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(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.
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(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.
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(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.
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(6) Comprehensive Income
The Company's comprehensive income is as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
July 30, 2011 |
July 31, 2010 |
July 30, 2011 |
July 31, 2010 |
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Net Income |
$ | 1,045,839 | $ | 322,777 | $ | 1,477,278 | $ | 752,824 | ||||||||
Other Comprehensive Income (Loss), net of taxes and reclassification adjustments: |
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Foreign currency translation adjustments |
(149,686 | ) | (69,674 | ) | 233,324 | (222,448 | ) | |||||||||
Unrealized holding gain (loss) arising during the period |
(219 | ) | 7,506 | 8,105 | 14,046 | |||||||||||
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Other Comprehensive Income (Loss) |
(149,905 | ) | (62,168 | ) | 241,429 | (208,402 | ) | |||||||||
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Comprehensive Income |
$ | 895,934 | $ | 260,609 | $ | 1,718,707 | $ | 544,422 | ||||||||
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(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:
July 30, 2011 | January 31, 2011 | |||||||
Materials and Supplies |
$ | 8,746,452 | $ | 8,450,985 | ||||
Work-In-Process |
1,258,574 | 982,092 | ||||||
Finished Goods |
3,897,755 | 4,971,837 | ||||||
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$ | 13,902,781 | $ | 14,404,914 | |||||
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(8) Income Taxes
The Company's effective tax rates for the periods, which are based on the projected effective tax rate for the full year, are as follows:
Three Months Ended | Six Months Ended | |||||||
Fiscal 2012 |
31.2 | % | 33.7 | % | ||||
Fiscal 2011 |
41.0 | % | 41.0 | % |
As of July 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 three and six months ended July 30, 2011.
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(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 | Six Months Ended | |||||||||||||||||||||||||||||||
Net Sales | Segment Operating Profit | Net Sales | Segment Operating Profit | |||||||||||||||||||||||||||||
(In thousands) |
July 30, 2011 |
July 31, 2010 |
July 30, 2011 |
July 31, 2010 |
July 30, 2011 |
July 31, 2010 |
July 30, 2011 |
July 31, 2010 |
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T&M |
$ | 4,477 | $ | 3,617 | $ | 861 | $ | 417 | $ | 8,226 | $ | 6,827 | $ | 873 | $ | 718 | ||||||||||||||||
QuickLabel |
11,238 | 10,102 | 627 | 405 | 22,012 | 20,256 | 1,408 | 1,056 | ||||||||||||||||||||||||
Grass |
4,621 | 4,034 | 745 | 654 | 8,958 | 7,747 | 1,410 | 1,355 | ||||||||||||||||||||||||
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Total |
$ | 20,336 | $ | 17,753 | 2,233 | 1,476 | $ | 39,196 | $ | 34,830 | 3,691 | 3,129 | ||||||||||||||||||||
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Corporate Expenses |
1,010 | 928 | 1,911 | 1,959 | ||||||||||||||||||||||||||||
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Operating Income |
1,223 | 548 | 1,780 | 1,170 | ||||||||||||||||||||||||||||
Other Income (Expense) — Net |
297 | (1 | ) | 448 | 106 | |||||||||||||||||||||||||||
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Income Before Income Taxes |
1,520 | 547 | 2,228 | 1,276 | ||||||||||||||||||||||||||||
Income Tax Provision |
474 | 224 | 751 | 523 | ||||||||||||||||||||||||||||
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Net Income |
$ | 1,046 | $ | 323 | $ | 1,477 | $ | 753 | ||||||||||||||||||||||||
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(10) Recent Accounting Pronouncements
Comprehensive Income
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, "Presentation of Comprehensive Income," which requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. While ASU-2011-05 changes the presentation of comprehensive income, it does not change the components that are recognized in net income or comprehensive income under current accounting guidance. This amended guidance is effective for fiscal years, and interim periods within those years, ending December 15, 2011, and must be applied retroactively. Since ASU 2011-05 impacts presentation only, the adoption of this guidance will not have any effect on our consolidated financial position or results of operations.
Fair Value Measurements
In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs," which is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. ASU 2011-04 does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRSs. ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU 2011-04 clarifies the FASB's intent about the application of existing fair value measurement. This update is effective for annual periods beginning after December 15, 2011. We do not expect the provisions of ASU 2011-04 to have a material effect on our consolidated financial position or results of operations.
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 were effective for annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material effect 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 effect 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.
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(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 twenty-nine 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 the securities are as follows:
July 30, 2011 |
Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
State and Municipal Obligations |
$ | 10,663,246 | $ | 28,988 | $ | (3,698 | ) | $ | 10,688,536 | |||||||
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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 | |||||||
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(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:
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Level 1 — Quoted prices in active markets for identical assets or liabilities; |
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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 |
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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:
July 30, 2011 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money Market Funds |
$ | 6,230,506 | $ | — | $ | — | $ | 6,230,506 | ||||||||
State and Municipal Obligations |
10,688,536 | — | — | 10,688,536 | ||||||||||||
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Total |
$ | 16,919,042 | $ | — | $ | — | $ | 16,919,042 | ||||||||
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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 | ||||||||||||
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Total |
$ | 17,837,215 | $ | — | $ | — | $ | 17,837,215 | ||||||||
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(14) Life Insurance Proceeds
During the second quarter of fiscal 2012, we recognized income on key-man life insurance proceeds of $300,000. This income is included in other income in the accompanying consolidated statement of operations for the three and six month periods ended July 30, 2011.
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(15) 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 included 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 consolidated statement of operations and as a receivable in prepaid and other current assets in the consolidated 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 included 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 pursuant to the February 12, 2010 motion. The $104,000 was recorded as an additional gain on legal settlement in the first quarter of fiscal 2011 and is included in other income in the accompanying consolidated statement of operations for the six month period ended July 31, 2010.