UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended AprilJuly 30, 2005
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-13200
Astro-Med, Inc.
(Exact name of registrant as specified in its charter)
Rhode Island | 05-0318215 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
600 East Greenwich Avenue, West Warwick, Rhode Island | 02893 | |
(Address of principal executive offices) | (Zip Code) |
(401) 828-4000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x. No ¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes ¨. No x.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨. No x.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.05 Par Value – 5,275,7235,278,403 shares
(excluding treasury shares) as of May 31,August 22, 2005
INDEX
-2-
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2005 | January 31, 2005 | July 30, 2005 | January 31, 2005 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash and Cash Equivalents | $ | 3,539,314 | $ | 6,225,122 | $ | 2,179,149 | $ | 6,225,122 | ||||||||
Securities Available for Sale | 10,183,593 | 7,757,904 | 11,542,906 | 7,757,904 | ||||||||||||
Accounts Receivable, Net | 9,908,866 | 9,351,704 | 9,902,262 | 9,351,704 | ||||||||||||
Inventories | 9,824,229 | 9,364,279 | 9,624,493 | 9,364,279 | ||||||||||||
Prepaid Expenses and Other Current Assets | 659,676 | 603,369 | 671,865 | 603,369 | ||||||||||||
Deferred Taxes | 3,423,928 | 3,423,928 | ||||||||||||||
Deferred Tax Assets | 3,423,928 | 3,423,928 | ||||||||||||||
Total Current Assets | 37,539,606 | 36,726,306 | 37,344,603 | 36,726,306 | ||||||||||||
PROPERTY, PLANT AND EQUIPMENT | 26,671,126 | 26,404,489 | ||||||||||||||
Less Accumulated Depreciation | 7,278,452 | 7,305,946 | (19,747,190 | ) | (19,098,543 | ) | ||||||||||
6,923,936 | 7,305,946 | |||||||||||||||
OTHER ASSETS | ||||||||||||||||
Goodwill | 2,336,721 | 2,336,721 | 2,336,721 | 2,336,721 | ||||||||||||
Amounts Due from Officers | 480,314 | 480,314 | 480,314 | 480,314 | ||||||||||||
Other | 189,137 | 189,384 | 186,781 | 189,384 | ||||||||||||
$ | 47,824,230 | $ | 47,038,671 | $ | 47,272,355 | $ | 47,038,671 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts Payable | $ | 2,565,534 | $ | 2,192,581 | $ | 2,249,651 | $ | 2,192,581 | ||||||||
Accrued Compensation | 1,546,685 | 1,602,144 | 1,361,792 | 1,602,144 | ||||||||||||
Accrued Expenses | 2,737,634 | 2,596,486 | 2.585,100 | 2,596,486 | ||||||||||||
Deferred Revenue | 578,943 | 613,017 | 599,874 | 613,017 | ||||||||||||
Income Taxes Payable | 677,744 | 453,620 | 652,743 | 453,620 | ||||||||||||
Total Current Liabilities | 8,106,540 | 7,457,848 | 7,449,160 | 7,457,848 | ||||||||||||
DEFERRED TAX LIABILITIES | 1,169,445 | 1,172,420 | ||||||||||||||
Deferred tax Liabilities | 1,056,748 | 1,172,420 | ||||||||||||||
TOTAL LIABILITIES | 8,505,908 | 8,630,268 | ||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
Preferred Stock, $10 Par Value, Authorized 100,000 Shares, None Issued | — | — | — | — | ||||||||||||
Common Stock, $.05 Par Value, Authorized 13,000,000 Shares, Issued, 6,299,595 and 6,298,842 Shares, respectively (Note 1) | 314,987 | 314,949 | ||||||||||||||
Common Stock, $.05 Par Value, Authorized 13,000,000 Shares, Issued, 6,300,309 and 6,298,842 Shares, respectively (Note 1) | 315,015 | 314,949 | ||||||||||||||
Additional Paid-In Capital (Note 1) | 16,051,772 | 16,045,503 | 16,057,946 | 16,045,503 | ||||||||||||
Retained Earnings (Note 1) | 28,513,789 | 28,328,239 | 28,924,682 | 28,328,239 | ||||||||||||
Treasury Stock, at Cost, 1,024,106 and 1,020,722 Shares, respectively | (6,579,147 | ) | (6,548,984 | ) | (6,579,147 | ) | (6,548,984 | ) | ||||||||
Accumulated Other Comprehensive Income | 246,844 | 268,696 | 47,951 | 268,696 | ||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 38,766,447 | 38,408,403 | ||||||||||||||
38,548,245 | 38,408,403 | |||||||||||||||
$ | 47,272,355 | $ | 47,038,671 | |||||||||||||
$ | 47,824,230 | $ | 47,038,671 | |||||||||||||
See notes to condensed consolidated financial statements.
-3-
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
(Unaudited) | ||||||||
Net Sales | $ | 14,193,266 | $ | 14,242,268 | ||||
Cost of Sales | 8,504,939 | 8,448,163 | ||||||
Gross Profit | 5,688,327 | 5,794,105 | ||||||
Costs and Expenses: | ||||||||
Selling, General and Administrative | 4,219,698 | 3,901,186 | ||||||
Research and Development | 953,053 | 957,419 | ||||||
5,172,751 | 4,858,605 | |||||||
Operating Income | 515,576 | 935,500 | ||||||
Other Income: | ||||||||
Investment Income | 113,411 | 108,650 | ||||||
Other, Net | (6,419 | ) | (12,982 | ) | ||||
106,992 | 95,668 | |||||||
Income Before Income Taxes | 622,568 | 1,031,168 | ||||||
Income Tax (Expense) Benefit | (224,124 | ) | 567,102 | |||||
Net Income | $ | 398,444 | $ | 1,598,270 | ||||
Net Income Per Common Share - Basic | $ | 0.08 | $ | 0.30 | ||||
Net Income Per Common Share - Diluted | $ | 0.07 | $ | 0.27 | ||||
Weighted Average Number of Common and Common Equivalent Shares Outstanding - Basic | 5,277,431 | 5,245,385 | ||||||
Weighted Average Number of Common and Common Equivalent Shares Outstanding - Diluted | 5,711,926 | 5,850,848 | ||||||
Dividends Declared Per Common Share | $ | 0.04 | $ | 0.04 | ||||
See notes to condensed consolidated financial statements.
