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(1) Overview
Headquartered in West Warwick, Rhode Island, Astro-Med Inc. designs, develops, manufactures and distributes a broad range of specialty printers and data acquisition and analysis 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 through our Company offices in Canada and Europe as well as with independent dealers and representatives. Astro-Med, Inc. products are sold under the brand names Astro-Med ® Test & Measurement and QuickLabel ®Systems and are employed around the world in a wide range of aerospace, apparel, automotive, avionics, chemical, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging and transportation applications.
Unless otherwise indicated, references to “Astro-Med,” the “Company,” “we,” “our,” and “us” in this Quarterly Report on Form 10-Q refer to Astro-Med, Inc. and its consolidated subsidiaries.
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(2) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Astro-Med pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods included herein. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2014.
On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass). The Company has classified the results of operations of its Grass segment as discontinued operations for the three and nine months periods ended November 2, 2013. Refer to Note 15, “Discontinued Operations,” for further details.
On January 22, 2014, Astro-Med completed the acquisition of the ruggedized printer product line from Miltope Corporation, a company of VT Systems (“Miltope”). Astro-Med’s ruggedized printer product line is part of the Ruggedized product group and is reported as part of the Test & Measurement (T&M) segment. The results of the Miltope’s ruggedized printer product line operations have been included in the condensed consolidated financial statements of the Company for the three and nine months periods ended November 1, 2014. Refer to Note 4, “Acquisition,” for further details.
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 condensed 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, accrued expenses 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.
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(3) Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
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(4) Acquisition
On January 22, 2014, Astro-Med completed the acquisition of the ruggedized printer product line from Miltope, which is engaged in the design, development, manufacture and testing of ruggedized computers and computer peripheral equipment for military, industry and commercial avionics applications. Astro-Med’s ruggedized printer product line is part of the Ruggedized product group and is reported as part of the T&M segment. The results of the Miltope’s ruggedized printer product line operations have been included in the condensed consolidated financial statements for the three and nine months periods ended November 1, 2014 as presented.
The purchase price of the acquisition was $6,732,000 which was funded using existing cash on hand. Of the $6,732,000 purchase price, $500,000 is being held in escrow for twelve months following the acquisition date to provide an indemnity to the Company in the event of any breach in the representations, warranties and covenants of Miltope. The assets acquired consist of all of the assets of the Miltope ruggedized printer product line excluding plant and equipment and personnel. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”
As part of the acquisition, Miltope and Astro-Med entered into a manufacturing services agreement under which Miltope provided transition services and continued to manufacture printers for Astro-Med. This agreement concluded in the third quarter of the current year, as the Company has transitioned all the manufacturing to its West Warwick, Rhode Island facility.
The purchase price of the acquisition has been allocated on the basis of the estimated fair value as follows:
(In thousands) | ||||
Accounts Receivable |
$ | 713 | ||
Inventories |
2,503 | |||
Identifiable Intangible Assets |
3,400 | |||
Goodwill |
196 | |||
Warranty Reserve |
(80 | ) | ||
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Total Purchase Price |
$ | 6,732 | ||
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The following unaudited pro forma information assumes the acquisition of Miltope occurred on February 1, 2013. This information has been prepared for informational purposes only and does not purport to represent the results of operations that would have happened had the acquisition occurred as of the date indicated, nor of future results of operations.
Three Months Ended November 2, 2013 |
Nine Months Ended November 2, 2013 |
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(In thousands) | ||||
Net Sales |
$20,179 | $56,858 |
The impact on net income and earnings per share would not have been material to the Company in fiscal 2014.
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(7) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories are as follows:
November 1, 2014 | January 31, 2014 | |||||||
(In thousands) | ||||||||
Materials and Supplies |
$ | 10,671 | $ | 10,722 | ||||
Work-In-Process |
1,493 | 852 | ||||||
Finished Goods |
7,859 | 6,798 | ||||||
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20,023 | 18,372 | |||||||
Inventory Reserve |
(3,599 | ) | (3,194 | ) | ||||
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$ | 16,424 | $ | 15,178 | |||||
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(8) Income Taxes
The Company’s effective tax rates for income from continuing operations based on the projected effective tax rate for the full year, are as follows:
Three Months Ended | Nine Months Ended | |||||||
Fiscal 2015 |
38.5 | % | 35.2 | % | ||||
Fiscal 2014 |
36.9 | % | 34.7 | % |
During the three months ended November 1, 2014, the Company recognized an income tax expense of approximately $974,000. The effective tax rate in this quarter was directly impacted by an $80,000 tax expense related to the under accrual of the prior year’s state taxes and offset by a tax benefit of $41,000 related to the favorable resolution of a previously uncertain tax position. During the three months ended November 2, 2013, the Company recognized income tax expense on income from continuing operations of $436,000 which includes a benefit of approximately $18,000 recorded as the result of a favorable adjustment in the filing of a prior year’s tax return.
