ASTRO MED INC /NEW/, 10-K filed on 4/7/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 31, 2014
Mar. 28, 2014
Aug. 2, 2013
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jan. 31, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Entity Registrant Name
ASTRO MED INC /NEW/ 
 
 
Entity Central Index Key
0000008146 
 
 
Current Fiscal Year End Date
--01-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Smaller Reporting Company 
 
 
Entity Common Stock, Shares Outstanding
 
7,604,734 
 
Entity Public Float
 
 
$ 64,654,717 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jan. 31, 2014
Jan. 31, 2013
CURRENT ASSETS
 
 
Cash and Cash Equivalents
$ 8,341 
$ 30,999 
Securities Available for Sale
18,766 
8,509 
Accounts Receivable, net of reserves of $370 in 2014 and $345 in 2013
11,366 
9,376 
Inventories
15,178 
11,179 
Deferred Tax Assets
1,673 
1,866 
Restricted Cash
1,800 
1,800 
Line of Credit Receivable
240 
300 
Note Receivable
250 
250 
Asset Held for Sale
2,120 
2,016 
Prepaid Expenses and Other Current Assets
1,383 
696 
Current Assets of Discontinued Operations
3,917 
3,131 
Total Current Assets
65,034 
70,122 
PROPERTY, PLANT AND EQUIPMENT
 
 
Land and Improvements
873 
1,233 
Buildings and Improvements
10,341 
9,791 
Machinery and Equipment
23,746 
22,862 
Total Property, Plant and Equipment , gross
34,960 
33,886 
Less Accumulated Depreciation
(27,368)
(26,098)
Total Property, Plant and Equipment, net
7,592 
7,788 
OTHER ASSETS
 
 
Goodwill
991 
795 
Note Receivable
440 
756 
Deferred Tax Asset
313 
356 
Identifiable Intangibles
3,400 
 
Other
194 
96 
Total Other Assets
5,338 
2,003 
TOTAL ASSETS
77,964 
79,913 
CURRENT LIABILITIES
 
 
Accounts Payable
2,374 
1,938 
Accrued Compensation
3,130 
3,176 
Other Accrued Expenses
2,310 
3,164 
Deferred Revenue
454 
271 
Income Taxes Payable
788 
4,169 
Current Liabilities of Discontinued Operations
836 
807 
Total Current Liabilities
9,892 
13,525 
Long Term Obligation
250 
 
Deferred Tax Liabilities
77 
111 
Other Long Term Liabilities
1,131 
1,289 
Non-Current Liabilities of Discontinued Operations
 
1,151 
TOTAL LIABILITIES
11,350 
16,076 
SHAREHOLDERS' EQUITY
 
 
Preferred Stock, $10 Par Value, Authorized 100,000 shares, None Issued
   
   
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 9,291,225 shares in 2014 and 9,031,756 shares in 2013
465 
452 
Additional Paid-in Capital
41,235 
38,786 
Retained Earnings
37,201 
36,092 
Treasury Stock, at Cost, 1,730,042 shares in 2014 and 1,663,214 shares in 2013
(12,463)
(11,666)
Accumulated Other Comprehensive Income
176 
173 
Total Shareholders' Equity
66,614 
63,837 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 77,964 
$ 79,913 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jan. 31, 2014
Jan. 31, 2013
Statement Of Financial Position [Abstract]
 
 
Accounts Receivable, Reserves
$ 370 
$ 345 
Preferred Stock, Par Value
$ 10 
$ 10 
Preferred Stock, Shares Authorized
100,000 
100,000 
Preferred Stock, Shares Issued
   
   
Common Stock, Par Value
$ 0.05 
$ 0.05 
Common Stock, Shares Authorized
13,000,000 
13,000,000 
Common Stock, Shares Issued
9,291,225 
9,031,756 
Treasury Stock, Shares
1,730,042 
1,663,214 
Consolidated Statements of Income (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Jan. 31, 2014
Jan. 31, 2013
Income Statement [Abstract]
 
 
Net Sales
$ 68,592 
$ 61,224 
Cost of Sales
41,609 
37,496 
Gross Profit
26,983 
23,728 
Costs and Expenses:
 
 
Selling and Marketing
14,774 
12,412 
Research and Development
5,072 
3,816 
General and Administrative
5,604 
4,574 
Operating Expenses
25,450 
20,802 
Operating Income
1,533 
2,926 
Other Income (Expense):
 
 
Investment Income
72 
55 
Other, Net
(193)
(96)
Other Income (Expense)
(121)
(41)
Income from Continuing Operations before Income Taxes
1,412 
2,885 
Income Tax Provision for Continuing Operations
175 
847 
Income from Continuing Operations
1,237 
2,038 
Income from Discontinued Operations, net of taxes of $777 in 2014 and $5,351 in 2013
1,975 
8,729 
Net Income
$ 3,212 
$ 10,767 
Net Income per Common Share-Basic:
 
 
From Continuing Operations
$ 0.17 
$ 0.28 
From Discontinued Operations
$ 0.26 
$ 1.18 
Net Income Per Common Share-Basic
$ 0.43 
$ 1.46 
Net Income per Common Share-Diluted:
 
 
From Continuing Operations
$ 0.16 
$ 0.27 
From Discontinued Operations
$ 0.26 
$ 1.17 
Net Income Per Common Share-Diluted
$ 0.42 
$ 1.44 
Weighted Average Number of Common Shares Outstanding-Basic
7,470 
7,396 
Dilutive effect of options outstanding
227 
87 
Weighted Average Number of Common Shares Outstanding-Diluted
7,697 
7,483 
Dividends Declared Per Common Share
$ 0.28 
$ 0.35 
Consolidated Statements of Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2014
Jan. 31, 2013
Income Statement [Abstract]
 
 
Income tax expense (benefit) of discontinued operations
$ 777 
$ 5,351 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2014
Jan. 31, 2013
Statement Of Income And Comprehensive Income [Abstract]
 
 
Net Income
$ 3,212 
$ 10,767 
Other Comprehensive Income (Loss), net of taxes and reclassification adjustments:
 
 
Foreign currency translation adjustments
(14)
60 
Unrealized gain (loss) on securities available for sale
17 
(8)
Net Other Comprehensive Income (Loss)
52 
Comprehensive Income
$ 3,215 
$ 10,819 
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Income [Member]
Balance at beginning of year at Jan. 30, 2012
 
$ 448 
$ 37,964 
$ 27,920 
$ (10,790)
$ 121 
Par value (proceed) from the exercise of employee stock options
 
233 
 
 
 
Shares issued to employee stock ownership plan
 
 
 
 
70 
 
Net Income
10,767 
 
 
10,767 
 
 
Other comprehensive income
52 
 
 
 
 
52 
Share-based compensation
 
 
480 
 
 
 
Purchase of treasury stock
(770)
 
 
 
(770)
 
Dividends paid
 
 
 
(2,595)
 
 
Tax benefit (expense) of employee stock options
 
 
(68)
 
 
 
Purchase of common stock from related parties
 
 
 
 
(176)
 
Contribution of treasury shares to employee stock options plan
 
 
29 
 
 
 
Employee option exercise and buyback
 
148 
 
 
 
Balance at end of year at Jan. 31, 2013
63,837 
452 
38,786 
36,092 
(11,666)
173 
Par value (proceed) from the exercise of employee stock options
 
1,116 
 
 
 
Net Income
3,212 
 
 
3,212 
 
 
Other comprehensive income
 
 
 
 
Share-based compensation
 
 
562 
 
 
 
Dividends paid
 
 
 
(2,103)
 
 
Tax benefit (expense) of employee stock options
 
 
158 
 
 
 
Purchase of common stock from related parties
 
 
 
 
(797)
 
Employee option exercise and buyback
 
674 
 
 
 
Restricted stock awards
 
(61)
 
 
 
Balance at end of year at Jan. 31, 2014
$ 66,614 
$ 465 
$ 41,235 
$ 37,201 
$ (12,463)
$ 176 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2014
Jan. 31, 2013
Cash Flows from Operating Activities:
 
 
Net Income
$ 3,212 
$ 10,767 
Adjustments to Reconcile Net Income to Net Cash Provided (Used) By Operating Activities:
 
 
Gain on Disposal of Discontinued Operations
(1,800)
(10,162)
Depreciation and Amortization
1,279 
1,331 
Share-Based Compensation
562 
480 
Deferred Income Tax Benefit
(636)
(548)
Excess Tax Benefit From Share-Based Compensation
(158)
 
Changes in Assets and Liabilities, Net of Impact of Acquisition and Divestiture:
 
 
Accounts Receivable
(2,588)
(1,256)
Inventories
(1,283)
(240)
Accounts Payable and Accrued Expenses
1,469 
(763)
Income Taxes Payable
(3,515)
4,307 
Other
(109)
(53)
Net Cash Provided (Used) by Operating Activities
(3,567)
3,863 
Cash Flows from Investing Activities:
 
 
Proceeds from Sales/Maturities of Securities Available for Sale
10,835 
17,640 
Purchases of Securities Available for Sale
(21,065)
(14,825)
Proceeds on the Sale of Grass
 
16,800 
Line of Credit Issuance
 
(300)
Additions to Property, Plant and Equipment
(1,128)
(849)
Acquisition of Miltope Ruggedized Printer Business
(6,732)
 
Net Cash Provided (Used) by Investing Activities
(18,090)
18,466 
Cash Flows from Financing Activities:
 
 
Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans, Net of Payment of Minimum Tax Withholdings
944 
232 
Purchases of Treasury Stock
 
(770)
Shares issued to ESOP
 
99 
Excess Tax Benefit from Share-Based Compensation
158 
 
Dividends Paid
(2,103)
(2,595)
Net Cash Used in Financing Activities
(1,001)
(3,034)
Net Increase (Decrease) in Cash and Cash Equivalents
(22,658)
19,295 
Cash and Cash Equivalents, Beginning of Year
30,999 
11,704 
Cash and Cash Equivalents, End of Year
8,341 
30,999 
Supplemental Information:
 
 
Cash Paid During the Period for: Income Taxes, Net of Refunds
$ 5,085 
$ 2,461 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Note 1—Summary of Significant Accounting Policies

Basis of Presentation: The accompanying financial data has been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and is in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Our fiscal year end is January 31. Unless otherwise stated, all years and dates refer to our fiscal year.

