ASTRO MED INC /NEW/, 10-K filed on 4/8/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 31, 2016
Mar. 24, 2016
Jul. 31, 2015
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jan. 31, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
ALOT 
 
 
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
 
7,388,048 
 
Entity Public Float
 
 
$ 73,014,000 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jan. 31, 2016
Jan. 31, 2015
CURRENT ASSETS
 
 
Cash and Cash Equivalents
$ 10,043 
$ 7,958 
Securities Available for Sale
10,376 
15,174 
Accounts Receivable, net of reserves of $404 in 2016 and $343 in 2015
15,325 
14,107 
Inventories
14,890 
15,582 
Line of Credit Receivable
150 
173 
Note Receivable
191 
255 
Asset Held for Sale
 
1,900 
Prepaid Expenses and Other Current Assets
3,539 
4,140 
Total Current Assets
54,514 
59,289 
PROPERTY, PLANT AND EQUIPMENT
 
 
Land and Improvements
967 
904 
Buildings and Improvements
11,350 
10,551 
Machinery and Equipment
27,396 
25,368 
Total Property, Plant and Equipment , gross
39,713 
36,823 
Less Accumulated Depreciation
(29,906)
(28,444)
Total Property, Plant and Equipment, net
9,807 
8,379 
OTHER ASSETS
 
 
Note Receivable
 
256 
Deferred Tax Assets
3,049 
2,629 
Identifiable Intangibles, net
5,980 
2,698 
Goodwill
4,521 
991 
Other
92 
88 
Total Other Assets
13,642 
6,662 
TOTAL ASSETS
77,963 
74,330 
CURRENT LIABILITIES
 
 
Accounts Payable
3,192 
3,155 
Accrued Compensation
3,436 
3,302 
Other Accrued Expenses
2,209 
2,343 
Deferred Revenue
529 
621 
Income Taxes Payable
182 
148 
Total Current Liabilities
9,548 
9,569 
Deferred Tax Liabilities
78 
83 
Other Long Term Liabilities
964 
1,167 
TOTAL LIABILITIES
10,590 
10,819 
Commitments and Contingencies(See Note 19)
   
   
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 9,666,290 shares in 2016 and 9,544,864 shares in 2015
483 
477 
Additional Paid-in Capital
45,675 
43,600 
Retained Earnings
42,212 
39,735 
Treasury Stock, at Cost, 2,323,545 shares in 2016 and 2,293,606 shares in 2015
(20,022)
(19,602)
Accumulated Other Comprehensive Loss, Net of Tax
(975)
(699)
Total Shareholders' Equity
67,373 
63,511 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 77,963 
$ 74,330 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jan. 31, 2016
Jan. 31, 2015
Statement of Financial Position [Abstract]
 
 
Accounts Receivable, Reserves
$ 404 
$ 343 
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
9,666,290 
9,544,864 
Treasury Stock, Shares
2,323,545 
2,293,606 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Income Statement [Abstract]
 
 
Net Sales
$ 94,658 
$ 88,347 
Cost of Sales
56,500 
51,370 
Gross Profit
38,158 
36,977 
Costs and Expenses:
 
 
Selling and Marketing
18,249 
18,289 
Research and Development
6,945 
5,802 
General and Administrative
7,030 
5,655 
Operating Expenses
32,224 
29,746 
Operating Income
5,934 
7,231 
Other Income (Expense):
 
 
Investment Income
72 
81 
Other, Net
903 
(380)
Other Income (Expense)
975 
(299)
Income before Income Taxes
6,909 
6,932 
Income Tax Provision
2,384 
2,270 
Net Income
$ 4,525 
$ 4,662 
Net Income Per Common Share-Basic
$ 0.62 
$ 0.61 
Net Income Per Common Share-Diluted
$ 0.61 
$ 0.60 
Weighted Average Number of Common Shares Outstanding-Basic
7,288 
7,612 
Dilutive Effect of Common Stock Equivalents
183 
222 
Weighted Average Number of Common Shares Outstanding-Diluted
7,471 
7,834 
Dividends Declared Per Common Share
$ 0.28 
$ 0.28 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
Net income
$ 4,525 
$ 4,662 
Other Comprehensive Loss, net of taxes and reclassification adjustments:
 
 
Foreign currency translation adjustments
(269)
(866)
Unrealized loss on securities available for sale
(7)
(9)
Net Other Comprehensive Loss
(276)
(875)
Comprehensive Income
$ 4,249 
$ 3,787 
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Beginning Balance at Feb. 01, 2014
$ 66,614 
$ 465 
$ 41,235 
$ 37,201 
$ (12,463)
$ 176 
Beginning Balance, Shares at Feb. 01, 2014
 
9,291,225 
 
 
 
 
Share-based compensation
511 
 
511 
 
 
 
Employee option exercises
1,009 
11 
1,887 
 
(889)
 
Employee option exercises, Shares
 
227,512 
 
 
 
 
Tax benefit of employee stock options
107 
 
107 
 
 
 
Restricted stock awards vested, net
(139)
(140)
 
 
 
Restricted stock awards vested, net, Shares
 
26,127 
 
 
 
 
Repurchases of common stock
(6,250)
 
 
 
(6,250)
 
Dividends paid
(2,128)
 
 
(2,128)
 
 
Net income
4,662 
 
 
4,662 
 
 
Other comprehensive loss
(875)
 
 
 
 
(875)
Ending Balance at Jan. 31, 2015
63,511 
477 
43,600 
39,735 
(19,602)
(699)
Ending Balance, Shares at Jan. 31, 2015
 
9,544,864 
 
 
 
 
Share-based compensation
1,209 
 
1,209 
 
 
 
Employee option exercises
436 
802 
 
(371)
 
Employee option exercises, Shares
93,344 
98,734 
 
 
 
 
Tax benefit of employee stock options
65 
 
65 
 
 
 
Restricted stock awards vested, net
(49)
(1)
 
(49)
 
Restricted stock awards vested, net, Shares
 
22,692 
 
 
 
 
Repurchases of common stock
(6,250)
 
 
 
 
 
Dividends paid
(2,048)
 
 
(2,048)
 
 
Net income
4,525 
 
 
4,525 
 
 
Other comprehensive loss
(276)
 
 
 
 
(276)
Ending Balance at Jan. 31, 2016
$ 67,373 
$ 483 
$ 45,675 
$ 42,212 
$ (20,022)
$ (975)
Ending Balance, Shares at Jan. 31, 2016
 
9,666,290 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Cash Flows from Operating Activities:
 
 
Net income
$ 4,525 
$ 4,662 
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
 
 
Depreciation and Amortization
2,065 
2,063 
Share-Based Compensation
1,209 
511 
Deferred Income Tax Benefit
(422)
(636)
Excess Tax Benefit From Share-Based Compensation
(65)
(107)
Write-down of Asset Held for Sale
 
220 
Changes in Assets and Liabilities, Net of Impact of Acquisitions:
 
 
Accounts Receivable
(1,285)
(2,741)
Inventories
600 
(404)
Accounts Payable and Accrued Expenses
151 
810 
Income Taxes Payable
412 
(1,747)
Other
537 
(1,140)
Net Cash Provided by Operating Activities
7,727 
1,491 
Cash Flows from Investing Activities:
 
 
Proceeds from Sales/Maturities of Securities Available for Sale
9,978 
12,885 
Purchases of Securities Available for Sale
(5,192)
(9,306)
Acquisition of RITEC's Aerospace Printer Business
(7,360)
 