Three-Months Ended | ||||||||
July 30, 2005 | July 31, 2004 | |||||||
(Unaudited) | ||||||||
Net Sales | $ | 14,648,202 | $ | 13,990,031 | ||||
Cost of Sales | 8,317,551 | 8,070,197 | ||||||
Gross Profit | 6,330,651 | 5,919,834 | ||||||
Costs and Expenses: | ||||||||
Selling, General and Administrative | 4,434,295 | 4,036,545 | ||||||
Research and Development | 991,419 | 966,139 | ||||||
5,425,714 | 5,002,684 | |||||||
Operating Income | 904,937 | 917,150 | ||||||
Other Income (Expense): | ||||||||
Investment Income | 105,763 | 89,959 | ||||||
Other, Net | (13,505 | ) | (65,725 | ) | ||||
92,258 | 24,234 | |||||||
Income Before Income Taxes | 997,195 | 941,384 | ||||||
Income Tax Provision | (375,262 | ) | (338,905 | ) | ||||
Net Income | $ | 621,933 | $ | 602,479 | ||||
Net Income Per Common Share: | ||||||||
Basic | $ | 0.12 | $ | 0.11 | ||||
Diluted | $ | 0.11 | $ | 0.10 | ||||
Weighted Average Number of Common Shares Outstanding: | ||||||||
Basic | 5,275,723 | 5,307,253 | ||||||
Diluted | 5,728,220 | 5,817,430 | ||||||
Dividends Declared Per Common Share | $ | 0.04 | $ | 0.04 |
-4-
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six-Months Ended | ||||||||
July 30, 2005 | July 31, 2004 | |||||||
(Unaudited) | ||||||||
Net Sales | $ | 28,841,455 | $ | 28,232,298 | ||||
Cost of Sales | 16,822,481 | 16,518,360 | ||||||
Gross Profit | 12,018,974 | 11,713,938 | ||||||
Costs and Expenses: | ||||||||
Selling, General and Administrative | 8,653,988 | 7,937,730 | ||||||
Research and Development | 1,944,473 | 1,923,558 | ||||||
10,598,461 | 9,861,288 | |||||||
Operating Income | 1,420,513 | 1,852,650 | ||||||
Other Income (Expense): | ||||||||
Investment Income | 202,295 | 198,609 | ||||||
Other, Net | (3,045 | ) | (78,707 | ) | ||||
199,250 | 119,902 | |||||||
Income Before Income Taxes | 1,619,763 | 1,972,552 | ||||||
Income Tax Benefit (Provision) | (599,386 | ) | 228,197 | |||||
Net Income | $ | 1,020,377 | $ | 2,200,749 | ||||
Net Income Per Common Share: | ||||||||
Basic | $ | 0.19 | $ | 0.42 | ||||
Diluted | $ | 0.18 | $ | 0.38 | ||||
Weighted Average Number of Common Shares Outstanding: | ||||||||
Basic | 5,276,567 | 5,276,321 | ||||||
Diluted | 5,720,063 | 5,834,141 | ||||||
Dividends Declared Per Common Share | $ | 0.08 | $ | 0.08 |
-5-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended | Six-Months Ended | |||||||||||||||
April 30, 2005 | May 1, 2004 | July 30, 2005 | July 31, 2004 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net Income | $ | 398,444 | $ | 1,598,270 | $ | 1,020,377 | $ | 2,200,749 | ||||||||
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: | ||||||||||||||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||||||||||
Depreciation and Amortization | 335,228 | 296,666 | 746,558 | 603,429 | ||||||||||||
Deferred Income Taxes | — | (938,917 | ) | — | (938,917 | ) | ||||||||||
Changes in Assets and Liabilities: | ||||||||||||||||
Accounts Receivable | (557,162 | ) | (615,788 | ) | (550,558 | ) | (277,260 | ) | ||||||||
Inventories | (459,950 | ) | 335,409 | (260,214 | ) | (261,355 | ) | |||||||||
Other | (403,296 | ) | 118,975 | |||||||||||||
Income Taxes Payable | 224,124 | 147,110 | 199,123 | 219,214 | ||||||||||||
Other | (38,592 | ) | (348,920 | ) | ||||||||||||
Accounts Payable and Accrued Expenses | 424,568 | (856,868 | ) | (207,811 | ) | (490,999 | ) | |||||||||
Total Adjustments | (71,784 | ) | (1,981,308 | ) | (476,198 | ) | (1,026,913 | ) | ||||||||
Net Cash Provided by (Used in) Operating Activities | 326,660 | (383,038 | ) | |||||||||||||
Net Cash Provided by Operating Activities | 544,179 | 1,173,836 | ||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Proceeds from Maturities of Securities Available for Sale | 754,794 | 622,879 | 1,379,257 | 2,329,043 | ||||||||||||
Purchases of Securities Available of Sale | (3,225,580 | ) | (1,145,972 | ) | ||||||||||||
Purchases of Securities Available for Sale | (5,194,090 | ) | (2,179,410 | ) | ||||||||||||
Additions to Property, Plant and Equipment | (304,932 | ) | (499,024 | ) | (333,731 | ) | (623,117 | ) | ||||||||
Net Cash (Used in) Investing Activities | (2,775,718 | ) | (1,022,117 | ) | ||||||||||||
Net Cash Used by Investing Activities | (4,148,564 | ) | (473,484 | ) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Proceeds from Common Shares Issued Under Employee Stock Option and Benefit Plans | 6,307 | 401,685 | ||||||||||||||
Shares Repurchased | (30,163 | ) | — | |||||||||||||
Proceeds from Common Shares Issued Under Employee Benefit Plans and Exercises of Stock Options | 12,509 | 453,066 | ||||||||||||||
Purchases of Treasury Stock | (30,163 | ) | (20,105 | ) | ||||||||||||
Dividends Paid | (212,894 | ) | (189,820 | ) | (423,934 | ) | (401,997 | ) | ||||||||
Net Cash (Used in) Provided by Financing Activities | (236,750 | ) | 211,866 | |||||||||||||
Net Cash Provided (Used) by Financing Activities | (441,588 | ) | 30,964 | |||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (2,685,808 | ) | (1,193,289 | ) | (4,045,973 | ) | 731,316 | |||||||||
Cash and Cash Equivalents, Beginning of Period. | 6,225,122 | 4,998,643 | 6,225,122 | 4,998,643 | ||||||||||||
Cash and Cash Equivalents, End of Period | $ | 3,539,314 | $ | 3,805,354 | $ | 2,179,149 | $ | 5,729,959 | ||||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||
Cash Paid During the Period for: | ||||||||||||||||
Income Taxes | $ | — | $ | 25,977 | $ | 400,263 | $ | 66,835 | ||||||||
Non-Cash Transfer from Retained Earnings to Additional Paid in Capital and Capital Stock Due to the Declaration of the 10% Stock Dividend | $ | — | $ | 5,245,927 | ||||||||||||
Non-cash Transfer from Retained Earnings to Capital Stock and Additional Paid-in Capital Due to the Issuance of the 10% Stock Dividend | $ | — | $ | 5,245,927 |
See notes to condensed consolidated financial statements.
-5--6-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AprilJuly 30, 2005
(Unaudited)
NoteNOTE 1 -– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) The accompanying condensed financial statements have been prepared by the Company, without audit, 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 statement of the results of the interim periods presented. 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 year ended January 31, 2005. Certain reclassifications have been made to conform to the current period reporting format.
(b) 10% Stock Dividend: On April 19, 2004, the Company declared a 10% stock dividend that was distributed to shareholders on May 26, 2004. An amount equal to the fair value of the additional shares was transferred from Retained Earnings to Additional Paid inPaid-in Capital and Common Stock as of the declaration date. The net income per common share and weighted average share amounts for the three and six month periods ended July 31, 2004 were computed assuming the stock dividend had occurred at the beginning of the periods.
(c) Net Income Per Share: Net income per common share has been computed and presented pursuant to the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, “EarningsEarnings Per Share”.Share. Net income per share is based on the weighted average number of shares outstanding during the period. Net income per share assuming dilution is based on the weighted average number of shares and, if dilutive, common equivalent shares for stock options outstanding during the period.
