ASTRO MED INC /NEW/, 10-Q filed on 9/8/2011
Quarterly Report
Document And Entity Information
6 Months Ended
Jul. 30, 2011
Sep. 2, 2011
Document And Entity Information
 
 
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Jul. 30, 2011 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q2 
 
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
 
7,295,674 
Condensed Consolidated Balance Sheets (USD $)
Jul. 30, 2011
Jan. 31, 2011
ASSETS
 
 
Cash and Cash Equivalents
$ 9,540,061 
$ 7,720,135 
Securities Available for Sale
10,688,536 
12,910,232 
Accounts Receivable, net
12,499,775 
11,111,974 
Inventories
13,902,781 
14,404,914 
Deferred Tax Assets
2,570,713 
2,577,166 
Prepaid Expenses and Other Current Assets
1,270,148 
975,928 
Total Current Assets
50,472,014 
49,700,349 
PROPERTY, PLANT AND EQUIPMENT
38,897,159 
38,148,516 
Less Accumulated Depreciation
(26,452,225)
(25,606,561)
Property, Plant and Equipment, net
12,444,934 
12,541,955 
OTHER ASSETS
 
 
Intangible Assets, net
295,555 
331,389 
Goodwill
2,336,721 
2,336,721 
Other
109,553 
88,799 
Total Other Assets
2,741,829 
2,756,909 
TOTAL ASSETS
65,658,777 
64,999,213 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Accounts Payable
2,167,971 
2,748,293 
Accrued Compensation
2,153,523 
2,179,448 
Other Accrued Expenses
2,053,974 
1,750,515 
Deferred Revenue
710,600 
787,988 
Income Taxes Payable
328,101 
36,979 
Total Current Liabilities
7,414,169 
7,503,223 
Deferred Tax Liabilities
2,074,340 
2,060,418 
Other Long Term Liabilities
1,146,978 
1,146,978 
TOTAL LIABILITIES
10,635,487 
10,710,619 
SHAREHOLDERS' EQUITY
 
 
Common Stock, $.05 Par Value, Authorized 13,000,000 shares; Issued 8,765,869 and 8,660,270 shares at July 30, 2011 and January 31, 2011, respectively
438,298 
433,017 
Additional Paid-In Capital
37,039,399 
36,586,226 
Retained Earnings
27,299,572 
26,842,890 
Treasury Stock, at Cost, 1,470,710 and 1,414,981 shares at July 30, 2011 and January 31, 2011, respectively
(10,261,921)
(9,840,052)
Accumulated Other Comprehensive Income
507,942 
266,513 
Total Shareholders' Equity
55,023,290 
54,288,594 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 65,658,777 
$ 64,999,213 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Jul. 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
8,765,869 
8,660,270 
Treasury stock, shares
1,470,710 
1,414,981 
Condensed Consolidated Statements Of Operations (USD $)
3 Months Ended
Jul. 30, 2011
3 Months Ended
Jul. 31, 2010
6 Months Ended
Jul. 30, 2011
6 Months Ended
Jul. 31, 2010
Condensed Consolidated Statements Of Operations
 
 
 
 
Net Sales
$ 20,335,676 
$ 17,753,057 
$ 39,195,665 
$ 34,830,060 
Cost of Sales
12,434,648 
10,728,926 
23,793,350 
20,940,786 
Gross Profit
7,901,028 
7,024,131 
15,402,315 
13,889,274 
Costs and Expenses:
 
 
 
 
Selling and Marketing
4,526,112 
4,276,478 
9,091,650 
8,117,346 
General and Administrative
964,210 
1,064,193 
1,875,141 
2,247,978 
Research and Development
1,187,406 
1,135,337 
2,655,268 
2,354,212 
Operating Expenses
6,677,728 
6,476,008 
13,622,059 
12,719,536 
Operating Income
1,223,300 
548,123 
1,780,256 
1,169,738 
Other Income (Expense)
296,962 
(1,043)
447,282 
106,235 
Income Before Income Taxes
1,520,262 
547,080 
2,227,538 
1,275,973 
Income Tax Provision
474,423 
224,303 
750,260 
523,149 
Net Income
$ 1,045,839 
$ 322,777 
$ 1,477,278 
$ 752,824 
Net Income per Common Share:
 
 
 
 
Basic
$ 0.14 
$ 0.04 
$ 0.20 
$ 0.10 
Diluted
$ 0.14 
$ 0.04 
$ 0.20 
$ 0.10 
Weighted Average Number of Shares Outstanding:
 
 
 
 
Basic
7,292,986 
7,300,722 
7,280,211 
7,247,802 
Diluted
7,445,536 
7,505,203 
7,423,539 
7,488,323 
Dividends Declared Per Common Share
$ 0.07 
$ 0.07 
$ 0.14 
$ 0.14 
Condensed Consolidated Statements Of Cash Flows (USD $)
6 Months Ended
Jul. 30, 2011
6 Months Ended
Jul. 31, 2010
Cash Flows from Operating Activities:
 
 
Net Income
$ 1,477,278 
$ 752,824 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
Depreciation and Amortization
816,251 
809,797 
Share-Based Compensation
118,246 
174,505 
Deferred Income Tax Provision
20,375 
12,509 
Life Insurance Proceeds Receivable
(301,697)
 
Legal Settlement Receivable
 
1,495,051 
Loss (Gain) on Sale of Securities Available for Sale
 
30,961 
Changes in Assets and Liabilities:
 
 
Accounts Receivable
(1,387,801)
(950,171)
Inventories
502,134 
(1,563,214)
Income Taxes
480,959 
(74,796)
Accounts Payable and Accrued Expenses
(505,154)
(419,268)
Other
(27,441)
(66,737)
Net Cash Provided by Operating Activities
1,193,150 
201,461 
Cash Flows from Investing Activities:
 
