the required milestones. At January 31, 2011, we estimated that the fair value of the contingent liability related to the earnout agreement was $62,000 for the remaining twelve month period. The $80,000 change in the fair value of this contingent consideration was recorded within the general and administrative expenses in the consolidated statement of operations for the year ended January 31, 2011.
Acquisition-related costs of approximately $67,000 are included in the general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended January 31, 2010. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations” (ASC 805).
The purchase price associated with the acquisition is as follows:
Cash Consideration | $ | 1,450,000 | ||
Additional Earnout Cash Consideration | 142,000 | |||
Total Purchase Price | $ | 1,592,000 | ||
The purchase price of the acquisition has been allocated on the basis of estimated fair value as of January 31, 2010 as follows:
Accounts Receivable | $ | 798,000 | ||
Inventories | 327,000 | |||
Property and Equipment | 972,000 | |||
Identifiable Intangible assets | 415,000 | |||
Total Assets Acquired | 2,512,000 | |||
Accounts Payable | 735,000 | |||
Deferred Tax Liability | 73,000 | |||
Total Liabilities Assumed | 808,000 | |||
Gain on Bargain Purchase | 112,000 | |||
$ | 1,592,000 | |||
The purchase price allocation resulted in the recognition of a gain on bargain purchase of approximately $112,000 which is included in other income in the consolidated statement of operations for the year ended January 31, 2010, in accordance with ASC 805.2010. The gain on bargain purchase resulted from the value of the identifiable net assets acquired exceeding the value of the purchase consideration.
As part of the acquisition, the Company entered into a lease agreement with the previous owners for the current Label Line facility. This lease has a three year term with an option for a three year renewal. The facility is approximately 75,000 square feet. Based on the model utilized by our professional independent valuation provider, thisThis lease was determined to be favorable due to comparable market values.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table reflects the fair value of the acquired identifiable intangible assets and related estimated useful lives:
Fair Value | Useful Life (Years) | |||||||
Trade Name | $ | 15,000 | 3 | |||||
Favorable Lease | 400,000 | 6 | ||||||
Total | $ | 415,000 | ||||||
Included in the income statement for fiscal 2011 and 2010 is amortization expense of $72,000 and $12,000, respectively, in regards to the above acquired intangibles. Amortization of intangibles is expected to be approximately $72,000 in 2011 and 2012, $71,000 in 2013, $67,000 in 2014 and 2015 and $55,000 in 2016. Accumulated amortization for fiscal 2011 and 2010 was $84,000 and $12,000, respectively.
The following unaudited pro forma information assumes the acquisition of Label Line occurred on either February 1, 2009 or 2008 (in thousands, except per share data).2009. This information has been prepared for informational purposes only and doesis not purport to representindicative of the results of operations that would have happened had the acquisition occurred as of the date indicated noror of future results of operations:
Year Ended January 31, 2010 | Year Ended January 31, 2009 | |||||
Net revenues | $ | 69,300,000 | $ | 77,100,000 |
Year Ended January 31, 2010 | ||||
Net revenues | $ | 69,300,000 |
The impact on net income and earnings per share would not have been material to the Company in either year.fiscal 2010.
Note 3—Securities Available for Sale
Pursuant to our investment policy, securities available for sale include state and municipal securities with various contractual or anticipated maturity dates and an auction rate security.ranging from one month to three years. These securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity until realized. Realized gains and losses from the sale of available for sale securities, if any, are determined on a specific identification basis. A decline in the fair value of any available for sale security below cost that is determined to be other than temporary will result in a write-down of its carrying amount to fair value. No such impairment charges were recorded for any period presented. All short-term investment securities have original maturities greater than 90 days.
During this year, our remaining auction rate security was settled by our investment advisor at par value.
The fair value, amortized cost and gross unrealized gains and losses of the securities are as follows:
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||
January 31, 2011 | |||||||||||||||||||||||||||||
State and Municipal Obligations | $ | 12,897,221 | $ | 15,949 | $ | (2,938 | ) | $ | 12,910,232 | ||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
January 31, 2010 | |||||||||||||||||||||||||||||
State and Municipal Obligations | $ | 9,114,511 | $ | 35,385 | $ | (33,350 | ) | $ | 9,116,546 | ||||||||||||||||||||
Auction Rate Security | 500,000 | — | (11,330 | ) | 488,670 | ||||||||||||||||||||||||
$ | 9,614,511 | $ | 35,385 | $ | (44,680 | ) | $ | 9,605,216 | |||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||
January 31, 2009 | |||||||||||||||||||||||||||||
State and Municipal Obligations | $ | 10,116,775 | $ | 117,938 | $ | — | $ | 10,234,713 | $ | 9,114,511 | $ | 35,385 | $ | (33,350 | ) | $ | 9,116,546 | ||||||||||||
Auction Rate Securities | 1,000,000 | — | (109,075 | ) | 890,925 | 500,000 | — | (11,330 | ) | 488,670 | |||||||||||||||||||
$ | 11,116,775 | $ | 117,938 | $ | (109,075 | ) | $ | 11,125,638 | $ | 9,614,511 | $ | 35,385 | $ | (44,680 | ) | $ | 9,605,216 | ||||||||||||
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The expectedcontractual maturity dates of these securities are as follows:
January 31, | ||||||
2010 | 2009 | |||||
Less than one year | $ | 8,131,612 | $ | 3,876,135 | ||
One to five years | 1,473,604 | 6,672,745 | ||||
Greater than five years | — | 576,758 | ||||
$ | 9,605,216 | $ | 11,125,638 | |||
January 31, | ||||||||
2011 | 2010 | |||||||
Less than one year | $ | 8,749,743 | $ | 8,131,612 | ||||
One to three years | 4,160,489 | 1,473,604 | ||||||
$ | 12,910,232 | $ | 9,605,216 | |||||
Actual maturities mayare expected to differ from contractual dates as a result of sales or earlier issuer redemptions.