Net Proceeds Received for Sale of Asset Held for Sale
1,698 
 
Release of Funds Held in Escrow From Sale of Grass
 
1,800 
Proceeds Received on Disposition of Grass Inventory
 
2,355 
Payments Received on Line of Credit and Note Receivable
395 
258 
Additions to Property, Plant and Equipment
(3,061)
(2,247)
Net Cash Provided (Used) by Investing Activities
(3,542)
5,745 
Cash Flows from Financing Activities:
 
 
Net Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans, Net of Payment of Minimum Tax Withholdings
387 
870 
Purchase of Treasury Stock
 
(6,250)
Excess Tax Benefit from Share-Based Compensation
65 
107 
Dividends Paid
(2,048)
(2,128)
Net Cash Used in Financing Activities
(1,596)
(7,401)
Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
(504)
(218)
Net Increase (Decrease) in Cash and Cash Equivalents
2,085 
(383)
Cash and Cash Equivalents, Beginning of Year
7,958 
8,341 
Cash and Cash Equivalents, End of Year
10,043 
7,958 
Supplemental Information:
 
 
Income Taxes, Net of Refunds
$ 2,257 
$ 4,566 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Note 1—Summary of Significant Accounting Policies

Basis of Presentation: The accompanying financial data have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and are presented 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.

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 preparation 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, asset held for sale, 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 $2,959,000 and $2,995,000 was held in foreign bank accounts at January 31, 2016 and 2015, 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 loss in shareholders’ equity.

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

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 $1,567,000 for fiscal 2016 and $1,361,000 for 2015.

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 has 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 SEC Staff Accounting Bulletin 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: Astro-Med charges costs to expense in the period incurred, and these expenses are presented in the consolidated statement of income. Included in research and development expense are the following: salaries and benefits, external engineering service costs, engineering related information costs and supplies.

Foreign Currency Translation: The financial statements of foreign subsidiaries and branches 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 (loss) in shareholders’ equity. Revenues and expenses are translated at the monthly average exchange rates. 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 $323,000 and $219,000 for fiscal 2016 and 2015, 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 $1,058,000 and $1,717,000 in fiscal 2016 and 2015, respectively.

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. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be recorded for the excess of the carrying value over the fair value, as determined by the discounting of future cash flows. For both 2016 and 2015, these were no impairment charges for long-lived assets.

Assets Held for Sale: Assets held for sale are reported at the lower of cost or fair value. Cost to sell are accrued separately. Astro-Med’s former Grass facility located in Rockland, Massachusetts met the held for sale classification criteria for the period ended January 31, 2015. The Company estimated the fair value of the Rockland facility using the market values for similar properties and estimated the fair value less the cost to sell and was considered a Level 2 asset in as defined in ASC 820, “Fair Value Measurements. Refer to Note 20, “Fair Value Measurements,” for further details.

Intangible Assets: Intangible assets include the value of customer relationships, non-competition agreements and backlog rights acquired in connection with business acquisitions and are stated at cost (fair value at acquisition) less accumulated amortization. These intangible assets have a definite life and are amortized over the assets’ useful lives using a systematic and rational basis which is representative of the assets’ 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. If necessary, 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 2016 and 2015, 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 2016 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, 2016 and 2015, 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 and disclosure.

Net Income Per Common 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 2016 and 2015, there were 425,200 and 156,600, respectively, of 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.

The Company measures assets held for sale at fair value on a nonrecurring basis and records impairment charges when the assets are deemed to be impaired.

Share-Based Compensation: Share-based compensation expense is measured based on the estimated fair value of the share-based award when granted and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). 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 requisite 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.

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. 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:

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842).” ASU 2016-02 will supersede current guidance related to accounting for leases and is intended to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities in the balance sheet for operating leases with lease terms greater than twelve months. The update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (Q1 fiscal 2020 for Astro-Med), with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. The Company is currently evaluating the effect of this new guidance on the Company’s consolidated financial statements.

Income Taxes

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740).” ASU 2015-17 amended guidance applicable to the presentation of income taxes and requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. This amendment represents a change in accounting principle and is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. As permitted by the standard, we adopted the new presentation retrospectively, beginning on February 1, 2014. As a result, all of the Company’s deferred taxes are presented as non-current in the accompanying consolidated balance sheets for the periods ended January 31, 2016 and 2015.

Inventory

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

Revenue Recognition

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

Acquisition
Acquisition

Note 2—Acquisition

On June 19, 2015, Astro-Med completed the acquisition of the aerospace printer product line for civil and commercial aircraft from Rugged Information Technology Equipment Corporation (RITEC) under the terms of an Asset Purchase Agreement dated June 18, 2015. The products of RITEC consist of aerospace printers for use in commercial aircraft sold primarily to aircraft manufacturers, tier one contractors and directly to airlines around the world. Astro-Med’s aerospace printer product line is part of the Test & Measurement (T&M) product group and is reported as part of the T&M segment. The Company began shipment of the RITEC products in the third quarter of fiscal 2016.

The purchase price of the acquisition was $7,360,000 which was funded using available cash and investment securities. Of the $7,360,000 purchase price, $750,000 is being held in escrow for twelve months following the acquisition date to support an indemnity to the Company in the event of any breach in the representations, warranties or covenants of RITEC. The assets acquired consist principally of accounts receivables and certain intangible assets. Acquisition related costs of approximately $109,000 are included in the general and administrative expenses in the Company’s consolidated statements of income for fiscal year ended 2016. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”

Astro-Med also entered into a Transition Services Agreement, under which RITEC will provide transition services and continue to manufacture products in the acquired product line until the Company transitions the manufacturing to its West Warwick, Rhode Island facility, which the Company anticipates will occur in the second quarter of fiscal 2017. Upon expiration of the Transition Services Agreement, Astro-Med will purchase any inventory held by RITEC at its book value (net of reserves), which the Company estimates will be approximately $150,000.

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

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

 

(In thousands)       

Accounts Receivable

   $ 50   

Identifiable Intangible Assets

     3,780   

Goodwill

     3,530   
  

 

 

 

Total Purchase Price

   $ 7,360   
  

 

 

 

The fair value of the intangible assets acquired was estimated by applying the income approach. This fair value measurement is based on significant inputs that are not observable in the market and therefore, represent a Level 3 measurement as defined in ASC 820, “Fair Value Measurement and Disclosure.” Key assumptions include (1) a weighted average cost of capital of 15.5%; (2) a range of earnings projections from $110,000-$700,000 and (3) a range of contract renewal probability from 30%-100%.

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

 

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

 

(In thousands)    Fair
Value
     Useful Life
(Years)
 

Customer Contract Relationships

   $ 2,830         10   

Non-Competition Agreement

     950         5   
  

 

 

    

Total

   $ 3,780      
  

 

 

    

Assuming the acquisition of RITEC occurred on February 1, 2014, the impact on net sales, net income and earnings per share would not have been material to the Company for the years ended January 31, 2016 and 2015.

