ASTRO MED INC /NEW/, 10-Q filed on 6/1/2011
Quarterly Report
Document and Entity Information
3 Months Ended
Apr. 30, 2011
May 20, 2011
Document and Entity Information
 
 
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Apr. 30, 2011 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Entity Registrant Name
ASTRO MED INC /NEW/ 
 
Entity Central Index Key
0000008146 
 
Entity Filer Category
Smaller Reporting Company 
 
Trading Symbol
alot 
 
Current Fiscal Year End Date
--01-31 
 
Entity Common Stock, Shares Outstanding
 
7,289,888 
Condensed Consolidated Balance Sheets (USD $)
Apr. 30, 2011
Jan. 31, 2011
ASSETS
 
 
Cash and Cash Equivalents
$ 8,165,166 
$ 7,720,135 
Securities Available for Sale
12,921,750 
12,910,232 
Accounts Receivable, net
11,091,702 
11,111,974 
Inventories
14,324,245 
14,404,914 
Deferred Tax Assets
2,570,488 
2,577,166 
Prepaid Expenses and Other Current Assets
1,051,564 
975,928 
Total Current Assets
50,124,915 
49,700,349 
PROPERTY, PLANT AND EQUIPMENT
38,786,123 
38,148,516 
Less Accumulated Depreciation
(26,099,593)
(25,606,561)
Property, Plant and Equipment, net
12,686,530 
12,541,955 
OTHER ASSETS
 
 
Intangible Assets, net
313,472 
331,389 
Goodwill
2,336,721 
2,336,721 
Other
91,693 
88,799 
Total Other Assets
2,741,886 
2,756,909 
TOTAL ASSETS
65,553,331 
64,999,213 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Accounts Payable
2,778,987 
2,748,293 
Accrued Compensation
2,295,889 
2,179,448 
Other Accrued Expenses
1,855,944 
1,750,515 
Deferred Revenue
735,813 
787,988 
Income Taxes Payable
89,468 
36,979 
Total Current Liabilities
7,756,101 
7,503,223 
Deferred Tax Liabilities
2,073,648 
2,060,418 
Other Long Term Liabilities
1,146,978 
1,146,978 
TOTAL LIABILITIES
10,976,727 
10,710,619 
SHAREHOLDERS' EQUITY
 
 
Common Stock, $.05 Par Value, Authorized 13,000,000 shares; Issued 8,760,598 and 8,660,270 shares at April 30, 2011 and January 31, 2011, respectively
438,034 
433,017 
Additional Paid-In Capital
36,978,345 
36,586,226 
Retained Earnings
26,764,299 
26,842,890 
Treasury Stock, at Cost, 1,470,710 and 1,414,981 shares at April 30, 2011 and January 31, 2011, respectively
(10,261,921)
(9,840,052)
Accumulated Other Comprehensive Income
657,847 
266,513 
Total Shareholders' Equity
54,576,604 
54,288,594 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 65,553,331 
$ 64,999,213 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Apr. 30, 2011
Jan. 31, 2011
Condensed Consolidated Balance Sheets
 
 
Common stock, par value
$ 0.05 
$ 0.05 
Common stock, shares authorized
13,000,000 
13,000,000 
Common stock, shares issued
8,760,598 
8,660,270 
Treasury stock, shares
1,470,710 
1,414,981 
Condensed Consolidated Statements of Operations (USD $)
3 Months Ended
Apr. 30, 2011
3 Months Ended
May 1, 2010
Condensed Consolidated Statements of Operations
 
 
Net Sales
$ 18,859,989 
$ 17,077,004 
Cost of Sales
11,358,701 
10,211,860 
Gross Profit
7,501,288 
6,865,144 
Costs and Expenses:
 
 
Selling and Marketing
4,565,539 
3,840,868 
General and Administrative
910,931 
1,183,785 
Research and Development
1,467,861 
1,218,875 
Operating Expenses
6,944,331 
6,243,528 
Operating Income
556,957 
621,616 
Other Income
150,320 
107,277 
Income Before Income Taxes
707,277 
728,893 
Income Tax Provision
275,838 
298,846 
Net Income
$ 431,439 
$ 430,047 
Net Income per Common Share:
 
 
Basic
$ 0.06 
$ 0.06 
Diluted
$ 0.06 
$ 0.06 
Weighted Average Number of Shares Outstanding:
 
 
Basic
7,267,310 
7,194,296 
Diluted
7,416,230 
7,474,873 
Dividends Declared Per Common Share
$ 0.07 
$ 0.07 
Condensed Consolidated Statements of Cash Flows (USD $)
3 Months Ended
Apr. 30, 2011
3 Months Ended
May 1, 2010
Cash Flows from Operating Activities:
 