Note 4—Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories are as follows:
January 31, | January 31, | |||||||||||||
2010 | 2009 | 2011 | 2010 | |||||||||||
Materials and Supplies | $ | 7,422,465 | $ | 8,021,888 | $ | 8,450,985 | $ | 7,422,465 | ||||||
Work-in-Progress | 898,332 | 1,333,935 | 982,092 | 898,332 | ||||||||||
Finished Goods | 3,718,509 | 3,470,604 | 4,971,837 | 3,718,509 | ||||||||||
$ | 12,039,306 | $ | 12,826,427 | $ | 14,404,914 | $ | 12,039,306 | |||||||
Included within finished goods inventory is $1,248,784$1,413,198 and $1,184,927$1,248,784 of demonstration equipment at January 31, 20102011 and 2009,2010, respectively.
Note 5—Accrued Expenses
Accrued expenses consisted of the following:
January 31, | January 31, | |||||||||||||
2010 | 2009 | 2011 | 2010 | |||||||||||
Sales and VAT taxes | $ | 297,872 | $ | 215,087 | ||||||||||
Inventory in-transit | $ | 260,779 | $ | 88,090 | ||||||||||
Warranty | 260,235 | 302,464 | 258,082 | 260,235 | ||||||||||
Dealer commissions | 154,081 | 133,857 | 187,733 | 154,081 | ||||||||||
R&D outsourcing | 165,750 | 55,000 | ||||||||||||
Health insurance reimbursement reserve | 135,000 | 100,000 | ||||||||||||
Professional fees | 122,110 | 135,160 | 117,911 | 122,110 | ||||||||||
Health insurance reimbursement reserve | 100,000 | 100,000 | ||||||||||||
Freight | 58,518 | 81,814 | ||||||||||||
Other | 591,541 | 634,288 | 625,260 | 804,841 | ||||||||||
$ | 1,584,357 | $ | 1,602,670 | $ | 1,750,515 | $ | 1,584,357 | |||||||
Note 6—Line of Credit
TheOn December 1, 2010, the Company hasentered into a $3,500,000$5,000,000 revolving bank line of credit all of which is currently available.with Wells Fargo Bank. Borrowings under this line of credit bear interest based on LIBOR plus 200at either a fluctuating 75 basis points. Thispoints below the base rate, as defined in the agreement, or at a fixed rate 150 basis points above LIBOR. At January 31, 2011, there were no borrowings against this line of creditand the entire line is subject to annual review by the lender.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
currently available.
Note 7—Shareholders’ Equity
Common Stock: The Company repurchased 138,200 shares of its common stock for $975,682 in fiscal 2011. During fiscal 2010 and 2009, the Company did not repurchase any shares of its common stock. The Company repurchased 55,300 shares of its common stock for $480,068 in fiscal 2008. The Company’s Board of Directors has authorized the purchase of up to an additional 392,289254,089 shares Company’s common stock on the open market as of January 31, 2010.2011.
During fiscal 2011, certain of the Company’s employees delivered a total of 132,475 shares of the Company’s common stock to satisfy the exercise price for stock options exercised and related taxes. The shares delivered were valued at a total of $982,640 and are included with the treasury stock in the accompanying consolidated balance sheet at January 31, 2011. These transactions did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.
Astro-Med maintains the following benefit plans involving its common stock:
Stock Plans: As of January 31, 2010,2011, Astro-Med has one equity incentive plan (“2007 Equity Incentive Plan”) under which incentive stock options, non-qualified stock options, restricted stock and other equity-based awards may be granted to officers and keycertain employees. To date, only options have been granted under this plan. Options granted to employees vest over four years. An aggregate of 1,000,000 shares were authorized for awards under the 2007 Equity Incentive Plan. The exercise price of each stock option will be established at the discretion of the Compensation Committee,Committee; however, any incentive stock options granted under the 2007 Equity Incentive Plan must be at an exercise price of not less than fair market value at the date of grant. The 2007 Equity Incentive Plan provides for an automatic annual grant of ten-year options to purchase 5,000 shares of stock to each non-employee director upon the adjournment of each shareholders’ meeting. Each such option is exercisable at the fair market value as of the grant date and vests immediately prior to the next succeeding shareholders’ meeting. During fiscal 2010, 20092011 and 2008,2010, 15,000 shares were awarded each year to non-employee directors. At January 31, 2010, 811,5002011, 726,500 shares were available for grant under the 2007 Equity Incentive Plan.