Intangible Assets
Intangible Assets

Note 3—Intangible Assets

Intangible assets are as follows:

 

    January 31, 2016     January 31, 2015  
(In thousands)   Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Miltope:

           

Customer Contract Relationships

  $ 3,100      $ (758   $ 2,342      $ 3,100      $ (402   $ 2,698   

Backlog

    —          —          —          300        (300     —     

RITEC:

           

Customer Contract Relationships

    2,830        (31     2,799        —          —          —     

Non-Competition Agreement

    950        (111     839        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible assets, net

  $ 6,880      $ (900   $ 5,980      $ 3,400      $ (702   $ 2,698   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

There were no impairments to intangible assets during the periods ended January 31, 2016 and 2015. Amortization expense of $498,000 and $702,000 in regards to the above acquired intangibles has been included in the consolidated statements of income for years ended January 31, 2016 and 2015, respectively.

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

 

(In thousands)    2017      2018      2019      2020      2021  

Estimated amortization expense

   $ 715       $ 774       $ 769       $ 803       $ 706   
Securities Available for Sale
Securities Available for Sale

Note 4—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 (loss), 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, 2016

           

State and Municipal Obligations

   $ 10,363       $ 15       $ (2    $ 10,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2015

           

State and Municipal Obligations

   $ 15,150       $ 26       $ (2    $ 15,174   
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturity dates of these securities are as follows:

 

     January 31  
     2016      2015  
(In thousands)              

Less than one year

   $ 3,833       $ 9,470   

One to three years

     6,543         5,704   
  

 

 

    

 

 

 
   $ 10,376       $ 15,174   
  

 

 

    

 

 

 

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

Inventories
Inventories

Note 5—Inventories

The components of inventories are as follows:

 

     January 31  
     2016      2015  
(In thousands)              

Materials and Supplies

   $ 10,197       $ 10,600   

Work-in-Progress

     1,025         765   

Finished Goods

     7,491         7,372   
  

 

 

    

 

 

 
     18,713         18,737   

Inventory Reserve

     (3,823      (3,155
  

 

 

    

 

 

 

Balance at January 31

   $ 14,890       $ 15,582   
  

 

 

    

 

 

 

Included within finished goods inventory is $1,354,000 and $1,030,000 of demonstration equipment at January 31, 2016 and 2015, respectively.

Accrued Expenses
Accrued Expenses

Note 6—Accrued Expenses

Accrued expenses consisted of the following:

 

     January 31  
     2016      2015  
(In thousands)              

Warranty

   $ 400       $ 375   

Product Replacement Cost Reserve

     278         353   

Professional Fees

     328         256   

Executive Retirement Package

     —           250   

Dealer Commissions

     221         163   

Other

     982         946   
  

 

 

    

 

 

 
   $ 2,209       $ 2,343   
  

 

 

    

 

 

 
Line of Credit
Line of Credit

Note 7—Line of Credit

Astro-Med has a $10 million revolving line of credit available to be used as needed for ongoing working capital requirements, business acquisitions or general corporate purposes. Any borrowings made under the line of credit bear interest at either a fluctuating base rate equal to the highest of (i) the Prime Rate, (ii) 1.50% above the daily one month LIBOR, and (iii) the Federal Funds Rate in effect plus 1.50% or at a fixed rate of LIBOR plus an agreed upon margin of between 0% and 2.25%, based on the Company’s funded debt to EBITDA ratio as defined in the agreement. In addition, the agreement provides for two financial covenant requirements, namely, Total Funded Debt to Adjusted EBITDA (as defined) of not greater than 3 to 1 and a Fixed Charge Coverage Ratio (as defined) of not less than 1.25 to 1, both measured at the end of each quarter on a rolling four quarter basis. As of January 31, 2016, there have been no borrowings against this line of credit and the Company was in compliance with its financial covenants. Under the terms, the line of credit will expire on August 30, 2017.

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

Note 8—Note Receivable and Revolving Line of Credit Receivable

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 3.75% and is payable in sixteen quarterly installments of principal and interest which commenced on January 30, 2013. As of January 31, 2016, $191,000 remains outstanding on this note which approximates its estimated fair value.

The terms of the Asheboro sale also included an agreement for Astro-Med to provide Label Line Ltd. with additional financing in the form of a revolving line of credit 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, 2016). Although the initial term was for a period of one-year from the date of the sale, the agreement had been extended through January 31, 2016. As of January 31, 2016, $150,000 remains outstanding on this revolving line of credit. Subsequent to fiscal 2016 year-end, the agreement was amended to extend the term of the agreement through January 31, 2017.

Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss

Note 9—Accumulated Other Comprehensive Loss

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

 

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

Balance at January 31, 2014

   $ 152       $ 24       $ 176   

Other Comprehensive Loss

     (866      (9      (875

Amounts Reclassified to Net Income

     —           —           —     
  

 

 

 

Net Other Comprehensive Loss

     (866      (9      (875)   
  

 

 

 

Balance at January 31, 2015

     (714      15         (699

Other Comprehensive Loss

     (269      (7      (276

Amounts Reclassified to Net Income

     —           —           —     
  

 

 

 

Net Other Comprehensive Loss

     (269      (7      (276
  

 

 

 

Balance at January 31, 2016

   $ (983    $ 8       $ (975
  

 

 

 

The amounts presented above in other comprehensive loss are net of taxes except for translation adjustments associated with our German subsidiary.

Shareholders' Equity
Shareholders' Equity

.

Note 10—Shareholders’ Equity

During fiscal 2016, the Company did not repurchase any shares of its common stock except as described below in connection with the exercise of employee stock options.

During fiscal 2015, the Company repurchased 500,000 shares of the Company’s common stock from the Estate of Albert W. Ondis for an aggregate purchase price of $6,250,000. Prior to entering into the Stock Purchase Agreement, the Company obtained an opinion from an independent investment banking firm as to the fairness, from a financial point of view, to the public shareholders of the Company other than the selling shareholders, of the consideration paid by the Company in the transaction. The purchase was funded using existing cash on hand. This transaction did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.

During fiscal 2016 and 2015, certain of the Company’s employees delivered a total of 29,939 and 62,797 shares, respectively, of the Company’s common stock to satisfy the exercise price and related taxes for stock options exercised and restriction stock vesting. The shares delivered were valued at a total of $420,000 and $889,000, respectively, and are included in treasury stock in the accompanying consolidated balance sheets at January 31, 2016 and 2015. These transactions did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.

As of January 31, 2016, the Company’s Board of Directors has authorized the purchase of up to an additional 390,000 shares of the Company’s common stock on the open market or in privately negotiated transactions.

Share-Based Compensation
Share-Based Compensation

Note 11—Share-Based Compensation

Astro-Med maintains the following share-based compensation plans:

Stock Plans:

Astro-Med has two equity incentive plans – the 2007 Equity Incentive Plan (the “2007 Plan”) and the 2015 Equity Incentive Plan (the “2015 Plan”). Under these plans, the Company may grant incentive stock options, non-qualified stock options, stock appreciation rights, time or performance based restricted stock units (RSUs), restricted stock awards (RSAs), and other stock-based awards to executives, key employees, directors and other eligible individuals. At January 31, 2016, 106,347 shares were available for grant under the 2007 Plan, of which 100,000 are reserved for stock options that the Company is obligated to issue to its CEO in fiscal years 2017 and 2018 pursuant to an Equity Incentive Award Agreement dated as of November 24, 2014 (the “CEO Equity Incentive Agreement”). The 2007 Plan will expire in May 2017. The 2015 Plan was approved by the Company’s shareholders at the 2015 annual meeting. The 2015 Plan authorizes the issuance of up to 500,000 shares (subject to adjustment for stock dividends and stock splits) and will expire in May 2025. At January 31, 2016, 234,264 shares were available for grant under the 2015 Plan. Options granted to date to employees under both plans vest over four years and expire after ten years. The exercise price of each stock option is established at the discretion of the Compensation Committee; however, any incentive stock options granted under the 2007 plan, and all options granted under the 2015 Plan, must be at an exercise price of not less than the fair market value of the Company’s common stock on the date of grant.

