ASTRO MED INC /NEW/, 10-Q filed on 12/6/2011
Quarterly Report
Document And Entity Information
9 Months Ended
Oct. 29, 2011
Nov. 30, 2011
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Oct. 29, 2011 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
Entity Registrant Name
ASTRO MED INC /NEW/ 
 
Entity Central Index Key
0000008146 
 
Entity Filer Category
Smaller Reporting Company 
 
Trading Symbol
alot 
 
Current Fiscal Year End Date
--01-31 
 
Entity Common Stock, Shares Outstanding
 
7,396,728 
Condensed Consolidated Balance Sheets (USD $)
Oct. 29, 2011
Jan. 31, 2011
ASSETS
 
 
Cash and Cash Equivalents
$ 10,655,057 
$ 7,720,135 
Securities Available for Sale
11,376,791 
12,910,232 
Accounts Receivable, net
11,350,148 
11,111,974 
Inventories
13,606,992 
14,404,914 
Deferred Tax Assets
3,088,885 
2,577,166 
Prepaid Expenses and Other Current Assets
975,769 
975,928 
Total Current Assets
51,053,642 
49,700,349 
PROPERTY, PLANT AND EQUIPMENT
39,180,832 
38,148,516 
Less Accumulated Depreciation
(26,785,886)
(25,606,561)
Property, Plant and Equipment, net
12,394,946 
12,541,955 
OTHER ASSETS
 
 
Intangible Assets, net
277,639 
331,389 
Goodwill
2,336,721 
2,336,721 
Other
108,685 
88,799 
Total Other Assets
2,723,045 
2,756,909 
TOTAL ASSETS
66,171,633 
64,999,213 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Accounts Payable
2,068,584 
2,748,293 
Accrued Compensation
2,427,542 
2,179,448 
Other Accrued Expenses
1,932,715 
1,750,515 
Deferred Revenue
595,293 
787,988 
Income Taxes Payable
447,072 
36,979 
Total Current Liabilities
7,471,206 
7,503,223 
Deferred Tax Liabilities
2,360,654 
2,060,418 
Other Long Term Liabilities
1,178,516 
1,146,978 
TOTAL LIABILITIES
11,010,376 
10,710,619 
SHAREHOLDERS' EQUITY
 
 
Common Stock, $.05 Par Value, Authorized 13,000,000 shares; Issued 8,926,578 and 8,660,270 shares at October 29, 2011 and January 31, 2011, respectively
446,333 
433,017 
Additional Paid-In Capital
37,510,974 
36,586,226 
Retained Earnings
27,582,855 
26,842,890 
Treasury Stock, at Cost, 1,543,720 and 1,414,981 shares at October 29, 2011 and January 31, 2011, respectively
(10,788,983)
(9,840,052)
Accumulated Other Comprehensive Income
410,078 
266,513 
Total Shareholders' Equity
55,161,257 
54,288,594 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 66,171,633 
$ 64,999,213 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Oct. 29, 2011
Jan. 31, 2011
Condensed Consolidated Balance Sheets [Abstract]
 
 
Common stock, par value
$ 0.05 
$ 0.05 
Common stock, shares authorized
13,000,000 
13,000,000 
Common stock, shares issued
8,926,578 
8,660,270 
Treasury stock, shares
1,543,720 
1,414,981 
Condensed Consolidated Statements Of Operations (USD $)
3 Months Ended
Oct. 29, 2011
3 Months Ended
Oct. 30, 2010
9 Months Ended
Oct. 29, 2011
9 Months Ended
Oct. 30, 2010
Condensed Consolidated Statements Of Operations [Abstract]
 
 
 
 
Net Sales
$ 19,568,600 
$ 18,329,000 
$ 58,764,264 
$ 53,159,060 
Cost of Sales
11,554,870 
10,928,429 
35,348,220 
31,869,215 
Gross Profit
8,013,730 
7,400,571 
23,416,044 
21,289,845 
Costs and Expenses:
 
