UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended May 2,August 1, 2015

OR

For the transition period from                    to                    

Commission file number 0-13200

Astro-Med, Inc.

(Exact name of registrant as specified in its charter)

(401) 828-4000

(Registrant’s telephone number, including area code)

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  x    No  ¨.

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 definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.05 Par Value – 7,307,2557,316,906 shares

(excluding treasury shares) as of May 22,August 28, 2015

ASTRO-MED, INC.

INDEX

Part I. FINANCIAL INFORMATION

ASTRO-MED, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Except Share Data)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, Except Per Share Data)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Overview

Headquartered in West Warwick, Rhode Island, Astro-Med Inc. designs, develops, manufactures and distributes a broad range of specialty printers and data acquisition and analysis systems. Our products are distributed through our own sales force and authorized dealers in the United States. We also sell to customers outside of the United States primarily through our Company offices in Canada, Mexico, Europe and Southeast Asia as well as with independent dealers and representatives. Astro-Med, Inc. products are sold under the brand names Astro-Med ^® Test & Measurement and QuickLabel^® Systems and are employed around the world in a wide range of aerospace, apparel, automotive, avionics, chemical, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging and transportation applications.

Unless otherwise indicated, references to “Astro-Med,” the “Company,” “we,” “our,” and “us” in this Quarterly Report on Form 10-Q refer to Astro-Med, Inc. and its consolidated subsidiaries.

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods included herein. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015.

Results of operations for the interim periods presented herein are not necessarily indicative of the results that may be expected for the full year.

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated 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, accrued expenses 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.

Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.

(3) Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

(4) Acquisition

On June 19, 2015, Astro-Med completed the acquisition of the ruggedized printer product line for civil and commercial aircraft from Rugged Information Technology Equipment Corporation (RITEC) under the terms of an Asset Purchase Agreement dated June 18, 2015. The products of RITEC consist of rugged printers for use in commercial aircraft sold primarily to aircraft manufacturers, tier one contractors and directly to airlines around the world. Astro-Med’s ruggedized printer product line is part of the Test & Measurement (T&M) product group and is reported as part of the T&M segment. The Company will begin shipment of the RITEC products in the third quarter of the current fiscal year.

The purchase price of the acquisition was $7,360,000 which was funded using available cash and investment securities. Of the $7,360,000 purchase price, $750,000 is being held in escrow for twelve months following the acquisition date to support an indemnity to the Company in the event of any breach in the representations, warranties and covenants of RITEC. The assets acquired consist principally of accounts receivables and certain intangible assets. Acquisition related costs of approximately $90,000 are included in the general and administrative expenses in the Company’s consolidated statements of income for the three and six months ended August 1, 2015. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”

Astro-Med also entered into a Transition Services Agreement, under which RITEC will provide transition services and continue to manufacture products in the acquired product line for approximately six months until the Company transitions the manufacturing to its West Warwick, Rhode Island facility. Upon expiration of the Transition Services Agreement, Astro-Med will purchase any inventory held by RITEC at its book value (net of reserves), which the Company estimates will be approximately $100,000.

Also as part of the Asset Purchase Agreement, Astro-Med entered into a License Agreement, which grants RITEC certain rights to use the intellectual property acquired by the Company in the design, development, marketing, manufacture, sale and servicing of ruggedized printers for aircraft sold to the military end-user market and printers sold to other non-aircraft market segments. RITEC will pay royalties equal to 7.5% of the sales price on all products sold into the military end-user aircraft market during the first five years of the License Agreement.

The purchase price of the acquisition has been allocated on the basis of the fair value as follows:

The fair value of the intangible assets acquired was estimated by applying the income approach. This fair value measurement is based on significant inputs that are not observable in the market and therefore, represent a Level 3 measurement as defined in ASC 820, “Fair Value Measurement and Disclosure.” Key assumptions include (1) a weighted average cost of capital of 15.5%; (2) a range of earnings projections from $110,000-$700,000 and (3) a range of contract renewal probability from 0%-100%.

Goodwill of $3,530,000, which is deductible for tax purposes, represents the excess of the purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired from RITEC. The carrying amount of the goodwill was allocated to the T&M segment of the Company.