During the nine months ended November 1, 2014, the Company recognized an income tax expense of approximately $2,235,000. The effective tax rate in this quarter was directly impacted by an $80,000 tax expense related to the under accrual of the prior year’s state taxes and offset by a tax benefit of $141,000 related to the favorable resolution of a previously uncertain tax position. During the nine months ended November 2, 2013, the Company recognized an income tax expense of approximately $446,000 which included an expense of $464,000 on nine month pretax income from continuing operations and a benefit of $18,000 related to the favorable adjustment in the filing of the prior year’s tax returns.
As of November 1, 2014, the Company’s cumulative unrecognized tax benefits totaled $650,000 compared to $715,000 as of January 31, 2014. There were no developments affecting unrecognized tax benefits during the quarter ended November 1, 2014.
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(9) Note Receivable and Line of Credit Issued
On January 30, 2012, the Company completed the sale of its label manufacturing operations in Asheboro, North Carolina to Label Line Ltd. The net sale 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% is payable in sixteen quarterly installments of principal and interest which commenced on January 30, 2013. The note receivable is disclosed at its present value on the accompanying condensed consolidated balance sheets. As of November 1, 2014, $503,000 remains outstanding on this note.
The terms of the Asheboro sale also included an agreement for Astro-Med to provide Label Line Ltd. with additional financing in the form of a revolving line of credit in the amount of $600,000. This line of credit is fully secured by a first lien on various collateral of Label Line Ltd., including the Asheboro plant and plant assets, and bears interest at a rate equal to the United States prime rate plus an additional margin of two percent on the outstanding credit balance. Although the initial term was for a period of one-year from the date of the sale, the agreement has been extended through January 31, 2015. As of November 1, 2014, $180,000 remains outstanding on this revolving line of credit.
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(10) Segment Information
Astro-Med reports two segments: QuickLabel Systems (QuickLabel) and Test & Measurement (T&M). On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) in order to focus on its existing core businesses. The Company has classified the results of operations of Grass as discontinued operations for the three and nine months ended November 2, 2013. Refer to Note 15, “Discontinued Operations” for a further discussion.
On January 22, 2014, Astro-Med completed the acquisition of the ruggedized printer product line from Miltope. Astro-Med’s ruggedized printer product line is part of the Ruggedized product group and is reported as part of the T&M segment. The results of the Miltope’s ruggedized printer product line operations have been included below for the three and nine months periods ended November 1, 2014. Assuming the acquisition of Miltope occurred on February 1, 2013 the Company’s net sales (on a pro forma basis) for the three and nine months periods ended November 2, 2013 would have been $20,179,000 and $56,858,000, respectively. Refer to Note 4, “Acquisition,” for further details.
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) |
November 1, 2014 |
November 2, 2013 |
November 1, 2014 |
November 2, 2013 |
November 1, 2014 |
November 2, 2013 |
November 1, 2014 |
November 2, 2013 |
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QuickLabel |
$ | 15,252 | $ | 12,509 | $ | 1,959 | $ | 1,494 | $ | 44,931 | $ | 36,102 | $ | 6,405 | $ | 3,962 | ||||||||||||||||
T&M |
7,885 | 5,670 | 2,023 | 912 | 21,346 | 14,756 | 4,074 | 1,803 | ||||||||||||||||||||||||
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Total |
$ | 23,137 | $ | 18,179 | 3,982 | 2,406 | $ | 66,277 | $ | 50,858 | 10,479 | 5,765 | ||||||||||||||||||||
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Product Replacement Related Costs |
— | — | — | 672 | ||||||||||||||||||||||||||||
Corporate Expenses |
1,407 | 1,223 | 4,041 | 3,745 | ||||||||||||||||||||||||||||
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Operating Income |
2,575 | 1,183 | 6,438 | 1,348 | ||||||||||||||||||||||||||||
Other Expense—Net |
(46 | ) | (2 | ) | (85 | ) | (64 | ) | ||||||||||||||||||||||||
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Income From Continuing Operations Before Income Taxes |
2,529 | 1,181 | 6,353 | 1,284 | ||||||||||||||||||||||||||||
Income Tax Provision |
974 | 436 | 2,235 | 446 | ||||||||||||||||||||||||||||
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Income From Continuing Operations |
1,555 | 745 | 4,118 | 838 | ||||||||||||||||||||||||||||
Income From Discontinued Operations, Net of Income Taxes |
— | 363 | — | 517 | ||||||||||||||||||||||||||||
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Net Income |
$ | 1,555 | $ | 1,108 | $ | 4,118 | $ | 1,355 | ||||||||||||||||||||||||
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(11) Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 and is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and 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.