Three-Months Ended | ||||
April 30, 2005 | May 1, 2004 | |||
Weighted Average Common Shares Outstanding - Basic | 5,277,431 | 5,245,385 | ||
Diluted Effect of Options Outstanding | 434,495 | 605,463 | ||
Weighted Average Common Shares Outstanding - Diluted | 5,711,926 | 5,850,848 | ||
Three-Months Ended | Six-Months Ended | |||||||
July 30, 2005 | July 31, 2004 | July 30, 2005 | July 31, 2004 | |||||
Weighted Average Common Shares Outstanding – Basic | 5,275,723 | 5,307,253 | 5,276,567 | 5,276,321 | ||||
Effect of Dilutive Options | 452,497 | 510,177 | 443,496 | 557,820 | ||||
Weighted Average Common Shares Outstanding – Diluted | 5,728,220 | 5,817,430 | 5,720,063 | 5,834,141 | ||||
For the three-monthsthree-month and six-month periods ended AprilJuly 30, 2005 and May 1,July 31, 2004, the diluted per share amounts do not reflect options outstanding of 239,800236,500 and 3,300,252,450, respectively. These outstanding options were not included in the weighted average common shares outstanding because the exercise priceprices of the option wasoptions were greater than the average market price of the underlyingCompany’s stock during the periods presented.
-6--7-
ASTRO-MED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)(CONTINUED)
July 30, 2005
(Unaudited)
(d) Stock-Based Compensation: The Company follows Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for ourits stock-based compensation plans and havehas elected to continue to use the intrinsic value-based method to account for stock option grants. The Company has adopted the disclosure-only provisions of SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure”, an amendment of SFAS No. 123. Accordingly, no compensation expense has been recognized for our stock-based compensation plans. The fair value of each option granted was estimated on the grant date using the Black-Scholes option-pricing model.
Three-Months Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Net income As Reported | $ | 398,444 | $ | 1,598,270 | ||||
Less: Total Stock-Based Employee Compensation Expense Determined Under Fair Value Based Method, Net of Tax | (81,721 | ) | (9,597 | ) | ||||
Pro forma Net Income | $ | 316,723 | $ | 1,588,673 | ||||
Net Income Per Share: | ||||||||
Basic | ||||||||
As Reported | $ | 0.08 | $ | 0.30 | ||||
Pro forma | $ | 0.06 | $ | 0.30 | ||||
Diluted | ||||||||
As Reported | $ | 0.07 | $ | 0.27 | ||||
Pro forma | $ | 0.06 | $ | 0.27 |
In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123-R”) which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and superceded APB No. 25. SFAS No. 123-R requires companies to measure compensation costs for share-based payments to employees, including stock options, at fair value and expense such compensation over the service period beginning with the first interim or annual period after June 15, 2005. In April 2005, the Securities and Exchange Commission delayed the transition date for companies to the first fiscal year beginning after June 15, 2005, effectively delaying the Company’s required adoption until the first quarter of fiscal 2007. The Company is evaluating the requirements of SFAS No. 123-R and has not yet determined the method of adoption of SFAS No. 123-R, nor the effect that SFAS No. 123-R will have on its financial position and results of operations.
Three-Months Ended | Six-Months Ended | |||||||||||
July 30, 2005 | July 31, 2004 | July 30, 2005 | July 31, 2004 | |||||||||
As Reported Net Income | $ | 621,933 | $ | 602,479 | $ | 1,020,377 | $ | 2,200,749 | ||||
Less: Total Stock-Based Employee Compensation Expense Determined Under Fair Value Based Method | 77,339 | 71,982 | 159,060 | 81,579 | ||||||||
Pro Forma Net Income | $ | 544,594 | $ | 530,497 | $ | 861,317 | $ | 2,119,170 | ||||
Net Income Per Share: | ||||||||||||
As Reported, Basic | $ | 0.12 | $ | 0.11 | $ | 0.19 | $ | 0.42 | ||||
Pro Forma, Basic | $ | 0.10 | $ | 0.10 | $ | 0.16 | $ | 0.40 | ||||
As Reported, Diluted | $ | 0.11 | $ | 0.10 | $ | 0.18 | $ | 0.38 | ||||
Pro forma, Diluted | $ | 0.10 | $ | 0.09 | $ | 0.15 | $ | 0.36 |
(e) Revenue Recognition:The majority of the Company’s product sales are recorded at the time of shipment, when legal title has transferred and risk of loss passes to the customer, when persuasive evidence of an arrangement exists, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured in accordance with the requirements in Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition in Financial Statements.” When a sale arrangement involves training or installation, the deliverables in the arrangement are evaluated to determine whether they represent separate units of accounting in accordance with SAB 104 and EITF 00-21, “Revenue Arrangements With Multiple Deliverables”. This evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered. The total fee from the arrangement is allocated to each unit of accounting based on its relative fair value. Fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately. Revenue is recognized when revenue recognition criteria for each unit of accounting are met. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled. All of the Company’s 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 system 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. 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.
(f) New Accounting Pronouncements:In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123-R”) which, upon becoming effective, will replace SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and will supersede APB No. 25. SFAS No. 123-R requires companies to measure compensation costs for share-based payments to employees, including stock options, at fair value and expense such compensation over the service period beginning with the first annual period after June 15, 2005. The Company is evaluating the requirements of SFAS No. 123-R and has not yet determined the method of adoption of SFAS No. 123-R, nor the effect that SFAS No. 123-R will have on its financial position and results of operations.
In May 2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections – a Replacement of APB Opinion No. 20 and SFAS No. 3”, which changes the requirements for accounting and reporting of a change in accounting principle. The Statement applies to all voluntary changes in accounting principles and to changes required by an accounting pronouncement in the event that the pronouncement does not include specific transition provisions. This statement requires retroactive application to prior period financial statements of change in accounting principle, unless it is impracticable to determine either the period specific effects or the cumulative effect of the change. The Company is required to adopt this statement during the first quarter of fiscal 2007. We do not expect the adoption of this statement to have a material impact on our financial condition or results of operations.