 
Net Income
$ 431,439 
$ 430,047 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
Depreciation and Amortization
405,116 
394,655 
Share-Based Compensation
77,638 
96,249 
Deferred Income Tax Provision
19,908 
8,351 
Legal Settlement Receivable
 
1,495,051 
Loss on Sale of Securities Available for Sale
 
30,961 
Changes in Assets and Liabilities:
 
 
Accounts Receivable
20,272 
(192,326)
Inventories
80,670 
(821,523)
Income Taxes
52,489 
112,024 
Accounts Payable and Accrued Expenses
75,410 
(605,149)
Other
210,319 
(456,115)
Net Cash Provided by Operating Activities
1,373,261 
492,225 
Cash Flows from Investing Activities:
 
 
Proceeds from Sales/Maturities of Securities Available for Sale
2,700,000 
1,519,039 
Purchases of Securities Available for Sale
(2,698,908)
(1,750,000)
Additions to Property, Plant and Equipment
(443,408)
(233,646)
Net Cash Used in Investing Activities
(442,316)
(464,607)
Cash Flows from Financing Activities:
 
 
Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans
24,116 
401,043 
Cash Settlement of Stock Options
 
(186,042)
Dividends Paid
(510,030)
(504,003)
Net Cash Used in Financing Activities
(485,914)
(289,002)
Net Increase (Decrease) in Cash and Cash Equivalents
445,031 
(261,384)
Cash and Cash Equivalents, Beginning of Period
7,720,135 
14,155,096 
Cash and Cash Equivalents, End of Period
8,165,166 
13,893,712 
Supplemental Disclosures of Cash Flow Information:
 
 
Cash Paid During the Period for Income Taxes, Net of Refunds
$ 224,159 
$ 202,703 
Overview
Overview

(1) Overview

Headquartered in West Warwick, Rhode Island, Astro-Med Inc. develops and manufactures a broad range of specialty printers and data acquisition 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 by using authorized dealers and international sales representatives, who are managed from our foreign sales offices. Astro-Med, Inc. products are sold under the brand names Astro-Med ® Test & Measurement, Grass ® Technologies and QuickLabel ® Systems and are employed around the world in a wide range of aerospace, automotive, communications, chemical, food and beverage, medical, military, industrial, and packaging 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.

Basis of Presentation
Basis of Presentation

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Astro-Med 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, 2011.

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 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 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.

Principles of Consolidation
Principles of Consolidation

(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.

Net Income Per Common Share
Net Income Per Common Share

(4) 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 outstanding during the period. A reconciliation of the shares used in calculating basic and diluted net income per share is as follows:

 

     Three Months Ended  
     April 30,
2011
     May 1,
2010
 

Weighted Average Common Shares Outstanding—Basic

     7,267,310         7,194,296   

Effect of Dilutive Options

     148,920         280,577   
                 

Weighted Average Common Shares Outstanding—Diluted

     7,416,230         7,474,873   
                 

For the three months ended April 30, 2011 and May 1, 2010, the diluted per share amounts do not reflect options outstanding of 730,872 and 632,897, respectively, due to their anti-dilutive effect, as the exercise price of the options was greater than the average market price of the underlying stock during the periods presented.

 

Share-Based Compensation
Share-Based Compensation

(5) Share-Based Compensation

Astro-Med has one equity incentive plan (the "Plan") under which incentive stock options, non-qualified stock options, restricted stock and other equity based awards may be granted to officers and certain employees. To date, only options have been granted under the Plan. Options granted to employees vest over four years. An aggregate of 1,000,000 shares were authorized for awards under the Plan. The exercise price of each stock option will be established at the discretion of the Compensation Committee; however, any incentive stock options granted must be at an exercise price of not less than fair market value at the date of grant. The 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 annual 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 annual shareholders' meeting. At April 30, 2011, 694,175 shares were available for grant under the Plan.

We have 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 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 fair value of stock options granted during the three months ended April 30, 2011 and May1, 2010 was estimated using the following assumptions:

 

     Three Months Ended  
     April,
2011
    May 1,
2010
 

Risk Free Interest Rate

     2.00     2.42

Expected Volatility

     39.4     41.5

Expected Life (in years)

     5.0        5.0   

Dividend Yield

     3.9     3.4

The weighted average fair value per share for options granted was $2.03 during the first quarter of fiscal 2011 compared to $2.12 during the first quarter of fiscal 2010.