The following table reflects the fair value of the acquired identifiable intangible assets and related estimated useful lives:

Assuming the acquisition of RITEC occurred on February 1, 2014, the impact on net sales, net income and earnings per share would not have been material to the Company for the three and six months ended August 1, 2015 and August 2, 2014.

(5) Net Income Per Common Share

Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of shares and, if dilutive, common equivalent shares for stock options, unvested restricted stock awards and restricted stock units outstanding during the period. A reconciliation of the shares used in calculating basic and diluted net income per share is as follows:

For the three and six months ended MayAugust 1, 2015 the diluted per share amounts do not reflect common equivalent shares outstanding of 424,100. For the three and six months ended August 2, 2015 and May 3, 2014 the diluted per share amounts do not reflect common equivalent shares outstanding of 76,200 and 75,600, respectively, because150,000. These outstanding common equivalent shares were not included due to their effect wouldanti-dilutive effect. Anti-dilutive shares consist of those common stock equivalents that have either an exercise price above the average stock price for the period, or the common stock equivalent’s related average unrecognized stock compensation expense is sufficient to “buy back” the entire amount of shares. Restricted stock units which vest based upon achievement of performance targets are excluded from the diluted shares outstanding unless the performance targets have been anti-dilutive,met as the exercise price was greater than the average market price of the underlying stock duringend of the reporting period presented.regardless of whether such performance targets are probable of achievement as of the end of the measurement period.

(5)

(6) Intangible Assets

Intangible assets are as follows:

There were no impairments to intangible assets during the periods ended May 2,August 1, 2015 and May 3,August 2, 2014. Amortization expense of $89,000$105,000 and $175,000 in regards to the above acquired intangibles has been included in the condensed consolidated statementsstatement of income for the periodsthree months ended May 2,August 1, 2015 and May 3,August 2, 2014, respectively. Amortization expense of $194,000 and $351,000 in regards to the above acquired intangibles has been included in the condensed consolidated statement of income for the six months ended August 1, 2015 and August 2, 2014, respectively.

Estimated amortization expense for the next five years is as follows:

(6)(7) Share-Based Compensation

Astro-Med has onetwo equity incentive planplans – the 2007 Equity Incentive Plan (the “Plan”“2007 Plan”) under whichand the 2015 Equity Incentive Plan (the “2015 Plan”). Under these plans, the Company may grant incentive stock options, non-qualified stock options, stock appreciation rights, time or performance based restricted stock units (“RSUs”), restricted stock awards (“RSAs”), and other equity basedstock-based awards may be granted to executives, key employees, directors officers and certain employees. An aggregate of 1,000,000 shares were authorized for awards under the Plan.other eligible individuals. At May 2,August 1, 2015, 124,302107,874 shares were available for grant under the 2007 Plan, of which 100,000 are reserved for stock options that the Company is obligated to issue to its CEO in fiscal years 2017 and 2018 pursuant to an Equity Incentive Award Agreement dated as of November 24, 2014 (the “CEO Equity Incentive Agreement”). The 2007 Plan will expire in May 2017. The 2015 Plan was approved by the Company’s shareholders at the 2015 annual meeting. The 2015 Plan authorizes the issuance of up to 500,000 shares (subject to adjustment for stock dividends and stock splits) and will expire in May 2025. At August 1, 2015, 240,000 shares were available for grant under the 2015 Plan.

Options granted to employees under both Plans vest over four years and expire after ten years. The exercise price of each stock option will be established at the discretion of the Compensation Committee; however, any incentive stock options granted under the 2007 Plan, and all options granted under the 2015 Plan, must be at an exercise price of not less than the fair market value atof the Company’s common stock on the date of grant.

In fiscalMarch 2012 (fiscal year 2013,2013), a portion of the Company’s executive’sexecutives’ long-term incentive compensation was awarded in the form of RSUs (“2013 RSUs”). The 2013 RSUs were earned based on the Company achieving specific thresholds of net sales and annual operating income as established under the fiscal 2013 Domestic Management Bonus Plan, and vested fifty percent on the first anniversary of the grant date and fifty percent on the second anniversary of the grant date provided that the grantee was employed on each vesting date by Astro-Med or an affiliate company. All such 2013 RSUs were earned and vested as of March 2014.