 
Proceeds from Sales/Maturities of Securities Available for Sale
5,880,000 
5,649,039 
Purchases of Securities Available for Sale
(3,646,025)
(6,380,000)
Additions to Property, Plant and Equipment
(631,427)
(1,365,364)
Net Cash Provided (Used) by Investing Activities
1,602,548 
(2,096,325)
Cash Flows from Financing Activities:
 
 
Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans
44,824 
492,696 
Cash Settlement of Stock Options
 
(186,044)
Dividends Paid
(1,020,596)
(1,014,351)
Net Cash Used in Financing Activities
(975,772)
(707,699)
Net Increase (Decrease) in Cash and Cash Equivalents
1,819,926 
(2,602,563)
Cash and Cash Equivalents, Beginning of Period
7,720,135 
14,155,096 
Cash and Cash Equivalents, End of Period
9,540,061 
11,552,533 
Supplemental Disclosures of Cash Flow Information:
 
 
Cash Paid During the Period for Income Taxes, Net of Refunds
$ 255,706 
$ 595,121 
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      Six Months Ended  
     July 30,
2011
     July 31,
2010
     July 30,
2011
     July 31,
2010
 

Weighted Average Common Shares Outstanding – Basic

     7,292,986         7,300,722         7,280,211         7,247,802   

Effect of Dilutive Options

     152,550         204,481         143,328         240,521   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted Average Common Shares Outstanding – Diluted

     7,445,536         7,505,203         7,423,539         7,488,323   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three and six months ended July 30, 2011, the diluted per share amounts do not reflect options outstanding of 615,769 and 736,590, respectively. For the three and six months ended July 31, 2010, the diluted per share amounts do not reflect options outstanding of 782,346 and 719,408, respectively. These outstanding options were not included, 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. During the second quarter of fiscal 2012, 15,000 options were awarded to non-employee directors pursuant to the Plan. At July 30, 2011, 688,044 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 six months ended July 30, 2011 and July 31, 2010 was estimated using the following assumptions:

 

     Six Months Ended  
     July 30,
2011
    July 31,
2010
 

Risk Free Interest Rate

     1.8% - 2.0     2.11% - 2.42

Expected Volatility

     39.1% - 39.4     41.3

Expected Life (in years)

     5.0        5.0   

Dividend Yield

     3.6% - 3.9     3.4

The weighted average fair value per share for options granted was $2.03 during the first quarter of fiscal 2012 and $2.05 during the second quarter of fiscal 2012 compared to $2.12 and $2.06 during the first and second quarters of fiscal 2011.

Aggregated information regarding stock options granted under the Plan for the six months ended July 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

     50,000        7.96         

Exercised

     (102,322     3.13         

Expired or canceled

     (19,769     7.25         
  

 

 

   

 

 

       

Outstanding at July 30, 2011

     1,147,092      $ 7.42         4.0       $ 1,459,139   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at July 30, 2011

     1,000,684      $ 7.41         3.4       $ 1,377,293   
  

 

 

   

 

 

    

 

 

    

 

 

 

Share-based compensation expense was recognized as follows:

 

     Three Months Ended      Six Months Ended  
     July 30, 2011      July 31, 2010      July 30, 2011      July 31, 2010  

Cost of Sales

   $ 7,119       $ 13,996       $ 21,276       $ 32,158   

Operating Expenses

     33,489         64,260         96,970         142,347   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 40,608       $ 78,256       $ 118,246       $ 174,505   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

As of July 30, 2011 there was $260,961 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 quarters ended July 30, 2011 and July 31, 2010, 1,559 and 1,939 shares respectively, were purchased under this plan. During the six months ended July 30, 2011 and July 31, 2010, 3,277 and 3,667 shares respectively, were purchased under this plan. As of July 30, 2011, 73,731 shares remain available.

Comprehensive Income
Comprehensive Income

(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
 

Net Income

   $ 1,045,839      $ 322,777      $ 1,477,278       $ 752,824   

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

         

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   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other Comprehensive Income (Loss)

     (149,905     (62,168     241,429         (208,402
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive Income

   $ 895,934      $ 260,609      $ 1,718,707       $ 544,422
  

 

 

   

 

 

   

 

 

    

 

 

 
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:

 

     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   
  

 

 

    

 

 

 
   $ 13,902,781       $ 14,404,914
  

 

 

    

 

 

 
Income Taxes
Income Taxes

(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.

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     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
 

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   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,336       $ 17,753         2,233         1,476      $ 39,196       $ 34,830         3,691         3,129   
  

 

 

    

 

 

         

 

 

    

 

 

       

Corporate Expenses

           1,010         928              1,911         1,959   
        

 

 

    

 

 

         

 

 

    

 

 

 

Operating Income

           1,223         548              1,780         1,170   

Other Income (Expense) — Net

           297         (1           448         106   
        

 

 

    

 

 

         

 

 

    

 

 

 

Income Before Income Taxes

           1,520         547              2,228         1,276   

Income Tax Provision

           474         224              751         523   
        

 

 

    

 

 

         

 

 

    

 

 

 

Net Income

         $ 1,046       $ 323            $ 1,477       $ 753
        

 

 

    

 

 

         

 

 

    

 

 

 
Recent Accounting Pronouncements
Recent Accounting Pronouncements

(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.

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 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   
  

 

 

    

 

 

    

 

 

   

 

 

 

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:

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,919,042       $ —         $ —         $ 16,919,042   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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
  

 

 

    

 

 

    

 

 

    

 

 

 
Life Insurance Proceeds
Life Insurance Proceeds

(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.

Litigation Settlement
Litigation Settlement

(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.