Under the plans, each non-employee director receives an automatic annual grant of ten-year options to purchase 5,000 shares of stock upon the adjournment of each shareholders meeting. Each such option is exercisable at the fair market value of the Company’s common stock as of the grant date, and vests immediately prior to the next succeeding shareholders’ meeting. During the second quarter of fiscal 2016, 25,000 options in total were granted to the non-employee directors. In addition to the automatic option grant, the Company has a Non-Employee Director Annual Compensation Program (the “Program”) which provides that each non-employee director is entitled to an annual cash retainer of $7,000 (the “Annual Cash Retainer”), plus $500 for each Board and committee meeting attended. In addition, the Chairman of the Board also receives an annual retainer of $6,000, and the Chairs of the Audit and Compensation Committees each receive an annual retainer of $4,000 (“Chair Retainer”). The non-employee directors may elect, for any fiscal year, to receive all or a portion of the Annual Cash Retainer and/or Chair Retainer (collectively the “Cash Retainer”) in the form of common stock of the Company, which will be issued under one of the Plans. If a non-employee director elects to receive all or a portion of the Cash Retainer in the form of common stock, such shares shall be issued in four quarterly installments on the first day of each fiscal quarter, and the number of shares of common stock to be issued shall be based on the fair market value of the Company’s common stock on the date such installment is payable. The common stock received in lieu of such Cash Retainer is fully vested upon issuance. 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 non-employee director, or a change in control of the Company, any shares of common stock issued in lieu of the Cash Retainer, shall no longer be subject to such restrictions on transfer. During fiscal 2016 and 2015, 2,947 and 2,649 shares, respectively, were awarded to non-employee directors in lieu of the Cash Retainer.

In addition, under the Program, each non-employee director receives RSAs with a value equal to $20,000 (the “Equity Retainer”) upon adjournment of each annual shareholders’ meeting. If a non-employee director is first appointed or elected to the Board of Directors effective on a date other than 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.

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

In April 2013 (fiscal year 2014), the Company granted options and RSUs to officers (“2014 RSUs”). The 2014 RSUs vest as follows: twenty-five percent vest on the third anniversary of the grant date, fifty percent vest upon the Company achieving its cumulative budgeted net sales target for fiscal years 2014 through 2016 (the “Measurement Period”), and twenty-five percent vest upon the Company 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 2014 RSUs until the first anniversary of the vesting date. On February 1, 2014, the Company accelerated the vesting of 4,166 of the 2014 RSUs held by Everett Pizzuti in connection with his retirement. In April 2016, 9,300 of the 2014 RSUs will vest based on the Company achieving the targeted average annual ORONA for the Measurement Period and another 9,300 will vest due to the third year anniversary date of the grant.

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

In May 2015 (fiscal year 2016), the Company granted an aggregate of 80,000 time-based and 155,000 performance-based RSUs (“2016 RSUs”) to certain officers of the Company. The time-based 2016 RSUs will vest in four equal annual installments commencing on the first anniversary of the grant date. The performance-based 2016 RSUs will vest over three years based upon the increase in net sales, if any, achieved each fiscal year relative to a three-year net sales increase goal. Performance-based 2016 RSUs that are earned based on organic revenue growth will be fully vested when earned, while those earned based on revenue growth via acquisitions will vest annually over a three-year period following the fiscal year in which the revenue growth occurs. Any performance-based 2016 RSUs that have not been earned at the end of the three-year performance period will be forfeited. The expense for such shares is recognized in the fiscal year in which the results are achieved, however, the shares are not fully earned until approved by the Compensation Committee in the first quarter of the following fiscal year. Based upon revenue in fiscal 2016, 15,810 of the performance based 2016 RSUs will be earned in the first quarter of fiscal 2017.

Share-Based Compensation:

Share-based compensation expense has been recognized as follows:

 

     Years Ended January 31  
             2016                      2015          
(In thousands)              

Stock Options

   $ 286       $ 234   

Restricted Stock Awards and Restricted Stock Units

     912         270   

Employee Stock Purchase Plan

     11         7   
  

 

 

    

 

 

 

Total

   $ 1,209       $ 511   
  

 

 

    

 

 

 

Stock Options:

Aggregated information regarding stock options granted under the plans during the year ended January 31, 2016 is summarized below:

 

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

Options Outstanding, January 31, 2015

     656,011      $ 5.78-14.20       $ 10.01   

Options Granted

     115,000      $ 13.31-14.05       $ 13.95   

Options Exercised

     (93,344   $ 6.22-11.90       $ 7.95   

Options Forfeited

     (5,550   $ 8.09-14.20       $ 12.75   

Options Cancelled

     (14,181   $ 6.22-14.20       $ 8.82   
  

 

 

   

 

 

    

 

 

 

Options Outstanding, January 31, 2016

     657,936      $ 5.78-14.20       $ 11.00   
  

 

 

   

 

 

    

 

 

 

Options Exercisable, January 31, 2016

     405,823      $ 5.78-14.20       $ 9.67   

Set forth below is a summary of options outstanding at January 31, 2016:

 

Outstanding

     Exercisable  

Range of

Exercise prices

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

$5.78-8.95

     253,036       $ 7.79         4.9         226,948       $ 7.76   

$9.81-14.20

     404,900       $ 13.01         6.9         178,875       $ 12.10   
  

 

 

          

 

 

    
     657,936               405,823      
  

 

 

          

 

 

    

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
             2016                    2015        

Risk-Free Interest Rate

   1.58%    1.58%

Expected Life (years)

   5    5

Expected Volatility

   22.68%    26.46%

Expected Dividend Yield

   1.98%    1.98%

 

The weighted-average estimated fair value of options granted during fiscal 2016 and 2015 was $2.43 and $2.85, respectively. As of January 31, 2016, there was $437,000 of unrecognized compensation expense related to the unvested stock options granted under the plans. This expense is expected to be recognized over a weighted-average period of 2.3 years.

As of January 31, 2016, the aggregate intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock on January 31, 2016, and the exercise price of the outstanding options) that would have been received by the option holders if all options had been exercised was $2,442,000 for all exercisable options and $3,083,000 for all options outstanding. The weighted average remaining contractual term for these options was 6.1 years. The total aggregate intrinsic value of options exercised during fiscal 2016 and 2015 was $553,000 and $1,149,000, 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, 2015

     72,245       $ 9.70   

Granted

     246,335         14.05   

Vested

     (22,692      14.02   

Expired or canceled

     (2,800      10.07   
  

 

 

    

 

 

 

Outstanding at January 31, 2016

     293,088       $ 13.02   
  

 

 

    

 

 

 

As of January 31, 2016, there was $1,277,000 of unrecognized compensation expense related to unvested RSUs and RSAs. This expense is expected to be recognized over a weighted average period of 2.7 years.

