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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934]
For the fiscal year ended January 31, 2002
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
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Astro-Med, Inc.
(Exact name of registrant as specified in its charter)
Rhode Island 05-0318215
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 East Greenwich Avenue, 02893
West Warwick, Rhode Island (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (401) 828-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- - --------------------- -
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 Par Value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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 [_]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 22, 2002.
Common Stock, $0.05 Par Value: $11,190,674
Indicate the number of shares outstanding (excluding treasury shares)
of each of the issuer's classes of common stock as of March 22, 2002.
Common Stock, $0.05 Par Value: 4,267,373 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the 2002 annual
meeting of shareholders are incorporated by reference into Part III.
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ASTRO-MED, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
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PART I
Item 1. Business............................................................................. 5-10
Item 2. Properties........................................................................... 10
Item 3. Legal Proceedings.................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................................. 10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............. 11
Item 6. Selected Financial Data.............................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 16
Item 8. Financial Statements and Supplementary Data.......................................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 16
PART III
Item 10. Directors and Executive Officers of the Registrant................................... 17-18
Item 11. Executive Compensation............................................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 18
Item 13. Certain Relationships and Related Transactions....................................... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................... 18-20
4
ASTRO-MED, INC.
PART I
Item 1. Business
General
Astro-Med, Inc., (the Company) is a diversified enterprise that is
strategically organized into three product groups: Test & Measurement (T&M),
QuickLabel(R) Systems (QLS), and Grass-Telefactor (G-T). T&M develops and
manufactures data acquisition instruments that serve the test and measurement
market. QLS develops and manufactures digital printers and consumable products
that serve the product identification market. Grass-Telefactor develops and
manufactures clinical neurophysiology (EEG and epilepsy monitoring),
polysomnography (PSG - Sleep monitoring), biomedical research instrumentation
and supplies that serve the life sciences market. The Company's products are
distributed both in North America and internationally through its direct sales
force and authorized distributors and agents located in approximately forty
countries. Approximately 28% of the Company's sales were made outside of the
United States.
The Company and its subsidiaries and their representatives may from time to
time make written or oral statements, including statements contained in the
Company's filings with the Securities and Exchange Commission (SEC) and in its
reports to shareholders, including this annual report, which constitute or
contain "forward-looking statements" as is defined in the Private Securities
Litigation Reform Act of 1995 or by the SEC in its rules, regulations and
releases.
All statements, other than statements of historical facts included in this
annual report regarding the Company's financial position and operating and
strategic initiatives and addressing industry developments are forward-looking
statements. Where, in any forward-looking statement, the Company or its
management expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. 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 QLS 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.
Narrative Description of Business
Products
Overview
The Company develops and manufactures systems that have the ability to
acquire electronic data, process, analyze, store and present the data in a
variety of useable forms. The T&M data acquisition systems record scientific
signals and print the output onto charts or electronic media. The QLS digital
printer systems and media products create product and packaging labels and tags
in one or many colors. The Grass-Telefactor products electronically record
signals that reflect the physiological status of living creatures for digital
or analog access. The Company supplies a range of products that include the
hardware, software, and supplies to customers who are in a variety of
industries.
5
T&M Products
The Company's 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. Using contemporary technologies, T&M products are
designed to handle customers ever-changing requirements now and into the future.
Telemetry Recorders
The Everest Telemetry-Recorder Workstation is the flagship product of T&M's
line of telemetry recorders. Designed for the unique requirements of the
aerospace and defense industries, the Everest provides engineers with vital
data on test products during pre-flight checkout and flight tests. Intended to
seamlessly integrate into off-the-shelf telemetry systems, the Everest is used
to test fighter planes, missiles, helicopters, satellites and commercial
aircraft.
During flight test, the Everest provides engineers with real-time access to
data to allow them to make split second decisions and prevent costly retesting.
After flight test, data from the Everest is available in both paper and digital
formats, allowing engineers to analyze data faster than ever before.
Dash Series Data Acquisition Recorders
The Company's Dash Series recorders are used as maintenance and
troubleshooting tools for pulp and paper mills, power plants, transportation
test centers, steel mills, automotive R&D centers and manufacturing plants.
With downtime costing these facilities tens of thousands of dollars per day,
the Dash Series data acquisition recorders can pay for themselves by preventing
a single outage. Completely self-contained in rugged aluminum cases, the Dash
Series data acquisition recorders are ideally suited for use in harsh
environments where computer-based or other systems will not perform.
Six data acquisition recorders form the Dash series line: the Dash 2, Dash
4u, Dash 8n, Dash 8u, Dash 16u and Dash 18. Priced from $5,000 to $23,000, the
company offers a product for any budget. The Dash 18 is the latest portable
data acquisition recorder to be introduced. With such leading edge technology
as a touchscreen display, waveform, audio and video data input, integral Web
browser and network interface, the Dash 18 is an important troubleshooting tool
for virtually any environment.