In April 2013 (fiscal year 2014), the Company granted options and RSUs to officers (“2014 RSUs”). EachThe 2014 RSURSUs will be earned and vest as follows: twenty-five percent of the 2014 RSU vestsvest on the third anniversary of the grant date, fifty percent of the 2014 RSU vestsvest upon the Company achieving its cumulative budgeted net sales target for fiscal years 2014 through 2016 (the “Measurement Period”), and twenty-five percent of the total 2014 RSU vestsvest upon the Company’sCompany achieving a target average annual ORONA (operating income return on net assets as calculated under the Domestic Management Bonus Plan) for the Measurement Period. The grantee may not sell, transfer or otherwise dispose of more than fifty percent of the common stock issued upon vesting of the RSU2014 RSUs until the first anniversary of the vesting date. On February 1, 2014, the Company accelerated the vesting of 4,166 of the 2014 RSUs held by Everett Pizzuti in connection with his retirement. None of the remaining 2014 RSUs, have vested as of May 2,August 1, 2015.

In March 2015 (fiscal year 2016), the Company granted 50,000 options and 537 RSAs to its CEO pursuant to the CEO Equity Incentive Agreement, and 35,000 options to other key employees. The Plan provides foroptions and RSAs vest in four equal annual installments commencing on the first anniversary of the grant date.

In May 2015 (fiscal year 2016), the Company granted an aggregate of 80,000 time-based and 155,000 performance-based RSUs (“2016 RSUs”) to certain officers of the Company. The time-based 2016 RSUs will vest in four equal annual installments commencing on the first anniversary of the grant date. The performance-based 2016 RSUs will vest over three years based upon the increase in net sales, if any, achieved each fiscal year relative to a three-year net sales increase goal. Performance-based 2016 RSUs that are earned based on organic revenue growth will be fully vested when earned, while those earned based on revenue growth via acquisitions will vest annually over a three-year period following the fiscal year in which the revenue growth occurs. Any performance-based 2016 RSUs that have not been earned at the end of the three-year performance period will be forfeited.

Under the Plans, each non-employee director receives 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’shareholders meeting. Each such option is exercisable at the fair market value of the Company’s common stock as of the grant date, and vests immediately prior to the next succeeding shareholders’ meeting. During the second quarter of fiscal 2016, 25,000 options in total were granted to the non-employee directors. In addition to the automatic option grant, under Plan, the Company has a Non-Employee Director Annual Compensation Program (the “Program”) which provides that each non-employee director is entitled to an annual cash retainer of $7,000 (the “Annual Cash Retainer”), plus $500 for each Board and committee meeting attended. In addition, effective August 1, 2014, the Chairman of the Board also receives an annual retainer of $6,000, and the ChairChairs of the Audit Committee and Compensation CommitteeCommittees each receive an annual retainer of $4,000 each (“Chair Retainer”). The non-employee directordirectors may elect, for any fiscal year, to receive all or a portion of the Annual Cash Retainer and/or Chair Retainer (collectively the “Cash Retainer”) in the form of common stock of the Company, which will be issued under one of the Plan.Plans. If a non-employee director elects to receive all or a portion of the Cash Retainer in the form of common stock, such shares shall be issued in four quarterly installments on the first day of each fiscal quarter, and the number of shares of common stock to be issued shall be based on the fair market value of suchthe Company’s common stock on the date such installment is payable. The common stock received in lieu of such Cash Retainer will be fully vested. However, a non-employee director who receives common stock in lieu of all or a portion of the Cash Retainer may not sell, transfer, assign, pledge or otherwise encumber the common stock prior to the first anniversary of the date on which such shares were issuable. In the event of the death or disability of a nonemployee director, or a change in control of the Company, any shares of common stock issued in lieu of such Cash Retainer, shall no longer be subject to such restrictions on transfer. During the first and second quarters of fiscal 2016, 698 and 722 shares, respectively, were awarded to non-employee directors in lieu of the Cash Retainer.