On January 31, 2013, we completed the sale of substantially all of the assets of our Grass Technologies Product Group. Consequently, we have classified the results of operations of the Grass Technologies Product Group as discontinued operations for all periods presented. Refer to Note 19, “Discontinued Operations,” for further discussion.

Principles of Consolidation: The consolidated financial statements include the accounts of Astro-Med, Inc. and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

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

Use of Estimates: The presentation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect these financial statements and accompanying notes. Some of the more significant estimates relate to the allowances for doubtful accounts and credits, inventory valuation, valuation and estimated lives of intangible assets, 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.

Cash and Cash Equivalents: Highly liquid investments with an original maturity of 90 days or less are considered to be cash equivalents. Similar investments with original maturities beyond three months are classified as securities available for sale. Cash of $2,544,000 and $1,157,000 was held in foreign bank accounts at January 31, 2014 and 2013, respectively.

Securities Available for Sale: Securities available for sale are carried at fair value based on quoted market prices, where available. The difference between cost and fair value, net of related tax effects, is recorded as a component of accumulated other comprehensive income in shareholders’ equity.

Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets (land improvements—10 to 20 years; buildings and improvements—10 to 45 years; machinery and equipment—3 to 10 years). Depreciation expense was $1,279,000 for fiscal 2014 and $1,331,000 for 2013.

Revenue Recognition: Astro-Med’s product sales are recognized when all of the following criteria have been met: persuasive evidence of an arrangement exists; price to the buyer is fixed or determinable; delivery has occurred and legal title and risk of loss have passed to the customer; and collectability is reasonably assured. Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Discounts from list prices are recorded as a reduction to sales. Amounts billed to customers for shipping and handling fees are included in sales while related shipping and handling costs are included in cost of sales.

The majority of our equipment contains embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole as it is not sold separately or marketed separately and its production costs are minor as compared to those of the hardware system. Therefore, the Company’s hardware appliances are considered non-software elements and are not subject to the industry-specific software revenue recognition guidance.

Our multiple-element arrangements are generally comprised of a combination of equipment, software, installation and/or training services. Hardware and software elements are typically delivered at the same time and revenue is recognized when all the revenue recognition criteria for each unit are met. Delivery of installation and training services will vary based on certain factors such as the complexity of the equipment, staffing availability in a geographic location and customer preferences, and can range from a few days to a few months. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer.

We have evaluated the deliverables in our multiple-element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices. We determine the selling price for each deliverable based on a selling price hierarchy. The selling price for a deliverable is based on vendor specific objective evidence (VSOE) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. Revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met.

Infrequently, Astro-Med recognizes revenue for non-recurring engineering (NRE) fees for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue. NRE fees have not been significant in the periods presented herein.

Infrequently, Astro-Med receives requests from customers to hold product purchased from us for the customer’s convenience. Revenue is recognized for such bill and hold arrangements in accordance with the requirements of SAB No. 104 which requires, among other things, the existence of a valid business purpose for the arrangement; the transfer of ownership of the purchased product; a fixed delivery date that is reasonable and consistent with the buyer’s business purpose; the readiness of the product for shipment; the use of customary payment terms; no continuing performance obligation by us; and segregation of the product from our inventories.

Research and Development Costs: The Company complies with the guidance provided in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) FASB 730, “Research and Development” by charging any costs to expense when incurred, as well as by disclosing in the financial statements the amount of Research & Development charged to expense. These charges include: salaries and benefits, external engineering service costs, engineering related information costs and supplies. The Company also complies with ASC 985-20, “Costs of Computer Software to be Sold, Leased or Marketed” and ASC 350-40, “Internal-Use Software” in accounting for the costs of software either developed or acquired.

Foreign Currency: The financial statements of foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars at year-end exchange rates with the translation adjustment recorded as a component of accumulated comprehensive income in shareholders’ equity. Revenues and costs are translated at average exchange rates during the year. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our German subsidiary since its undistributed earnings are considered to be permanently invested. Our net foreign exchange losses were $190,000 and $158,000 for fiscal 2014 and 2013, respectively.

Advertising: Astro-Med expenses advertising costs as incurred. Advertising costs including advertising production, trade shows and other activities are designed to enhance demand for our products and amounted to approximately $1,236,000 and $750,000 in fiscal 2014 and 2013, respectively.

Health Insurance Reimbursement Reserve: Astro-Med reimburses a portion of employee health insurance deductibles and co-payments. The total reimbursement amounted to approximately $201,000 and $313,000 in 2014 and 2013, respectively. We accrued approximately $75,000 and $100,000 at January 31, 2014 and 2013, respectively, for estimated outstanding reimbursements due to employees, including a reserve for incurred but not reported amounts.

 

Long-Lived Assets: Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with the guidance provided in ASC 360, “Property, Plant and Equipment.” Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.

In 2013, we recognized an impairment of $779,000 related to the Grass Technologies Product Group‘s manufacturing facilities located in Rockland, Massachusetts. This impairment was included as part of the Income from Discontinued Operations in the accompanying consolidated statement of income for the period ended January 31, 2013. Refer to Note 19, “Discontinued Operations,” for further discussion.

Intangible Assets: Intangible assets include the value of customer relationships and backlog rights acquired in connection with business acquisitions and are recorded at fair value as determined by the Company. These intangible assets have a definite life and are amortized over the assets useful life using a systematic and rational basis which is representative of the asset’s use. Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. For both 2014 and 2013, there were no impairment charges for intangible assets.

Goodwill: Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is first qualitatively assessed to determine whether further impairment testing is necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a two step process is then performed. Step one compares the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, step two is required to determine if there is an impairment of the goodwill. Step two compares the implied fair value of the reporting unit goodwill to the carrying amount of the goodwill. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow model. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long–term operating cash flow performance. In addition, the Company uses the market approach, which compares the reporting unit to publicly-traded companies and transactions involving similar business, to support the conclusions based upon the income approach. The income approach requires the use of many assumptions and estimates including future revenue, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates.

We performed a qualitative assessment for our 2014 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying value of the reporting units exceed their fair values. Accordingly, no further testing was performed as management believes that there are no impairment issues in regards to goodwill at this time.

Income Taxes: Astro-Med uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of the assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. At January 31, 2014 and 2013, a valuation allowance was provided for deferred tax assets attributable to certain state R&D credit carryforwards.

 

Astro-Med accounts for uncertain tax positions in accordance with the guidance provided in ASC 740, “Accounting for Income Taxes.” This guidance describes a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken in a tax return and requires recognition of tax benefits that satisfy a more-likely-than-not threshold. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Net Income Per Common Share: Net income per common share has been computed and presented in accordance with the guidance provided in ASC 260, “Earnings per Share.” Basic net income per share is based on the weighted average number of shares outstanding during the period. Diluted net income per share is based on the basic weighted average number of shares and potential common equivalent shares for stock options, restricted stock awards and restricted stock units outstanding during the period using the treasury stock method. In fiscal years 2014 and 2013, there were 126,800 and 583,512 common equivalent shares that were not included in the computation of diluted net income per common share because their inclusion would be anti-dilutive.

Allowance for Doubtful Accounts: In circumstances where we are aware of a customer’s inability to meet its financial obligations, an allowance is established. The majority of accounts are individually evaluated on a regular basis and allowances are established to state such receivables at their net realizable value. The remainder of the allowance is based upon historical write-off experience and current market assessments.

Fair Value of Financial Instruments: Our financial instruments consist of cash and cash equivalents, investment securities, accounts receivable, a note receivable, a line of credit receivable and accounts payable. The carrying amount reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term nature of these items. Investment securities, all of which are available for sale, are carried in the consolidated balance sheets at fair value based on quoted market prices, when available. The note receivable is carried in the consolidated balance sheets at fair value based on the present value of the discounted cash flows over the life of the note.

Share-Based Compensation: We account for share based awards granted to employees and directors using the FASB guidance included in ASC 718, “Stock Compensation.” Effective as of February 1, 2006, we adopted the “modified prospective” transition method provided in ASC 718. Under this method, share-based compensation is recognized in the consolidated statement of operation for share-based payment awards granted prior to, but not yet vested as of February 1, 2006, based on the grant date fair value estimated in accordance with prior authoritative guidance and for share-based payment awards granted subsequent to February 1, 2006, based on the grant date fair value estimated in accordance with the provisions of ASC 718.

In accordance with ASC 718, share-based compensation expense is based on the estimated fair value of the share-based award when granted to an employee or director. 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 dividend assumption is based upon the prior year’s average dividend yield. No compensation expense is recognized for options that are forfeited for which the employee does not render the requested service. Our accounting for share-based compensation for restricted stock awards (“RSA”) and restricted stock units (“RSU”) 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.

The cash flow from the tax benefits that are a result of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as a cash inflow from financing activities and a cash outflow from operating activity in accordance with the guidance provided by ASC 718. Tax deductions from certain stock option exercises are treated as being realized when they reduce taxes payable in accordance with relevant tax law.

Recent Accounting Pronouncements:

Income Taxes

In July 2013, the FASB issued Accounting Standard Update (“ASU”) 2013-11, “Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability. This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial position or results of operations.