QLS Products
The Company's QLS product line is composed of an array of high-technology
digital color label printers, automatic labelers, and print and apply systems,
as well as labeling software and consumables. Innovative QLS products continue
to change the way companies do business by providing just-in-time, in-plant
label production capabilities and labeling automation through the Company's
advanced digital thermal transfer printing technologies. QLS's packaging,
barcoding and labeling solutions are used throughout the world.
Digital Color Label Printers
QLS digital color labels printers are designed to print multiple colors,
text and barcodes in a single pass on labels, tags and tickets of all kinds.
Using Astro-Med's proprietary MicroCell(TM) color halftoning technology, these
printers create near lithographic quality labels that can be generated on and
printed directly from a customer's personal computer, mainframe or AS/400
midrange computing platform.
In January of 2002, the Company introduced a new and advanced four color
digital label printer, the QLS-4100X. The QLS-4100X, priced at $17,995, is the
Company's fourth-generation process color printer, which
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incorporates new features deriving from the Company's research and development,
thermal printing experience, and feedback from users around the world. With the
Company's patented Ribbon Ration(TM) technology for economizing thermal
transfer ribbon, enhanced mechanical design for precise color registration,
robust performance for long runs, and more user-friendly operation, the
QLS-4100X is QLS's flagship.
QLS's digital color label printer offering also includes the following
models: the QLS-2000, QLS-2001, QLS-3000, QLS-3001. With either two or three
print stations, the QLS-2000 and QLS-3000 printers represent the Company's
value line of color printers, providing color-labeling solutions for general
product identification applications at price points of $6,550 and $10,995
respectively. The QLS-2001 and QLS-3001 models, priced at $6,995 and $9,995,
are used in specialty and niche applications, including the printing of Tyvek
pouches used in the packaging of surgical instruments. These models also
comprise the core of QLS's Apparel Printing Systems, designed to print apparel
care tags, hang tags and price tickets in manufacturing environments, retail
applications, and service bureau operations worldwide.
Marketing of the QLS printers expanded in fiscal year-end 2002 to target
applications such as the private labeling of foods and beverages, chemicals and
cleaning supplies, pharmaceutical and medical products, personal care products,
and others.
Barcode Label Printers
QLS has a new family of barcode label printers: the Pronto series. This new
line of low-cost, feature-rich barcode printers includes the Pronto 442 at
$757, Pronto 472 at $995, both with 203 dpi resolution; the high-resolution 400
dpi Pronto 474 at $2,195; and the 8.6" wide Pronto 843 at $2,195. These
competitively-priced Pronto models mark the Company's re-entry into mainline
barcode printing applications and serve as important vehicles for the sale of
QLS's thermal transfer ribbon and label products.
QLS's barcode printer line also includes the robust, industrial monochrome
barcode printer, the Top Hand(TM) QLS-500 printer. With a rugged design for
harsh environment applications, the $2,995 Top Hand printer produces labels up
to 5 inches wide at speeds of up to 10 inches per second.
QuickLabel Software
An important component of the Company's digital printing systems is the
software that produces the label formatting and the printing functionality
required for successful in-plant printing. This software, marketed under the
brand name Color QuickLabel(TM), allows customers to tap the true power
inherent in the QuickLabel printers. CQL99, a 32-bit Windows(R)-based label
creation and printing suite, supports high-color imaging, MicroCell(TM) image
halftoning, full network printing, and multiple database compatibility. CQL99
software further advances integration of the QuickLabel Systems printers within
today's high-technology production environments.
QuickLabel Automatic Label Applicators and Print & Apply Systems
To complement the QLS printers, the Company manufactures a complete line of
automatic labelers that can apply labels to all types of products, from cartons
to primary product packaging to cylindrical containers. Applicator models
include the AD-2800 and AD-2600 roll-on label applicators. In Fiscal 2001, the
Company introduced a new high-speed bottle labeling system utilizing its
AD-2800 label applicator. The CPA-350, the Company's ruggedized print and apply
system, offers companies the ability to print a label on-demand and apply it to
a product as it passes on a conveyor. The CPA-350 can be configured with air
tamp, air blast, dual apply or corner wrap applicator heads to apply a label to
two sides of the same carton or pallet.
Consumables: Thermal Transfer Ribbon and Labels
Rounding out the QLS products is a wide array of printer consumables
including thermal transfer ribbons in many colors and formulations, and both
paper and synthetic labels and tags. A full line of high quality materials,
7
developed and qualified by the Company, is available to guarantee a finished
label that meets almost any requirements from single-use paper labels to
garment labels, to outdoor signage and product labels.
Grass-Telefactor Products
The Grass-Telefactor product group offers a range of instrumentation and
supplies for clinical and biomedical research applications.