 

Aggregated information regarding stock options granted under the Plan for the three months ended April 30, 2011 is summarized below:

 

     Number of Options     Weighted Average
Exercise Price
     Weighted Average
Remaining
Contractual Life
(in Years)
     Aggregate Intrinsic
Value
 

Outstanding at January 31, 2011

     1,219,183      $ 7.03         4.2       $ 1,946,412   

Granted

     35,000        7.95         

Exercised

     (98,610     3.14         

Expired or canceled

     (7,499     4.69         
                      

Outstanding at April 30, 2011

     1,148,074      $ 7.41         4.5       $ 1,428,962   
                                  

Exercisable at April 30, 2011

     993,847      $ 7.40         3.9       $ 1,351,059   
                                  

Share-based compensation expense was recognized as follows:

 

     Three Months Ended  
     April 30, 2011        May 1, 2010    

Cost of Sales

   $ 14,157       $ 18,162   

Operating Expenses

     63,481         78,087   
                 

Total

   $ 77,638       $ 96,249   
                 

As of April 30, 2011 there was $288,988 of unrecognized compensation expense related to unvested options.

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 quarter ended April 30, 2011 and May 1, 2010, 1,718 and 1,728 shares respectively, were purchased under this plan. As of April 30, 2011, 75,290 shares remain available.

Comprehensive Income
Comprehensive Income

(6) Comprehensive Income

The Company's comprehensive income is as follows:

 

     Three Months Ended  
     April 30,
2011
     May 1,
2010
 

Net Income

   $   431,439       $ 430,047   

Other Comprehensive Income (Loss), net of taxes and reclassification adjustments:

     

Foreign currency translation adjustments

     383,010         (152,774

Unrealized holding gain arising during the period

     8,324         6,540   
                 

Other Comprehensive Income (Loss)

     391,334         (146,234
                 

Comprehensive Income

   $ 822,773       $ 283,813   
                 

 

Inventories
Inventories

(7) 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:

 

     April 30, 2011      January 31, 2011  

Materials and Supplies

   $   8,579,421       $ 8,450,985   

Work-In-Process

     1,482,781         982,092   

Finished Goods

     4,262,043         4,971,837   
                 
   $   14,324,245       $ 14,404,914   
                 

 

Income Taxes
Income Taxes

(8) Income Taxes

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

 

     Three
Months Ended
 

Fiscal 2012

     39.0

Fiscal 2011

     41.0

As of April 30, 2011 and January 31, 2011, the Company's cumulative unrecognized tax benefits totaled $726,661. There were no developments affecting unrecognized tax benefits during the quarter ended April 30, 2011.

Segment Information
Segment Information

 

(9) Segment Information

The Company reports three segments consistent with its sales product groups: Test & Measurement (T&M); QuickLabel Systems (QuickLabel) and Grass Technologies (Grass). The Company evaluates segment performance based on the segment profit before corporate expenses.

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

 

     Three Months Ended  
     Net Sales      Segment Operating Profit  

(In thousands)

   April 30,
2011
     May 1,
2010
     April 30,
2011
     May 1,
2010
 

T&M

   $ 3,749       $ 3,210       $ 12       $ 301   

QuickLabel

     10,774         10,153         781         652   

Grass

     4,337         3,714         665         700   
                                   

Total

   $ 18,860       $ 17,077         1,458         1,653   
                       

Corporate Expenses

           901         1,031   
                       

Operating Income

           557         622   

Other Income—Net

           150         107   
                       

Income Before Income Taxes

           707         729   

Income Tax Provision

           276         299   
                       

Net Income

         $ 431       $ 430   
                       

 

Recent Accounting Pronouncements
Recent Accounting Pronouncements

(10) Recent Accounting Pronouncements

Fair Value Measurements

In January 2010, the FASB issued Accounting Standards Update (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 were effective for annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 did not 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 and significantly expands the disclosures required for multiple-element revenue arrangements. 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. We adopted ASU 2009-13 and ASU 2009-14 prospectively for revenue arrangements entered into or materially modified on or after February 1, 2011. Adoption of the new guidance did not have a material impact on our consolidated financial position and results of operations.

 

Except for the ASU's discussed above, all other ASUs issued by the FASB as of the filing date of this Quarterly Report on Form 10-Q are not expected to have a material effect on our consolidated financial statements.

Securities Available for Sale
Securities Available for Sale

(11) 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 thirty 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 at the time of purchase. The fair value, amortized cost and gross unrealized gains and losses of the securities are as follows:

 

April 30, 2011

   Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
    Fair Value  

State and Municipal Obligations

   $ 12,896,129       $ 27,524       $ (1,903   $ 12,921,750   
                                  

January 31, 2011

   Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
    Fair Value  

State and Municipal Obligations

   $ 12,897,221       $ 15,949       $ (2,938   $ 12,910,232   
                                  

 

Fair Value
Fair Value

(12) 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. 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.

The following table represents the fair value hierarchy for our financial assets (cash equivalents and investments) measured at fair value on a recurring basis:

 

April 30, 2011

   Level 1      Level 2      Level 3      Total  

Money Market Funds

   $ 4,961,110       $ —         $ —         $ 4,961,110   

State and Municipal Obligations

     12,921,750         —           —           12,921,750   
                                   

Total

   $ 17,882,860       $ —         $ —         $ 17,882,860   
                                   

 

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