 
 
 
Selling and Marketing
4,554,875 
4,231,926 
13,646,526 
12,349,272 
General and Administrative
1,009,145 
1,078,942 
2,884,286 
3,326,920 
Research and Development
1,261,632 
1,382,696 
3,916,899 
3,736,909 
Operating Expenses
6,825,652 
6,693,564 
20,447,711 
19,413,101 
Operating Income
1,188,078 
707,007 
2,968,333 
1,876,744 
Other (Expense) Income
(68,663)
24,157 
378,619 
130,392 
Income Before Income Taxes
1,119,415 
731,164 
3,346,952 
2,007,136 
Income Tax Provision (Benefit)
319,428 
(61,137)
1,069,688 
462,012 
Net Income
$ 799,987 
$ 792,301 
$ 2,277,264 
$ 1,545,124 
Net Income per Common Share:
 
 
 
 
Basic
$ 0.11 
$ 0.11 
$ 0.31 
$ 0.21 
Diluted
$ 0.11 
$ 0.11 
$ 0.31 
$ 0.21 
Weighted Average Number of Shares Outstanding:
 
 
 
 
Basic
7,339,639 
7,334,589 
7,300,167 
7,276,835 
Diluted
7,420,835 
7,491,981 
7,422,787 
7,488,343 
Dividends Declared Per Common Share
$ 0.07 
$ 0.07 
$ 0.21 
$ 0.21 
Condensed Consolidated Statements Of Cash Flows (USD $)
9 Months Ended
Oct. 29, 2011
9 Months Ended
Oct. 30, 2010
Cash Flows from Operating Activities:
 
 
Net Income
$ 2,277,264 
$ 1,545,124 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
Depreciation and Amortization
1,192,466 
1,179,678 
Share-Based Compensation
161,242 
253,025 
Deferred Income Tax Benefit
(211,483)
(22,956)
Legal Settlement
 
1,495,051 
Loss on Sale of Securities Available for Sale
 
30,961 
Changes in Assets and Liabilities:
 
 
Accounts Receivable
(238,174)
(1,664,901)
Inventories
797,922 
(1,925,228)
Income Taxes
676,916 
(323,274)
Accounts Payable and Accrued Expenses
(442,110)
423,410 
Other
(138,675)
58,638 
Net Cash Provided by Operating Activities
4,075,368 
1,049,528 
Cash Flows from Investing Activities:
 
 
Proceeds from Sales/Maturities of Securities Available for Sale
8,905,000 
6,149,039 
Purchases of Securities Available for Sale
(7,366,676)
(6,980,000)
Additions to Property, Plant and Equipment
(970,867)
(1,925,588)
Net Cash Provided (Used) by Investing Activities
567,457 
(2,756,549)
Cash Flows from Financing Activities:
 
 
Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans, Net of Payment of Minimum Tax Withholdings
(170,604)
411,010 
Purchase of Treasury Stock
 
(272,682)
Cash Settlement of Stock Options
 
(186,031)
Dividends Paid
(1,537,299)
(1,529,703)
Net Cash Used in Financing Activities
(1,707,903)
(1,577,406)
Net Increase (Decrease) in Cash and Cash Equivalents
2,934,922 
(3,284,427)
Cash and Cash Equivalents, Beginning of Period
7,720,135 
14,155,096 
Cash and Cash Equivalents, End of Period
10,655,057 
10,870,669 
Supplemental Disclosures of Cash Flow Information:
 
 
Cash Paid During the Period for Income Taxes, Net of Refunds
$ 553,599 
$ 861,546 
Overview
Overview

(1) Overview

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

Unless otherwise indicated, references to "Astro-Med," the "Company," "we," "our," and "us" in this Quarterly Report on Form 10-Q refer to Astro-Med, Inc. and its consolidated subsidiaries.