In addition, under the Program, each non-employee director receives RSAs with a value equal to $20,000 (the “Equity Retainer”) upon adjournment of each annual shareholdersshareholders’ meeting. If a non-employee director is first appointed or elected to the Board of Directors effective on a date other than at the annual shareholdersshareholders’ meeting, on the date of such appointment or election, the director shall receive a pro rata award of restricted common stock having a value based on the number of days remaining until the next annual meeting. The Equity Retainer will vest on the earlier of 12 months after the grant date or the date immediately prior to the next annual meeting of the shareholders following the meeting at which such RSAs were granted. However, a non-employee director may not sell, transfer, assign, pledge or otherwise encumber the vested common stock prior to the second anniversary of the vesting date. In the event of the death or disability of a non-employee director, or a change in control of the Company, the RSAs shall immediately vest and shall no longer be subject to such restrictions on transfer. During the second quarter of fiscal 2016, 7,115 shares were awarded as the Equity Retainer to the non-employee directors.

We account for compensation cost related to share-based payments based on the estimated fair value of the stock options, RSUs and RSAs when awarded to an employee or director.equity award. We have estimatedestimate the fair value of each option on the date of grant using the Black-Scholes

option-pricing model. Our estimate 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 expected future 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. Reductions in compensation expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. Our accounting for share-based compensation for RSUs and RSAs is also based on the fair value method. The fair value of the RSUs and RSAs is based on the closing market price of the Company’s common stock on the grant date of the RSU or RSA.date.

Share-based compensation expense was recognized as follows:

Stock Options

The fair value of stock options granted during the threesix months ended May 2,August 1, 2015 and May 3,August 2, 2014 was estimated using the following assumptions:

The weighted average fair value per share for options granted was $2.43 and $2.44 during the first quarterand second quarters of fiscal 2016, asrespectively, compared to $2.93 and $2.84 during the first quarterand second quarters of fiscal 2015.

Aggregated information regarding stock options granted under the PlanPlans for the threesix months ended May 2,August 1, 2015 is summarized below:

As of May 2,August 1, 2015, there was $586,000$577,000 of unrecognized compensation expense related to unvested options, which willmay be recognized through March 2019.

Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs)

Aggregated information regarding RSUs and RSAs granted under the Plan for the threesix months ended May 2,August 1, 2015 is summarized below:

As of May 2,August 1, 2015, there was $175,000$1,658,000 of unrecognized compensation expense related to unvested RSUs and RSAs which willmay be recognized through April 2016.May 2019.

Employee Stock Purchase Plan

Astro-Med has an Employee Stock Purchase Plan allowing eligible employees to purchase shares of common stock at a 15% discount from fair value on the date of purchase. A total of 247,500 shares were reserved for issuance under this plan. During the quarters ended May 2,August 1, 2015 and May 3,August 2, 2014, there were 7321,293 and 8151,592 shares, respectively, purchased under this plan. As of May 2,August 1, 2015, 56,27354,980 shares remain available.available for purchase under the plan.

(7)(8) 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:

(8)(9) Income Taxes

The Company’s effective tax rates for the period, which are based on the projected effective tax rate for the full year, are as follows:

During the first quarter of fiscal 2016,six months ended August 1, 2015, the Company recognized an income tax expense of approximately $471,000.$1,158,000. The effective tax rate in this quarterperiod was directly impacted by a $135,000 tax benefit related to the statute of limitations expiring on a previously uncertain tax position. During the threesix months ended May 3,August 2, 2014, the Company recognized income tax expense of $449,000$1,261,000 which includesincluded a tax benefit of approximately $100,000 related to the favorable resolution of a previously uncertain tax position.

As of May 2,August 1, 2015, the Company’s cumulative unrecognized tax benefits totaled $633,000$643,000 compared to $707,000 as of January 31, 2015. There were no other developments affecting unrecognized tax benefits during the quarterperiod ended May 2,August 1, 2015.

(9)

(10) Note Receivable and Line of Credit Issued

On January 30, 2012, the Company completed the sale of its label manufacturing operations in Asheboro, North Carolina to Label Line Ltd. The net sale price of $1,000,000 was received in the form of a promissory note issued by Label Line Ltd. and is fully

secured by a first lien on various collateral, including the Asheboro plant and plant assets. The note bears interest at 3.75% and is payable in sixteen quarterly installments of principal and interest which commenced on January 30, 2013. As of May 2,August 1, 2015, $375,000$319,000 remains outstanding on this note which approximates its estimated fair value.