Grass-Telefactor enjoys a reputation built on decades of innovative
technology and thoughtful design. The clinical product line includes in-lab or
in-hospital integrated systems for clinical EEG, epilepsy diagnosis and
surgery, critical care and intraoperative neuromonitoring and features
networking, database and report generation capabilities in addition to powerful
data acquisitions and analysis tools. The clinical product line also includes
portable laptop-based systems for EEG or PSG (Polysomnography) systems that
allow patients to be recorded in out-of-lab settings. Grass-Telefactor utilizes
a Windows(R)-based product line which includes the Beehive(TM) Millennium used
for long term epilepsy monitoring, the Aurora(TM) digital EEG system and the
recently introduced Aurora(TM) digital PSG system. The products and services
offered by Grass-Telefactor are used worldwide by universities, medical
centers, and companies engaged in a variety of clinical and research activities.
On the research side, Grass-Telefactor offers hardware and software for data
acquisition and analysis of signals in biomedical research. The research
product line builds on a strong foundation with world-renowned Grass
amplifiers, such as the 15RX modular, computer-controlled biomedical amplifier
system.
Grass-Telefactor offers a complete line of clinical and research supplies,
including stimulators, transducers, electrodes and consumables.The supplies and
accessories product line now uses e-commerce to reach an even wider market
through the Grass-Telefactor Online Store, www.grass-telefactor.com.
Technology
The core technologies of the Company relate to (1) acquiring data, (2)
conditioning the data, (3) displaying the data on hard copy, monitor, or
electronic storage media, and finally (4) analyzing the data. All three-product
groups of the Company--T&M, QLS and G-T use these technologies.
These core technologies are constantly being developed to the level of
cutting edge performance and enable the Company to lead the competition with
innovative industry-level products.
Patents and Copyrights
The Company holds a number of product patents in the United States and in
foreign countries. It has filed applications for other patents that are
pending. The Company has patents covering its T&M recording products as well as
several patents for its QLS dual sided label printers and four-color label
printers.In addition, the Company has two other patents pending on its
multi-color printing technology. The Company considers its patents to be
important but does not believe that its business is materially dependent on
them. The Company copyrights its extensive software and registers its
trademarks.
Manufacturing and Supplies
The Company designs its products and manufactures many of the component
parts. The balance of the parts is produced to the Company's specifications by
suppliers. Raw materials required for the manufacture of products, including
parts produced to the Company's specifications, are generally available from
numerous suppliers.
Product Development
The Company has maintained an active program of product research and
development since its inception. During fiscal 2002, 2001 and 2000, the Company
incurred costs of $3.7 million, $4.3 million, and $3.4 million,
8
respectively, on Company-sponsored product development. The Company is
committed to product development as a requisite to its growth and expects to
continue its focus on research and development efforts in fiscal 2003.
Marketing and Competition
The Company competes worldwide in many markets including clinical and
research medicine, aerospace, automotive and general manufacturing. The Company
retains a competitive position in its respective markets by virtue of
proprietary technology, product reputation, delivery, technical assistance and
service to customers.
The products of the Company are marketed worldwide by advertising and
promotion using major national and international trade journals, scientific
meetings and trade shows, direct mailing campaigns, and the internet.
The products are sold by direct field sales persons as well as independent
dealers and representatives. In the United States, the Company has twenty-two
direct field sales people located in major cities from coast to coast
specializing in either T&M's Recorders and Data Acquisitions systems, QLS's
Color Label printers and media systems, or G-T Neurological Instrumentation
products. Additionally, the Company has direct field sales and service centers
in Canada, England, France, Germany, Italy, and Holland. In the remaining parts
of the world, the Company utlitizes approximately 80 independent dealers and
representatives selling and marketing its products in 40 countries. In fiscal
2002, 28% of the Company's revenues were from international sales.
The Company has a number of competitors in each of the three products groups
and markets that it serves. In the T&M area, the Company feels that it leads
the field in Data Acquisition Recorders. It competes with the Gould Instrument
Division of Nicolet, a Thermo Electron company and Western Graphtec, the US
subsidiary of Graphtec, a Japanese company.
In the Color Label Printer product group, the Company feels it leads the
world in color printing using the thermal transfer printing technology. The
Company introduced the very first thermal transfer color printers late in 1995
and to this date faces only one competitor, TEC.
The Grass-Telefactor products of the Company are devoted to clinical
applications in EEG, Polysomnography (PSG), and Long Term Epilepsy Monitoring
(LTM). There are about fourteen companies that compete in one or more of the
three modalities (EEG, PSG, LTM) but none are the clear leader. The Company
feels it offers superior products based upon its long history and pioneering
the field since 1935. The Company, unlike most of its competitors, designs,
manufactures, and produces complete systems including transducers, amplifiers,
sensors, and Windows based application software. Additionally, the Company
produces a range of life science products for the research market. Many of the
latter products eventually find their way into clinical applications.
No single customer accounted for 10% of the Company's net sales in any of
the last three fiscal years. The Company's products were sold to approximately
4,100 customers.
International Sales
The Company had a Foreign Sales Corporation subsidiary that qualified for
certain tax benefits on its exports. Effective December 31, 2001, the Company
dissolved this subsidiary as a result of rule changes made by the World Trade
Organization and tax authorities.