Summarized option data for all plans is as follows:
Number of Shares | Option Price Per Share | Weighted Average Option Price Per Share | Number of Shares | Option Price Per Share | Weighted Average Option Price Per Share | ||||||||||||||||
Options Outstanding, January 31, 2009 | 1,765,550 | $ | 2.40–11.90 | $ | 6.04 | ||||||||||||||||
Options Outstanding, January 31, 2010 | 1,688,951 | $ | 2.40–11.90 | $ | 6.24 | ||||||||||||||||
Options Granted | 85,000 | $ | 5.78– 6.84 | $ | 6.18 | 85,000 | $ | 7.36–8.10 | $ | 7.45 | |||||||||||
Options Exercised | (121,735 | ) | $ | 3.59– 4.41 | $ | 3.61 | (329,916 | ) | $ | 2.73–5.45 | $ | 4.15 | |||||||||
Options Expired | (39,864 | ) | $ | 3.59–11.90 | $ | 5.05 | (224,852 | ) | $ | 5.45–11.90 | $ | 5.51 | |||||||||
Options Outstanding, January 31, 2010 | 1,688,951 | $ | 2.40–11.90 | $ | 6.24 | ||||||||||||||||
Options Outstanding, January 31, 2011 | 1,219,183 | $ | 2.40–11.90 | $ | 7.03 | ||||||||||||||||
Options Exercisable, January 31, 2010 | 1,450,731 | $ | 2.40–11.90 | $ | 5.86 | ||||||||||||||||
Options Exercisable, January 31, 2011 | 1,010,812 | $ | 2.40–11.90 | $ | 6.81 |
Set forth below is a summary of options outstanding at January 31, 2010:2011:
Outstanding | Exercisable | |||||||||||
Range of Exercise prices | Options | Weighted Average Exercise Price | Remaining Contractual Life | Options | Weighted Average Exercise Price | |||||||
$2.40-$5.45 | 882,431 | $ | 3.97 | 1 | 882,431 | $ | 3.97 | |||||
$5.78-$8.72 | 560,670 | $ | 7.85 | 6 | 443,598 | $ | 8.17 | |||||
$8.73-$11.90 | 245,850 | $ | 10.73 | 7 | 124,702 | $ | 10.94 | |||||
1,688,951 | 1,450,731 | |||||||||||
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Outstanding | Exercisable | |||||||||||||||||||
Range of Exercise prices | Options | Weighted Average Exercise Price | Remaining Contractual Life | Options | Weighted Average Exercise Price | |||||||||||||||
$ 2.40 - $5.78 | 346,416 | $ | 2.94 | 1 | 346,416 | $ | 2.94 | |||||||||||||
$ 6.22 - $9.59 | 700,692 | $ | 7.96 | 5 | 529,408 | $ | 8.16 | |||||||||||||
$ 9.81 - $11.90 | 172,075 | $ | 11.47 | 6 | 134,988 | $ | 11.46 | |||||||||||||
1,219,183 | 1,010,812 | |||||||||||||||||||
The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:
Years Ended January 31, | Years Ended January 31, | |||||||||
2010 | 2009 | 2008 | 2011 | 2010 | ||||||
Risk-free interest rate | 1.54%–2.12% | 3.13%–3.95% | 4.5% | 2.11%–2.42% | 1.54%–2.12% | |||||
Expected life (years) | 5 | 5 | 5 | 5 | 5 | |||||
Expected volatility | 41.9% | 46.5% | 48.1% | 40.66%–41.46% | 41.9% | |||||
Expected dividend yield | 3.85%–4.39% | 2.04%–3.82% | 1.9% | 3.35%–3.67% | 3.85%–4.39% |
The weighted average fair value of options granted during fiscal 2011 and 2010 2009was $2.11 and 2008 was $1.36, $3.40 and $4.74, respectively. As of January 31, 2010,2011, there was $436,687$292,830 of unrecognized compensation expense related to the unvested stock options granted under the plans. The expense is to be recognized over a weighted average of two years. Share-based compensation expense has been recognized as follows:
Years Ended January 31, | Years Ended January 31, | ||||||||||||||||
2010 | 2009 | 2008 | 2011 | 2010 | |||||||||||||
Cost of Sales | $ | 72,889 | $ | 79,690 | $ | 97,134 | $ | 60,457 | $ | 72,889 | |||||||
Operating Expenses | 341,510 | 392,735 | 488,194 | 272,783 | 341,510 | ||||||||||||
Total | $ | 414,399 | $ | 472,425 | $ | 585,328 | $ | 333,240 | $ | 414,399 | |||||||
As of January 31, 2010,2011, the aggregate intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock on January 31, 2010,2011, and the exercise price of the outstanding options) that would have been received by the option holders if all options had been exercised was $2,933,748$1,825,576 for all exercisable options and $3,026,509$1,946,412 for all options outstanding. The weighted average remaining contractual terms for these options are 2.73.5 years for options that are exercisable and 3.44.2 years for all options outstanding. The total aggregate intrinsic value of options exercised during fiscal 2011 and 2010 was $1,094,579 and 2009 was $271,094, and $174,177, respectively.
Employee Stock Purchase Plan (ESPP): Astro-Med’s ESPP allows eligible employees to purchase shares of common stock at a 15% discount from fair market value on the date of purchase. A total of 247,500 shares were initially reserved for issuance under this plan. Summarized plan activity is as follows:
Years Ended January 31, | Years Ended January 31, | ||||||||||||||||
2010 | 2009 | 2008 | 2011 | 2010 | |||||||||||||
Shares reserved, beginning | 93,860 | 100,192 | 103,244 | 84,518 | 93,860 | ||||||||||||
Shares purchased | (9,342 | ) | (6,332 | ) | (3,052 | ) | (7,510 | ) | (9,342 | ) | |||||||
Shares reserved, ending | 84,518 | 93,860 | 100,192 | 77,008 | 84,518 | ||||||||||||
Employee Stock Ownership Plan: Astro-Med has an Employee Stock Ownership Plan (ESOP) providing retirement benefits to all eligible employees. Annual contributions in amounts determined by the Company’s Board of Directors are invested by the ESOP’s Trustees in shares of common stock of Astro-Med. Contributions may be in cash or stock. Astro-Med’s contributions (paid or accrued) amounted to $80,000 in each of fiscal 2010, 20092011 and 20082010 which were recorded as compensation expense. All shares owned by the ESOP have been allocated to participants.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During the first quarter of fiscal 2011, the Company purchased approximately 200,000 stock options held by certain key executives. The options had an exercise price of $5.45 and were due to expire on March 20, 2010. The purchase price paid by the Company for the options was approximately $250,000, representing the closing price for the Astro-Med’s common stock on March 3, 2010, less a 10% discount and the exercise price for each of the options. The original underlying stock options were granted during fiscal 2000 and there was no unrecognized compensation expense associated with the options. This transaction was charged to equity. The cash settlement of these options during the current quarter was a one-time event, as the Company has not historically settled any options for cash and has no plans to do so again in the future.