The terms of the Asheboro sale also included an agreement for Astro-Med to provide Label Line Ltd. with additional financing in the form of a revolving line of credit in the amount of $600,000. This line of credit is fully secured by a first lien on various collateral of Label Line Ltd., including the Asheboro plant and plant assets, and bears interest at a rate equal to the United States prime rate plus an additional margin of two percent on the outstanding credit balance. The term of this revolving line of credit has been extended through January 31, 2016. As of May 2,August 1, 2015, $170,000$150,000 remains outstanding on this revolving line of credit. The estimated fair value of the line of credit approximates its carrying value.

(10)(11) Segment Information

Astro-Med reports two segments: QuickLabel Systems (QuickLabel) and Test & Measurement (T&M). The Company evaluates segment performance based on the segment profit before corporate expenses.

On June 19, 2015, Astro-Med completed the asset purchase of the ruggedized printer product line from RITEC. Astro-Med’s ruggedized printer product line is part of the T&M product group and is reported as part of the T&M segment. The Company will begin shipment of the RITEC products in the third quarter of the current fiscal year. Refer to Note 4, “Acquisition,” for further details.

Summarized below are the Net Sales and Segment Operating Profit for each reporting segment:

(11)(12) Recent Accounting Pronouncements

Revenue RecognitionInventory

In May 2014,July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-11, “Inventory (Topic 330).” ASU 2015-11 requires inventory to be measured at the lower of cost and net realizable value instead of at lower of cost or market. This guidance does not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method but applies to all other inventory including inventory measured using first-in, first-out (FIFO) or the average cost method. ASU 2015-11 will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years (Q1 fiscal 2018 for Astro-Med) and should be applied prospectively. Early adoption is permitted as of the beginning of an interim or annual reporting period. Astro-Med is currently evaluating the effect of this new guidance on the Company’s consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services and isservices. In July 2015, the FASB modified ASU 2014-09 to be effective for public entities for interim and annual reporting periods beginning after December 15, 2017 (Q1 fiscal 2019 for Astro-Med), including interim periods within that reporting period. As modified, the FASB permits the adoption of the new revenue standard early, but not before the annual periods beginning after December 15, 2016. Early application is not permitted and entitiesEntities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company’s consolidated financial statements.

No other new accounting pronouncements, issued or effective during the first threesix months of the current year, have had or are expected to have a material impact on our consolidated financial statements.

(12)(13) 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 ranging from one to 2131 months. Securities available for sale 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.

The fair value, amortized cost and gross unrealized gains and losses of securities available for sale are as follows:

(13)(14) Fair Value

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 (exit price). 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:

Cash and cash equivalents, accounts receivables, accounts payable, accrued compensation and other expenses and income tax payable are reflected in the condensed consolidated balance sheet at carrying value, which approximates fair value due to the short term nature of the these instruments.

Assets measured at fair value on a recurring basis are summarized below:

For our money market funds and state and municipal obligations, we utilize the market approach to measure fair value. The market approach is based on using quoted prices for identical or similar assets.

Non-financial assets such as goodwill, intangible assets, and property, plant and equipment are required to be measured at fair value on a recurring basis are summarized below:

Asset held for sale consists of Astro-Med’s former Grass facility in Rockland, Massachusetts whichonly when impairment loss is being actively marketed for sale. In accordance with ASC 360, “Property, Plant and Equipment,” assets held for sale are written down to fair value less cost to sell and as such, the Company has recorded impairment charges of $220,000 and $779,000, in the fourth quarter of fiscal 2015 and 2014, respectively.recognized. The Company estimateddid not record an impairment loss related to these assets during the fair value of the Rockland facility using the market values for similar properties less the cost to sell and expects to sell this property within the next twelve months.six month period ended August 1, 2015.

(14)(15) Accumulated Other Comprehensive Loss

The changes in the balance of accumulated other comprehensive income (loss) by component are as follows:

The amounts presented above in other comprehensive income (loss) are net of taxes, except for translation adjustmentadjustments associated with our German Subsidiary.subsidiary.

(15)

(16) Commitments and Contingencies

Product Replacement Program

In April 2013, tests conducted by the Company revealed that one of its suppliers had been using a non-conforming part in power supplies for certain models of Astro-Med’s Test & Measurement printers. No malfunctions have been reported by customers as a result of the non-conforming material.