In fiscal 2002, 2001 and 2000, net sales to customers in various geographic
areas outside the United States, primarily in Canada and Western Europe,
amounted to $13.8 million, $13.9 million, and $12.5 million, respectively.
Order Backlog
The backlog fluctuates regularly. It consists of a blend of orders for end
user customers as well as original equipment manufacturer customers.
Manufacturing is geared to forecasted demands and applies a rapid turn
9
cycle to meet customer expectations. Accordingly, the amount of order backlog
does not indicate future sales trends and the Company does not normally carry
any material backlog.
Other Information
The Company's business is not seasonal in nature.
Most of the Company's products are generally warranted for one year against
defects in materials or workmanship. Warranty expenses have generally averaged
approximately $200,000 a year for the Company's last five fiscal years.
As of March 22, 2002 the Company employed approximately 370 persons. The
Company is generally able to satisfy its employment requirements. No employees
are represented by a union. The Company believes that employee relations are
good.
Item 2. Properties
The following table sets forth information regarding the Company's principal
owned properties, all of which are included in the consolidated balance sheet
appearing elsewhere in this report.
Approximate
Square
Location Footage Principal Use
-------- ----------- ------------------------------------
West Warwick, RI 116,000 Corporate headquarters, research and
development, manufacturing
Braintree, MA... 91,000 Manufacturing
Slough, England. 1,700 Sales and service
The Company also leases facilities in eight locations. The following
information pertains to each location:
Location Approximate Square Footage Principal Use
-------- -------------------------- -------------
West Conshohocken, PA.... 10,000 Research & development and sales and service
Longueuil, Quebec, Canada 3,800 Sales and service
Rodgau, Germany.......... 3,014 Manufacturing, sales and service
Trappes, France.......... 2,164 Sales and service
Zwolle, Netherlands...... 1,300 Sales and service
Schaumburg, IL........... 1,131 Sales and service
Costa Mesa, CA........... 980 Sales and service
Milano, Italy............ 753 Sales and service
The Company believes its facilities are well maintained, in good operating
condition and generally adequate to meet its needs for the foreseeable future.
Item 3. Legal Proceedings
There are no pending or threatened legal proceedings against the Company
believed to be material to the financial position or results of operations of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders,
through solicitation of proxies or otherwise, during the last quarter of the
period covered by this report.
10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's common stock trades on The NASDAQ Stock Market under the
symbol ALOT. The following table sets forth dividend data and the range of high
and low closing prices, as furnished by NASDAQ, for the periods indicated.
Dividends
Years Ended January 31, High Low Per Share
----------------------- ----- ----- ---------
2002
First Quarter..... $5.00 $3.87 $0.04
Second Quarter..... $4.94 $4.10 $0.04
Third Quarter..... $4.40 $3.40 $0.04
Fourth Quarter..... $4.48 $3.50 $0.04
2001
First Quarter..... $7.50 $5.19 $0.04
Second Quarter..... $6.63 $5.00 $0.04
Third Quarter..... $6.00 $4.75 $0.04
Fourth Quarter..... $4.93 $3.09 $0.04
The Company had approximately 400 shareholders of record on March 22, 2002,
which does not reflect shareholders with beneficial ownership in shares held in
nominee name.
Shareholder Services
Shareholders of Astro-Med, Inc. who desire information about the Company are
invited to contact the Investor Relations Department, Astro-Med, Inc., 600 East
Greenwich Avenue, West Warwick, RI 02893 or call (401) 828-4000. Visit our
Investor Relations website at www.astro-med.com.
Dividend Policy
The Company began a program of paying quarterly cash dividends in the second
quarter of fiscal 1992. Previously, no cash dividends had been declared or paid
by the Company since inception. The Company anticipates that it will continue
to pay cash dividends on a quarterly basis.
11
Item 6. Selected Financial Data
(Dollars in Thousands, Except Per Share Amounts)
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
Results of Operations:
Net Sales................................. $49,391 $51,688 $46,143 $42,166 $44,377
Net Income (Loss)......................... $ (233) $ 302 $ 937 $ 496 $ 1,041
Net Income (Loss) per Common Share--Basic
and Diluted............................. $ (0.05) $ 0.07 $ 0.21 $ 0.11 $ 0.21
Dividends Declared per Common Share....... $ 0.16 $ 0.16 $ 0.16 $ 0.16 $ 0.16
Financial Condition:
Working Capital........................... $21,455 $21,908 $22,453 $25,507 $27,111
Total Assets.............................. $38,404 $41,059 $45,385 $41,754 $42,814
Long-Term Debt, less Current Maturities... $ -- $ 25 $ 72 $ 17 $ 228
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Fiscal 2002 compared to Fiscal 2001
The Company's sales in fiscal 2002 decreased $2.3 million to $49.4 million,
a 4.7% decrease over fiscal 2001 sales of $51.7 million. Domestic sales
declined $2.2 million to $35.6 million a 6.6% decrease over fiscal 2001, while
international sales declined less than $0.1 million to $13.8 million. With the
decline in sales, the Company incurred a net loss in fiscal 2002 of $0.2
million versus net income of $0.3 million in fiscal 2001. Net loss per share on
a diluted basis was $0.05 in fiscal 2002 as compared with $0.07 net income per
diluted share in fiscal 2001.