Note 8—Income Taxes
The components of income before income taxes are as follows:
Years Ended January 31, | Years Ended January 31, | ||||||||||||||||
2010 | 2009 | 2008 | 2011 | 2010 | |||||||||||||
Domestic | $ | 1,758,973 | $ | 2,142,252 | $ | 3,710,798 | $ | 1,772,680 | $ | 1,758,973 | |||||||
Foreign | 1,923,237 | 2,435,180 | 1,343,068 | 1,010,934 | 1,923,237 | ||||||||||||
$ | 3,682,210 | $ | 4,577,432 | $ | 5,053,866 | $ | 2,783,614 | $ | 3,682,210 | ||||||||
The components of the provision for income taxes are as follows:
Years Ended January 31, | Years Ended January 31, | |||||||||||||||||||
2010 | 2009 | 2008 | 2011 | 2010 | ||||||||||||||||
Current: | ||||||||||||||||||||
Federal | $ | (241,936 | ) | $ | (77,513 | ) | $ | 191,378 | $ | 699,622 | $ | (241,936 | ) | |||||||
State | 179,686 | 373,024 | 273,531 | 170,930 | 179,686 | |||||||||||||||
Foreign | 542,723 | 984,222 | 886,049 | (14,321 | ) | 542,723 | ||||||||||||||
480,473 | 1,279,733 | 1,350,958 | 856,231 | 480,473 | ||||||||||||||||
Deferred: | ||||||||||||||||||||
Federal | 233,320 | 175,653 | (243,017 | ) | (191,938 | ) | 233,320 | |||||||||||||
State | 155,092 | 139,184 | (321,246 | ) | (27,024 | ) | 155,092 | |||||||||||||
Foreign | 47,478 | 18,875 | (42,667 | ) | 84,576 | 47,478 | ||||||||||||||
435,890 | 333,712 | (606,930 | ) | (134,386 | ) | 435,890 | ||||||||||||||
$ | 916,363 | $ | 1,613,445 | $ | 744,028 | $ | 721,845 | $ | 916,363 | |||||||||||
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes due to the following:
Years Ended January 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Income tax provision at statutory rate | $ | 1,251,951 | $ | 1,556,327 | $ | 1,718,314 | ||||||
State taxes, net of federal tax effect | 220,954 | 338,057 | (174,684 | ) | ||||||||
Change in valuation allowance | 45,228 | (531,735 | ) | 480,463 | ||||||||
Reversal of reserves no longer required | (237,807 | ) | — | (446,538 | ) | |||||||
Italian subsidiary receivable write off | — | — | (657,478 | ) | ||||||||
Italian net operating loss | — | 616,534 | — | |||||||||
Share-based compensation | 74,381 | 68,852 | 124,612 | |||||||||
Tax-exempt income | (68,000 | ) | (131,753 | ) | (117,652 | ) | ||||||
R&D credits | (118,333 | ) | (111,431 | ) | (95,212 | ) | ||||||
Other, net | (252,011 | ) | (191,406 | ) | (87,797 | ) | ||||||
$ | 916,363 | $ | 1,613,445 | $ | 744,028 | |||||||
Years Ended January 31, | ||||||||
2011 | 2010 | |||||||
Income tax provision at statutory rate | $ | 946,428 | $ | 1,251,951 | ||||
State taxes, net of federal tax effect | 94,978 | 220,954 | ||||||
Change in valuation allowance | 65,202 | 45,228 | ||||||
Reversal of reserves no longer required | (241,098 | ) | (237,807 | ) | ||||
Meals and entertainment | 59,580 | 32,701 | ||||||
Domestic product deduction | (44,162 | ) | (7,002 | ) | ||||
Share-based compensation | 76,162 | 74,381 | ||||||
Tax-exempt income | (21,983 | ) | (68,000 | ) | ||||
R&D credits | (108,093 | ) | (118,333 | ) | ||||
Other, net | (105,169 | ) | (277,710 | ) | ||||
$ | 721,845 | $ | 916,363 | |||||
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2011, the Company recorded a benefit of $241,000 related to the resolution of a previously uncertain tax position and a benefit of $143,000 as a result of a favorable adjustment in the filing of the prior year’s tax returns. During 2010, the Company recorded a benefit of $335,000 related to the resolution of a previously uncertain tax position as a result of the conclusion of an IRS examination of the Company’s Federalfederal returns for fiscal year 2008. During 2009, the Company wrote off the deferred tax asset of approximately $617,000 related to the net operating loss carryforward of the Italian subsidiary as a result of the dissolution of this subsidiary. As a full valuation allowance had been recorded in prior years, this write-off had no impact on the provision for income taxes. During fiscal 2008, the Company recorded a benefit of $167,000 related to the completion of an IRS examination, a benefit of $319,000 related to changes in uncertain R&D and foreign tax credit positions, an expense of $40,000 related to differences between the prior year tax provision and the actual return as filed and benefits of $728,000 related to the restructuring of the sales and service centers located in Italy and the Netherlands.