Upon identifying this issue, Astro-Med immediately suspended production of the printers, notified all customers and contacted the supplier who confirmed the problem. Astro-Med is continuing to work with its customers to replace the non-conforming material on existing printers with conforming material. The estimated costs associated with the replacement program were $672,000, which was based upon the number of printers shipped during the period the non-conforming material was used. Those estimated costs were recognized and recorded as a reserve in the first quarter of fiscal 2014. As of May 2,August 1, 2015, the Company had expended $338,000$358,000 in replacement costs which have been charged against this reserve. The remaining reserve amount of $334,000$314,000 is included in Other Accrued Expenses in the accompanying condensed consolidated balance sheet dated May 2,August 1, 2015.

Astro-Med is currently receiving power supplies with compliant parts and has resumed printer production and shipments to customers.

Since the supplier deviated from the agreed upon specifications for the power supply while providing certificates of conformance to the original specifications, in January 2014, Astro-Med received a non-refundable $450,000 settlement from the supplier for recovery of the costs and expense associated with this issue. In addition to this cash settlement, the Company is receiving lower product prices from the supplier through fiscal 2017.

(16)(17) Line of Credit

The Company has a three-year, $10 million revolving line of credit available for ongoing working capital requirements, business acquisitions or general corporate purposes as needed. Any borrowings made under this line of credit bear interest at either a fluctuating base rate equal to the highest of (i) the Prime Rate, (ii) 1.50% above the daily one month LIBOR, and (iii) the Federal Funds Rate in effect plus 1.50% or at a fixed rate of LIBOR plus an agreed upon margin of between 0% and 2.25%, based on the Company’s funded debt to EBITDA ratio as defined in the agreement. In addition, the newThe agreement providedprovides for two financial covenant requirements, namely, Total Funded Debt to Adjusted EBITDA (as defined) of not greater than 3 to 1 and a Fixed Charge Coverage Ratio (as defined) of not less than 1.25 to 1, both measured at the end of each quarter on a rolling four quarter basis. As of May 2,August 1, 2015, there have been no borrowings against this line of credit and the Company was in compliance with its financial covenants.

(17) Subsequent Event

On May 20, 2015, the Company’s shareholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) under which equity based awards, including incentive stock options, non-qualified stock options, RSUs and RSAs, may be granted to directors, officers, key employees and certain other individuals providing services to the Company. The maximum number of shares of common stock of the Company authorized for issuance under the 2015 Plan is 500,000, subject to adjustment for stock splits, stock dividends and other changes to the Company’s capital structure.

Business Overview

This section should be read in conjunction with Astro-Med’s Condensed Consolidated Financial Statements included elsewhere herein and our Annual Report on Form 10-K for the fiscal year ended January 31, 2015.

Astro-Med is a multi-national enterprise that leveragesutilizes its proprietary data visualization technologies to design, develop, manufacture, distribute and service 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 two sales product groups:

Astro-Med markets and sells its products and services globally through a diverse distribution structure of direct sales personnel, manufacturer’s representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets.

On June 19, 2015, Astro-Med completed the asset purchase of the ruggedized printer product line from RITEC. Astro-Med’s ruggedized printer product line is part of the T&M product group and is reported as part of the T&M segment. The Company will begin shipment of the RITEC products in the third quarter of the current fiscal year. Refer to Note 4, “Acquisition,” for further details

Results of Operations

Three Months Ended May 2,August 1, 2015 vs. Three Months Ended May 3,August 2, 2014

Net sales by segment and current quarter percentage change over prior year for the three months ended May 2,August 1, 2015 and May 3,August 2, 2014 were:

Net sales for the firstsecond quarter of the current year were $22,206,000,$23,938,000, representing a 6.9%7.0% increase as compared to the previous year’s firstsecond quarter sales of $20,774,000.$22,366,000. Sales through the domestic channels for the current quarter were $15,720,000,$17,309,000, an increase of 7.5%14.1% over the prior year’s firstsecond quarter. International sales for the firstsecond quarter of the current year were $6,486,000,$6,629,000, representing a 5.4% increase7.8% decrease from the previous year. Current year’s firstsecond quarter international sales include an unfavorable foreign exchange rate impact of $953,000.$909,000.