Gross profit decreased 8.2% to $19.1 million in fiscal 2002 from $20.8
million in fiscal 2001. The Company's gross profit margin declined to 38.7%
from 40.2%. The decline in gross profit can be attributed primarily to the
decline in sales, lower margins on T&M's new products and lower margins on QLS
products.
Selling, general and administrative spending (SG&A) declined 2.4% to $16.1
million from $16.5 million.The Research & Development (R&D) expenses declined
to $3.7 million in fiscal 2002 from $4.3 million in fiscal 2001. R&D as a
percentage of sales declined to 7.6% in this fiscal year as compared 8.2% in
the prior year. The decline in both the SG&A and R&D expenses can be attributed
to the workforce reductions undertaken over the past two years and certain
temporary lay-offs at the end of fiscal 2002.
Interest and dividend income declined in fiscal 2002 to $248,000 from
$458,000 in fiscal 2001. The decrease is due to lower investment levels and
lower yields on investments. Other income for fiscal 2002 was $192,000 as
compared to last fiscal year's expense of $126,000. The favorable $318,000
change in other income/expense, net is attributed primarily to the following; a
$165,000 gain on the settlement of litigation, $68,000 of grant income relating
to research performed for the National Institute of Health, and a $94,000
improvement in foreign exchange losses. In the prior year, the net foreign
exchange loss was $116,000 as compared to a net foreign exchange loss for the
current year of $22,000.
12
The Company has redefined its reporting segments into segments that mirror
the Company's sales product groups (i.e., T&M, QLS and G-T). As a result, the
Company has restated its prior years' segment data to present all periods on a
comparable basis. The company evaluates segment performance based on the
operating segment's profit before corporate and financial administration
expenses.
T&M's sales decreased to $12.1 million in fiscal 2002 from $13.9 million, a
12.9% decrease from the previous year. Both T&M's domestic and international
sales were lower as a result of the delays in the introduction of the new Dash
18 recorder. The decline in T&M sales can also be attributed to the 34%
decrease in international sales. T&M's segment profit margin declined to 5.6%
in fiscal 2002 from 11.8% in the previous year. The decline in T&M's margin is
attributed to higher material costs and manufacturing inefficiencies associated
with its new state-of-the-art products.
QLS's sales increased to $20.9 million in fiscal 2002 from $19.9 million, a
5.0% increase over the previous year. Fiscal 2002 domestic sales were
essentially flat with the previous year and fiscal 2002 international sales
were 17.8% higher than the previous year. QLS's fiscal 2002 segment profit
margin declined to 4.1% down from 6.5% in the previous year. The decline in
margin is attributed to higher international sales with lower margins.
G-T's sales decreased to $16.4 million in fiscal 2002 from $17.9 million, a
8.4% decrease over the previous year. The decline in G-T's sales is attributed
to the lower domestic clinical sales resulting from the delay in the
introduction of the new PSG (sleep) software application and high turnover in
the clinical sales force. The G-T segment operating margin improved to 5.0% in
fiscal 2002 from 3.0% in the previous year. The margin improvement can be
attributed to the workforce reduction undertaken over the last two years.
Changes in the effective income tax rate from year to year are explained in
Note 6 of Notes to Consolidated Financial Statements included elsewhere herein.
Fiscal 2001 compared to Fiscal 2000
The Company's sales in fiscal 2001 increased $5.6 million to $51.7 million,
a 12.1% increase over fiscal 2000 sales of $46.1 million. The $5.6 million
sales increase is due primarily to the sales growth for the QLS and G-T product
lines as well as the incremental sales derived from the Telefactor acquisition.
The Company's net income in fiscal 2001 was $0.3 million versus net income of
$0.9 million in fiscal 2000. Net income per share on a diluted basis was $0.07
in fiscal 2001 as compared with $0.21 net income per diluted share in fiscal
2000.
Gross profit increased 10.1% to $20.8 million in fiscal 2001 from $18.9
million in fiscal 2000. The Company's gross profit margin declined to 40.2%
from 40.9% primarily as a result of the Telefactor acquisition and lower
margins on T&M products. In the third quarter of fiscal 2001, the Telefactor
manufacturing facility in Pennsylvania was closed and the manufacturing was
transferred to the Grass manufacturing facility in Braintree, Massachusetts.
Selling, general and administrative spending rose 12.2% to $16.5 million
from $14.7 million. The increase in selling, general and administrative
expenses is attributable to the Telefactor acquisition and the increase in use
of outside services. Selling, general and administrative expenses as a percent
of sales remained flat at 32% fiscal year 2001 as compared to the prior year.