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  
         2016              2015      

Shares Reserved, Beginning

     57,005         60,242   

Shares Purchased

     (5,405      (3,237
  

 

 

    

 

 

 

Shares Reserved, Ending

     51,600         57,005   
  

 

 

    

 

 

 

Income Taxes
Income Taxes

Note 12—Income Taxes

The components of income before income taxes are as follows:

 

     Years Ended
January 31
 
     2016      2015  
(In thousands)              

Domestic

   $ 5,982       $ 5,401   

Foreign

     927         1,531   
  

 

 

    

 

 

 
   $ 6,909       $ 6,932   
  

 

 

    

 

 

 

 

The components of the provision for income taxes are as follows:

 

     Years Ended
January 31
 
     2016     2015  
(In thousands)             

Current:

    

Federal

   $ 1,930      $ 1,666   

State

     470        466   

Foreign

     276        535   
  

 

 

   

 

 

 
     2,676        2,667   
  

 

 

   

 

 

 

Deferred:

    

Federal

   $ (402   $ (290

State

     126        (107

Foreign

     (16     —     
  

 

 

   

 

 

 
     (292     (397
  

 

 

   

 

 

 
   $ 2,384      $ 2,270   
  

 

 

   

 

 

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% in both fiscal 2016 and 2015 to income before income taxes due to the following:

 

     Years Ended
January 31
 
     2016     2015  
(In thousands)             

Income Tax Provision at Statutory Rate

   $ 2,349      $ 2,357   

State Taxes, Net of Federal Tax Effect

     277        233   

Change in Valuation Allowance

     116        —     

Change in Reserves Related to ASC 740 Liability

     (67     23   

Meals and Entertainment

     38        41   

Domestic Production Deduction

     (134     (164

Share-Based Compensation

     21        (25

Tax-Exempt Income

     (23     (24

R&D Credits

     (176     (135

Foreign Rate Differential

     (65     (56

Other Permanent Differences and Miscellaneous, Net

     48        20   
  

 

 

   

 

 

 
   $ 2,384      $ 2,270   
  

 

 

   

 

 

 

 

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  
     2016     2015  
(In thousands)             

Deferred Tax Assets:

    

Inventory

   $ 1,948      $ 1,666   

Share-Based Compensation

     830        572   

State R&D Credits

     583        371   

Compensation Accrual

     346        417   

ASC 740 Liability Federal Benefit

     237        304   

Deferred Service Contract Revenue

     200        235   

Warranty Reserve

     149        140   

Reserve for Doubtful Accounts

     140        116   

Foreign Tax Credit

     426        356   

Currency Translation Adjustment

     36        —     

Other

     207        298   
  

 

 

   

 

 

 
     5,102        4,475   

Deferred Tax Liabilities:

    

Accumulated Tax Depreciation in Excess of Book Depreciation

     1,355        766   

Deferred Gain on Asset Held for Sale

     76        785   

Currency Translation Adjustment

     —          36   

Other

     117        87   
  

 

 

   

 

 

 
     1,548        1,674   
  

 

 

   

 

 

 

Subtotal

     3,554        2,801   

Valuation Allowance

     (583     (255
  

 

 

   

 

 

 

Net Deferred Tax Assets

   $ 2,971      $ 2,546   
  

 

 

   

 

 

 

The valuation allowance at January 31, 2016 relates to state research and development tax credit carryforwards which are expected to expire unused. The change in the valuation allowance in 2016 was an increase of approximately $328,000 due to the generation of research and development credits during the current year and a decision to fully reserve for the state tax benefits of all R&D tax credits, net of federal benefit. The change in the valuation allowance in 2015 was a decrease of approximately $3,000 and represented a decrease in the reserve due to the utilization of research and development credits during the current year, net of federal benefit.

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. The changes in the balance of unrecognized tax benefits, excluding interest and penalties are as follows:

 

     2016     2015  
(In thousands)             

Balance at February 1

   $ 707      $ 715   

Increases in prior period tax positions

     —          —     

Increases in current period tax positions

     49        87   

Reductions related to lapse of statute of limitations

     (165     (95
  

 

 

   

 

 

 

Balance at January 31

   $ 591      $ 707   
  

 

 

   

 

 

 

If the $591,000 is recognized, $354,000 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 2016 and 2015, the Company recognized a benefit of $87,000 and an expense of $43,000, respectively, related to change in interest and penalties, which are included as a component of income tax expense in the accompanying statements of income. At January 31, 2016 and 2015, the Company had accrued potential interest and penalties of $373,000 and $460,000, 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 tax examinations prior to fiscal year ended January 2013.

At January 31, 2016, the Company has indefinitely reinvested $4,207,000 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, 2016, 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 13—Contractual Obligations

The following table summarizes our contractual obligations:

 

     Total      2017      2018      2019      2020      2021
and
Thereafter
 
(In thousands)                                          

Purchase Commitments*

   $ 22,225       $ 22,123       $ 28       $ 4       $ 70       $ —     

Operating Lease Obligations

     668         300         251         103         14         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 22,893       $ 22,423       $ 279       $ 107       $ 84       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Purchase commitments consist 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 $567,000 and $614,000 for the fiscal years 2016 and 2015, respectively.

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

Note 14—Nature of Operations, Segment Reporting and Geographical Information

The Company’s operations consist of the design, development, manufacture and sale of specialty printers and data acquisition and analysis systems, including both hardware and software 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 has two reporting segments consistent with its sales product groups: QuickLabel and Test & Measurement (T&M).

QuickLabel produces an array of high-technology digital color and monochrome label printers, labeling software and consumables for a variety of commercial industries worldwide. T&M produces data recording equipment used worldwide for a variety of recording, monitoring and troubleshooting applications for many industries including aerospace, automotive, defense, rail, energy, industrial and general manufacturing.

Business is conducted in the United States and through foreign affiliates in Canada, Europe, Southeast Asia and Mexico. 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 June 19, 2015, Astro-Med completed the asset purchase of the aerospace printer product line from RITEC. Astro-Med’s aerospace printer product line is part of the T&M product group and is reported as part of the T&M segment. The Company began shipment of the RITEC products in the third quarter of the current fiscal year. Refer to Note 2, “Acquisition,” 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
 
     2016      2015          2016              2015         2016     2015  

QuickLabel

   $ 67,127       $ 59,779       $ 9,300       $ 7,259        13.9     12.1

T&M

     27,531         28,568         3,664         5,627        13.3     19.7
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 94,658       $ 88,347         12,964         12,886        13.7     14.6
  

 

 

    

 

 

         

 

 

   

 

 

 

Corporate Expenses

           7,030         5,655       
        

 

 

    

 

 

     

Operating Income

           5,934         7,231       

Other Income (Expense)

           975         (299    
        

 

 

    

 

 

     

Income before Income Taxes

           6,909         6,932       

Income Tax Provision

           2,384         2,270       
        

 

 

    

 

 

     

Net Income

         $ 4,525       $ 4,662       
        

 

 

    

 

 

     

No customer accounted for greater than 10% of net sales in fiscal 2016 and 2015.