Comprehensive Income

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. We have adopted this guidance in the first quarter ended May 4, 2013 and have provided the disclosure required in Note 8. Since ASU 2013-02 only impacts presentation and disclosure requirements, the adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

Acquisition
Acquisition

Note 2—Acquisition

On January 22, 2014, Astro-Med completed the acquisition of the Ruggedized Printer Product line from Miltope Corporation (Miltope), a company of VT Systems, which is engaged in the design, development, manufacture and testing of ruggedized computers and computer peripheral equipment for military, industry and commercial applications. 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 results of the Miltope’s ruggedized printer product line operations have been included in the consolidated financial statements of the Company since the acquisition date.

The purchase price of the acquisition was $6,732,000 which was funded using existing cash on hand. Of the $6,732,000 purchase price, $500,000 will be held in escrow for twelve months following the acquisition date to provide an indemnity to the Company in the event of any breach in the representation, warranties and covenants of Miltope. The assets acquired consist of all of the assets of the Miltope ruggedized printer product line excluding plant and equipment and personnel. Acquisition related costs of approximately $90,000 are included in the general and administrative expenses in the Company’s consolidated statement of income for the fiscal year ended January 31, 2014. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”

As part of the acquisition, Miltope and Astro-Med have entered into a manufacturing services agreement under which Miltope will provide transition services and continue to manufacture printers for Astro-Med for up to six months until the Company transitions the manufacturing to its West Warwick, Rhode Island facility.

 

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

 

(In thousands)       

Accounts Receivable

   $ 713   

Inventories

     2,503   

Identifiable Intangible Assets

     3,400   

Goodwill

     196   

Warranty Reserve

     (80
  

 

 

 

Total Purchase Price

   $ 6,732   
  

 

 

 

Goodwill of $196,000, 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 and liabilities assumed from Miltope. 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:

 

(In thousands)    Fair
Value
     Useful Life
(Years)
 

Customer Contract Relationships

   $ 3,100         10   

Backlog

     300         1   
  

 

 

    

Total

   $ 3,400      
  

 

 

    

No amortization expense has been included in the income statement for fiscal 2014 in regards to the above acquired intangibles.

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

 

(In thousands)    2015      2016      2017      2018      2019  

Estimated amortization expenses

   $ 702       $ 357       $ 349       $ 331       $ 278   

The following unaudited pro forma information assumes the acquisition of Miltope occurred on either February 1, 2013 or 2012. This information has been prepared for informational purposes only and does not purport to represent the results of operations that would have happened had the acquisition occurred as of the date indicated, nor of future results of operations.

 

     Years Ended
January 31
 
(In thousands)    2014      2013  

Net Revenue

   $ 75,362       $ 69,453   

The impact on net income and earnings per share would not have been material to the Company in either year.

Securities Available for Sale
Securities Available for Sale

Note 3—Securities Available for Sale

Pursuant to our investment policy, securities available for sale include state and municipal securities with various contractual or anticipated maturity dates ranging from one month to three years. These securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income, net of taxes 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:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
(In thousands)                            

January 31, 2014

           

State and Municipal Obligations

   $ 18,729       $ 37       $ —        $ 18,766   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

January 31, 2013

           

State and Municipal Obligations

   $ 8,499       $ 10       $ —        $ 8,509   
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturity dates of these securities are as follows:

 

     January 31,  
     2014      2013  
(In thousands)              

Less than one year

   $ 11,439       $ 5,986   

One to three years

     7,327         2,523   
  

 

 

    

 

 

 
   $ 18,766       $ 8,509   
  

 

 

    

 

 

 

Actual maturities are expected to differ from contractual dates as a result of sales or earlier issuer redemptions.

Inventories
Inventories

Note 4—Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories are as follows:

 

     2014     2013  
(In thousands)             

Materials and Supplies

   $ 10,722      $ 7,419   

Work-in-Progress

     852        590   

Finished Goods

     6,798        5,953   
  

 

 

   

 

 

 
     18,372        13,962   

Inventory Reserve

     (3,194     (2,783
  

 

 

   

 

 

 

Balance at January 31

   $ 15,178      $ 11,179   
  

 

 

   

 

 

 

The balance of inventory at January 31, 2014 includes $2,500,000 of inventory related to the acquisition of Miltope.

Included within finished goods inventory is $767,000 and $812,000 of demonstration equipment at January 31, 2014 and 2013, respectively.

Accrued Expenses
Accrued Expenses

Note 5—Accrued Expenses

Accrued expenses consisted of the following:

 

     January 31,  
     2014      2013  
(In thousands)              

Product replacement cost reserve

   $ 480       $ —     

Reserve for cash in escrow

     —           1,800   

Warranty

     355         350   

Professional fees

     269         174   

Executive retirement package

     250         —     

Health insurance reimbursement reserve

     75         100   

Dealer commissions

     55         91   

Other

     826         649   
  

 

 

    

 

 

 
   $ 2,310       $ 3,164   
  

 

 

    

 

 

 
Line of Credit
Line of Credit

Note 6—Line of Credit

On January 15, 2014, the Company amended its agreement with Wells Fargo Bank to increase the existing line of credit from $5,000,000 to $10,000,000. Borrowings under this line of credit bear interest at either a fluctuating 75 basis points below the base rate, as defined in the agreement, or at a fixed rate 150 basis points above LIBOR. At January 31, 2014, there were no borrowings against this line and the entire line is currently available.

Note Receivable and Revolving Line of Credit Issued
Note Receivable and Revolving Line of Credit Issued

Note 7—Note Receivable and Revolving Line of Credit Issued

On January 30, 2012, we completed the sale of our label manufacturing operations in Asheboro, North Carolina to Label Line Ltd. The net sales 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 the United States prime rate as of January 30, 2013 plus 50 basis points (3.75% at January 31, 2014) and is payable in sixteen quarterly installments of principal and interest commencing on January 30, 2013. The Note Receivable is disclosed at its present value on the accompanying consolidated balance sheets. As of January 31, 2014, $690,000 remains outstanding on this note.

The terms of the Asheboro sale also included an agreement for Astro-Med to provide Label Line Ltd. with additional financing in form of a revolving line of credit in the amount of $600,000, which is fully secured by a first lien on various collateral, including the Asheboro plant and plant assets. This line of credit bears interest at a rate equal to the United States prime rate plus an additional margin of two percent of the outstanding credit balance (5.25% at January 31, 2014). Although the initial term was for a period of one-year from the date of the sale, the agreement has been extended through January 31, 2015. As of January 31, 2014, $240,000 remains outstanding on this revolving line of credit.

Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income

Note 8—Accumulated Other Comprehensive Income

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

 

(In thousands)    Foreign Currency
Translation
Adjustments
    Unrealized Holding Gain
on Available for
Sale Securities
    Total  

Balance at January 31, 2012

   $ 106      $ 15      $ 121   

Other Comprehensive Income (Loss)

     60        (8     52   

Amounts reclassified to Net Income

                  
  

 

 

 

Net Other Comprehensive Income (Loss)

     60        (8     52   
  

 

 

 

Balance at January 31, 2013

     166        7        173   

Other Comprehensive Income (Loss)

     (14     17        3   

Amounts Reclassified to Net Income

     —         —         —    
  

 

 

 

Net Other Comprehensive Income (Loss)

     (14     17        3   
  

 

 

 

Balance at January 31, 2014

   $ 152      $ 24      $ 176   
  

 

 

 

The amounts presented above in other comprehensive income are net of taxes.

Shareholders' Equity
Shareholders' Equity

Note 9—Shareholders’ Equity

The number of shares issued of common stock is summarized below:

 

     2014      2013  

Balance at beginning of year

     9,031,756         8,956,488   

Exercise of employee stock options

     210,790         66,313   

Restricted stock vesting

     42,325         —     

Shares issued to employee stock purchase plan

     3,989         5,976   

Share-based compensation

     2,365         2,979   
  

 

 

    

 

 

 

Balance at end of year

     9,291,225         9,031,756   
  

 

 

    

 

 

 

Common Stock: During fiscal 2014 the Company did not repurchase any shares of its common stock under the Company’s repurchase program. The Company purchased 110,000 shares of its common stock for $770,000 in fiscal 2013. As of January 31, 2014, the Company’s Board of Directors has authorized the purchase of up to an additional 390,000 shares Company’s common stock on the open market or in privately negotiated transactions.

During fiscal 2014 and 2013, certain of the Company’s employees delivered a total of 66,828 and 20,938 shares respectively, of the Company’s common stock to satisfy the exercise price for stock options exercised and related taxes. The shares delivered were valued at a total of $797,000 and $176,000, respectively and are included with the treasury stock in the accompanying consolidated balance sheet at January 31, 2014 and 2013. These transactions did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.

Astro-Med maintains the following benefit plans involving its common stock:

Stock Plans: Astro-Med has one equity incentive plan (the “Plan”) under which incentive stock options, non-qualified stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and other equity based awards may be granted to officers and certain employees. An aggregate of 1,000,000 shares were authorized for awards under the Plan. At January 31, 2014, 359,475 shares were available for grant under the Plan. Options granted to employees vest over four years. 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. In fiscal year 2013, a portion of the Company’s executive’s long-term incentive compensation was awarded in the form of RSUs. The 2013 RSUs are earned if the Company achieves specific thresholds of net sales and annual operating income as established under the fiscal 2013 Domestic Management Bonus Plan and vest 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 is employed on each vesting date by Astro-Med or an affiliate company. All such RSUs were earned in fiscal 2013 and fifty percent vested in March 2013; the balance will vest in March 2014, subject to the grantee’s continued employment. In April 2013, the Company granted options and RSUs to officers (“2014 RSUs”). Each 2014 RSU will be earned and vest as follows: twenty-five percent of the 2014 RSU vests on the third anniversary of the grant date, fifty percent of the 2014 RSU vests 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 vests upon the Company’s 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 RSU until the first anniversary of the vesting date.