Research & development expenses rose to $4.3 million in fiscal 2001 from
$3.4 million in fiscal 2000. The increase is a result of the additions of
engineering personnel from Telefactor as well as salaries and product
development related research projects. Research & development as a percentage
of sales rose to 8.2% in this fiscal year as compared to 7.3% in the prior year.
Interest and dividend income declined in fiscal 2001 to $458,000 from
$666,000 in fiscal 2000. The decrease is due to lower investment levels
resulting from the Telefactor acquisition and Company's stock buyback program.
Other expense for fiscal 2001 was $126,000, down from last fiscal year's
expense of $190,000. These expenses consist primarily of net losses on foreign
currency exchange with our European branches. These foreign currency exchange
losses declined as the U.S. dollar weakened.
13
T&M's sales declined to $13.9 million in fiscal year 2001, down 6.1% from
$14.8 million from the previous year. T&M's sales declined as a result of the
new Everest Telemetry Recorder Workstation product taking longer than
anticipated to gain acceptance in the marketplace. T&M's segment operating
margin declined to 11.8% in fiscal 2001 from 13.5% the previous year. The
decline in T&M's margin is attributed to higher material costs and
manufacturing inefficiencies associated with the new Everest.
QLS's sales increased to $19.9 million in fiscal year 2001, up 11.2% from
$17.9 million in the prior year. QLS's segment operating margin improved to
6.4% from 3.8% in the prior year as a result of the overall increase in sales
volume and a higher level of sales to original equipment manufacturers which
generally yields higher margins.
G-T's sales increased to $17.9 million in fiscal year 2001, up 33.6% from
$13.4 million in the prior year. Excluding the impact of Telefactor sales,
Grass sales increased 9.0%. This sales growth is attributable primarily to the
EEG and PSG products in the high growth sleep monitoring device market. G-T's
segment operating profit margin declined to 3.0% in fiscal 2001 from 10.1% in
fiscal 2000 as a result of additional costs incurred with the Telefactor
acquisition.
Changes in the effective income tax rate from year to year are explained in
Note 6 of Notes to Consolidated Financial Statements included elsewhere herein.
Liquidity and Capital Resources
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 Company's Statements of Cash Flows for the three years ending January
31, 2002, 2001 and 2000 are included on page 25. Net cash flow provided by
operating activities was $1.3 million in fiscal 2002 versus net cash flow used
by operating activities of $2.6 million in fiscal 2001 and net cash flow
provided by operating activities of $4.7 million in fiscal 2000. The increase
in net cash flow from operations in fiscal 2002 is attributed primarily to the
lower accounts receivable and inventory balances; timing of payments to
vendors; and the decrease in income tax payments. Working capital balances at
January 31, 2002 were $21.5 million, a 2% reduction from the $21.9 million at
January 31, 2001. The composition of fiscal 2002 year-end working capital
balance includes cash and marketable securities of $5.9 million as compared to
$6.2 million of cash and marketable securities at the end of last year. The
Company's cash collection cycle decreased to 60 days sales outstanding from the
prior year's 66 days.
Net cash flow provided by investing activities was $1.2 million and $0.9
million, respectively in fiscal 2002 and 2001 versus net cash flow used by
investing activities of $4.2 million in fiscal 2000. The significant use of
cash in fiscal 2000 is attributed to the acquisition of Telefactor. Capital
expenditures were $911,000, $1,204,000 and $975,000 in fiscal 2002, 2001 and
2000, respectively.
Net cash used by financing activities was $0.7 million in fiscal 2002, $1.5
million in fiscal 2001 and $1.4 million in fiscal 2000. This category includes
dividends paid to shareholders and the cost of repurchasing the Company's
common stock. Dividends paid for the three-years ended fiscal 2002, 2001, and
2000 were $681,000, $700,000 and $709,000, respectively. The Company's annual
dividend per share was $0.16 in all three years. In fiscal 2001 and 2000 the
Company repurchased common stock at a cost of $807,900 and $451,000,
respectively. Since the inception of the stock buy back program in fiscal 1997,
the Company has repurchased 867,824 shares of its common stock. At January 31,
2002, the Company has Board of Directors' authorization to purchase an
additional 290,000 shares of the Company's common stock in the future.
Other
The Company has a contingent obligation relating to the Telefactor
acquisition that requires the Company to pay additional consideration to the
sellers if certain sales amounts are achieved during the seventy-two months
following the closing of the transaction. At January 31, 2002, no additional
consideration was owed to the sellers.
14
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. We
believe that our most critical accounting policies upon which our financial
condition depends, and which involve the most complex or subjective decisions
or assessments as follows:
Revenue Recognition: The majority of the Company's product sales are
recorded at the time of shipment and when persuasive evidence of an arrangement
exists, the seller's price to the buyer is fixed or determinable and
collectibility is reasonably assured. Provisions are made at the time the
related revenue is recognized for the cost of any installation obligations.