Discontinued Operations
In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. In addition, this ASU expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. We are currently evaluating the impact of the adoption of ASU 2014-08 and do not expect it to have a material effect on the Company’s financial position or results of operations.
Income Taxes
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability. This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.
No other new accounting pronouncements, issued or effective during the first nine months of the current year, have had or are expected to have a material impact on our consolidated financial statements.
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(12) 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 43 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 securities available for sale are as follows:
(In thousands) November 1, 2014 |
Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
State and Municipal Obligations |
$ | 17,605 | $ | 28 | $ | (2 | ) | $ | 17,631 | |||||||
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January 31, 2014 |
Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
State and Municipal Obligations |
$ | 18,729 | $ | 37 | $ | — | $ | 18,766 | ||||||||
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(13) 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 (exit price). 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 (including short term investment money market funds with original maturity of less than 90 days), accounts receivables, accounts payable, accrued compensation and other expenses and income tax payable are reflected in the condensed consolidated balance sheet at carrying value, which approximates fair value due to the short term nature of the these instruments.
Assets measured at fair value on a recurring basis are summarized below:
(In thousands) November 1, 2014 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money Market Funds (included in Cash and Cash Equivalents) |
$ | 5,954 | $ | — | $ | — | $ | 5,954 | ||||||||
State and Municipal Obligations (included in Securities Available for Sale) |
— | 17,631 | — | 17,631 | ||||||||||||
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Total |
$ | 5,954 | $ | 17,631 | $ | — | $ | 23,585 | ||||||||
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January 31, 2014 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money Market Funds (included in Cash and Cash Equivalents) |
$ | 4,734 | $ | — | $ | — | $ | 4,734 | ||||||||
State and Municipal Obligations (included in Securities Available for Sale) |
— | 18,766 | — | 18,766 | ||||||||||||
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Total |
$ | 4,734 | $ | 18,766 | $ | — | $ | 23,500 | ||||||||
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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 prices for identical or similar assets.
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(14) Accumulated Other Comprehensive Income (Loss)
The changes in the balance of accumulated other comprehensive income (loss) by component are as follows:
(In thousands) | Foreign Currency Translation Adjustments |
Unrealized Holding Gain on Available for Sale Securities |
Total | |||||||||
Balance at January 31, 2014 |
$ | 152 | $ | 24 | $ | 176 | ||||||
Other Comprehensive Income (Loss) |
(348 | ) | (8 | ) | (356 | ) | ||||||
Amounts reclassified to Net Income |
— | — | — | |||||||||
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Net Other Comprehensive Income (Loss) |
(348 | ) | (8 | ) | (356 | ) | ||||||
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Balance at November 1, 2014 |
$ | (196 | ) | $ | 16 | $ | (180 | ) | ||||
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The amounts presented above in other comprehensive income (loss) are net of taxes.
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(15) Discontinued Operations
On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) which manufactured polysomnography and electroencephalography systems and related accessories and propriety electrodes for use in both research and clinical settings for $18.6 million in cash, of which $1.8 million was held in escrow and received in the first quarter of the current year. The assets sold consisted primarily of working capital (exclusive of inventory and accounts payable related to manufacturing), the engineering, sales and support workforce, intellectual property and certain other related assets.
As part of this transaction, Astro-Med entered into a Transition Service Agreement (TSA) with the purchaser pursuant to which the Company agreed to provide transition services and continue to manufacture Grass products for the purchaser for a period not to exceed twelve months following the sale closing date. The Company determined that cash flows from this activity were not significant and therefore Grass has been disclosed as a discontinued operation for the fiscal 2014 periods presented. The TSA expired on January 31, 2014 and the Company is no longer reporting discontinued operations in fiscal 2015.
In accordance with the terms of the TSA agreement, the purchaser was obligated to acquire the remaining Grass inventory upon expiration of the TSA on January 31, 2014. In connection with the disposition of the inventory previously included in discontinued operations, the Company received $2,355,000 in the first quarter of fiscal 2015 from the purchaser of Grass related to the disposition of this inventory. Any future services related to Grass post fiscal 2014 have not been, and are not expected to be material.