Hardware sales in the current quarter were $8,401,000,$8,581,000, a slight decrease as compared to prior year’s firstsecond quarter hardware sales of $8,563,000.$9,910,000. Hardware sales were down 3.4%10.1% in the T&M segmentproduct group primarily due primarilyto the decrease in the Ruggedized product line sales, due to shipments of orders being postponed. Additionally, data acquisition sales were down due to the delay in the release of a new product. These declines are partially offset by an increase in Dash product line sales for the current quarter. Hardware sales in the current quarter were down 18.7% from the prior year in the QuickLabel product group due to a decline in sales Ruggedized product line salesof both monochromatic and other color printers. This decline was slightly offset by an increase in the current year. Current quarter hardware sales in the QuickLabel segment remained relatively constant with prior year. Kiaro! sales.

Consumables sales in the current quarter were $11,769,000,$13,339,000, representing an 8.6%a 22.1% increase over prior year’s firstsecond quarter consumable sales of $10,838,000.$10,922,000. The current quarter increase in consumable sales as compared to the firstsecond quarter of the prior year is attributable to a double-digit increase in sales of digital color printer supplies and the label and tag products within the QuickLabel segment.

Service and other revenues of $2,036,000$2,018,000 in the current quarter were up 48.3%31.5% from prior year’s firstsecond quarter service and other revenues of $1,374,000,$1,534,000, primarily due to the increase in repairs and parts revenue during the quarter related to the fiscal 2014 Miltope acquisition.

Current year firstsecond quarter gross profit was $9,030,000,$9,846,000, representing a 4.6%2.7% improvement as compared to prior year’s firstsecond quarter gross profit of $8,635,000;$9,589,000; however, the Company’s gross profit margin of 40.7%41.1% in the current quarter reflects a decrease from the prior year’s firstsecond quarter gross profit margin of 41.6%42.9%. The higher gross profit for the current quarter as compared to prior year is primarily attributable to higher sales, while the current quarter’s decrease in margin is due to product mix and lower factory absorption.higher manufacturing costs.

Operating expenses for the current quarter were $7,582,000, an$8,012,000, a 7.9% increase as compared to prior year’s firstsecond quarter operating expenses of $6,936,000.$7,425,000. Specifically, G&A expenses increased in the firstsecond quarter to $1,457,000$1,783,000 as compared to $1,191,000$1,443,000 in the prior year. The increase isyear primarily due to increases in wages and benefits andplus professional fees spending.related to the RITEC acquisition. R&D expenses increased 30.9%5.8% in the current quarter as compared to the prior year, due to outside R&D design and product testing to accelerate on-going development.development, as well as RITEC R&D costs. The R&D spending level, as a percentage of net sales, for the current quarter is 8.1%6.5% as compared to 6.6% for the same period of the prior year. Selling and marketing expenses for the current quarter decreasedincreased slightly to $4,329,000$4,664,000 as compared to $4,374,000$4,504,000 in the firstsecond quarter of the prior year due to increases in commissions and trade show expenses.

Other income during the second quarter was $21,000 compared to $83,000 in the second quarter of the previous year. The decrease was primarily due to the increase in foreign exchange loss for the current quarter as compared to the same period of the prior year.

The provision for federal, state and foreign taxes for the second quarter of the current year was $687,000, reflecting an effective tax rate of 37.0%. This compares to the prior year’s second quarter tax provision on income of $812,000, reflecting an effective tax rate of 36.1%.

The Company reported net income of $1,168,000 for the second quarter of the current year, generating EPS of $0.16 per diluted share as compared to the prior year’s second quarter net income of $1,435,000 and related EPS of $0.18 per diluted share. Return on sales was 4.9% for the second quarter fiscal 2016 as compared to 6.4% in the second quarter of fiscal 2015.