-8-
ASTRO-MED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 30, 2005
(Unaudited)
NoteNOTE 2 -– COMPREHENSIVE INCOME
The Company’s total comprehensive income is as follows:
Three-Months Ended | ||||||||
April 30, 2005 | May 1, 2004 | |||||||
Comprehensive Income: | ||||||||
Net Income | $ | 398,444 | $ | 1,598,270 | ||||
Other Comprehensive Income: | ||||||||
Foreign currency translation adjustments, net of tax | 4,322 | (232,527 | ) | |||||
Unrealized gain (loss) on securities: | ||||||||
Unrealized holding gain (loss) arising during the period, net of tax | (26,174 | ) | 4,145 | |||||
Other Comprehensive Income (Loss) | (21,852 | ) | (228,382 | ) | ||||
Comprehensive Income | $ | 376,592 | $ | 1,369,888 | ||||
-7-
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three-Months Ended | Six-Months Ended | |||||||||||||||
July 30, 2005 | July 31, 2004 | July 30, 2005 | July 31, 2004 | |||||||||||||
Comprehensive Income: | ||||||||||||||||
Net Income | $ | 621,933 | $ | 602,479 | $ | 1,020,377 | $ | 2,200,749 | ||||||||
Other Comprehensive Income (Loss): | ||||||||||||||||
Foreign currency translation adjustments, net of tax | (186,599 | ) | (61,010 | ) | (190,915 | ) | (133,706 | ) | ||||||||
Unrealized holding gain (loss) arising during the period, net of tax | (12,294 | ) | (52,175 | ) | (29,830 | ) | (68,295 | ) | ||||||||
Other Comprehensive Income(Loss) | (198,893 | ) | (113,185 | ) | (220,745 | ) | (202,001 | ) | ||||||||
Comprehensive Income | $ | 423,040 | $ | 489,294 | $ | 799,632 | $ | 1,998,748 | ||||||||
NoteNOTE 3 -– INVENTORIES
Inventories, net of reserves are stated at the lower of cost (first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories were as follows:
April 30, 2005 | January 31, 2005 | July 30, 2005 | January 31, 2005 | |||||||||
Materials and Supplies | $ | 5,152,976 | $ | 5,154,931 | ||||||||
Raw Materials | $ | 5,270,250 | $ | 5,154,931 | ||||||||
Work-In-Process | 1,745,458 | 969,767 | 1,380,748 | 969,767 | ||||||||
Finished Goods | 2,925,795 | 3,239,581 | 2,973,495 | 3,239,581 | ||||||||
$ | 9,824,229 | $ | 9,364,279 | $ | 9,624,493 | $ | 9,364,279 | |||||
NoteNOTE 4 -– INCOME TAXES
An income tax expense of $224,124 was recorded inDuring the first quarter ofended May 1, 2004, the current year which is equal to an effective tax rate of 36%. This compares to an income tax benefit of $567,102 in the first quarter of the prior year. The prior year income tax benefit includes 1) an income tax expense on the current quarter’s income of $372,000 which is equal to an effective rate of 36% and 2)Company recognized a $939,000 one-time non-cash tax benefit related to the release of the valuation allowance on the net deferred tax asset that was established in fiscal year 2003. In fiscal year 2003, as required by SFAS 109 “Accounting for Income Taxes”, the Company established a full valuation allowance on its net deferred tax asset as a result of the uncertainty as to whether these deferred tax assets would “more likely than not” be realized in the future. Based on the facts and circumstances at that time, it was determined that a full valuation allowance was required and it was stated that until an appropriate level of profitability could be sustained no tax benefits would be realized. As of the first quarter of fiscal year 2005, Management believed that an appropriate level of profitability has been established and maintained and it is more likely than not the deferred tax assets will be realized in the future. Management made this determination based on a review of the facts and circumstances as of May 1, 2004. This review consisted of an analysis of the Company’s performance, the market environment in which the Company currently operates, the length of carryforward periods, the existing sales backlog and the future sales projections. The effective income tax rates used in the interim condensed financial statements are estimates of the full year’s rates.
-9-
ASTRO-MED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 30, 2005
(Unaudited)
NoteNOTE 5 -– SEGMENT INFORMATION
The Company reports threeSummarized below are the sales and segment operating profit for each reporting segments consistent with its sales product groups: Test & Measurement (T&M); QuickLabel Systems (QuickLabel)segment for three-months ended July 30, 2005 and Grass-Telefactor (G-T). The Company evaluates segment performance based on the segment profit (loss) before corporate and financial administration expenses.July 31, 2004:
-8-
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Sales | Segment Operating Profit | |||||||||||||
July 30, 2005 | July 31, 2004 | July 30, 2005 | July 31, 2004 | |||||||||||
T&M | $ | 2,628,000 | $ | 2,639,000 | $ | 147,000 | $ | 224,000 | ||||||
Quicklabel | 7,599,000 | 7,272,000 | 847,000 | 1,045,000 | ||||||||||
G-T | 4,421,000 | 4,079,000 | 647,000 | 301,000 | ||||||||||
Total | $ | 14,648,000 | $ | 13,990,000 | 1,641,000 | 1,570,000 | ||||||||
Corporate Expenses | 736,000 | 653,000 | ||||||||||||
Operating Income | 905,000 | 917,000 | ||||||||||||
Other Income, Net | 92,000 | 24,000 | ||||||||||||
Income Before Income Taxes | 997,000 | 941,000 | ||||||||||||
Income Tax Provision | (375,000 | ) | (339,000 | ) | ||||||||||
Net Income | $ | 622,000 | $ | 602,000 | ||||||||||
Summarized below are the sales and segment operating profit (loss) for each reporting segment for the three-monthssix-months ended AprilJuly 30, 2005 and May 1, 2004.July 31, 2004:
Sales | Segment Operating Profit (Loss) | Sales | Segment Operating Profit | |||||||||||||||||||||||
April 30, 2005 | May 1, 2004 | April 30, 2005 | May 1, 2004 | July 30, 2005 | July 31, 2004 | July 30, 2005 | July 31, 2004 | |||||||||||||||||||
T&M | $ | 2,622,000 | $ | 2,942,000 | $ | (22,000 | ) | $ | 93,000 | $ | 5,250,000 | $ | 5,581,000 | $ | 125,000 | $ | 317,000 | |||||||||
QuickLabel | 7,054,000 | 6,931,000 | 563,000 | 824,000 | ||||||||||||||||||||||
Quicklabel | 14,653,000 | 14,203,000 | 1,410,000 | 1,869,000 | ||||||||||||||||||||||
G-T | 4,517,000 | 4,369,000 | 743,000 | 743,000 | 8,938,000 | 8,448,000 | 1,390,000 | 1,044,000 | ||||||||||||||||||
Total | $ | 14,193,000 | $ | 14,242,000 | 1,284,000 | 1,660,000 | $ | 28,841,000 | $ | 28,232,000 | 2,925,000 | 3,230,000 | ||||||||||||||
�� | ||||||||||||||||||||||||||
Corporate Expenses | 769,000 | 724,000 | 1,504,000 | 1,377,000 | ||||||||||||||||||||||
Operating Income | 515,000 | 936,000 | 1,421,000 | 1,853,000 | ||||||||||||||||||||||
Other Income, Net | 107,000 | 95,000 | 199,000 | 120,000 | ||||||||||||||||||||||
Income Before Income Taxes | 622,000 | 1,031,000 | ||||||||||||||||||||||||
Income Tax (Expense) Benefit | (224,000 | ) | 567,000 | |||||||||||||||||||||||
Income Before Income Taxes. | 1,620,000 | 1,973,000 | ||||||||||||||||||||||||
Income Tax Benefit (Provision) | (600,000 | ) | 228,000 | |||||||||||||||||||||||
Net Income | $ | 398,000 | $ | 1,598,000 | $ | 1,020,000 | $ | 2,201,000 | ||||||||||||||||||
-10-
ASTRO-MED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NoteNOTE 6 – PRODUCT WARRANTY LIABILITY
Changes in the Company’s product warranty liability during the quarterssix months ended AprilJuly 30, 2005 and May 1,July 31, 2004, respectively, are as follows:
April 30, 2005 | May 1, 2004 | July 30, 2005 | July 31, 2004 | |||||||||||||
Balance, beginning of the period | $ | 208,642 | $ | 176,000 | $ | 208,642 | $ | 176,000 | ||||||||
Warranties issued during the period | 106,086 | 118,405 | 192,335 | 252,723 | ||||||||||||
Settlements made during the period | (96,086 | ) | (118,405 | ) | (182,335 | ) | (222,723 | ) | ||||||||
Balance, end of the period | $ | 218,642 | $ | 176,000 | $ | 218,642 | $ | 206,000 | ||||||||
-9--11-
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Business Overview
This section should be read in conjunction with the Condensed Consolidated Financial Statements of the Company included elsewhere herein and the Company’s Form 10-K for the year ended January 31, 2005 Form 10-K.2005.