When other significant obligations remain after products are delivered, revenue
is recognized only after such obligation are fulfilled.
Warranty Claims and Bad Debts: Provisions for the estimated costs for future
product warranty claims and bad debts are recorded in cost of sales and
selling, general and administrative expense, respectively, at the time a sale
is recorded. The amounts recorded are generally based upon historically derived
percentages while also factoring in any new business conditions that might
impact the historical analysis such as new product introduction for warranty
and bankruptcies of particular customers for bad debts. The Company also
periodically evaluates the adequacy of its reserves for warranty and bad debts
recorded in its consolidated balance sheet as a further test to ensure the
adequacy of the recorded provisions. Warranty claims can extend far into the
future and bad debt analysis often involves subjective analysis of a particular
customer's ability to pay. As a result, significant judgment is required by the
Company in determining the appropriate amounts to record and such judgments may
prove to be incorrect in the future. The Company believes that its procedures
for estimating such amounts are reasonable and historically have not resulted
in material adjustments in subsequent periods when the estimates are adjusted
to the actual amounts.
Customer Returns: Customer returns are recorded on an actual basis
throughout the year and also include an estimate at the end of each reporting
period for future customer returns related to sales recorded prior to the end
of the period. The Company generally estimates customer returns based upon its
historical experience while making adjustments for any changes in business
conditions.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market. The Company records provisions to write-down obsolete and
excess inventory at its estimated net realizable value. The process for
evaluating obsolete and excess inventory consists of the Company analyzing the
inventory supply on hand and estimating the net realizable value of the
inventory based on historical experience, current business conditions and
anticipated future sales.
Income taxes: The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard (SFAS) No. 109, Accounting for
Income Taxes. This SFAS requires that deferred income taxes be determined based
on estimated future tax effects of differences between the tax and book bases
of assets and liabilities considering the provisions of enacted tax laws. The
Company has historically had prepaid income tax assets due principally to the
unfavorable tax consequences of recording expenses for required book reserves
for such things as, bad debts, inventory valuation, and warranty that cannot be
deducted for income tax purposes until such expenses are actually paid. The
Company's deferred tax liabilities consist primarily of favorable tax
consequences associated with accelerated depreciation methods for tax purposes.
The Company believes that the amounts recorded as prepaid income tax assets
will be recoverable either through future taxable income generated by the
Company or by the fact that the Company has deferred tax liabilities that can
be used to offset the amount of the prepaid income tax assets; however, there
can be no absolute assurance that all recognized prepaid income tax assets will
be fully recovered.
Long-Lived Assets: The Company evaluates the recoverability of long-lived
assets, including goodwill whenever events or changes in circumstances, such as
a decline in sales, earnings or cashflow or material adverse changes in the
business climate indicate that the carrying amount of an asset may not be
recoverable. The Company performs the impairment review in accordance with SFAS
No. 121 "Accounting for the Impairment of
15
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"). Subsequent to January 31, 2002, the Company will account for acquired
goodwill and goodwill impairment in accordance with SFAS No.141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" which
are more fully described in Note 1 of the Notes to the Consolidated Financial
Statements. These new pronouncements will require considerable judgment. The
Company has not yet determined the impact (if any) of the adoption of these new
accounting standards.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
The Company's financial results are affected by changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which
products are sold. The Company's primary currency exposures are European Common
Currency (Euro), British Pound, and Canadian Dollar. At January 31, 2002, the
Company's investment in foreign assets was $2.9 million. An overall unfavorable
change in foreign exchange rates of 10% would have resulted in an additional
net loss of approximately $26,000 and a $260,000 reduction in shareholders'
equity as a result of the impact on the cumulative translation adjustment.
The Company utilizes foreign exchange option contracts to minimize its
exposure associated with unfavorable changes in foreign exchanges rates on
certain foreign denominated receivables. At January 31, 2002, the Company did
not have open contracts.
The functional currencies of the Company's foreign affiliates are their
respective local operating currencies, which are translated for consolidated
financial reporting purposes into U.S. dollars.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements required under this item are submitted
as a separate section of this report on the pages indicated at Item 14(a)(1).
The supplementary data regarding quarterly results of operations is set forth
in the following table.
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in Thousands, Except Per Share Amounts)
Quarters Ended
-------------------------------------------
May 5, August 4, November 3, January 31,
2001 2001 2001 2002
--------- --------- ----------- -----------
Net Sales............................................ $12,436 $12,132 $12,399 $12,424
Gross Profit......................................... $ 5,052 $ 4,766 $ 4,441 $ 4,847
Net Income (Loss).................................... $ 150 $ (194) $ (230) $ 41
Net Income (Loss) Per Common Share--Basic and Diluted $ 0.04 $ (0.05) $ (0.05) $ 0.01
April 29, July 29, October 28, January 31,
2000 2000 2000 2001
--------- --------- ----------- -----------
Net Sales............................................ $12,530 $13,384 $11,881 $13,893
Gross Profit......................................... $ 5,170 $ 5,403 $ 4,233 $ 5,986
Net Income (Loss).................................... $ 158 $ 268 $ (698) $ 573
Net Income (Loss) Per Common Share--Basic and Diluted $ 0.04 $ 0.06 $ (0.16) $ 0.13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
16
PART III
Item 10. Directors and Executive Officers of the Registrant
The response to this item is incorporated by reference to the Company's
definitive proxy statement for the 2002 annual meeting of shareholders.