Other information by segment is presented below:

 

(In thousands)    Assets  
     2016      2015  

QuickLabel

   $ 27,143       $ 24,874   

T&M

     28,570         22,323   

Corporate*

     22,250         27,133   
  

 

 

    

 

 

 

Total

   $ 77,963       $ 74,330   
  

 

 

    

 

 

 

 

* 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  
     2016      2015          2016              2015      

QuickLabel

   $ 690       $ 678       $ 2,284       $ 1,408   

T&M

     1,375         1,385         777         839   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,065       $ 2,063       $ 3,061       $ 2,247   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Geographical Data

Presented below is selected financial information by geographic area:

 

(In thousands)    Net Sales      Long-Lived Assets*  
     2016      2015      2016      2015  

United States

   $ 68,316       $ 61,494       $ 15,290       $ 10,422   

Europe

     16,830         18,181         290         383   

Canada

     4,487         3,934         207         272   

Asia

     1,741         1,408         —           —     

Central and South America

     2,436         1,919         —           —     

Other

     848         1,411         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 94,658       $ 88,347       $ 15,787       $ 11,077   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* Long-lived assets excludes goodwill assigned to the T&M segment of $4.5 million and $1.0 million at January 31, 2016 and 2015, respectively.
Employee Benefit Plans
Employee Benefit Plans

Note 15—Employee Benefit Plans

Employee Stock Ownership Plan (ESOP):

Astro-Med has an 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 did not make a contribution to the ESOP in fiscal 2016. The Company’s contribution amounted to $100,000 in fiscal 2015 and was recorded as compensation expense. All shares owned by the ESOP have been allocated to participants.

Profit-Sharing Plan:

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 $306,000 and $294,000 in fiscal 2016 and 2015, respectively.

Product Warranty Liability
Product Warranty Liability

Note 16—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, which is included in other accrued expenses in the accompanying consolidated balance sheet, is as follows:

 

     January 31  
     2016     2015  
(In thousands)             

Balance, beginning of the year

   $ 375      $ 355   

Warranties issued

     887        546   

Settlements made

     (862     (526
  

 

 

   

 

 

 

Balance, end of the year

   $ 400      $ 375   
Product Replacement Costs
Product Replacement Costs

Note 17—Product Replacement Costs

In April 2013, tests conducted by the Company revealed that one of its suppliers had been using a non-conforming material 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 continuing to work with its customers to replace the non-conforming material on existing printers with conforming material. The estimated costs associated with the replacement program were $672,000, which was based upon the number of printers shipped during the period the non-conforming material was used. Those costs were recognized and recorded in the first quarter of fiscal 2014. As of January 31, 2016, the Company had expended $394,000 in replacement costs which have been charged against this reserve. The remaining reserve amount of $278,000 is included in other accrued expenses in the accompanying consolidated balance sheet as of January 31, 2016.

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

Concentration of Risk
Concentration of Risk

Note 18—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.

During the years ended January 31, 2016 and 2015, one vendor accounted for 23.7% and 21.9% of purchases, and 16.7% and 55.1% of accounts payable, respectively.

Commitments and Contingencies
Commitments and Contingencies

Note 19—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; and 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 20—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 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, 2016

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 4,340       $ –         $ –         $ 4,340   

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

     –           10,376         –           10,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,340       $ 10,376       $ –         $ 14,716   
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2015

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 3,028       $ –         $ –         $ 3,028   

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

     –           15,174         –           15,174   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,028       $ 15,174       $     –         $ 18,202   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 similar assets.

Non-financial assets such as goodwill, intangible assets, and property, plant and equipment are required to be measured at fair value only when an impairment loss is recognized. The Company did not record an impairment loss related to these assets during the period ended January 31, 2016.

 

Non-financial assets measured at fair value on a non-recurring basis are summarized below:

 

January 31, 2015

   Level 1      Level 2      Level 3  
(In thousands)                     

Asset Held for Sale

   $     –       $ 1,900       $     –   
  

 

 

    

 

 

    

 

 

 

Asset held for sale consisted of Astro-Med’s former Grass facility in Rockland, Massachusetts which was being actively marketed for sale at January 31, 2015. In accordance with ASC 360, “Property, Plant and Equipment,” assets held for sale are written down to fair value less cost to sell and as such, the Company recorded an impairment charge of $220,000 in fiscal 2015. In fiscal 2015, the impairment charge was included in other income (expense), other, net in the consolidated statement of income. The Company estimated the fair value of the Rockland facility using the market values for similar properties less the cost to sell. On October 29, 2015, the Company completed the sale of this facility for $1,800,000 in cash. The net cash proceeds received of $1,698,000 reflect closing costs and broker fees previously accrued. After considering reserved amounts, the net loss on the sale of $3,000 was recognized in the consolidated income statement for the period ended January 31, 2016.

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,

          

2016

   $ 343       $ 112       $ (51   $ 404   

2015

   $ 370       $ 60       $ (87   $ 343   

 

(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 have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and are presented 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.

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 preparation 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, asset held for sale, 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 $2,959,000 and $2,995,000 was held in foreign bank accounts at January 31, 2016 and 2015, 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 loss in shareholders’ equity.

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

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 $1,567,000 for fiscal 2016 and $1,361,000 for 2015.

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 has 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 SEC Staff Accounting Bulletin 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: Astro-Med charges costs to expense in the period incurred, and these expenses are presented in the consolidated statement of income. Included in research and development expense are the following: salaries and benefits, external engineering service costs, engineering related information costs and supplies.

Foreign Currency Translation: The financial statements of foreign subsidiaries and branches 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 (loss) in shareholders’ equity. Revenues and expenses are translated at the monthly average exchange rates. 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 $323,000 and $219,000 for fiscal 2016 and 2015, 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 $1,058,000 and $1,717,000 in fiscal 2016 and 2015, respectively.

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. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be recorded for the excess of the carrying value over the fair value, as determined by the discounting of future cash flows. For both 2016 and 2015, these were no impairment charges for long-lived assets.

Assets Held for Sale: Assets held for sale are reported at the lower of cost or fair value. Cost to sell are accrued separately. Astro-Med’s former Grass facility located in Rockland, Massachusetts met the held for sale classification criteria for the period ended January 31, 2015. The Company estimated the fair value of the Rockland facility using the market values for similar properties and estimated the fair value less the cost to sell and was considered a Level 2 asset in as defined in ASC 820, “Fair Value Measurements. Refer to Note 20, “Fair Value Measurements,” for further details.

Intangible Assets: Intangible assets include the value of customer relationships, non-competition agreements and backlog rights acquired in connection with business acquisitions and are stated at cost (fair value at acquisition) less accumulated amortization. These intangible assets have a definite life and are amortized over the assets’ useful lives using a systematic and rational basis which is representative of the assets’ 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. If necessary, 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 2016 and 2015, 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 2016 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, 2016 and 2015, 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 and disclosure.

Net Income Per Common 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 2016 and 2015, there were 425,200 and 156,600, respectively, of 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.

The Company measures assets held for sale at fair value on a nonrecurring basis and records impairment charges when the assets are deemed to be impaired.

Share-Based Compensation: Share-based compensation expense is measured based on the estimated fair value of the share-based award when granted and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). 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 requisite 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.

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. 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:

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842).” ASU 2016-02 will supersede current guidance related to accounting for leases and is intended to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities in the balance sheet for operating leases with lease terms greater than twelve months. The update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (Q1 fiscal 2020 for Astro-Med), with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. The Company is currently evaluating the effect of this new guidance on the Company’s consolidated financial statements.

Income Taxes

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740).” ASU 2015-17 amended guidance applicable to the presentation of income taxes and requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. This amendment represents a change in accounting principle and is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. As permitted by the standard, we adopted the new presentation retrospectively, beginning on February 1, 2014. As a result, all of the Company’s deferred taxes are presented as non-current in the accompanying consolidated balance sheets for the periods ended January 31, 2016 and 2015.