Basis Of Presentation
Basis Of Presentation

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Astro-Med pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods included herein. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2011.

Results of operations for the interim periods presented herein are not necessarily indicative of the results that may be expected for the full year.

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Some of the more significant estimates relate to the allowances for doubtful accounts and credits, inventory valuation, impairment of long-lived assets and goodwill, income taxes, share-based compensation and warranty reserves. Management's estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends, and management's assessments of the probable future outcome of these matters. Consequently, actual results could differ from those estimates.

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

Principles Of Consolidation
Principles Of Consolidation

(3) Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Net Income Per Common Share
Net Income Per Common Share

(4) Net Income Per Common Share

Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of shares and, if dilutive, common equivalent shares for stock options outstanding during the period. A reconciliation of the shares used in calculating basic and diluted net income per share is as follows:

 

     Three Months Ended      Nine Months Ended  
     October 29,
2011
     October 30,
2010
     October 29,
2011
     October 30,
2010
 

Weighted Average Common Shares Outstanding – Basic

     7,339,639         7,334,589         7,300,167         7,276,835   

Effect of Dilutive Options

     81,196         157,392         122,620         211,508   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted Average Common Shares Outstanding – Diluted

     7,420,835         7,491,981         7,422,787         7,488,343   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three and nine months ended October 29, 2011, the diluted per share amounts do not reflect options outstanding of 679,890 and 664,690, respectively. For the three and nine months ended October 30, 2010, the diluted per share amounts do not reflect options outstanding of 782,346. These outstanding options were not included, due to their anti-dilutive effect, as the exercise price of the options was greater than the average market price of the underlying stock during the periods presented.

Share-Based Compensation
Share-Based Compensation

(5) Share-Based Compensation

Astro-Med has one equity incentive plan (the "Plan") under which incentive stock options, non-qualified stock options, restricted stock and other equity based awards may be granted to directors, officers and certain employees. To date, only options have been granted under the Plan. Options granted to employees vest over four years. An aggregate of 1,000,000 shares were authorized for awards under the Plan. The exercise price of each stock option will be established at the discretion of the Compensation Committee; however, any incentive stock options granted must be at an exercise price of not less than fair market value at the date of grant. The Plan provides for an automatic annual grant of ten-year options to purchase 5,000 shares of stock to each non-employee director upon the adjournment of each annual shareholders' meeting. Each such option is exercisable at the fair market value as of the grant date and vests immediately prior to the next succeeding annual shareholders' meeting. During the third quarter of fiscal 2012, 5,000 options were granted to Mitchell Quain in connection with his election as a member of Astro-Med's Board of Directors. At October 29, 2011, 683,444 shares were available for grant under the Plan.

We have estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model. Our estimate of share-based compensation requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), the risk-free interest rate and the Company's dividend yield. The stock price volatility assumption is based on the historical weekly price data of our common stock over a period equivalent to the weighted average expected life of our options. Management evaluated whether there were factors during that period which were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. In determining the expected life of the option grants, the Company has observed the actual terms of prior grants with similar characteristics and the actual vesting schedule of the grant and has assessed the expected risk tolerance of different option groups. The risk-free interest rate is based on the actual U.S. Treasury zero coupon rates for bonds matching the expected term of the option as of the option grant date.

The fair value of stock options granted during the nine months ended October 29, 2011 and October 30, 2010 was estimated using the following assumptions:

 

     Nine Months Ended  
     October 29,
2011
    October 30,
2010
 

Risk Free Interest Rate

     0.9% - 2.0     2.11% - 2.42

Expected Volatility

     39.1% - 39.4     41.3

Expected Life (in years)

     5.0        5.0   

Dividend Yield

     3.5% - 3.9     3.4

The weighted average fair value per share for options granted was $2.03, $2.05, and $1.86 during the first, second, and third quarters of fiscal 2012, respectively. On a comparative basis, the weighted average fair value per share for options granted was $2.12 and $2.06 during the first and second quarters of fiscal 2011. No options were granted during the third quarter of fiscal 2011.