Results for discontinued operations are as follows:
Three Months Ended November 2, 2013 |
Nine Months Ended November 2, 2013 |
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(In thousands) | ||||||||
Net Sales |
$ | 2,485 | $ | 6,201 | ||||
Gross Profit |
$ | 290 | $ | 668 | ||||
Income from Discontinued Operations |
$ | 363 | $ | 517 |
As a result of the sale of the Grass assets, the Company is in the process of selling its facility located in Rockland, Massachusetts, which was the former location of Grass production. This property is being actively marketed with sale considered probable within the next twelve months and accordingly, the property is classified in current assets as an Asset Held for Sale in the accompanying condensed consolidated balance sheets.
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(16) Commitments and Contingencies
Product Replacement Program
In April 2013, tests conducted by the Company revealed that one of its suppliers had been using a non-conforming part in power supplies for 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 estimated costs were recognized and recorded as a reserve in the first quarter of fiscal 2014 and are included in the cost of sales in the accompanying condensed consolidated statement of income for the nine months ended November 2, 2013. As of November 1, 2014, the Company had expended $271,000 in replacement costs which have been charged against this reserve. The remaining reserve amount of $402,000 is included in Other Accrued Expenses in the accompanying condensed consolidated balance sheet dated November 1, 2014.
Astro-Med is currently receiving power supplies with compliant parts and has resumed printer production and shipments to customers.
Since the supplier deviated from the agreed upon specifications for the power supply while providing certificates of conformance to the original specifications, in January 2014, Astro-Med received a non-refundable $450,000 settlement from the supplier for recovery of the costs and expense associated with this issue. This settlement was recorded in cost of sales during the fourth quarter of the fiscal year ended January 31, 2014. In addition to this cash settlement, the Company will receive lower product prices from the supplier through fiscal 2017.
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(17) Line of Credit
On September 5, 2014, Astro-Med entered into a new unsecured revolving line of credit agreement with Wells Fargo Bank to replace the previous agreement which expired on May 30, 2014. The terms of the new agreement are for a three-year, $10 million revolving line of credit to be available to the Company to be used for ongoing working capital requirements, business acquisitions or general corporate purposes as needed. Any borrowings made under the new 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 new agreement provided 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 the November 1, 2014, there have been no borrowings against this line of credit and the Company was in compliance with its financial covenants.
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(18) Subsequent Event
On December 5, 2014, 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. In regards to this transaction, the Company has filed a current report on Form 8-K dated December 5, 2014, which included, the Stock Repurchase Agreement dated December 4, 2014 as Exhibit 10.
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Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 and is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and 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.
Discontinued Operations
In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. In addition, this ASU expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. We are currently evaluating the impact of the adoption of ASU 2014-08 and do not expect it to have a material effect on the Company’s financial position or results of operations.
Income Taxes
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability. This ASU is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.
No other new accounting pronouncements, issued or effective during the first nine months of the current year, have had or are expected to have a material impact on our consolidated financial statements.
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The following unaudited pro forma information assumes the acquisition of Miltope occurred on February 1, 2013. This information has been prepared for informational purposes only and does not purport to represent the results of operations that would have happened had the acquisition occurred as of the date indicated, nor of future results of operations.