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 shareholders’ meeting. Each such option is exercisable at the fair market value as of the grant date and vests immediately prior to the next succeeding shareholders’ meeting. During fiscal 2014 and 2013, 20,000 options, were awarded each year to non-employee directors pursuant to the Plan. 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 “Cash Retainer”), plus $500 for each Board and committee meeting attended. The non-employee director may elect for any fiscal year to receive all or a portion of the Cash Retainer in the form of common stock of the Company, which will be issued under the Plan. 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 such 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.

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 shareholders 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 shareholders 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.

 

Stock Options:

Aggregated information regarding stock options granted under the Plan is summarized below:

 

     Number
of Shares
    Option Price
Per Share
     Weighted Average
Option Price Per
Share
 

Options Outstanding, January 31, 2013

     916,612      $ 2.40-11.90       $ 8.46   

Options Granted

     56,800      $ 10.50-10.60       $ 10.54   

Options Exercised

     (210,790   $ 2.40-11.90       $ 8.33   

Options Expired

     (25,975   $ 2.40-11.90       $ 9.42   
  

 

 

   

 

 

    

 

 

 

Options Outstanding, January 31, 2014

     736,647      $ 5.78-11.90       $ 8.63   
  

 

 

   

 

 

    

 

 

 

Options Exercisable, January 31, 2014

     570,324      $ 5.78-11.90       $ 8.57   

Set forth below is a summary of options outstanding at January 31, 2014:

 

Outstanding

     Exercisable  

Range of

Exercise prices

   Options      Weighted Average
Exercise Price
     Remaining
Contractual Life
     Options      Weighted Average
Exercise Price
 

$5.78-8.73

     500,422       $ 7.66         4.7         390,299       $ 7.57   

$8.74-11.90

     236,225       $ 10.68         4.7         180,025       $ 10.73   
  

 

 

          

 

 

    
     736,647               570,324      
  

 

 

          

 

 

    

The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

     Years Ended January 31,
     2014    2013

Risk-free interest rate

   0.81%-0.84%    0.62%-1.20%

Expected life (years)

   5    5

Expected volatility

   38.07%-38.46%    38.74%-39.46%

Expected dividend yield

   2.63%    3.41-3.46%

The weighted average fair value of options granted during fiscal 2014 and 2013 was $2.79 and $2.02, respectively. As of January 31, 2014, there was $250,000 of unrecognized compensation expense related to the unvested stock options granted under the plans. The expense is to be recognized over a weighted average of two years.

As of January 31, 2014, the aggregate intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock on January 31, 2014, and the exercise price of the outstanding options) that would have been received by the option holders if all options had been exercised was $2,905,000 for all exercisable options and $3,707,000 for all options outstanding. The weighted average remaining contractual terms for these options are 3.6 years for options that are exercisable and 4.7 years for all options outstanding. The total aggregate intrinsic value of options exercised during fiscal 2014 and 2013 was $706,000 and $241,000, respectively.

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

Aggregated information regarding RSUs and RSAs granted under the Plan is summarized below:

 

     RSAs & RSUs     Weighted Average
Grant Date Fair Value
 

Outstanding at January 31, 2013

     96,900     $ 8.10  

Granted

     57,544        10.14   

Vested

     (46,798     8.27   

Expired or canceled

     (1,150     8.35   
  

 

 

   

 

 

 

Outstanding at January 31, 2014

     106,496      $ 9.12   
  

 

 

   

 

 

 

 

As of January 31, 2014, there was $375,000 of unrecognized compensation expense related to unvested RSUs and RSAs.

Share-based compensation expense has been recognized as follows:

 

     Years Ended January 31,  
             2014                      2013          
(In thousands)              

Stock Options

   $ 192       $ 163   

Restricted Stock Awards and Restricted Stock Units

     370         317   
  

 

 

    

 

 

 

Total

   $ 562       $ 480   
  

 

 

    

 

 

 

Employee Stock Purchase Plan (ESPP): Astro-Med’s ESPP allows eligible employees to purchase shares of common stock at a 15% discount from fair market value on the date of purchase. A total of 247,500 shares were initially reserved for issuance under this plan. Summarized plan activity is as follows:

 

     Years Ended January 31,  
             2014                     2013          

Shares reserved, beginning

     64,231        70,207   

Shares purchased

     (3,989     (5,976
  

 

 

   

 

 

 

Shares reserved, ending

     60,242        64,231   
  

 

 

   

 

 

 

Employee Stock Ownership Plan: Astro-Med has an Employee Stock Ownership Plan (ESOP) providing retirement benefits to all eligible employees. Annual contributions in amounts determined by the Company’s Board of Directors are invested by the ESOP’s Trustees in shares of common stock of Astro-Med. Contributions may be in cash or stock. Astro-Med’s contributions (paid or accrued) amounted to $100,000 in both fiscal 2014 and 2013 and were recorded as compensation expense. All shares owned by the ESOP have been allocated to participants.

Income Taxes
Income Taxes

Note 10—Income Taxes

The components of income from continuing operations before income taxes are as follows:

     Years Ended
January 31,
 
     2014      2013  
(In thousands)              

Domestic

   $ 537       $ 1,850   

Foreign

     875         1,035   
  

 

 

    

 

 

 
   $ 1,412       $ 2,885   
  

 

 

    

 

 

 

 

The components of the provision (benefit) for income taxes from continuing operations are as follows:

 

     Years Ended
January 31,
 
     2014     2013  
(In thousands)             

Current:

    

Federal

   $ 930      $ 425   

State

     179        (237

Foreign

     297        366   
  

 

 

   

 

 

 
     1,406        554   
  

 

 

   

 

 

 

Deferred:

    

Federal

     (1,044     253   

State

     (174     38   

Foreign

     (13     2   
  

 

 

   

 

 

 
     (1,231     293   
  

 

 

   

 

 

 
   $ 175      $ 847   
  

 

 

   

 

 

 

The provision (benefit) for income taxes from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 34% in fiscal 2014 and 35% in fiscal 2013 to income before income taxes due to the following:

 

     Years Ended
January 31,
 
     2014     2013  
(In thousands)             

Income tax provision at statutory rate

   $ 480      $ 1,010   

State taxes, net of federal tax effect

     (74     114   

Change in valuation allowance

     27        (49

Change in reserves related to ASC 740 liability

     (59     (197

Meals and entertainment

     38        55   

Domestic production deduction

     (30     (60

Share-based compensation

     36        26   

Tax-exempt income

     (22     (16

R&D credits

     (114     (106

Foreign rate differential

     (26     (22

Other permanent differences and miscellaneous, net

     (81     92   
  

 

 

   

 

 

 
   $ 175      $ 847   
  

 

 

   

 

 

 

 

The components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of income. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:

 

     January 31,  
     2014     2013  
(In thousands)             

Deferred Tax Assets:

    

Inventory

   $ 1,792      $ 1,258   

Stock-Based Compensation

     535        403   

State R&D Credits

     258        231   

Compensation Accrual

     493        349   

ASC 740 Liability Federal Benefit

     290        361   

Deferred Service Contract Revenue

     181        106   

Warranty Reserve

     137        135   

Reserve for Doubtful Accounts

     127        117   

Foreign Tax Credit

     213        —     

Other

     119        166   
  

 

 

   

 

 

 
     4,145        3,126   

Deferred Tax Liabilities:

    

Accumulated Tax Depreciation in Excess of Book Depreciation

     830        532   

Deferred Gain on Asset Held for Sale

     897        —     

Currency Translation Adjustment

     173        189   

Other

     78        63   
  

 

 

   

 

 

 
     1,978        784   
  

 

 

   

 

 

 

Subtotal

     2,167        2,342   

Valuation Allowance

     (258     (231
  

 

 

   

 

 

 

Net Deferred Tax Assets

   $ 1,909      $ 2,111   
  

 

 

   

 

 

 

In fiscal 2014, we reclassified $1,151,000 from non-current liabilities of discontinued operations to deferred taxes.

At January 31, 2014, we have state net operating loss carryforwards of $392,000, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2014.

The valuation allowance at January 31, 2014 relates to certain state research and development tax credit carryforwards which are expected to expire unused. The change in the valuation allowance in 2014 is an increase of approximately $27,000 and represents an increase in the reserve due to the generation of research and development credits during the current year, net of federal benefit. The change in the valuation allowance in 2013 was a decrease of approximately $49,000 and represents a reduction in the reserve due to the expiration of research and development credit expensed during the year net of federal benefits.

The Company reasonably believes that it is possible that some unrecognized tax benefits, accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation. A reconciliation of unrecognized tax benefits, excluding interest and penalties follows:

 

     2014     2013  
(In thousands)             

Balance at February 1

   $ 941      $ 780   

Increases in prior period tax positions

     31        16   

Increases in current period tax positions

     42        386   

Reductions related to lapse of statute of limitations

     (299     (241
  

 

 

   

 

 

 

Balance at January 31

   $ 715      $ 941   
  

 

 

   

 

 

 

 

If the $715,000 is recognized, $425,000 would decrease the effective tax rate in the period in which each of the benefits is recognized and the remainder would be offset by a reversal of deferred tax assets.

During fiscal 2014 and 2013 the Company recognized $68,000 of expense and $105,000 of benefit, respectively, related to interest and penalties, which are included as a component of income tax expense in the accompanying statement of income. At January 31, 2014 and 2013, the Company had accrued potential interest and penalties of $416,000 and $348,000, respectively.