The components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of operations. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at January 31, 20102011 and 20092010 are as follows:
January 31, | January 31, | |||||||||||||||
2010 | 2009 | 2011 | 2010 | |||||||||||||
Deferred Tax Assets: | ||||||||||||||||
Inventory Reserves | $ | 1,458,849 | $ | 1,385,122 | $ | 1,507,591 | $ | 1,458,849 | ||||||||
R&D Credits | 250,847 | 193,739 | 244,948 | 250,847 | ||||||||||||
Vacation Accrual | 373,415 | 364,568 | 400,343 | 373,415 | ||||||||||||
Foreign Tax Credits | — | 231,587 | ||||||||||||||
Deferred Service Contract Revenue | 268,002 | 331,624 | 300,844 | 268,002 | ||||||||||||
Reserve for Doubtful Accounts | 172,370 | 189,166 | 190,578 | 172,370 | ||||||||||||
Other | 974,917 | 1,313,908 | 915,280 | 974,917 | ||||||||||||
3,498,400 | 4,009,714 | 3,559,584 | 3,498,400 | |||||||||||||
Deferred Tax Liabilities: | ||||||||||||||||
Accumulated Tax Depreciation in Excess of Book Depreciation | 875,567 | 849,733 | 980,925 | 875,567 | ||||||||||||
Deferred Tax Gain on Sale of Real Estate | 1,235,098 | 1,235,098 | 1,235,098 | 1,235,098 | ||||||||||||
Other | 616,088 | 555,798 | 581,865 | 808,707 | ||||||||||||
2,726,753 | 2,640,629 | 2,797,888 | 2,919,372 | |||||||||||||
Subtotal | 771,647 | 1,369,085 | 761,696 | 579,028 | ||||||||||||
Valuation Allowance | (179,746 | ) | (224,974 | ) | (244,948 | ) | (179,749 | ) | ||||||||
Net Deferred Tax Assets | $ | 591,901 | $ | 1,144,111 | $ | 516,748 | $ | 399,279 | ||||||||
The valuation allowance at January 31, 2010,2011 relates to certain state R&D tax credit carryforwards which are expected to expire unused.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Several prior year state tax returns are expected to be reviewed by the various taxing authorities during the next twelve months. The Company believes thatdoes not believe it is reasonably possible that the relatedany unrecognized tax benefits, accrued interest and penalties could decrease income tax expense by up to approximately $510,000in the next year due to either the review of thesepreviously filed tax returns or the expiration of certain statutes of limitation. A reconciliation of unrecognized tax benefits, excluding interest and penalties follows:
2010 | 2009 | 2008 | 2011 | 2010 | ||||||||||||||||
Balance at February 1 | $ | 1,127,452 | $ | 1,372,767 | $ | 2,016,280 | $ | 875,225 | $ | 1,127,452 | ||||||||||
Decreases in prior period tax positions | — | (134,323 | ) | (520,845 | ) | |||||||||||||||
Increases in prior period tax positions | 26,788 | — | ||||||||||||||||||
Increases in current period tax positions | 76,379 | 80,712 | 506,057 | 72,140 | 76,379 | |||||||||||||||
Reductions related to lapse of statute of limitations | (247,492 | ) | — | |||||||||||||||||
Decreases related to settlements with tax authorities | (360,494 | ) | (152,917 | ) | (659,593 | ) | — | (360,494 | ) | |||||||||||
Foreign currency translation adjustments | 31,888 | (38,787 | ) | 30,868 | — | 31,888 | ||||||||||||||
Balance at January 31 | $ | 875,225 | $ | 1,127,452 | $ | 1,372,767 | $ | 726,661 | $ | 875,225 | ||||||||||
If the $875,225$726,661 is recognized, $600,677$488,704 would decrease the effective tax rate in the period in which each of the benefits is recognized and the remainder would be offset by a reversal of deferred tax assets.
During fiscal 2011 and 2010 the Company recognized $60,127 and $64,169, respectively, of potential interest and penalties, which are included as a component of income tax expense in the accompanying statement of operations. At January 31, 2011 and 2010, the Company had accrued potential interest and penalties of $360,191.$420,317 and $360,191, respectively.
During the third quarter of fiscal 2011, the statute of limitations expired related to a foreign tax return position. As a result, we recorded a benefit of $241,000 related to this foreign tax return position.
During the fourth quarter of fiscal 2010, the Internal Revenue Service officially concluded its examination the Company’s federal returns for fiscal year 2008. As a result of these tax return years being settled, we recorded a benefit of the $335,000 related to the resolution of a previously uncertain tax position.
During the fourth quarter of fiscal 2008, the Internal Revenue Service officially concluded its examination of the Company’s fiscal 2005 and 2006 Federal tax returns. As a result, the Company received a $140,100 federal tax refund during fiscal 2009.
The Company is subject to federal, state and local income taxes and non-U.S. tax examinations in accordance with the statute of limitation in each applicable jurisdictions.
At January 31, 2010,2011, the Company has indefinitely reinvested $3,399,850$3,865,932 of the cumulative undistributed earnings of its foreign subsidiary, all of which would be subject to U.S. taxes if repatriated to the U.S. Through January 31, 2010,2011, the Company has not provided deferred income taxes on the undistributed earnings of this subsidiary because such earnings are considered to be indefinitely reinvested. Non-U.S. income taxes are, however, provided on these undistributed earnings.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 9—Leases and Other Contractual Obligations
Minimum payments under noncancellable operating leases at January 31, 20102011 were as follows:
2011 | $ | 328,244 | |||||
2012 | 211,351 | $ | 419,952 | ||||
2013 | 167,764 | 298,702 | |||||
2014 | 72,646 | 173,353 | |||||
2015 and Thereafter | 66,437 | ||||||
2015 | 48,430 | ||||||
2016 and Thereafter | 17,459 | ||||||
Minimum Lease Payments | $ | 846,442 | $ | 957,896 | |||
The Company incurred rent expenseand lease expenses in the amount of $470,000, $557,000$641,000 and $612,000$470,000 for the fiscal years 2010, 20092011 and 2008,2010, respectively.
The Company has purchase obligations in the amount of $5,508,473$5,119,547 due within one year for goods and services with defined terms as to price, quantity, delivery and termination liability.
Note 10—Nature of Operations, Segment Reporting and Geographical Information
The Company’s operations consist of the design, development, manufacture and sale of specialty data recorder and acquisition systems, label printing and applicator systems, neuropsychological instrumentation systems and consumable supplies. The Company organizes and manages its business as a portfolio of products and services designed around a common theme of data acquisition and information output. The Company reports three reporting segments consistent with its sales product groups: Test & Measurement (T&M); QuickLabel Systems (QuickLabel) and Grass Technologies (Grass).
T&M produces data recording equipment used worldwide for a variety of recording, monitoring and troubleshooting applications for the aerospace, automotive, metal mill, power and telecommunications industries. QuickLabel produces an array of high-technology digital label printers, labeling software and consumables for a variety of commercial industries worldwide. Grass produces a range of instrumentation equipment and supplies for clinical neurophysiology (EEG and epilepsy monitoring), polysomnography (PSG—Sleep Monitoring) and biomedical research applications used worldwide by universities, medical centers and companies engaged in a variety of clinical and research activities. The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies herein. The Company evaluates segment performance based on the segment profit before corporate and financial administration expenses.