Inventory

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

Revenue Recognition

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

Acquisition (Tables) (RITEC [Member])

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

 

(In thousands)       

Accounts Receivable

   $ 50   

Identifiable Intangible Assets

     3,780   

Goodwill

     3,530   
  

 

 

 

Total Purchase Price

   $ 7,360   
  

 

 

 

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

   $ 2,830         10   

Non-Competition Agreement

     950         5   
  

 

 

    

Total

   $ 3,780      
  

 

 

    

Intangible Assets (Tables)

Intangible assets are as follows:

 

    January 31, 2016     January 31, 2015  
(In thousands)   Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Miltope:

           

Customer Contract Relationships

  $ 3,100      $ (758   $ 2,342      $ 3,100      $ (402   $ 2,698   

Backlog

    —          —          —          300        (300     —     

RITEC:

           

Customer Contract Relationships

    2,830        (31     2,799        —          —          —     

Non-Competition Agreement

    950        (111     839        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible assets, net

  $ 6,880      $ (900   $ 5,980      $ 3,400      $ (702   $ 2,698   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

(In thousands)    2017      2018      2019      2020      2021  

Estimated amortization expense

   $ 715       $ 774       $ 769       $ 803       $ 706   
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, 2016

           

State and Municipal Obligations

   $ 10,363       $ 15       $ (2    $ 10,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2015

           

State and Municipal Obligations

   $ 15,150       $ 26       $ (2    $ 15,174   
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturity dates of these securities are as follows:

 

     January 31  
     2016      2015  
(In thousands)              

Less than one year

   $ 3,833       $ 9,470   

One to three years

     6,543         5,704   
  

 

 

    

 

 

 
   $ 10,376       $ 15,174   
  

 

 

    

 

 

 
Inventories (Tables)
Components of Inventories

The components of inventories are as follows:

 

     January 31  
     2016      2015  
(In thousands)              

Materials and Supplies

   $ 10,197       $ 10,600   

Work-in-Progress

     1,025         765   

Finished Goods

     7,491         7,372   
  

 

 

    

 

 

 
     18,713         18,737   

Inventory Reserve

     (3,823      (3,155
  

 

 

    

 

 

 

Balance at January 31

   $ 14,890       $ 15,582   
  

 

 

    

 

 

 
Accrued Expenses (Tables)
Summary of Accrued Expenses

Accrued expenses consisted of the following:

 

     January 31  
     2016      2015  
(In thousands)              

Warranty

   $ 400       $ 375   

Product Replacement Cost Reserve

     278         353   

Professional Fees

     328         256   

Executive Retirement Package

     —           250   

Dealer Commissions

     221         163   

Other

     982         946   
  

 

 

    

 

 

 
   $ 2,209       $ 2,343   
  

 

 

    

 

 

 
Accumulated Other Comprehensive Loss (Tables)
Changes in Balance of Accumulated Other Comprehensive (Loss)

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

 

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

Balance at January 31, 2014

   $ 152       $ 24       $ 176   

Other Comprehensive Loss

     (866      (9      (875

Amounts Reclassified to Net Income

     —           —           —     
  

 

 

 

Net Other Comprehensive Loss

     (866      (9      (875)   
  

 

 

 

Balance at January 31, 2015

     (714      15         (699

Other Comprehensive Loss

     (269      (7      (276

Amounts Reclassified to Net Income

     —           —           —     
  

 

 

 

Net Other Comprehensive Loss

     (269      (7      (276
  

 

 

 

Balance at January 31, 2016

   $ (983    $ 8       $ (975
  

 

 

Share-Based Compensation (Tables)

Share-based compensation expense has been recognized as follows:

 

     Years Ended January 31  
             2016                      2015          
(In thousands)              

Stock Options

   $ 286       $ 234   

Restricted Stock Awards and Restricted Stock Units

     912         270   

Employee Stock Purchase Plan

     11         7   
  

 

 

    

 

 

 

Total

   $ 1,209       $ 511   
  

 

 

    

 

 

 

Aggregated information regarding stock options granted under the plans during the year ended January 31, 2016 is summarized below:

 

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

Options Outstanding, January 31, 2015

     656,011      $ 5.78-14.20       $ 10.01   

Options Granted

     115,000      $ 13.31-14.05       $ 13.95   

Options Exercised

     (93,344   $ 6.22-11.90       $ 7.95   

Options Forfeited

     (5,550   $ 8.09-14.20       $ 12.75   

Options Cancelled

     (14,181   $ 6.22-14.20       $ 8.82   
  

 

 

   

 

 

    

 

 

 

Options Outstanding, January 31, 2016

     657,936      $ 5.78-14.20       $ 11.00   
  

 

 

   

 

 

    

 

 

 

Options Exercisable, January 31, 2016

     405,823      $ 5.78-14.20       $ 9.67   

Set forth below is a summary of options outstanding at January 31, 2016:

 


Outstanding

     Exercisable  

Range of

Exercise prices

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

$5.78-8.95

     253,036       $ 7.79         4.9         226,948       $ 7.76   

$9.81-14.20

     404,900       $ 13.01         6.9         178,875       $ 12.10   
  

 

 

          

 

 

    
     657,936               405,823      
  

 

 

          

 

 

    

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
             2016                    2015        

Risk-Free Interest Rate

   1.58%    1.58%

Expected Life (years)

   5    5

Expected Volatility

   22.68%    26.46%

Expected Dividend Yield

   1.98%    1.98%

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, 2015

     72,245       $ 9.70   

Granted

     246,335         14.05   

Vested

     (22,692      14.02   

Expired or canceled

     (2,800      10.07   
  

 

 

    

 

 

 

Outstanding at January 31, 2016

     293,088       $ 13.02   
  

 

 

    

 

 

 

Summarized plan activity is as follows:

 

     Years Ended January 31  
         2016              2015      

Shares Reserved, Beginning

     57,005         60,242   

Shares Purchased

     (5,405      (3,237
  

 

 

    

 

 

 

Shares Reserved, Ending

     51,600         57,005   
  

 

 

    

 

 

 

Income Taxes (Tables)

The components of income before income taxes are as follows:

 

     Years Ended
January 31
 
     2016      2015  
(In thousands)              

Domestic

   $ 5,982       $ 5,401   

Foreign

     927         1,531   
  

 

 

    

 

 

 
   $ 6,909       $ 6,932   
  

 

 

    

 

 

 

The components of the provision for income taxes are as follows:

 

     Years Ended
January 31
 
     2016     2015  
(In thousands)             

Current:

    

Federal

   $ 1,930      $ 1,666   

State

     470        466   

Foreign

     276        535   
  

 

 

   

 

 

 
     2,676        2,667   
  

 

 

   

 

 

 

Deferred:

    

Federal

   $ (402   $ (290

State

     126        (107

Foreign

     (16     —     
  

 

 

   

 

 

 
     (292     (397
  

 

 

   

 

 

 
   $ 2,384      $ 2,270   
  

 

 

   

 

 

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% in both fiscal 2016 and 2015 to income before income taxes due to the following:

 

     Years Ended
January 31
 
     2016     2015  
(In thousands)             