Three Months Ended November 2, 2013 |
Nine Months Ended November 2, 2013 |
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(In thousands) | ||||
Net Sales |
$20,179 | $56,858 |
The purchase price of the acquisition has been allocated on the basis of the estimated fair value as follows:
(In thousands) | ||||
Accounts Receivable |
$ | 713 | ||
Inventories |
2,503 | |||
Identifiable Intangible Assets |
3,400 | |||
Goodwill |
196 | |||
Warranty Reserve |
(80 | ) | ||
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Total Purchase Price |
$ | 6,732 | ||
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The components of inventories are as follows:
November 1, 2014 | January 31, 2014 | |||||||
(In thousands) | ||||||||
Materials and Supplies |
$ | 10,671 | $ | 10,722 | ||||
Work-In-Process |
1,493 | 852 | ||||||
Finished Goods |
7,859 | 6,798 | ||||||
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20,023 | 18,372 | |||||||
Inventory Reserve |
(3,599 | ) | (3,194 | ) | ||||
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$ | 16,424 | $ | 15,178 | |||||
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The Company’s effective tax rates for income from continuing operations based on the projected effective tax rate for the full year, are as follows:
Three Months Ended | Nine Months Ended | |||||||
Fiscal 2015 |
38.5 | % | 35.2 | % | ||||
Fiscal 2014 |
36.9 | % | 34.7 | % |
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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) |
November 1, 2014 |
November 2, 2013 |
November 1, 2014 |
November 2, 2013 |
November 1, 2014 |
November 2, 2013 |
November 1, 2014 |
November 2, 2013 |
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QuickLabel |
$ | 15,252 | $ | 12,509 | $ | 1,959 | $ | 1,494 | $ | 44,931 | $ | 36,102 | $ | 6,405 | $ | 3,962 | ||||||||||||||||
T&M |
7,885 | 5,670 | 2,023 | 912 | 21,346 | 14,756 | 4,074 | 1,803 | ||||||||||||||||||||||||
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Total |
$ | 23,137 | $ | 18,179 | 3,982 | 2,406 | $ | 66,277 | $ | 50,858 | 10,479 | 5,765 | ||||||||||||||||||||
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Product Replacement Related Costs |
— | — | — | 672 | ||||||||||||||||||||||||||||
Corporate Expenses |
1,407 | 1,223 | 4,041 | 3,745 | ||||||||||||||||||||||||||||
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Operating Income |
2,575 | 1,183 | 6,438 | 1,348 | ||||||||||||||||||||||||||||
Other Expense—Net |
(46 | ) | (2 | ) | (85 | ) | (64 | ) | ||||||||||||||||||||||||
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Income From Continuing Operations Before Income Taxes |
2,529 | 1,181 | 6,353 | 1,284 | ||||||||||||||||||||||||||||
Income Tax Provision |
974 | 436 | 2,235 | 446 | ||||||||||||||||||||||||||||
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Income From Continuing Operations |
1,555 | 745 | 4,118 | 838 | ||||||||||||||||||||||||||||
Income From Discontinued Operations, Net of Income Taxes |
— | 363 | — | 517 | ||||||||||||||||||||||||||||
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Net Income |
$ | 1,555 | $ | 1,108 | $ | 4,118 | $ | 1,355 | ||||||||||||||||||||||||
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The fair value, amortized cost and gross unrealized gains and losses of securities available for sale are as follows:
(In thousands) November 1, 2014 |
Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
State and Municipal Obligations |
$ | 17,605 | $ | 28 | $ | (2 | ) | $ | 17,631 | |||||||
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January 31, 2014 |
Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
State and Municipal Obligations |
$ | 18,729 | $ | 37 | $ | — | $ | 18,766 | ||||||||
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Assets measured at fair value on a recurring basis are summarized below:
(In thousands) November 1, 2014 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money Market Funds (included in Cash and Cash Equivalents) |
$ | 5,954 | $ | — | $ | — | $ | 5,954 | ||||||||
State and Municipal Obligations (included in Securities Available for Sale) |
— | 17,631 | — | 17,631 | ||||||||||||
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Total |
$ | 5,954 | $ | 17,631 | $ | — | $ | 23,585 | ||||||||
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January 31, 2014 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Money Market Funds (included in Cash and Cash Equivalents) |
$ | 4,734 | $ | — | $ | — | $ | 4,734 | ||||||||
State and Municipal Obligations (included in Securities Available for Sale) |
— | 18,766 | — | 18,766 | ||||||||||||
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Total |
$ | 4,734 | $ | 18,766 | $ | — | $ | 23,500 | ||||||||
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The changes in the balance of accumulated other comprehensive income (loss) by component are as follows:
(In thousands) | Foreign Currency Translation Adjustments |
Unrealized Holding Gain on Available for Sale Securities |
Total | |||||||||
Balance at January 31, 2014 |
$ | 152 | $ | 24 | $ | 176 | ||||||
Other Comprehensive Income (Loss) |
(348 | ) | (8 | ) | (356 | ) | ||||||
Amounts reclassified to Net Income |
— | — | — | |||||||||
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Net Other Comprehensive Income (Loss) |
(348 | ) | (8 | ) | (356 | ) | ||||||
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Balance at November 1, 2014 |
$ | (196 | ) | $ | 16 | $ | (180 | ) | ||||
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Results for discontinued operations are as follows:
Three Months Ended November 2, 2013 |
Nine Months Ended November 2, 2013 |
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(In thousands) | ||||||||
Net Sales |
$ | 2,485 | $ | 6,201 | ||||
Gross Profit |
$ | 290 | $ | 668 | ||||
Income from Discontinued Operations |
$ | 363 | $ | 517 |
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