Business is conducted in the United States and through foreign affiliates in Canada and Europe. Virtually all manufacturing activities are conducted in the United States. Sales and service activities outside the United States are conducted through wholly-owned entities and, to a lesser extent, through authorized distributors and agents. Transfer prices are intended to produce gross profit margins as would be associated with an arms-length transaction.
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Summarized below are the Net Sales and Segment Operating Profit (both in dollars and as a percentage of Net Sales) for each reporting segment:
($ in thousands) | Net Sales | Segment Operating Profit | Segment Operating Profit % of Net Sales | Net Sales | Segment Operating Profit | Segment Operating Profit % of Net Sales | ||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||||||||||||||||
T&M | $ | 14,247 | $ | 15,796 | $ | 16,505 | $ | 1,148 | $ | 2,463 | $ | 3,056 | 8.1 | % | 15.6 | % | 18.5 | % | $ | 14,837 | $ | 14,247 | $ | 1,200 | $ | 1,148 | 8.1 | % | 8.1 | % | ||||||||||||||||||||||
QuickLabel | 33,294 | 37,398 | 38,144 | 2,517 | 3,664 | 4,222 | 7.6 | % | 9.8 | % | 11.1 | % | 39,500 | 33,294 | 1,847 | 2,517 | 4.7 | % | 7.6 | % | ||||||||||||||||||||||||||||||||
Grass | 16,490 | 18,589 | 17,722 | 2,217 | 2,553 | 1,583 | 13.4 | % | 13.7 | % | 8.9 | % | 16,679 | 16,490 | 3,358 | 2,217 | 20.1 | % | 13.4 | % | ||||||||||||||||||||||||||||||||
Total | $ | 64,031 | $ | 71,783 | $ | 72,371 | 5,882 | 8,680 | 8,861 | 9.2 | % | 12.1 | % | 12.2 | % | $ | 71,016 | $ | 64,031 | 6,405 | 5,882 | 9.0 | % | 9.2 | % | |||||||||||||||||||||||||||
Corporate Expenses | 3,919 | 4,054 | 4,147 | 3,749 | 3,919 | |||||||||||||||||||||||||||||||||||||||||||||||
Gain on Legal Settlement | 1,391 | — | — | 104 | 1,391 | |||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Charges | — | — | 515 | |||||||||||||||||||||||||||||||||||||||||||||||||
Operating Income | 3,354 | 4,626 | 4,199 | 2,760 | 3,354 | |||||||||||||||||||||||||||||||||||||||||||||||
Other Income (Expense), Net | 328 | (49 | ) | 855 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other Income, Net | 24 | 328 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income Before Income Taxes | 3,682 | 4,577 | 5,054 | 2,784 | 3,682 | |||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Provision | 916 | 1,613 | 744 | 722 | 916 | |||||||||||||||||||||||||||||||||||||||||||||||
Net Income | $ | 2,766 | $ | 2,964 | $ | 4,310 | $ | 2,062 | $ | 2,766 | ||||||||||||||||||||||||||||||||||||||||||
No customer accounted for greater than 10% of net sales in fiscal 2010, 2009 or 2008.2011 and 2010.
Other information by segment is presented below:
($ in thousands) | Assets | Assets | ||||||||||||
2010 | 2009 | 2011 | 2010 | |||||||||||
T&M | $ | 8,275 | $ | 8,243 | $ | 10,205 | $ | 8,275 | ||||||
QuickLabel | 19,761 | 16,173 | 21,714 | 19,761 | ||||||||||
Grass | 10,860 | 11,278 | 11,780 | 10,860 | ||||||||||
Corporate* | 25,780 | 26,461 | 21,300 | 25,587 | ||||||||||
Total | $ | 64,676 | $ | 62,155 | $ | 64,999 | $ | 64,483 | ||||||
* | Corporate assets consist of cash |
($ in thousands) | Depreciation | Capital Expenditures | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||
T&M | $ | 484 | $ | 465 | $ | 472 | $ | 330 | $ | 834 | $ | 623 | ||||||
QuickLabel | 568 | 514 | 713 | 1,106 | 479 | 744 | ||||||||||||
Grass | 415 | 427 | 402 | 186 | 352 | 3,367 | ||||||||||||
Total | $ | 1,467 | $ | 1,406 | $ | 1,587 | $ | 1,622 | $ | 1,665 | $ | 4,734 | ||||||
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands) | Depreciation and Amortization | Capital Expenditures | ||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
T&M | $ | 455 | $ | 484 | $ | 324 | $ | 330 | ||||||||
QuickLabel | 751 | 580 | 1,664 | 1,106 | ||||||||||||
Grass | 370 | 415 | 102 | 186 | ||||||||||||
Total | $ | 1,576 | $ | 1,479 | $ | 2,090 | $ | 1,622 | ||||||||
Geographical Data
Presented below is selected financial information by geographic area:
($ in thousands) | Net Sales | Long-Lived Assets | Net Sales | Long-Lived Assets | |||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||
United States | $ | 44,296 | $ | 49,960 | $ | 50,479 | $ | 14,320 | $ | 12,711 | $ | 50,614 | $ | 44,296 | $ | 11,352 | $ | 11,580 | |||||||||||||
Europe | 12,164 | 13,824 | 13,563 | 410 | 455 | 12,016 | 12,164 | 705 | 411 | ||||||||||||||||||||||
Asia | 3,450 | 2,922 | — | — | |||||||||||||||||||||||||||
Canada | 2,989 | 3,244 | 2,697 | — | — | 3,014 | 2,989 | 485 | — | ||||||||||||||||||||||
Asia | 2,922 | 2,745 | 2,938 | — | — | ||||||||||||||||||||||||||
Central and South America | 1,174 | 921 | 1,736 | — | — | 1,059 | 1,174 | — | — | ||||||||||||||||||||||
Other | 486 | 1,089 | 958 | — | — | 863 | 486 | — | — | ||||||||||||||||||||||
Total | $ | 64,031 | $ | 71,783 | $ | 72,371 | $ | 14,730 | $ | 13,166 | $ | 71,016 | $ | 64,031 | $ | 12,542 | $ | 11,991 | |||||||||||||
Included in long-lived assets is goodwill assigned to the following segments: T&M $0.7 million and Grass $1.6 million at January 31, 20102011 and 2009.2010.