The Company and its subsidiaries file income tax returns in U.S. federal jurisdictions, various state jurisdictions, and various foreign jurisdictions. The Company is no longer subject to U.S. federal examinations prior to 2010.

On September 13, 2013, the Treasury Department and the Internal Revenue Service released final regulations that provided guidance on the application of IRC Section 263(a) for amounts paid to acquire, produce, or improve tangible property, as well as the rules for materials and supplies and proposed regulations addressing dispositions and general asset accounts. The final regulations are generally effective for tax years beginning on or after January 1, 2014. We are currently evaluating the impact of these new regulations and do not expect them to have a material impact to our financial statements.

At January 31, 2014, the Company has indefinitely reinvested $3,462,000 of the cumulative undistributed earnings of its foreign subsidiary in Germany, all of which would be subject to U.S. taxes if repatriated to the U.S. Through January 31, 2014, the Company has not provided deferred income taxes on the undistributed earnings of this subsidiary because such earnings are considered to be indefinitely reinvested. Non-U.S. income taxes are, however, provided on these undistributed earnings.

Contractual Obligations
Contractual Obligations

Note 11—Contractual Obligations

The following table summarizes our contractual obligations:

 

     Total      2015      2016      2017      2018      2019
and
Thereafter
 
(In thousands)                                          

Purchase Commitments*

   $ 12,134       $ 11,027       $ 909       $ 198      $ —        $ —    

Operating Lease Obligations

     607         311         164         80         52         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 12,741       $ 11,338       $ 1,073       $ 278       $ 52       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Purchase commitments consists primarily of inventory and equipment purchase orders made in the ordinary course of business.

The Company incurred rent and lease expenses in the amount of $599,000 and $607,000 for the fiscal years 2014 and 2013, respectively.

Nature of Operations, Segment Reporting and Geographical Information
Nature of Operations, Segment Reporting and Geographical Information

Note 12—Nature of Operations, Segment Reporting and Geographical Information

The Company’s operations consist of the design, development, manufacture and sale of specialty data recorder and acquisition systems, label printing and applicator systems and related consumable supplies. The Company organizes and manages its business as a portfolio of products and services designed around a common theme of data acquisition and information output. The Company reports two reporting segments consistent with its sales product groups: Test & Measurement (T&M) and QuickLabel Systems (QuickLabel).

T&M produces data recording equipment used worldwide for a variety of recording, monitoring and troubleshooting applications for the aerospace, automotive, metal mill, power and telecommunications industries. QuickLabel produces an array of high-technology digital color and monochrome label printers, labeling software and consumables for a variety of commercial industries worldwide.

 

Business is conducted in the United States and through foreign affiliates in Canada and Europe. Manufacturing activities are primarily conducted in the United States. Sales and service activities outside the United States are conducted through wholly-owned entities and, to a lesser extent, through authorized distributors and agents. Transfer prices are intended to produce gross profit margins as would be associated with an arms-length transaction.

On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) in order to focus on its existing core businesses. Grass produced a range of instrumentation equipment and supplies for clinical neurophysiology (EEG and epilepsy monitoring), polysomnography (PSG—Sleep Monitoring) and biomedical research applications used by universities, medical centers and companies engaged in a variety of clinical and research activities. Consequently, the Company has classified the results of operations of Grass as discontinued operations for all periods presented. Refer to Note 19 for further details.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies herein. The Company evaluates segment performance based on the segment profit before corporate and financial administration expenses.

Summarized below are the Net Sales and Segment Operating Profit (both in dollars and as a percentage of Net Sales) for each reporting segment:

 

($ in thousands)    Net Sales      Segment Operating Profit      Segment Operating Profit %
of Net Sales
 
     2014      2013          2014              2013          2014     2013  

T&M

   $ 19,527       $ 17,636       $ 2,655       $ 3,109         13.6     17.6

QuickLabel

     49,065         43,588         5,154         4,380         10.5     10.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 68,592       $ 61,224         7,809         7,489         11.4     12.2
  

 

 

    

 

 

          

 

 

   

 

 

 

Product Replacement Costs

           672         —          

Corporate Expenses

           5,604         4,563        
        

 

 

    

 

 

      

Operating Income

           1,533         2,926        

Other Expense

           121         41        
        

 

 

    

 

 

      

Income from Continuing Operations Before Income Taxes

           1,412         2,885        

Income Tax Provision for Continuing Operations

           175         847        
        

 

 

    

 

 

      
           1,237         2,038        

Income from Discontinued Operations, Net of Taxes

           1,975         8,729        
        

 

 

    

 

 

      

Net Income

         $ 3,212       $ 10,767        
        

 

 

    

 

 

      

No customer accounted for greater than 10% of net sales in fiscal 2014 and 2013.

Other information by segment is presented below:

 

(In thousands)    Assets  
     2014      2013  

T&M

   $ 17,049       $ 10,493   

QuickLabel

     25,306         23,468   

Discontinued Operations

     3,917         3,131   

Corporate*

     31,692         42,821   
  

 

 

    

 

 

 

Total

   $ 77,964       $ 79,913   
  

 

 

    

 

 

 

 

* Corporate assets consist principally of cash and cash equivalents, securities available for sale, and building held for sale.

 

(In thousands)    Depreciation and
Amortization
     Capital Expenditures  
     2014      2013          2014              2013      

T&M

   $ 640       $ 435       $ 585       $ 383   

QuickLabel

     639         710         543         398   

Discontinued Operations

     —           186         —           68   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,279       $ 1,331       $ 1,128       $ 849   
  

 

 

    

 

 

    

 

 

    

 

 

 

Geographical Data

Presented below is selected financial information by geographic area:

 

(In thousands)    Net Sales      Long-Lived Assets  
     2014      2013      2014      2013  

United States

   $ 48,679       $ 44,613       $ 10,115       $ 6,741   

Europe

     14,909         12,324         538         609   

Canada

     2,569         2,136         339         438   

Asia

     1,167         910         —          —    

Central and South America

     908         752         —          —    

Other

     360         489         —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 68,592       $ 61,224       $ 10,992       $ 7,788   
  

 

 

    

 

 

    

 

 

    

 

 

 

Long-lived assets excludes goodwill assigned to the T&M segment of $1.0 and $0.7 million at January 31, 2014 and 2013, respectively.

Profit-Sharing Plan
Profit-Sharing Plan

Note 13—Profit-Sharing Plan

Along with the ESOP described in Note 9, Astro-Med sponsors a Profit-Sharing Plan (the “Plan”) which provides retirement benefits to all eligible domestic employees. The Plan allows participants to defer a portion of their cash compensation and contribute such deferral to the Plan through payroll deductions. The Company makes matching contributions up to specified levels. The deferrals are made within the limits prescribed by Section 401(k) of the Internal Revenue Code.

All contributions are deposited into trust funds. It is the policy of the Company to fund any contributions accrued. The Company’s annual contribution amounts are determined by the Board of Directors. Contributions paid or accrued amounted to $251,000 and $261,000 in fiscal 2014 and 2013, respectively.

Product Warranty Liability
Product Warranty Liability

Note 14—Product Warranty Liability

Astro-Med offers a manufacturer’s warranty for the majority of its hardware products. The specific terms and conditions of warranty vary depending upon the product sold and country in which the Company does business. For products sold in the United States, the Company provides a basic limited warranty, including parts and labor. The Company estimates the warranty costs based on historical claims experience and records a liability in the amount of such estimates at the time product revenue is recognized. The Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Activity in the product warranty liability is as follows:

 

     January 31,  
     2014     2013  
(In thousands)             

Balance, beginning of the year

   $ 350      $ 343   

Warranties issued

     447        783   

Settlements made

     (442     (776
  

 

 

   

 

 

 

Balance, end of the year

   $ 355      $ 350   
  

 

 

   

 

 

 
Product Replacement Costs
Product Replacement Costs

Note 15—Product Replacement Costs

In April 2013, tests conducted by the Company revealed that one of its suppliers had been using non-conforming part in 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 working with its customers to replace the non-conforming material on existing printers with conforming material and will do this on a gradual basis over several months. 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 costs were recognized and recorded in the first quarter of fiscal 2014 and are included in cost of sales in the accompanying consolidated statement of income for the fiscal year ended January 31, 2014. The Company has settled $192,000 in recovery expenses as of January 31, 2014 and the related remaining reserve amount of $480,000 is included in Other Accrued Expenses in the accompanying condensed consolidated balance sheet dated January 31, 2014.

Astro-Med is currently receiving power supplies with compliant materials 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 $450,000 settlement from the supplier for recovery of the costs and expense associated with this issue. This settlement was recorded in cost of sales in the accompanying consolidated statement of income for the fiscal year ended January 31, 2014. In addition to this cash settlement, the Company will receive lower product prices from the supplier for a period of three years.

Concentration of Risk
Concentration of Risk

Note 16—Concentration of Risk

Credit is generally extended on an uncollateralized basis to almost all customers after review of credit worthiness. Concentration of credit and geographic risk with respect to accounts receivable is limited due to the large number and general dispersion of accounts which constitute the Company’s customer base. The Company periodically performs on-going credit evaluations of its customers. The Company has not historically experienced significant credit losses on collection of its accounts receivable.

Excess cash is invested principally in investment grade government and state municipal securities. The Company has established guidelines relative to diversification and maturities that maintain safety of principal, liquidity and yield. These guidelines are periodically reviewed and modified to reflect changes in market conditions. The Company has not historically experienced any significant losses on its cash equivalents or investments.

Commitments and Contingencies
Commitments and Contingencies

Note 17—Commitments and Contingencies

Astro-Med is subject to contingencies, including legal proceedings and claims arising in the normal course of business that cover a wide range of matters including, among others, contract and employment claims, workers compensation claims, product liability, warranty and modification, adjustment or replacement of component parts of units sold.