Six Months Ended August 1, 2015 vs. Six Months Ended August 2, 2014

Net sales by product group and current quarter percentage change over prior year for the six months ended August 1, 2015 and August 2, 2014 were:

Net sales for the first six months of the current year were $46,144,000, representing a 7.0% increase as compared to the previous year’s sales of $43,140,000. Sales through the domestic channels for the first half of the current year were $33,029,000, an increase of 10.8% over the prior year. International sales for the first six months of the current year were $13,115,000, representing a 1.7% decrease from the previous year. The current year’s first six months international sales include an unfavorable foreign exchange rate impact of $1,862,000.

Hardware sales in the first six months of the current year were $16,982,000, a decrease compared to prior sales of $18,472,000. Current year T&M hardware sales of $10,731,000 decreased 6.9% as compared to prior year sales of $11,532,000 and QuickLabel hardware sales of $6,251,000 in the current year, were lower by 10.0% compared to prior year sales of $6,942,000. The decrease in sales can be attributed to the decline in Ruggedized sales in the T&M group, due to shipments of orders being postponed. Also contributing to the current year sales decrease was the decline in data recorder sales in the T&M group, as well as lower monochromatic and other color printer sales in the QuickLabel product group. These declines in sales were slightly offset by increases in T&M’s Dash product line, as well as an increase in sales of the Kairo! Product line in the QuickLabel product group.

Consumables sales in the first half of the current year were $25,108,000, representing a 15.4% increase over prior year’s first six months sales of $21,760,000. The current year increase in consumable sales is primarily due to the double-digit increase in both label and tag, as well as digital color printer supplies product sales in the QuickLabel segment.

Service and other revenues of $4,054,000 in the first six months of the current year were up 39.4% from prior year’s first six months service and other revenues of $2,908,000, primarily due to the increase in repairs and parts revenue during the current year due to the 2014 Miltope acquisition.

Current year first six months gross profit was $18,876,000, reflecting a 3.6% improvement as compared to prior year’s first six months gross profit of $18,225,000. However, the Company’s gross profit margin of 40.9% in the current year reflects a decrease from the prior year’s first six months gross profit margin of 42.2%. The higher gross profit for the current year as compared to prior year is primarily attributable to increased sales, while the current quarter’s decrease in margin is due to product mix and lower factory absorption.

Operating expenses for the first six months of the fiscal year were $15,594,000, an 8.6% increase as compared to prior year’s first six months operating expenses of $14,362,000. Selling and marketing expenses for the current year of $8,992,000 increased as compared to the previous year’s first six months due to increased commission costs, as well as an increase in targeted marketing and trade show

expenditures. G&A expenses increased to $3,241,000 in the first six months of the current year as compared to prior year’s first six months G&A expenses of $2,634,000 primarily due to an increase in wages and benefits, as well as professional fees related to the acquisition of the RITEC business. R&D spending in the first six months of the current year of $3,361,000 increased compared to prior year’s first six months spending of $2,850,000 due primarily to an increase in outside service cost related to the development of new product programs. Current year spending in R&D represents 7.3% of sales as compared to prior year’s first six months level of 6.6%.

First six months operating income of $3,282,000, resulted in an operating profit margin of 7.1%, lower than the prior year’s first six months operating income of $3,863,000 with a related operating margin of 9.0%. Product mix, lower factory absorption and an increase in operating expenses all contributed to the decline in operating income.

Other income during the first quartersix months was $234,000$254,000 compared to other expense of $121,000$38,000 in the first quartersix months of the previous year. The current year increase in income was primarily due to the $248,000 of income recognized from a settlement in an escrow account related to the Miltope transaction. In addition,Relative to the prior year, other expense in fiscal 20142015 included a $251,000 write-downwrite down on the disposition of inventory related to the conclusion and settlement of the Grass Transition Service Agreement. The current quarter increase was slightly tempered by the increase in foreign exchange loss for the current quarter as compared to the same period of the prior year.

The provision for federal, state and foreign taxesCompany recognized a $1,158,000 income tax expense for the first quartersix months of the current fiscal year was $471,000 which includes a $135,000 benefit of $135,000 related to the statute of limitations expiring on a previouspreviously uncertain tax position and reflects an effective tax rate of 28.0%.position. This compares to the prior year’s first quartersix months income tax provision on incomeexpense of $449,000,$1,261,000 which includesincluded a $100,000 benefit of $100,000 related to the favorable resolution of a previouspreviously uncertain tax position and reflected an effective tax rate of 28.5%.position.