Note 11—Profit-Sharing Plan
Along with the ESOP described in Note 7, Astro-Med sponsors a Profit-Sharing Plan (the “Plan”) which provides retirement benefits to all eligible domestic employees. The Plan allows participants to defer a portion of their cash compensation and contribute such deferral to the Plan through payroll deductions. The Company makes matching contributions up to specified levels. The deferrals are made within the limits prescribed by Section 401(k) of the Internal Revenue Code.
All contributions are deposited into trust funds. It is the policy of the Company to fund any contributions accrued. The Company’s annual contribution amounts are determined by the Board of Directors. Contributions paid or accrued amounted to $234,239, $263,124$253,362 and $230,160$234,239 in fiscal 2010, 20092011 and 2008,2010, respectively.
Note 12—Product Warranty Liability
Astro-Med offers a one-year warranty for the majority of its products. The specific terms and conditions of warranties vary depending upon the product sold and country in which the Company does business. For products sold in the United States, a basic limited warranty, including parts and labor is provided. The Company estimates the costs based on historical claims experience and records a liability in the amount of such estimates at the time product revenue is recognized. The Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Activity in the product warranty liability is as follows:
January 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Balance, beginning of the year | $ | 302,464 | $ | 368,073 | $ | 354,901 | ||||||
Warranties issued | 511,604 | 295,306 | 522,968 | |||||||||
Settlements made | (553,833 | ) | (360,915 | ) | (509,796 | ) | ||||||
Balance, end of the year | $ | 260,235 | $ | 302,464 | $ | 368,073 | ||||||
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
January 31, | ||||||||
2011 | 2010 | |||||||
Balance, beginning of the year | $ | 260,235 | $ | 302,464 | ||||
Warranties issued | 499,906 | 511,604 | ||||||
Settlements made | (502,059 | ) | (553,833 | ) | ||||
Balance, end of the year | $ | 258,082 | $ | 260,235 | ||||
Note 13—Concentration of Risk
Credit is generally extended on an uncollateralized basis to almost all customers after review of credit worthiness. Concentration of credit and geographic risk with respect to accounts receivable is limited due to the large number and general dispersion of accounts which constitute the Company’s customer base. The Company periodically performs on-going credit evaluations of its customers. The Company has not historically experienced significant credit losses on collection of its accounts receivable.
Excess cash is invested principally in investment grade government and state municipal securities. The Company has established guidelines relative to diversification and maturities that maintain safety of principal, liquidity and yield. These guidelines are periodically reviewed and modified to reflect changes in market conditions. The Company has not historically experienced any significant losses on its cash equivalents or investments.
Note 14—Commitments and Contingencies
Astro-Med is subject to contingencies, including legal proceedings and claims arising in the normal course of business that cover a wide range of matters including, among others, contract and employment claims, workers compensation claims, product liability, warranty and modification, adjustment or replacement of component parts of units sold.
Direct costs associated with the estimated resolution of contingencies are accrued at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the Company’s control.
Note 15—Fair Value Measurements
We measure our financial assets at fair value on a recurring basis in accordance with the guidance provided in ASC 820, “Fair Value Measurement and Disclosures” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, ASC 820 establishes a three-tiered hierarchy for inputs used in management’s determination of fair value of financial instruments that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect management’s belief about the assumptions market participants would use in pricing a financial instrument based on the best information available in the circumstances.
The fair value hierarchy is summarized as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities;
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables represent the fair value hierarchy for our financial assets (cash equivalents and investments in marketable securities) measured at fair value on a recurring basis:
January 31, 2011 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Money market funds | $ | 4,926,983 | $ | — | $ | — | $ | 4,926,983 | ||||||||||||||||||||
State and municipal obligations | 12,910,232 | — | — | 12,910,232 | ||||||||||||||||||||||||
Total | $ | 17,837,215 | $ | — | $ | — | $ | 17,837,215 | ||||||||||||||||||||
January 31, 2010 | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
Money market funds | $ | 8,126,245 | $ | — | $ | — | $ | 8,126,245 | $ | 8,126,245 | $ | — | $ | — | $ | 8,126,245 | ||||||||||||
State and municipal obligations | 9,116,546 | — | — | 9,116,546 | 9,116,546 | — | — | 9,116,546 | ||||||||||||||||||||
Governmental obligations | 1,249,998 | — | — | 1,249,998 | 1,249,998 | — | — | 1,249,998 | ||||||||||||||||||||
Auction rate security | — | — | 488,670 | 488,670 | — | — | 488,670 | 488,670 | ||||||||||||||||||||
Total | $ | 18,492,789 | $ | — | $ | 488,670 | $ | 18,981,459 | $ | 18,492,789 | $ | — | $ | 488,670 | $ | 18,981,459 | ||||||||||||
January 31, 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Money market funds | $ | 4,770,188 | $ | — | $ | — | $ | 4,770,188 | ||||||||||||||||||||
State and municipal obligations | 10,234,713 | — | — | 10,234,713 | ||||||||||||||||||||||||
Governmental obligations | 1,400,000 | — | — | 1,400,000 | ||||||||||||||||||||||||
Auction rate securities | — | — | 890,925 | 890,925 | ||||||||||||||||||||||||
Total | $ | 16,404,901 | $ | — | $ | 890,925 | $ | 17,295,826 | ||||||||||||||||||||
TheAt January 31, 2010, the Level 3 asset consistsconsisted of an auction rate security whose underlying assets arewere backed by municipal assets. While we continuewere continuing to earn interest on our auction rate security at the maximum contractual rate, this investment iswas not currently trading and therefore doesdid not currently have a readily determinable market value. The Company usesused the services of a global investment management and advisory firm to manage its auction rate security position. This investment management firm hashad developed and implemented a proprietary methodology for pricing auction rate securities using a disciplined discounted cash flow approach to establish fair market valuation. As of January 31, 2010, we usedDuring the market valuation as publishedcurrent year, this auction rate security was redeemed by our investment management firm relative to our one remaining auction rate security. Accordingly,advisor at full par value and accordingly, we recorded an unrealized lossa realized gain of $11,330 related to our auction rate security as of January 31, 2010. We believe this unrealized loss is primarily attributable to the limited liquidity of this investment and have no reason to believe that any of the underlying issuers are presently at risk of default. Management has the intent and the ability to hold this security for an indefinite period of time and, accordingly, believes that the unrealized loss on its auction rate security holding is temporary in nature.settlement.