Direct costs associated with the estimated resolution of contingencies are accrued at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the Company’s control.

Fair Value Measurements
Fair Value Measurements

Note 18—Fair Value Measurements

We measure our financial assets at fair value on a recurring basis in accordance with the guidance provided in ASC 820, “Fair Value Measurement and Disclosures,” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, ASC 820 establishes a three-tiered hierarchy for inputs used in management’s determination of fair value of financial instruments that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect management’s belief about the assumptions market participants would use in pricing a financial instrument based on the best information available in the circumstances.

The fair value hierarchy is summarized as follows:

 

   

Level 1—Quoted prices in active markets for identical assets or liabilities;

   

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

   

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Cash and cash equivalents; accounts receivables; line of credit receivable; accounts payable, note receivable, 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:

 

January 31, 2014

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 4,734       $ —        $ —        $ 4,734   

State and municipal obligations (included in securities available for sale)

     —           18,766        —          18,766   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,734       $ 18,766      $ —        $ 23,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2013

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 8,784       $ —        $ —        $ 8,784   

State and municipal obligations (included in securities available for sale)

     8,509         —           —          8,509   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,293       $ —        $ —        $ 17,293   
  

 

 

    

 

 

    

 

 

    

 

 

 

At the beginning of fiscal 2014, we transferred our investments in state and municipal obligations from Level 1 to Level 2 to more accurately reflect the inputs used in valuation pursuant to ASC 820.

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 market prices for identical assets.

For our Note Receivable we utilized the income approach to measure fair value by discounting the present value of the Note. The discount rate used is based on similar rates used for high credit ratings and highly collateralized lending.

Discontinued Operations
Discontinued Operations

Note 19—Discontinued Operations

On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) which manufactured polysomnography and electroencephalography systems and related accessories and propriety electrodes for use in both research and clinical settings. The assets sold consisted primarily of working capital (exclusive of inventory and accounts payable related to manufacturing), the engineering, sales and support workforce, intellectual property and certain other related assets. The proceeds from the sale consisted of $18.6 million in cash, of which $16.8 million was recognized in fiscal 2013 and the remaining $1.8 million, which was held in escrow following the closing date of the transaction, was recognized in fiscal 2014.

As part of this transaction, Astro-Med entered into a Transition Service Agreement (TSA) with the purchaser in which the Company has provided transition services and continued to manufacture Grass products for the purchaser through January 31, 2014, at which time the purchaser was obligated to acquire the remaining inventory. The Company determined that cash flows from this activity were not and will not be material to its recurring operations. At January 31, 2014, the Company has completed its responsibility under the TSA, closed its Rockland facility which is in the process of being sold (as described below) and terminated substantially all employees related to Grass.

As a result of the above, the Company has classified the results of operations of the Grass Technologies Product Group as a discontinued operation for all periods presented.

Results for discontinued operations are as follows:

 

     2014      2013  
(In thousands)              

Net Sales

   $ 8,401       $ 19,195   

Cost of Sales

   $ 7,353       $ 9,072   

Gross Profit

   $ 1,048       $ 10,123   

Operating Expenses

   $ 96       $ 6,205   

Income from Discontinued Operations

   $ 952       $ 3,918   

Gain on Sale of Assets of Discontinued Operations

   $ 1,800       $ 10,162   

Income Tax Expense

   $ 777       $ 5,351   

Income from Discontinued Operations

   $ 1,975       $ 8,729   

Included in the above calculation of the Gain on Sale of Assets of Discontinued Operations for 2013 is a charge of $779,000 related to the impairment of the Grass Technologies Product Group facility located in Rockland, Massachusetts. The impairment charge was based on the fair value of the facility, less costs to sell, using market values for similar properties which is a Level 2 measurement in the fair value hierarchy discussed in Note 18. In February 2014, the Company entered into a purchase and sale agreement to sell the property to an independent buyer and this transaction is expected to close in April 2014. As a result, the property is currently disclosed at its fair market value and is classified as an asset held for sale in the accompanying balance sheet for the period ended January 31, 2014.

Valuation and Qualifying Accounts and Reserves
Valuation and Qualifying Accounts and Reserves

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

 

Description

   Balance at
Beginning
of Year
     Provision
Charged to
Operations
     Deductions(2)     Balance
at End
of Year
 

Allowance for Doubtful Accounts(1):

          
(In thousands)                           

Year Ended January 31,

          

2014

   $ 345       $ 119       $ (94   $ 370   

2013

   $ 356       $ 70       $ (81   $ 345   

 

(1) The allowance for doubtful accounts has been netted against accounts receivable as of the respective balance sheet dates.
(2) Uncollectible accounts written off, net of recoveries, also includes foreign exchange adjustment.
Summary of Significant Accounting Policies (Policies)

Basis of Presentation: The accompanying financial data has been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and is in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Our fiscal year end is January 31. Unless otherwise stated, all years and dates refer to our fiscal year.

On January 31, 2013, we completed the sale of substantially all of the assets of our Grass Technologies Product Group. Consequently, we have classified the results of operations of the Grass Technologies Product Group as discontinued operations for all periods presented. Refer to Note 19, “Discontinued Operations,” for further discussion.

Principles of Consolidation: The consolidated financial statements include the accounts of Astro-Med, Inc. and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

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

Use of Estimates: The presentation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect these financial statements and accompanying notes. Some of the more significant estimates relate to the allowances for doubtful accounts and credits, inventory valuation, valuation and estimated lives of intangible assets, 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.

Cash and Cash Equivalents: Highly liquid investments with an original maturity of 90 days or less are considered to be cash equivalents. Similar investments with original maturities beyond three months are classified as securities available for sale. Cash of $2,544,000 and $1,157,000 was held in foreign bank accounts at January 31, 2014 and 2013, respectively.

Securities Available for Sale: Securities available for sale are carried at fair value based on quoted market prices, where available. The difference between cost and fair value, net of related tax effects, is recorded as a component of accumulated other comprehensive income in shareholders’ equity.

Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets (land improvements—10 to 20 years; buildings and improvements—10 to 45 years; machinery and equipment—3 to 10 years). Depreciation expense was $1,279,000 for fiscal 2014 and $1,331,000 for 2013.

Revenue Recognition: Astro-Med’s product sales are recognized when all of the following criteria have been met: persuasive evidence of an arrangement exists; price to the buyer is fixed or determinable; delivery has occurred and legal title and risk of loss have passed to the customer; and collectability is reasonably assured. Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Discounts from list prices are recorded as a reduction to sales. Amounts billed to customers for shipping and handling fees are included in sales while related shipping and handling costs are included in cost of sales.

The majority of our equipment contains embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole as it is not sold separately or marketed separately and its production costs are minor as compared to those of the hardware system. Therefore, the Company’s hardware appliances are considered non-software elements and are not subject to the industry-specific software revenue recognition guidance.

Our multiple-element arrangements are generally comprised of a combination of equipment, software, installation and/or training services. Hardware and software elements are typically delivered at the same time and revenue is recognized when all the revenue recognition criteria for each unit are met. Delivery of installation and training services will vary based on certain factors such as the complexity of the equipment, staffing availability in a geographic location and customer preferences, and can range from a few days to a few months. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer.

We have evaluated the deliverables in our multiple-element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices. We determine the selling price for each deliverable based on a selling price hierarchy. The selling price for a deliverable is based on vendor specific objective evidence (VSOE) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. Revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met.

Infrequently, Astro-Med recognizes revenue for non-recurring engineering (NRE) fees for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue. NRE fees have not been significant in the periods presented herein.

Infrequently, Astro-Med receives requests from customers to hold product purchased from us for the customer’s convenience. Revenue is recognized for such bill and hold arrangements in accordance with the requirements of SAB No. 104 which requires, among other things, the existence of a valid business purpose for the arrangement; the transfer of ownership of the purchased product; a fixed delivery date that is reasonable and consistent with the buyer’s business purpose; the readiness of the product for shipment; the use of customary payment terms; no continuing performance obligation by us; and segregation of the product from our inventories.

Research and Development Costs: The Company complies with the guidance provided in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) FASB 730, “Research and Development” by charging any costs to expense when incurred, as well as by disclosing in the financial statements the amount of Research & Development charged to expense. These charges include: salaries and benefits, external engineering service costs, engineering related information costs and supplies. The Company also complies with ASC 985-20, “Costs of Computer Software to be Sold, Leased or Marketed” and ASC 350-40, “Internal-Use Software” in accounting for the costs of software either developed or acquired.

Foreign Currency: The financial statements of foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars at year-end exchange rates with the translation adjustment recorded as a component of accumulated comprehensive income in shareholders’ equity. Revenues and costs are translated at average exchange rates during the year. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our German subsidiary since its undistributed earnings are considered to be permanently invested. Our net foreign exchange losses were $190,000 and $158,000 for fiscal 2014 and 2013, respectively.

Advertising: Astro-Med expenses advertising costs as incurred. Advertising costs including advertising production, trade shows and other activities are designed to enhance demand for our products and amounted to approximately $1,236,000 and $750,000 in fiscal 2014 and 2013, respectively

Health Insurance Reimbursement Reserve: Astro-Med reimburses a portion of employee health insurance deductibles and co-payments. The total reimbursement amounted to approximately $201,000 and $313,000 in 2014 and 2013, respectively. We accrued approximately $75,000 and $100,000 at January 31, 2014 and 2013, respectively, for estimated outstanding reimbursements due to employees, including a reserve for incurred but not reported amounts.

Long-Lived Assets: Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with the guidance provided in ASC 360, “Property, Plant and Equipment.” Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.