Astro-Med, Inc. is a multi-national enterprise, which designs, develops, manufactures, distributes and services a broad range of products that acquire, store, analyze and present data in multiple formats. The Company organizes its structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. It markets and sells its products and services through three business segments including:
The Company’s Test & Measurement (T&M) products are a comprehensive line of data recording instruments for the aerospace, automotive, pulp and paper, metal mill, transportation and manufacturing industries. These recording solutions provide customers with a complete record of their data, whether they are troubleshooting a process, performing preventative maintenance or gathering mission critical data. The T&M product group includes a suite of ruggedized products includewhich consist of printers and Ethernet switches designed to withstand the rigors of airborne and other military applications.
The Company’s QuickLabel Systems (QuickLabel) product group provides a complete system for producing “the labels that you want when you need them.” QuickLabel’s flagship products, the digital color label printers, and its line of entry-level barcode/single-color digital label printers, are used by manufacturers and producers to print short runs of custom labels in-house. QuickLabel’s printing supplies and label creation software are integral parts of the printing system that enhance output quality and user experience. QuickLabel’s digital label printers also generate revenuesales through a broad consumable line of products including label, tag and thermal transfer ribbon consumable sales.ribbons and monochrome transfer ribbons. QuickLabel engineers and manufactures certain unique printing supplies especially designed for use in optimizing the performance of the QuickLabel brand of digital printers, as well as in the use of all other major brands of desktop and tabletop printers.
Grass-Telefactor (G-T) product group offers a range of instrumentation and supplies for clinical and biomedical research applications. The clinical product line includes in-lab, in-hospital, and ambulatory integrated systems for clinical EEG and PSG, epilepsy diagnosis and surgery, critical care and intraoperative neuromonitoring. These products offer a variety of features including networking, database and report generation capabilities in addition to powerful data acquisition, monitoring and analysis tools.
The Company markets and sells its products and services globally through a diverse distribution structure of sales personnel, manufacturing representatives and dealers that deliver a full complement of branded products and services to customers in our severaldiverse global markets.
Results of Operations
Three-Months Ending AprilEnded July 30, 2005 vs. Three-Months Ending May 1,Ended July 31, 2004
April 30, 2005 | Sales as a % of Total Sales | May 1, 2004 | Sales as a % of Total Sales | % Increase Prior Year | |||||||||||
T&M | $ | 2,622,000 | 18.4 | % | $ | 2,942,000 | 20.7 | % | (10.8 | )% | |||||
QuickLabel | 7,054,000 | 49.7 | % | 6,931,000 | 48.7 | % | 1.7 | % | |||||||
G-T | 4,517,000 | 31.9 | % | 4,369,000 | 30.6 | % | 3.3 | % | |||||||
Total | $ | 14,193,000 | 100.0 | % | $ | 14,242,000 | 100.0 | % | (0.3 | )% | |||||
Sales by product group, percent change, and percent of total sales for the three months ended July 30, 2005 and July 31, 2004 were:
July 30, 2005 | Sales as a % of Total Sales | July 31, 2004 | Sales as a % of Total Sales | % Increase Prior Year | |||||||||||
T&M | $ | 2,628,000 | 17.9 | % | $ | 2,639,000 | 18.9 | % | (0.4 | )% | |||||
QuickLabel | 7,599,000 | 51.9 | % | 7,272,000 | 52.0 | % | 4.5 | % | |||||||
G-T | 4,421,000 | 30.2 | % | 4,079,000 | 29.1 | % | 8.4 | % | |||||||
Total | $ | 14,648,000 | 100.0 | % | $ | 13,990,000 | 100.0 | % | 4.7 | % | |||||
-10-
-12-
ASTRO-MED, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)(continued):
Three-Months Ending AprilEnded July 30, 2005 vs. Three-Months Ending May 1,Ended July 31, 2004
Sales revenue in the first quarter were $14,193,000, comparable to the$14,648,202, an increase of 4.7% from prior year’s firstsecond quarter sales revenue of $14,242,000.$13,990,031. The Company’s sales in its QuickLabelQuicklabel Systems and G-T product groups reported nominal increments, whereas sales fromincreased 4.5% and 8.4%, respectively. Sales in the T&M product group were down 11%flat with the prior year. Sales through our domestic channel were $10,157,033, up 3.6% from the prior year. Sales through the Company’s international channels were $4,491,169, up 7.3% from the previous year’s firstsecond quarter sales. Sales throughsales of $4,185,830. The favorable impact of the change in foreign exchange rates was approximately $50,000 which had a nominal effect on the Company’s channels of distributioninternational sales.
Hardware and software sales were mixed with domestic sales being$6,871,624 for the quarter, essentially flat with the prior year, while internationalyear’s sales were down 1.4% from the prior year. However, excluding the $180,000 favorable impact of foreign exchange rates, international sales decreased 5.5%.
Hardware$6,851,727. Flat hardware sales in the quarter were $6,394,000 reflectingwas due to a 9.5% decreaseblend of healthy growth in the Ruggedized products, up almost 100% from the prior year, and G-T’s sleep and EEG systems up 65.1% and 34.7%, respectively. These increases were tempered by lower sales from G-T’s long term monitoring systems and T&M’s Dash series. The prior year’s hardware sales of $7,069,000. The decreasealso included a $300,000 non-recurring engineering contract from the prior year is traceable to a decline in first quarter shipments of the T&M product group’s Everest product. Sales of these high end telemetry workstation recorders were off as new orders from aerospace customers were weak due to funding constraints. Other hardware products that contributed to the lower volume include G-T EEG sales, down $184,000 due to pricing pressures and monochrome printer sales off $180,000 due to a blanket shipment of monochrome printers to an international customer reported in the first quarter of the prior year. Notwithstanding the volume of overall hardware sales, the Company’s hardware shipments were bolstered by unit volume for the QLS 4100XE color printer line, up 10%, G-T sleep and epilepsy product offerings, up 9%, as well the T&M product group’s Dash series of portable recorder products up 10%.OEM customer.
The Company’s consumable sales continue to grow with the firstsecond quarter sales volume reaching $6,354,000, reflecting an$6,587,667, a 12.3% increase of 8.4% fromover the prior year.year’s sales of $5,865,026. The product linesproducts driving the growthincrease include the QuickLabelQuicklabel media products, of color ribbonsup 14.0% and labels, up 6.6% andthe G-T product group’sgroups suite of supplies and electrodes, up 36.6%14.7% from the prior year.
Sales of the Company’s service related-products in the quarterrelated products were $1,446,000, increasing 10%$1,188,912, down 6.6% from the prior year’s sales as demand for the Company’s service contracts,of $1,273,278. The decrease was driven by lower parts and repair services continue to be strong.sales.