 

Aggregated information regarding stock options granted under the Plan for the nine months ended October 29, 2011 is summarized below:

 

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

Outstanding at January 31, 2011

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

Granted

     55,000        7.91         

Exercised

     (261,821     2.86         

Expired or canceled

     (96,669     8.64         
  

 

 

   

 

 

       

Outstanding at October 29, 2011

     915,693      $ 8.11         4.8       $ 504,557   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at October 29, 2011

     764,685      $ 8.23         4.1       $ 454,711   
  

 

 

   

 

 

    

 

 

    

 

 

 

Share-based compensation expense was recognized as follows:

 

     Three Months Ended      Nine Months Ended  
     October 29, 2011      October 30, 2010      October 29, 2011      October 30, 2010  

Cost of Sales

   $ 7,119       $ 13,996       $ 28,395       $ 46,154   

Operating Expenses

     35,877         64,524         132,847         206,871   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 42,996       $ 78,520       $ 161,242       $ 253,025   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of October 29, 2011 there was $227,744 of unrecognized compensation expense related to unvested options.

Astro-Med has an Employee Stock Purchase Plan allowing eligible employees to purchase shares of common stock at a 15% discount from fair value on the date of purchase. A total of 247,500 shares were reserved for issuance under this plan. During the quarters ended October 29, 2011 and October 30, 2010, 1,210 and 1,993 shares respectively, were purchased under this plan. During the nine months ended October 29, 2011 and October 30, 2010, 4,487 and 5,660 shares respectively, were purchased under this plan. As of October 29, 2011, 72,521 shares remain available.

Comprehensive Income
Comprehensive Income

(6) Comprehensive Income

The Company's comprehensive income is as follows:

 

     Three Months Ended     Nine Months Ended  
     October 29,
2011
    October 30,
2010
    October 29,
2011
     October 30,
2010
 

Net Income

   $ 799,987      $ 792,301      $ 2,277,264       $ 1,545,124   

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

         

Foreign currency translation adjustments

     (92,983     155,480        140,341         (66,968

Unrealized holding gain (loss) arising during the period

     (4,882     (1,945     3,223         12,101   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other Comprehensive Income (Loss)

     (97,865     153,535        143,564         (54,867
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive Income

   $ 702,122      $ 954,836      $ 2,420,828       $ 1,490,257   
  

 

 

   

 

 

   

 

 

    

 

 

 
Inventories
Inventories

(7) Inventories

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

 

     October 29, 2011      January 31, 2011  

Materials and Supplies

   $ 8,515,142       $ 8,450,985   

Work-In-Process

     1,260,846         982,092   

Finished Goods

     3,831,004         4,971,837   
  

 

 

    

 

 

 
   $ 13,606,992       $ 14,404,914   
  

 

 

    

 

 

Income Taxes
Income Taxes

(8) Income Taxes

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

 

     Three Months Ended     Nine Months Ended  

Fiscal 2012

     28.5     32.0

Fiscal 2011

     (8.4 )%      23.0

During the third quarter of fiscal 2012, we recognized an income tax expense of approximately $319,000 which included an expense of $432,000 on the quarter's pre-tax income and a benefit of $113,000 related to the difference between the prior year's tax provision and the actual returns as filed. During the third quarter of fiscal 2011, we recognized an income tax benefit of approximately $61,000, which included an expense of $340,000 on the quarter's pre-tax income, a benefit of $251,000 related to the favorable resolution of a previously uncertain tax position and a benefit of $150,000 related to the difference between the prior year's tax provision and the actual returns as filed.