In 2013, we recognized an impairment of $779,000 related to the Grass Technologies Product Group‘s manufacturing facilities located in Rockland, Massachusetts. This impairment was included as part of the Income from Discontinued Operations in the accompanying consolidated statement of income for the period ended January 31, 2013. Refer to Note 19, “Discontinued Operations,” for further discussion.

Intangible Assets: Intangible assets include the value of customer relationships and backlog rights acquired in connection with business acquisitions and are recorded at fair value as determined by the Company. These intangible assets have a definite life and are amortized over the assets useful life using a systematic and rational basis which is representative of the asset’s use. Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. For both 2014 and 2013, there were no impairment charges for intangible assets.

Goodwill: Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is first qualitatively assessed to determine whether further impairment testing is necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a two step process is then performed. Step one compares the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, step two is required to determine if there is an impairment of the goodwill. Step two compares the implied fair value of the reporting unit goodwill to the carrying amount of the goodwill. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow model. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long–term operating cash flow performance. In addition, the Company uses the market approach, which compares the reporting unit to publicly-traded companies and transactions involving similar business, to support the conclusions based upon the income approach. The income approach requires the use of many assumptions and estimates including future revenue, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates.

We performed a qualitative assessment for our 2014 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying value of the reporting units exceed their fair values. Accordingly, no further testing was performed as management believes that there are no impairment issues in regards to goodwill at this time.

Income Taxes: Astro-Med uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of the assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. At January 31, 2014 and 2013, a valuation allowance was provided for deferred tax assets attributable to certain state R&D credit carryforwards.

Astro-Med accounts for uncertain tax positions in accordance with the guidance provided in ASC 740, “Accounting for Income Taxes.” This guidance describes a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken in a tax return and requires recognition of tax benefits that satisfy a more-likely-than-not threshold. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Net Income Per Common Share: Net income per common share has been computed and presented in accordance with the guidance provided in ASC 260, “Earnings per Share.” Basic net income per share is based on the weighted average number of shares outstanding during the period. Diluted net income per share is based on the basic weighted average number of shares and potential common equivalent shares for stock options, restricted stock awards and restricted stock units outstanding during the period using the treasury stock method. In fiscal years 2014 and 2013, there were 126,800 and 583,512 common equivalent shares that were not included in the computation of diluted net income per common share because their inclusion would be anti-dilutive.

Allowance for Doubtful Accounts: In circumstances where we are aware of a customer’s inability to meet its financial obligations, an allowance is established. The majority of accounts are individually evaluated on a regular basis and allowances are established to state such receivables at their net realizable value. The remainder of the allowance is based upon historical write-off experience and current market assessments.

Fair Value of Financial Instruments: Our financial instruments consist of cash and cash equivalents, investment securities, accounts receivable, a note receivable, a line of credit receivable and accounts payable. The carrying amount reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term nature of these items. Investment securities, all of which are available for sale, are carried in the consolidated balance sheets at fair value based on quoted market prices, when available. The note receivable is carried in the consolidated balance sheets at fair value based on the present value of the discounted cash flows over the life of the note.

Share-Based Compensation: We account for share based awards granted to employees and directors using the FASB guidance included in ASC 718, “Stock Compensation.” Effective as of February 1, 2006, we adopted the “modified prospective” transition method provided in ASC 718. Under this method, share-based compensation is recognized in the consolidated statement of operation for share-based payment awards granted prior to, but not yet vested as of February 1, 2006, based on the grant date fair value estimated in accordance with prior authoritative guidance and for share-based payment awards granted subsequent to February 1, 2006, based on the grant date fair value estimated in accordance with the provisions of ASC 718.

In accordance with ASC 718, share-based compensation expense is based on the estimated fair value of the share-based award when granted to an employee or director. 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 dividend assumption is based upon the prior year’s average dividend yield. No compensation expense is recognized for options that are forfeited for which the employee does not render the requested service. Our accounting for share-based compensation for restricted stock awards (“RSA”) and restricted stock units (“RSU”) 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.

The cash flow from the tax benefits that are a result of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as a cash inflow from financing activities and a cash outflow from operating activity in accordance with the guidance provided by ASC 718. Tax deductions from certain stock option exercises are treated as being realized when they reduce taxes payable in accordance with relevant tax law.

Recent Accounting Pronouncements:

Income Taxes

In July 2013, the FASB issued Accounting Standard Update (“ASU”) 2013-11, “Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability. This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial position or results of operations.

Comprehensive Income

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. We have adopted this guidance in the first quarter ended May 4, 2013 and have provided the disclosure required in Note 8. Since ASU 2013-02 only impacts presentation and disclosure requirements, the adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

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.

Acquisition (Tables)

This information has been prepared for informational purposes only and does not purport to represent the results of operations that would have happened had the acquisition occurred as of the date indicated, nor of future results of operations.

 

     Years Ended
January 31
 
(In thousands)    2014      2013  

Net Revenue

   $ 75,362       $ 69,453   

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

 

(In thousands)       

Accounts Receivable

   $ 713   

Inventories

     2,503   

Identifiable Intangible Assets

     3,400   

Goodwill

     196   

Warranty Reserve

     (80
  

 

 

 

Total Purchase Price

   $ 6,732   
  

 

 

 

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

 


(In thousands)    Fair
Value
     Useful Life
(Years)
 

Customer Contract Relationships

   $ 3,100         10   

Backlog

     300         1   
  

 

 

    

Total

   $ 3,400      
  

 

 

    

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

 

(In thousands)    2015      2016      2017      2018      2019  

Estimated amortization expenses

   $ 702       $ 357       $ 349       $ 331       $ 278   

Securities Available for Sale (Tables)

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
(In thousands)                            

January 31, 2014

           

State and Municipal Obligations

   $ 18,729       $ 37       $ —        $ 18,766   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  

January 31, 2013

           

State and Municipal Obligations

   $ 8,499       $ 10       $ —        $ 8,509   
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturity dates of these securities are as follows:

 

     January 31,  
     2014      2013  
(In thousands)              

Less than one year

   $ 11,439       $ 5,986   

One to three years

     7,327         2,523   
  

 

 

    

 

 

 
   $ 18,766       $ 8,509   
  

 

 

    

 

 

 
Inventories (Tables)
Components of Inventories

The components of inventories are as follows:

 

     2014     2013  
(In thousands)             

Materials and Supplies

   $ 10,722      $ 7,419   

Work-in-Progress

     852        590   

Finished Goods

     6,798        5,953   
  

 

 

   

 

 

 
     18,372        13,962   

Inventory Reserve

     (3,194     (2,783
  

 

 

   

 

 

 

Balance at January 31

   $ 15,178      $ 11,179   
  

 

 

   

 

 

 

Accrued Expenses (Tables)
Summary of Accrued Expenses

Accrued expenses consisted of the following:

 

     January 31,  
     2014      2013  
(In thousands)              

Product replacement cost reserve

   $ 480       $ —     

Reserve for cash in escrow

     —           1,800   

Warranty

     355         350   

Professional fees

     269         174   

Executive retirement package

     250         —     

Health insurance reimbursement reserve

     75         100   

Dealer commissions

     55         91   

Other

     826         649   
  

 

 

    

 

 

 
   $ 2,310       $ 3,164   
  

 

 

    

 

 

 

Accumulated Other Comprehensive Income (Tables)
Changes in the Balance of Accumulated Other Comprehensive Income

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

 

(In thousands)    Foreign Currency
Translation
Adjustments
    Unrealized Holding Gain
on Available for
Sale Securities
    Total  

Balance at January 31, 2012

   $ 106      $ 15      $ 121   

Other Comprehensive Income (Loss)

     60        (8     52   

Amounts reclassified to Net Income

                  
  

 

 

 

Net Other Comprehensive Income (Loss)

     60        (8     52   
  

 

 

 

Balance at January 31, 2013

     166        7        173   

Other Comprehensive Income (Loss)

     (14     17        3   

Amounts Reclassified to Net Income

     —         —         —    
  

 

 

 

Net Other Comprehensive Income (Loss)

     (14     17        3   
  

 

 

 

Balance at January 31, 2014

   $ 152      $ 24      $ 176   
  

 

 

 

Shareholders' Equity (Tables)

The number of shares issued of common stock is summarized below:

 

     2014      2013  

Balance at beginning of year

     9,031,756         8,956,488   

Exercise of employee stock options

     210,790         66,313   

Restricted stock vesting

     42,325         —     

Shares issued to employee stock purchase plan

     3,989         5,976   

Share-based compensation

     2,365         2,979   
  

 

 

    

 

 

 

Balance at end of year

     9,291,225         9,031,756   
  

 

 

    

 

 

 

Aggregated information regarding stock options granted under the Plan is summarized below:

 

     Number
of Shares
    Option Price
Per Share
     Weighted Average
Option Price Per
Share
 

Options Outstanding, January 31, 2013

     916,612      $ 2.40-11.90       $ 8.46   

Options Granted

     56,800      $ 10.50-10.60       $ 10.54   

Options Exercised

     (210,790   $ 2.40-11.90       $ 8.33   

Options Expired

     (25,975   $ 2.40-11.90       $ 9.42   
  

 

 

   

 

 

    

 

 

 

Options Outstanding, January 31, 2014

     736,647      $ 5.78-11.90       $ 8.63   
  

 

 

   

 

 

    

 

 

 

Options Exercisable, January 31, 2014

     570,324      $ 5.78-11.90       $ 8.57   

Set forth below is a summary of options outstanding at January 31, 2014:

 

Outstanding

     Exercisable  

Range of

Exercise prices

   Options      Weighted Average
Exercise Price
     Remaining
Contractual Life
     Options      Weighted Average
Exercise Price
 