Gross profit dollars were $5,689,000, which generated$6,330,65, generating a margin yieldpercentage of 40.1%43.2% for the quarter as compared to a margin yield last yearpercentage of 40.7%. The decline in the gross profit margin was an outgrowth of sales mix and lower manufacturing overhead absorption associated with flat sales.
Operating expenses were $5,172,00042.3% for the quarter in the current fiscal yearprior year. The higher gross profit percentage in the second quarter can be attributed to higher margins in each of the three product groups as sales shifted to a more favorable product mix within both hardware and consumables.
Operating expenses in the second quarter were $5,425,714, compared to $4,859,000$5,002,684 in the second quarter of the prior year. Selling and general administrative (SGA) spending increased 9.8% from last year to $4,434,295. The increase was driven by higher personnel costs, travel and trade show expenses and the impact of foreign exchange. Research & Development spending increased 2.5% from last year to $991,419.
Other income increased $68,024 to $92,258 as a result of a higher investment yield on cash and marketable securities, as well as rental income and the settlement of a lawsuit.
An income tax expense of $375,262 and $338,905 was recorded for the three-months ended July 30, 2005 and July 31, 2004, respectively. The effective tax rate for the three-months ended July 30, 2005 and July 31, 2004 was 37% and 36%, respectively.
The Company reports three reporting segments consistent with its sales product groups: Test & Measurement (T&M), QuickLabel Systems (QLS) and Grass-Telefactor (G-T). The Company evaluates segment performance based on the segment profit (loss) before corporate and financial administration expenses.
Summarized below are the sales and segment operating profit for each reporting segment for three-months ended July 30, 2005 and July 31, 2004:
Sales | Segment Operating Profit | |||||||||||||
July 30, 2005 | July 31, 2004 | July 30, 2005 | July 31, 2004 | |||||||||||
T&M | $ | 2,628,000 | $ | 2,639,000 | $ | 147,000 | $ | 224,000 | ||||||
Quicklabel | 7,599,000 | 7,272,000 | 847,000 | 1,045,000 | ||||||||||
G-T | 4,421,000 | 4,079,000 | 647,000 | 301,000 | ||||||||||
Total | $ | 14,648,000 | $ | 13,990,000 | 1,641,000 | 1,570,000 | ||||||||
Corporate Expenses | 736,000 | 653,000 | ||||||||||||
Operating Income | 905,000 | 917,000 | ||||||||||||
Other Income, Net | 92,000 | 24,000 | ||||||||||||
Income Before Income Taxes | 997,000 | 941,000 | ||||||||||||
Income Tax Provision | (375,000 | ) | (339,000 | ) | ||||||||||
Net Income | $ | 622,000 | $ | 602,000 | ||||||||||
Test & Measurement
T&M’s sales were $2,628,000 for the quarter compared to $2,639,000 for the same quarter in the prior year. Sales for the quarter were driven by lower Dash Series and chart paper sales. These lower sales were offset by an increase in ruggedized products. Service and other sales were comparable with the prior year. As an outgrowth of a favorable product mix, T&M achieved higher gross margins and consistent operating profits when compared to the prior year.
Quicklabel Systems
Quicklabel System sales were $7,599,000 for the quarter compared to $7,272,000 for the same quarter in the prior year. The increase of $327,000, or 4.5% was driven by a 14.2% increase in media sales, tempered by lower hardware sales. Excluding the impact of the non-recurring engineering fees, hardware sales would have been up from the prior year. Service and Other sales were down slightly from the prior year. Gross profit margins were comparable year over year. Quicklabel increased investment in promotional activities and field selling expense lowered the product group’s operating profit margin to 13.0% from 16.2% in the prior year.
-13-
ASTRO-MED, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued):
Grass-Telefactor
G-T sales were $4,421,000 for the quarter compared to $4,079,000 for the same quarter in the prior year. The increase of $342,000, or 8.4% was driven by increased hardware sales in sleep systems and EEG monitoring systems, as well as increases in the Company’s electrode consumables.
Six-Months Ended July 30, 2005 vs. Six-Months Ended July 31, 2004
Sales by product group, percent change, and percent of total sales for the six months ended July 30, 2005 and July 31, 2004 were:
July 30, 2005 | Sales as a % of Total Sales | July 31, 2004 | Sales as a % of Total Sales | % Increase (Decrease) Over Prior Year | |||||||||||
T&M | $ | 5,250,000 | 18.2 | % | $ | 5,581,000 | 19.8 | % | (5.9 | )% | |||||
QuickLabel | 14,653,000 | 50.8 | % | 14,203,000 | 50.3 | % | 3.1 | % | |||||||
G-T | 8,938,000 | 40.0 | % | 8,448,000 | 29.9 | % | 5.8 | % | |||||||
Total | $ | 28,841,000 | 100.0 | % | $ | 28,232,000 | 100.0 | % | 2.1 | % | |||||
Sales for the first six-months of the current year were $28,841,000, a 2.1% increase over the $28,232,000 from the first six-months of the prior year. T&M sales were down 5.9% compared to the prior year as a result of lower aerospace orders for our Everest telemetry workstations. Quicklabel sales were up 3.1% on strong demand for media products. G-T sales were up 5.8% on strong demand for sleep systems and electrodes. Sales through our domestic channel were $19,868,626, up 1.0% from the prior year. Sales through the Company’s international channels were $8,972,823, up 5.0% over previous fiscalyear’s sales of $8,848,446. Excluding the $230,000 favorable impact of the change in foreign exchange rates, international sales were up 2.2% from the prior year. Selling expenses increased 9.6%
Hardware and software system sales decreased 5.7% to $13,110,547 from the prior year as a result of additional direct field selling expensea reduction in our QuickLabel product groupaerospace orders for telemetry workstations, long term monitoring systems the engineering contract that was recorded in the prior year. These reductions were partially offset by increases within ruggedized products, sleep systems and Quicklabel 4100XE products.
Consumable sales increased 10.3% to $12,942,339 from the approximately $60,000 unfavorable foreign exchange rate impact on our foreign office expenses. G&Aprior year as a result of strong demand for Quicklabel System media and G-T electrodes.
Service and other revenue was $2,788,563, essentially flat with the prior year.
Gross profit dollars were $12,018,974, which generated a margin percentage of 41.7% for the six-months of the current year as compared to a margin percentage of 41.5% for the first six-months of last year. The higher margin percentage for the first six-months of this year can be attributed to the change in sales mix for each product group.
Operating expenses for the six-months were $10,598,461, an increase of 7.4% from the prior year operating expenses of $9,861,288. Selling and general administrative spending was up 9.0% from last year to $8,653,988. The increase in selling and general administrative spending can be attributed to the increase in field sales personnel costs and increases in advertising and tradeshow expenses and the impact of changes in foreign exchange rates. Research and development spendingfunding was also$1,944,473, essentially flat with the prior year. Operating income margins in the quarter were 3.6% which was 300 basis points behind the operating income margin of 6.6% reported in the prior year.year
AnOther income increased $79,348 to $199,250 as a result of a higher investment yield on cash and marketable securities, as well as rental income, the settlement of a lawsuit and lower foreign exchange losses.