During the nine months ended October 29, 2011, we recognized an income tax expense of approximately $1,070,000, which included an expense of $1,183,000 on the nine month's pre-tax income and a benefit of $113,000 related the difference between the prior year's tax provision and the actual returns as filed. During the nine months ended October 30, 2010, we recognized an income tax expense of approximately $462,000, which included an expense of $863,000 on the nine month's pre-tax income, a benefit of $251,000 related to the favorable resolution of a previously uncertain tax position and a benefit of $150,000 related the difference between the prior year's tax provision and the actual returns as filed.

As of October 29, 2011, the Company's cumulative unrecognized tax benefits totaled $758,200 compared to $726,661 as of January 31, 2011. There were no developments affecting unrecognized tax benefits during the three and nine months ended October 29, 2011.

Segment Information
Segment Information

(9) Segment Information

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

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

 

     Three Months Ended     Nine Months Ended  
     Net Sales      Segment Operating Profit     Net Sales      Segment Operating Profit  

(In thousands)

   October 29,
2011
     October 30,
2010
     October 29,
2011
    October 30,
2010
    October 29,
2011
     October 30,
2010
     October 29,
2011
     October 30,
2010
 

T&M

   $ 4,325       $ 4,137       $ 595      $ 192      $ 12,550       $ 10,964       $ 1,469       $ 910   

QuickLabel

     10,352         9,851         392        575        32,364         30,107         1,798         1,631   

Grass

     4,892         4,341         1,176        894        13,850         12,088         2,587         2,250   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,569       $ 18,329         2,163        1,661      $ 58,764       $ 53,159         5,854         4,791   
  

 

 

    

 

 

        

 

 

    

 

 

       

Corporate Expenses

           975        954              2,886         2,914   
        

 

 

   

 

 

         

 

 

    

 

 

 

Operating Income

           1,188        707              2,968         1,877   

Other (Expense) Income — Net

           (69     24              379         130   
        

 

 

   

 

 

         

 

 

    

 

 

 

Income Before Income Taxes

           1,119        731              3,347         2,007   

Income Tax Provision (Benefit)

           319        (61           1,070         462   
        

 

 

   

 

 

         

 

 

    

 

 

 

Net Income

         $ 800      $ 792            $ 2,277       $ 1,545   
        

 

 

   

 

 

         

 

 

    

 

 

Recent Accounting Pronouncements
Recent Accounting Pronouncements

(10) Recent Accounting Pronouncements

Goodwill

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2011-08, "Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment" which is intended to reduce the complexity and costs related to the testing goodwill for impairment. ASU 2011-08 allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment in order to determine whether it is necessary to perform the two-step quantitative goodwill impairment test already included in Topic 350. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. ASU 2011-08 also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This amended guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We do not expect the adoption of ASU 2011-08 to have a material effect on our consolidated financial position or results of operations.

Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, "Presentation of Comprehensive Income," which requires entities to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. While ASU-2011-05 changes the presentation of comprehensive income, it does not change the components that are recognized in net income or comprehensive income under current accounting guidance. This amended guidance is effective for fiscal years, and interim periods within those years, ending December 15, 2011, and must be applied retroactively. Since ASU 2011-05 impacts presentation only, the adoption of this guidance will not have any effect on our consolidated financial position or results of operations.

Fair Value Measurements

In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs," which is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. ASU 2011-04 does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRSs. ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU 2011-04 clarifies the FASB's intent about the application of existing fair value measurement. This update is effective for interim and annual periods beginning after December 15, 2011. We do not expect the provisions of ASU 2011-04 to have a material effect on our consolidated financial position or results of operations.

In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures About Fair Value Measurement," which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-06 is effective for annual periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which were effective for annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material effect on our consolidated financial position or results of operations.