$5.78-8.73

     500,422       $ 7.66         4.7         390,299       $ 7.57   

$8.74-11.90

     236,225       $ 10.68         4.7         180,025       $ 10.73   
  

 

 

          

 

 

    
     736,647               570,324      
  

 

 

          

 

 

    

The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

     Years Ended January 31,
     2014    2013

Risk-free interest rate

   0.81%-0.84%    0.62%-1.20%

Expected life (years)

   5    5

Expected volatility

   38.07%-38.46%    38.74%-39.46%

Expected dividend yield

   2.63%    3.41-3.46%

Aggregated information regarding RSUs and RSAs granted under the Plan is summarized below:

 

     RSAs & RSUs     Weighted Average
Grant Date Fair Value
 

Outstanding at January 31, 2013

     96,900     $ 8.10  

Granted

     57,544        10.14   

Vested

     (46,798     8.27   

Expired or canceled

     (1,150     8.35   
  

 

 

   

 

 

 

Outstanding at January 31, 2014

     106,496      $ 9.12   
  

 

 

   

 

 

 

Share-based compensation expense has been recognized as follows:

 

     Years Ended January 31,  
             2014                      2013          
(In thousands)              

Stock Options

   $ 192       $ 163   

Restricted Stock Awards and Restricted Stock Units

     370         317   
  

 

 

    

 

 

 

Total

   $ 562       $ 480   
  

 

 

    

 

 

 

Summarized plan activity is as follows:

 

     Years Ended January 31,  
             2014                     2013          

Shares reserved, beginning

     64,231        70,207   

Shares purchased

     (3,989     (5,976
  

 

 

   

 

 

 

Shares reserved, ending

     60,242        64,231   
  

 

 

   

 

 

 
Income Taxes (Tables)

The components of income from continuing operations before income taxes are as follows:

     Years Ended
January 31,
 
     2014      2013  
(In thousands)              

Domestic

   $ 537       $ 1,850   

Foreign

     875         1,035   
  

 

 

    

 

 

 
   $ 1,412       $ 2,885   
  

 

 

    

 

 

 

The components of the provision (benefit) for income taxes from continuing operations are as follows:

 

     Years Ended
January 31,
 
     2014     2013  
(In thousands)             

Current:

    

Federal

   $ 930      $ 425   

State

     179        (237

Foreign

     297        366   
  

 

 

   

 

 

 
     1,406        554   
  

 

 

   

 

 

 

Deferred:

    

Federal

     (1,044     253   

State

     (174     38   

Foreign

     (13     2   
  

 

 

   

 

 

 
     (1,231     293   
  

 

 

   

 

 

 
   $ 175      $ 847   
  

 

 

   

 

 

 

The provision (benefit) for income taxes from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 34% in fiscal 2014 and 35% in fiscal 2013 to income before income taxes due to the following:

 

     Years Ended
January 31,
 
     2014     2013  
(In thousands)             

Income tax provision at statutory rate

   $ 480      $ 1,010   

State taxes, net of federal tax effect

     (74     114   

Change in valuation allowance

     27        (49

Change in reserves related to ASC 740 liability

     (59     (197

Meals and entertainment

     38        55   

Domestic production deduction

     (30     (60

Share-based compensation

     36        26   

Tax-exempt income

     (22     (16

R&D credits

     (114     (106

Foreign rate differential

     (26     (22

Other permanent differences and miscellaneous, net

     (81     92   
  

 

 

   

 

 

 
   $ 175      $ 847   
  

 

 

   

 

 

 

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:

 

     January 31,  
     2014     2013  
(In thousands)             

Deferred Tax Assets:

    

Inventory

   $ 1,792      $ 1,258   

Stock-Based Compensation

     535        403   

State R&D Credits

     258        231   

Compensation Accrual

     493        349   

ASC 740 Liability Federal Benefit

     290        361   

Deferred Service Contract Revenue

     181        106   

Warranty Reserve

     137        135   

Reserve for Doubtful Accounts

     127        117   

Foreign Tax Credit

     213        —     

Other

     119        166   
  

 

 

   

 

 

 
     4,145        3,126   

Deferred Tax Liabilities:

    

Accumulated Tax Depreciation in Excess of Book Depreciation

     830        532   

Deferred Gain on Asset Held for Sale

     897        —     

Currency Translation Adjustment

     173        189   

Other

     78        63   
  

 

 

   

 

 

 
     1,978        784   
  

 

 

   

 

 

 

Subtotal

     2,167        2,342   

Valuation Allowance

     (258     (231
  

 

 

   

 

 

 

Net Deferred Tax Assets

   $ 1,909      $ 2,111   
  

 

 

   

 

 

A reconciliation of unrecognized tax benefits, excluding interest and penalties follows:

 

     2014     2013  
(In thousands)             

Balance at February 1

   $ 941      $ 780   

Increases in prior period tax positions

     31        16   

Increases in current period tax positions

     42        386   

Reductions related to lapse of statute of limitations

     (299     (241
  

 

 

   

 

 

 

Balance at January 31

   $ 715      $ 941   
  

 

 

   

 

 

 

Contractual Obligations (Tables)
Summary of Contractual Obligations

The following table summarizes our contractual obligations:

 

     Total      2015      2016      2017      2018      2019
and
Thereafter
 
(In thousands)                                          

Purchase Commitments*

   $ 12,134       $ 11,027       $ 909       $ 198      $ —        $ —    

Operating Lease Obligations

     607         311         164         80         52         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 12,741       $ 11,338       $ 1,073       $ 278       $ 52       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Purchase commitments consists primarily of inventory and equipment purchase orders made in the ordinary course of business.
Nature of Operations, Segment Reporting and Geographical Information (Tables)

Summarized below are the Net Sales and Segment Operating Profit (both in dollars and as a percentage of Net Sales) for each reporting segment:

 

($ in thousands)    Net Sales      Segment Operating Profit      Segment Operating Profit %
of Net Sales
 
     2014      2013          2014              2013          2014     2013  

T&M

   $ 19,527       $ 17,636       $ 2,655       $ 3,109         13.6     17.6

QuickLabel

     49,065         43,588         5,154         4,380         10.5     10.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 68,592       $ 61,224         7,809         7,489         11.4     12.2
  

 

 

    

 

 

          

 

 

   

 

 

 

Product Replacement Costs

           672         —          

Corporate Expenses

           5,604         4,563        
        

 

 

    

 

 

      

Operating Income

           1,533         2,926        

Other Expense

           121         41        
        

 

 

    

 

 

      

Income from Continuing Operations Before Income Taxes

           1,412         2,885        

Income Tax Provision for Continuing Operations

           175         847        
        

 

 

    

 

 

      
           1,237         2,038        

Income from Discontinued Operations, Net of Taxes

           1,975         8,729        
        

 

 

    

 

 

      

Net Income

         $ 3,212       $ 10,767        
        

 

 

    

 

 

    

Other information by segment is presented below:

 

(In thousands)    Assets  
     2014      2013  

T&M

   $ 17,049       $ 10,493   

QuickLabel

     25,306         23,468   

Discontinued Operations

     3,917         3,131   

Corporate*

     31,692         42,821   
  

 

 

    

 

 

 

Total

   $ 77,964       $ 79,913   
  

 

 

    

 

 

 

 

* Corporate assets consist principally of cash and cash equivalents, securities available for sale, and building held for sale.

 

(In thousands)    Depreciation and
Amortization
     Capital Expenditures  
     2014      2013          2014              2013      

T&M

   $ 640       $ 435       $ 585       $ 383   

QuickLabel

     639         710         543         398   

Discontinued Operations

     —           186         —           68   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,279       $ 1,331       $ 1,128       $ 849   
  

 

 

    

 

 

    

 

 

    

 

 

 

Presented below is selected financial information by geographic area:

 

(In thousands)    Net Sales      Long-Lived Assets  
     2014      2013      2014      2013  

United States

   $ 48,679       $ 44,613       $ 10,115       $ 6,741   

Europe

     14,909         12,324         538         609   

Canada

     2,569         2,136         339         438   

Asia

     1,167         910         —          —    

Central and South America

     908         752         —          —    

Other

     360         489         —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 68,592       $ 61,224       $ 10,992       $ 7,788   
  

 

 

    

 

 

    

 

 

    

 

 

 
Product Warranty Liability (Tables)
Activity in Product Warranty Liability

The Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Activity in the product warranty liability is as follows:

 

     January 31,  
     2014     2013  
(In thousands)             

Balance, beginning of the year

   $ 350      $ 343   

Warranties issued

     447        783   

Settlements made

     (442     (776
  

 

 

   

 

 

 

Balance, end of the year

   $ 355      $ 350   
  

 

 

   

 

 

 

 

Fair Value Measurements (Tables)
Assets Measured at Fair Value on a Recurring Basis

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

 

January 31, 2014

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 4,734       $ —        $ —        $ 4,734   

State and municipal obligations (included in securities available for sale)

     —           18,766        —          18,766   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,734       $ 18,766      $ —        $ 23,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2013

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 8,784       $ —        $ —        $ 8,784   

State and municipal obligations (included in securities available for sale)

     8,509         —           —          8,509   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,293       $ —        $ —        $ 17,293   
  

 

 

    

 

 

    

 

 

    

 

 

 
Discontinued Operations (Tables)
Summary of Discontinued Operations

Results for discontinued operations are as follows:

 

     2014      2013  
(In thousands)              

Net Sales

   $ 8,401       $ 19,195   

Cost of Sales

   $ 7,353       $ 9,072   

Gross Profit

   $ 1,048       $ 10,123   

Operating Expenses

   $ 96       $ 6,205   

Income from Discontinued Operations

   $ 952       $ 3,918