-14-
ASTRO-MED, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (continued):
Six-Months Ended July 30, 2005 vs. Six-Months Ended July 31, 2004
For the six months ended July 30, 2005, income tax expense of $224,124$599,386 was recorded in the first quarter of the current year which is equal toreflecting an effective tax rate of 36%37.0%. This compares to an income tax benefit of $567,102$228,197 for the same period in the first quarter of the prior year. The prior year income tax benefit includes 1) an income tax expense on the current quarter’s income of $372,000 which is equal to an effective tax rate of 36% and 2) a $939,000 one-time non-cash tax benefit related to the release of the valuation allowance on the net deferred tax asset that was established in fiscal year 2003. In fiscal year 2003, as required by SFAS 109 “Accounting for Income Taxes”, the Company established a full valuation allowance on its net deferred tax assetsasset as a result of the uncertainty as to whether these deferred tax assetassets would “more likely than not” be realized in the future. Based on the facts and circumstances at that time, it was determined that a full valuation allowance was required and it was stated that until an appropriate level of profitability could be sustained no tax benefits would be realized. As of the first quarter of fiscal year 2005, Management believed that an appropriate level of profitability has been established and maintained and it is more likely than not the deferred tax assets will be realized in the future. Management made this determination based on a review of the facts and circumstances as of May 1, 2004. This review consisted of an analysis of the Company’s performance, the market environment in which the Company currently operates, the length of carryforward periods, the existing sales backlog and the future sales projections. The effective income tax rates used in the interim condensed financial statements are estimates of the full year’s rates.
Net income inSummarized below are the first quarter was $399,000, reflecting a 2.8% return on sales and an EPS of $0.07 per diluted share. Forsegment operating profit (loss) for each reporting segment for the comparable period in the previous year, net income was $1,598,000, reflecting an 11.2% return on salessix-months ended July 30, 2005 and an EPS of $0.27 per diluted share. The prior year net income includes a $939,000, or $0.16 per diluted share one-time, non-cash tax benefit related to the release of the valuation allowance on the net deferred tax assets that was established in fiscal 2003.July 31, 2004:
The Company reports three reporting segments consistent with its sales product groups: Test & Measurement (T&M); QuickLabel Systems (QuickLabel) and Grass-Telefactor (G-T). The Company evaluates segment performance based on the segment profit before corporate and financial administration expenses.
Sales | Segment Operating Profit | ||||||||||||
July 30, 2005 | July 31, 2004 | July 30, 2005 | July 31, 2004 | ||||||||||
T&M | $ | 5,250,000 | $ | 5,581,000 | $ | 125,000 | $ | 317,000 | |||||
Quicklabel | 14,653,000 | 14,203,000 | 1,410,000 | 1,869,000 | |||||||||
G-T | 8,938,000 | 8,448,000 | 1,390,000 | 1,044,000 | |||||||||
Total | $ | 28,841,000 | $ | 28,232,000 | 2,925,000 | 3,230,000 | |||||||
Corporate Expenses | 1,505,000 | 1,377,000 | |||||||||||
Operating Income | 1,421,000 | 1,853,000 | |||||||||||
Other Income, Net | 199,000 | 120,000 | |||||||||||
Income Before Income Taxes. | 1,620,000 | 1,973,000 | |||||||||||
Income Tax Benefit (Provision) | (600,000 | ) | 228,000 | ||||||||||
Net Income | $ | 1,020,000 | $ | 2,201,000 | |||||||||
-11--15-
ASTRO-MED, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)(continued):
Three-Months Ending AprilSix-Months Ended July 30, 2005 vs. Three-Months Ending May 1,Six-Months Ended July 31, 2004 (Continued)
Summarized below are the sales and segment operating profit (loss) for each reporting segment.
Sales | Segment Operating Profit (Loss) | ||||||||||||
April 30, 2005 | May 1, 2004 | April 30, 2005 | May 1, 2004 | ||||||||||
T&M | $ | 2,622,000 | $ | 2,942,000 | $ | (22,000 | ) | $ | 93,000 | ||||
QuickLabel | 7,054,000 | 6,931,000 | 563,000 | 824,000 | |||||||||
G-T | 4,517,000 | 4,369,000 | 743,000 | 743,000 | |||||||||
Total | $ | 14,193,000 | $ | 14,242,000 | 1,284,000 | 1,660,000 | |||||||
Corporate Expenses | 769,000 | 724,000 | |||||||||||
Operating Income | 515,000 | 936,000 | |||||||||||
Other Income, Net | 107,000 | 95,000 | |||||||||||
Income Before Income Taxes | 622,000 | 1,031,000 | |||||||||||
Income Tax (Expense) Benefit | (224,000 | ) | 567,000 | ||||||||||
Net Income | $ | 398,000 | $ | 1,598,000 | |||||||||
Test & Measurement
Sales were mixed within the T&M product group. Healthy demand for our ruggedized products was evident in the shipments of the cockpit printers and Toughswitch products, as well as the Dash 18 portable recorders. However, the sales increase was tempered by lower shipments of the Everest recorders where funding constraints have impacted demand in the aerospace market. Consumable sales were $2,622,000 fordown 10.3% from last year as the quarter comparedmigration from paper to $2,942,000 in the prior year. The decrease of $320,000, or 10.8%, was driven entirely by a reduction in Hardware sales. Everest sales decreased approximately 50% from the prior year. Sales of these high end telemetry workstation recorders were off as new orders from aerospace customers were weak due to funding constraints. Tempering the Everest results were sales increases in the Dash series and the Toughwriter product lines. Consumables and Service & Other were consistent with the prior year. Operating expenses were also consistent with the prior year. As a consequence of the lower sales volume, the T&M segment experienced an operating loss.digital continued.
QuickLabelQuicklabel Systems
QuickLabel sales were $7,054,000 for the quarter compared to $6,931,000 in the prior year. The increase of $123,000, or 1.7%,in sales was driven by an increase indemand for the 4100XE color printer, up 15% and consumables. Service & Otherconsumable products, up 10%. This year’s sales growth was consistent withimpacted by lower sales volume in monochrome and color printer lines. The color printer line in particular was impacted by the prior year. Operating expenses increased 15.7% as QuickLabel made investmentsyear’s sales included $300,000 in field sales personnel when compared to the prior year. As a consequence of the increase in the field sales expense with the 1.7% increase in sales, the QuickLabel segment operating profit margin declined to 8% from 12% in the prior year.non-recurring engineering fees.
Grass-Telefactor
The growth in G-T sales were $4,517,000is traceable to increases in clinical products and consumables. Specifically, demand for G-T sleep systems was especially strong, up 24%, while the quarter compared to $4,369,000 inconsumable electrode products grew 27% from the prior year. The increaseThese increases were tempered by lower shipments of $148,000, or 3.3% was driven by an increaseEEG and long term monitoring systems in electrode consumables, sleep and LTMour clinical markets, as well as softer demand for hardware sales along with a slight decrease in EEG hardware sales. During the quarter operating expenses were consistent with the prior year. As a consequence of a sales mix shift and lower manufacturing absorption, the G-T segments operating profit margin decreased to 16% from 17%systems in the prior year.research market.
Financial ConditionCondition:
The Company expects to finance its future working capital needs, capital expenditures and acquisition requirements through internal funds. To the extent the Company’s capital and liquidity requirements are not satisfied internally, the Company may utilize a $3.5 million unsecured bank line of credit, all of which is currently available. Borrowings under this line of credit bear interest at the bank’s prime rate. The expiration date of this line of credit is July 31, 2006.