Revenue Recognition

In October 2009, the FASB issued ASU 2009-13, "Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force" and ASU 2009-14, "Software (Topic 985)—Certain Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force." ASU 2009-13 provides amendments to the criteria in Subtopic 605-25 for separating consideration in multiple-deliverable arrangements. The amendments in this update established a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 also eliminates the residual method of allocating arrangement consideration and significantly expands the disclosures required for multiple-element revenue arrangements. ASU 2009-14 removes (1) tangible products containing software components and (2) non-software components that function together to deliver the tangible products essential functionality from the scope of software revenue guidance (ASC 965-605). ASU 2009-14 also provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. We adopted ASU 2009-13 and ASU 2009-14 prospectively for revenue arrangements entered into or materially modified on or after February 1, 2011. Adoption of the new guidance did not have a material effect on our consolidated financial position and results of operations.

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

Securities Available For Sale
Securities Available For Sale

(11) Securities Available for Sale

Pursuant to our investment policy, securities available for sale include state and municipal securities with various contractual or anticipated maturity dates ranging from one to twenty-six months. Securities available for sale are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in shareholders' equity until realized. Realized gains and losses from the sale of available for sale securities, if any, are determined on a specific identification basis. A decline in the fair value of any available for sale security below cost that is determined to be other than temporary will result in a write-down of its carrying amount to fair value. No such impairment charges were recorded for any period presented. All short-term investment securities have original maturities greater than 90 days. The fair value, amortized cost and gross unrealized gains and losses of the securities are as follows:

 

 

October 29, 2011

   Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
    Fair Value  

State and Municipal Obligations

   $ 11,358,898       $ 20,251       $ (2,358   $ 11,376,791   
  

 

 

    

 

 

    

 

 

   

 

 

 

January 31, 2011

   Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
    Fair Value  

State and Municipal Obligations

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

 

 

    

 

 

    

 

 

   

 

 

Fair Value
Fair Value

(12) Fair Value

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

The fair value hierarchy is summarized as follows:

 

   

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

 

   

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

 

   

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

 

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

 

October 29, 2011

   Level 1      Level 2      Level 3      Total  

Money Market Funds

   $ 5,851,869       $ —         $ —         $ 5,851,869   

State and Municipal Obligations

     11,376,791         —           —           11,376,791   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,228,660       $ —         $ —         $ 17,228,660   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

January 31, 2011

   Level 1      Level 2      Level 3      Total  

Money Market Funds

   $ 4,926,983       $ —         $ —         $ 4,926,983   

State and Municipal Obligations

     12,910,232         —           —           12,910,232   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,837,215       $ —         $ —         $ 17,837,215   
  

 

 

    

 

 

    

 

 

    

 

 

Life Insurance Proceeds
Life Insurance Proceeds

(14) Life Insurance Proceeds

During the second quarter of fiscal 2012, we recognized income on key-man life insurance proceeds of $300,000. This income is included in other income in the accompanying consolidated statement of operations for the nine month period ended October 29, 2011.

Litigation Settlement
Litigation Settlement

(15) Litigation Settlement

In November 2009, Astro-Med was awarded a $1,391,000 judgment related to a lawsuit filed by the Company against a former employee and a competitor business. At issue in the lawsuit was the violation of a non-competition agreement which the former employee had signed as a condition of employment with Astro-Med. The $1,391,000 judgment included both punitive and exemplary damages, as well as attorney fees (all of which have been previously expensed) and related interest earned on the judgment and was recorded as a gain on legal settlement in the consolidated statement of operations and as a receivable in prepaid and other current assets in the consolidated balance sheet for the fiscal year ended January 31, 2010. In November 2009, the Company also filed a motion to amend the original judgment to include additional legal fees of $73,000. This motion was granted on February 12, 2010. On February 17, 2010, the Company collected a total of $1,495,000 related to this legal proceeding, which included the $1,391,000 gain on legal settlement recorded in the fourth quarter of fiscal 2010 and $104,000 for interest and the additional attorney fees as granted pursuant to the February 12, 2010 motion. The $104,000 was recorded as an additional gain on legal settlement in the first quarter of fiscal 2011 and is included in other income in the accompanying consolidated statement of operations for the nine month period ended October 30, 2010.