The following table provides a summary of changes in fair value of the Company’s auction rate securities:
January 31, 2010 | January 31, 2009 | |||||||
Beginning Balance | $ | 890,925 | $ | 6,250,000 | ||||
Transferred to variable rate demand notes* | — | (700,000 | ) | |||||
Sales | (500,000 | ) | (5,025,000 | ) | ||||
Purchases | — | 475,000 | ||||||
Realized gain included in net income | 109,075 | — | ||||||
Unrealized loss included in other comprehensive income (loss) | (11,330 | ) | (109,075 | ) | ||||
Ending Balance | $ | 488,670 | $ | 890,925 | ||||
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
January 31, 2011 | January 31, 2010 | |||||||
Beginning balance | $ | 488,670 | $ | 890,925 | ||||
Settlement | (500,000 | ) | (500,000 | ) | ||||
Realized gain included in net income | 11,330 | 109,075 | ||||||
Unrealized loss included in other comprehensive income (loss) | — | (11,330 | ) | |||||
Ending balance | $ | — | $ | 488,670 | ||||
Note 16—Restructuring
During the fourth quarter of fiscal 2008, the Company restructured its sales and service centers located in Italy and the Netherlands in order to reduce costs and streamline operations. The restructuring involved a reduction of employees, closing the two sales and service centers and disposing of certain assets and other miscellaneous expenses. The following table summarizes the activity and balances of the restructuring reserve:
Severance | Lease | Other | Total | |||||||||||||
Balance at February 1, 2008 | $ | 207,230 | $ | 33,701 | $ | 58,830 | $ | 299,761 | ||||||||
Reserve transfer | (52,000 | ) | — | 52,000 | — | |||||||||||
Utilization of reserve | (155,230 | ) | (33,701 | ) | (110,830 | ) | (299,761 | ) | ||||||||
Balance at January 31, 2009 | $ | — | $ | — | $ | — | $ | — | ||||||||
All restructuring activity for these sales and service centers has been concluded as of January 31, 2009.
Note 17—Litigation Settlement
In November 2009, Astro-Med was awarded a $1,391,000 judgment related to a lawsuit filed by the Company against a former employee and a competitor business. At issue in the lawsuit was the violation of a non-competition agreement which the former employee had signed as a condition of employment with Astro-Med. The $1,391,000 judgment includes both punitive and exemplary damages, as well as attorney fees (all of which have been previously expensed) and related interest earned on the judgment and was recorded as a gain on legal settlement in the accompanying statement of operations and as a receivable in prepaid and other current assets in the accompanying balance sheet for the fiscal year ended January 31, 2010. In November 2009, the Company also filed a motion to amend the original judgment to include additional legal fees of $73,000. This motion was granted on February 12, 2010. On February 17, 2010, the Company collected a total of $1,495,000 related to this legal proceeding, which includes the $1,391,000 gain on legal settlement recorded in the fourth quarter of fiscal 2010 and $104,000 for interest and the additional attorney fees as granted by the February 12, 2010 motion. The $104,000 will bewas recorded as an additional gain on legal settlement in fiscal 2011 and is included gain on legal settlement in the firstaccompanying consolidated statement of operations for the year ended January 31, 2011.
Note 17—Prior Period Adjustments
During the fourth quarter of fiscal 2011.2011, we determined that our accounts payable balance was overstated due to clerical errors in processing which had accumulated over a period of years. In addition, we determined that our income taxes payable balance was overstated due to an error in accounting for refundable income taxes of our subsidiary in Germany. These errors, which arose in periods prior to February 1, 2010, are not considered to be material to previously issued financial statements.
In order to correct these immaterial errors, the Company has revised the accompanying balance sheet as of January 31, 2010, to decrease accounts payable by $498,762, to decrease income tax payable by $107,511 and to decrease current deferred tax assets by $192,622 and has increased beginning balance retained earnings as of February 1, 2009 by $413,651. No adjustments were required to be made to the accompanying fiscal 2010 statements of operations and cash flows as such adjustments were deemed immaterial.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Description | Balance at Beginning of Year | Provision Charged to Operations | Deductions(2) | Balance at End of Year | Balance at Beginning of Year | Provision Charged to Operations | Deductions(2) | Balance at End of Year | |||||||||||||||||||||
Allowance for Doubtful Accounts(1): | |||||||||||||||||||||||||||||
Year Ended January 31, | |||||||||||||||||||||||||||||
2011 | $ | 518,789 | $ | 81,981 | $ | (53,900 | ) | $ | 546,870 | ||||||||||||||||||||
2010 | $ | 576,735 | $ | 70,000 | $ | (127,946 | ) | $ | 518,789 | $ | 576,735 | $ | 70,000 | $ | (127,946 | ) | $ | 518,789 | |||||||||||
2009 | $ | 591,018 | $ | 83,129 | $ | (97,412 | ) | $ | 576,735 | ||||||||||||||||||||
2008 | $ | 588,508 | $ | 105,000 | $ | (102,490 | ) | $ | 591,018 |
(1) | The allowance for doubtful accounts has been netted against accounts receivable as of the respective balance sheet dates. |
(2) | Uncollectible accounts written off, net of recoveries, also includes foreign exchange adjustment. |
5850