Income Tax Provision at Statutory Rate

   $ 2,349      $ 2,357   

State Taxes, Net of Federal Tax Effect

     277        233   

Change in Valuation Allowance

     116        —     

Change in Reserves Related to ASC 740 Liability

     (67     23   

Meals and Entertainment

     38        41   

Domestic Production Deduction

     (134     (164

Share-Based Compensation

     21        (25

Tax-Exempt Income

     (23     (24

R&D Credits

     (176     (135

Foreign Rate Differential

     (65     (56

Other Permanent Differences and Miscellaneous, Net

     48        20   
  

 

 

   

 

 

 
   $ 2,384      $ 2,270   
  

 

 

   

 

 

 

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  
     2016     2015  
(In thousands)             

Deferred Tax Assets:

    

Inventory

   $ 1,948      $ 1,666   

Share-Based Compensation

     830        572   

State R&D Credits

     583        371   

Compensation Accrual

     346        417   

ASC 740 Liability Federal Benefit

     237        304   

Deferred Service Contract Revenue

     200        235   

Warranty Reserve

     149        140   

Reserve for Doubtful Accounts

     140        116   

Foreign Tax Credit

     426        356   

Currency Translation Adjustment

     36        —     

Other

     207        298   
  

 

 

   

 

 

 
     5,102        4,475   

Deferred Tax Liabilities:

    

Accumulated Tax Depreciation in Excess of Book Depreciation

     1,355        766   

Deferred Gain on Asset Held for Sale

     76        785   

Currency Translation Adjustment

     —          36   

Other

     117        87   
  

 

 

   

 

 

 
     1,548        1,674   
  

 

 

   

 

 

 

Subtotal

     3,554        2,801   

Valuation Allowance

     (583     (255
  

 

 

   

 

 

 

Net Deferred Tax Assets

   $ 2,971      $ 2,546   
  

 

 

   

 

 

 

The changes in the balance of unrecognized tax benefits, excluding interest and penalties are as follows:

 

     2016     2015  
(In thousands)             

Balance at February 1

   $ 707      $ 715   

Increases in prior period tax positions

     —          —     

Increases in current period tax positions

     49        87   

Reductions related to lapse of statute of limitations

     (165     (95
  

 

 

   

 

 

 

Balance at January 31

   $ 591      $ 707   
  

 

 

   

 

 

 

Contractual Obligations (Tables)
Summary of Contractual Obligations

The following table summarizes our contractual obligations:

 

     Total      2017      2018      2019      2020      2021
and
Thereafter
 
(In thousands)                                          

Purchase Commitments*

   $ 22,225       $ 22,123       $ 28       $ 4       $ 70       $ —     

Operating Lease Obligations

     668         300         251         103         14         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 22,893       $ 22,423       $ 279       $ 107       $ 84       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Purchase commitments consist 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
 
     2016      2015          2016              2015         2016     2015  

QuickLabel

   $ 67,127       $ 59,779       $ 9,300       $ 7,259        13.9     12.1

T&M

     27,531         28,568         3,664         5,627        13.3     19.7
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 94,658       $ 88,347         12,964         12,886        13.7     14.6
  

 

 

    

 

 

         

 

 

   

 

 

 

Corporate Expenses

           7,030         5,655       
        

 

 

    

 

 

     

Operating Income

           5,934         7,231       

Other Income (Expense)

           975         (299    
        

 

 

    

 

 

     

Income before Income Taxes

           6,909         6,932       

Income Tax Provision

           2,384         2,270       
        

 

 

    

 

 

     

Net Income

         $ 4,525       $ 4,662       
        

 

 

    

 

 

     

Other information by segment is presented below:

 

(In thousands)    Assets  
     2016      2015  

QuickLabel

   $ 27,143       $ 24,874   

T&M

     28,570         22,323   

Corporate*

     22,250         27,133   
  

 

 

    

 

 

 

Total

   $ 77,963       $ 74,330   
  

 

 

    

 

 

 

 

* 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  
     2016      2015          2016              2015      

QuickLabel

   $ 690       $ 678       $ 2,284       $ 1,408   

T&M

     1,375         1,385         777         839   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,065       $ 2,063       $ 3,061       $ 2,247   
  

 

 

    

 

 

    

 

 

    

 

 

 

Presented below is selected financial information by geographic area:

 

(In thousands)    Net Sales      Long-Lived Assets*  
     2016      2015      2016      2015  

United States

   $ 68,316       $ 61,494       $ 15,290       $ 10,422   

Europe

     16,830         18,181         290         383   

Canada

     4,487         3,934         207         272   

Asia

     1,741         1,408         —           —     

Central and South America

     2,436         1,919         —           —     

Other

     848         1,411         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 94,658       $ 88,347       $ 15,787       $ 11,077   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* Long-lived assets excludes goodwill assigned to the T&M segment of $4.5 million and $1.0 million at January 31, 2016 and 2015, respectively.
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, which is included in other accrued expenses in the accompanying consolidated balance sheet, is as follows:

 

     January 31  
     2016     2015  
(In thousands)             

Balance, beginning of the year

   $ 375      $ 355   

Warranties issued

     887        546   

Settlements made

     (862     (526
  

 

 

   

 

 

 

Balance, end of the year

   $ 400      $ 375   
  

 

 

   

 

 

 
Fair Value Measurements (Tables)

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

 

January 31, 2016

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 4,340       $ –         $ –         $ 4,340   

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

     –           10,376         –           10,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,340       $ 10,376       $ –         $ 14,716   
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2015

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 3,028       $ –         $ –         $ 3,028   

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

     –           15,174         –           15,174   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,028       $ 15,174       $     –         $ 18,202   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-financial assets measured at fair value on a non-recurring basis are summarized below:

 

January 31, 2015

   Level 1      Level 2      Level 3  
(In thousands)                     

Asset Held for Sale

   $     –       $ 1,900       $     –   
  

 

 

    

 

 

    

 

 

 

Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
12 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Summary Of Significant Accounting Policies [Line Items]
 
 
Highly liquid investments with an original maturity
90 days or less 
 
Cash of held in foreign bank accounts
$ 2,959,000 
$ 2,995,000 
Depreciation expense
1,567,000 
1,361,000 
Net foreign exchange losses
323,000 
219,000 
Advertising expense
1,058,000 
1,717,000 
Impairment charges for long-lived assets
Impairment charges for intangible assets
Number of common equivalent shares
425,200 
156,600 
Compensation expenses is recognized for option forfeited
$ 0 
 
Land Improvements [Member] |
Maximum [Member]
 
 
Summary Of Significant Accounting Policies [Line Items]
 
 
Estimated useful lives of the assets
20 years 
 
Land Improvements [Member] |
Minimum [Member]
 
 
Summary Of Significant Accounting Policies [Line Items]
 
 
Estimated useful lives of the assets
10 years 
 
Building and Improvements [Member] |
Maximum [Member]
 
 
Summary Of Significant Accounting Policies [Line Items]
 
 
Estimated useful lives of the assets
45 years 
 
Building and Improvements [Member] |
Minimum [Member]
 
 
Summary Of Significant Accounting Policies [Line Items]
 
 
Estimated useful lives of the assets
10 years 
 
Machinery and Equipment [Member] |
Maximum [Member]
 
 
Summary Of Significant Accounting Policies [Line Items]
 
 
Estimated useful lives of the assets
10 years 
 
Machinery and Equipment [Member] |
Minimum [Member]
 
 
Summary Of Significant Accounting Policies [Line Items]
 
 
Estimated useful lives of the asset