The Company’s Statements of Cash Flows for the three-months ending Aprilsix-months ended July 30, 2005 and May 1,July 31, 2004 are included on page 5.6. Net cash flow provided by operating activities for the current quarter was $326,660 versus net cash flow used in operations of $383,038six-months ended July 30, 2005 and July 30, 2004 were $544,179 and $1,173,836 respectively. The decline in the first quarter of the previous year. The increase in the current quarter cash flow over the prior yearprovided by operating activities between these periods can be attributed almost entirely to betterincreases in working capital management.requirements as both days sales outstanding and inventory turns slowed.
Cash and marketable securities available for sale at the end of the second quarter totaled $13,722,055, down from $13,983,026 at year-end. The accounts receivable balance increased 6% to $9,908,866, up from $9,351,704 at year-end. The cash collection cycle also slowed by 3 days to 5861 net days sales outstanding at the end of the quarter as compared to the 5558 net days sales outstanding at year-end. Inventory increased 5% to $9,824,229, up$9,624,493 from $9,364,279 at year-end. Inventory turns slowed to 2.8 times as compared to 3.0 times at year-end. The unfavorable increase in accounts receivable and inventory were offset by the Company by extending accounts payables.
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ASTRO-MED, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition (Continued)
Cash and securities available for sale3.5 turns at the end of the first quarter totaled $13,722,907, down from $13,983,026as compared to 3.6 turns at year-end. The decrease in cash and securities available for sale can be attributed to the additional cash provided by operations in the first quarter of this year, offset by the $304,932 of capital expenditures made in the quarter, the repurchase of $30,163 of the Company’s common stock and the $212,894 dividend payment.
Capital expenditures consisted primarily ofwere $333,731 for the purchase ofsix-months ended July 30, 2005 as the Company purchased machinery and equipment, that will be used to increase capacityinformation technology hardware and efficiency.
During the quarter the Company purchased $3,225,580 of marketable securities.software and tools and dies.
The Company paid cash dividends infor the quartersix-months ended July 30, 2005 of $212,894$423,934 or $0.04$0.08 per common share.
InOn June 17, 2005, Astro-Med, Inc. entered into an agreement with Hanover R.S. Limited Partnership, a Texas limited partnership (the “Purchaser”) for the first quarter ending April 30, 2005,sale of approximately 24.692 acres of land located in Braintree, Massachusetts owned by the Company received $6,307(the “Property) for the purchase price of proceeds$6,100,000 to be paid in cash at the closing. The sale of the Property is subject to a 90 day feasibility period ending on September 17, 2005, during which time the Purchaser may inspect the property and terminate the sale due to any adverse conditions discovered on the Property. Following the feasibility period, the Purchaser shall have 16 months to obtain final zoning and site plan approval from all state and local governmental entities for use of the exerciseProperty as a multi-family residential rental property, subject to two 30 day extensions exercisable at the option of employee stock options.the Purchaser upon payment to the Company of $25,000 per extension.
Management plansUpon execution of the agreement, $250,000 of earnest money was placed in escrow pending completion of the sale and an additional $250,000 is to conductbe placed in escrow at the expiration of the feasibility period. Following the feasibility period, all such earnest money is forfeited by the Purchaser in the event that the sale is not completed due to a broad evaluation of its current enterprise resource planning (ERP) system to ensurebreach by the Company’s Information Technology (IT) systems are appropriate to supportPurchaser. In the growth, profitability and internal control requirementsevent of a multi-national company.termination of the agreement by the Purchaser during the feasibility period, all earnest money is to be returned to the Purchaser, less $5,000.
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Critical Accounting Policies, Commitments and Certain Other MattersMatters:
In the Company’s Form 10-K for the year ended January 31, 2005, the Company’s most critical accounting policies and estimates upon which our financial status depends were identified as those relating to revenue recognition, warranty claims, bad debt, customer returns, inventories and long-lived assets. We considered the disclosure requirements of Financial Release (“FR”) 60 (“FR-60”) regarding critical accounting policies and FR-61 regarding liquidity and capital resources, certain trading activities and related party/certain other disclosures, and concluded that nothing materially changed during the quarter that would warrant further disclosure under these releases.
Safe Harbor Statement
This document contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. Factors which could cause actual results to differ materially from those anticipated include, but are not limited to, general economic, financial and business conditions; declining demand in the test and measurement markets, especially defense and aerospace; competition in the specialty printer industry; ability to develop market acceptance of the QuickLabelQuicklabel color printer products and effective design of customer required features; competition in the data acquisition industry; competition in the neurophysiology industry; the impact of changes in foreign currency exchange rates on the results of operations; the ability to successfully integrate acquisitions; the business abilities and judgment of personnel and changes in business strategy.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK3.Quantitative and Qualitative Disclosure about Market Risk
Astro-Med, Inc.’sThe Company’s exposure to market risk has not changed materially from its exposure at January 31, 2005 as set forth in Item 7A in Astro-Med, Inc.’sits Form 10K for the fiscal year ended January 31, 2005.
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Item 4. Disclosure Controls4.Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act), the Company conducted an evaluation under the supervision and with the participation of the Company’s management, including the Chairman of the Board (serving as the principal executive officer) and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chairman of the Board and the Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported with inwithin the time periods specified in the Securities and Exchange Commission rules and forms. There was no significant change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 4. Submission of matters to a vote of stockholders.
An Annual Meeting of Shareholders of the registrant was held May 10, 2005.
In an uncontested election, nominees for directors were elected by the following votes:
Name of Nominee for Director | Votes For | Votes Withheld | ||
Albert W. Ondis | 4,983,165 | 18,105 | ||
Everett V. Pizzuti | 4,971,431 | 29,839 | ||
Jacques V. Hopkins | 4,859,021 | 142,249 | ||
Hermann Viets | 4,860,839 | 140,431 | ||
Graeme MacLetchie | 4,873,734 | 127,536 |
Item 5. Market for Registrant’s Common Stock, Related Stockholder’s MattersUnregistered sales of equity securities and Issuer Purchasesuse of proceeds.
During the firstsecond quarter of fiscal 2006, the Company made the following repurchasesdid not repurchase any of its common stockstock. The maximum number of shares that can be repurchased under the current Board authorization is 547,589
Total Number of Shares | Average price Paid per Share | Total Number of Shares Repurchased as part of Publicly Announced Plans or Programs (a) | Maximum Number of Shares That May Be the Plans or | ||||||
February 1 – February 26 | — | — | — | 550,973 | |||||
February 27 – March 26 | — | — | — | 550,973 | |||||
March 27 – April 30 | 3,384 | $ | 8.91 | 3,384 | 547,589 |
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(a) Exhibits:
The following exhibits are filed as part of this report on Form 10-Q:
10.9 | Agreement of Purchase and Sale made as of June 17, 2005 by and between Grass Properties Inc. and Hanover R.S. Limited Partnership. | |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) |
32.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. 1350 |
32.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. 1350 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ASTRO-MED, INC. | ||||
(Registrant) | ||||
Date: | By | /s/ | ||
| ||||
(Principal Executive Officer) | ||||
Date: | By | /s/ Joseph P. O’Connell | ||
| ||||
Vice President and Treasurer | ||||
(Principal Financial Officer) |
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