The following is a list of the names and ages of, and the positions and
offices presently held by, all executive officers of the Company. All officers
serve at the pleasure of the Board of Directors.
Name Age Position
---- --- --------
Albert W. Ondis.... 76 Chairman, Chief Executive Officer and Director
Everett V. Pizzuti. 65 President, Chief Operating Officer and Director
Terence J. Jones... 55 Senior Vice President
Joseph P. O'Connell 58 Vice President and Treasurer, Chief Financial Officer
John B. Chatten.... 74 President, Grass--Telefactor Product Group
Elias G. Deeb...... 59 Vice President--Media Manufacturing
Michael J. Sullivan 51 Vice President and Chief Technology Officer
Stephen M. Petrarca 39 Vice President--Instrument Manufacturing
Michael F. Silveira 36 Corporate Controller
All of the persons named above have held the positions identified since
January 31, 1985, except as indicated below.
Mr. Ondis has been a Director and Chief Executive Officer since 1969. He was
previously President and the Chief Financial Officer (Treasurer) of the Company
from 1969 to 1985.
Mr. Pizzuti was previously a Vice President of the Company functioning as
Chief Operating Officer since 1971.
Mr. Jones joined the Company in 2000. He previously held various senior
management positions with the Avery Dennison Corporation including President
Worldwide Fasteners from 1989 to 1991, Vice President and General Manager Avery
Dennison from 1991 to 1998, and Vice President, General Manager Fasson Roll
North America from 1998 to 2000 and most recently serving as Vice President of
Business Development and Process Improvement at Fasson Roll Worldwide.
Mr. O'Connell joined the Company in 1996. He previously held senior
financial management positions with Cherry Tree Products Inc., IBI Corporation
and Dennison Manufacturing Company. Mr. O'Connell is also Assistant Secretary
of the Company.
Mr. Chatten joined the Company in December 1999 as President of
Grass-Telefactor Product Group. Prior to that, Mr. Chatten was founder and
President of Telefactor Corporation which was acquired by Astro-Med in December
1999.
Mr. Deeb has held the position identified since 1987. In 1985, he was named
General Manager--Media Products after having been Vice President and General
Manager since 1981 of a business sold by the Company in 1984.
Mr. Sullivan was appointed Vice President and Chief Technology Officer in
2000. He is an electronic engineer and has been with the Company for eighteen
years.
Mr. Petrarca was appointed Vice President of Instrument Manufacturing in
November 1998. He has previously held positions as General Manager of
Manufacturing, Manager of Grass Operations and Manager of Grass Sales. He has
been with the Company since 1980.
17
Mr. Silveira joined the Company in 2000. He previously held financial
management positions with Textron Inc., most recently serving in the Industrial
Products, Mergers & Acquisitions group and with KPMG Peat Marwick LLP. He is a
certified public accountant.
Item 11. Executive Compensation
The response to this item is incorporated by reference to the Company's
definitive proxy statement for the 2002 annual meeting of shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The response to this item is incorporated by reference to the Company's
definitive proxy statement for the 2002 annual meeting of shareholders.
Item 13. Certain Relationships and Related Transactions
The response to this item is incorporated by reference to the Company's
definitive proxy statement for the 2002 annual meeting of shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
The following consolidated financial statements of Astro-Med, Inc. and
subsidiaries are incorporated by reference in Item 8:
Page
-----
Report of Independent Public Accountants........................................................ 21
Consolidated Balance Sheets as of January 31, 2002 and 2001..................................... 22
Consolidated Statements of Income--Years Ended January 31, 2002, 2001 and 2000.................. 23
Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity--Years Ended
January 31, 2002, 2001, and 2000.............................................................. 24
Consolidated Statements of Cash Flows--Years Ended January 31, 2002, 2001, and 2000............. 25
Notes to Consolidated Financial Statements...................................................... 26-35
(a)(2) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts and Reserves--
Years Ended January 31, 2002, 2001, and 2000............... 36
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore, have been omitted.
18
(a)(3) Exhibits:
Exhibit
Number
- ------
(3A) Articles of Incorporation of the Company and all amendments thereto (filed as Exhibit No. 3A to the
Company's report on Form 10-Q for the quarter ended August 1, 1992 and by this reference
incorporated herein).
(3B) By-laws of the Company and all amendments thereto (filed as Exhibit No. 3B to the Company's
report on Form 10-Q for the quarter ended July 30, 1988 and by this reference incorporated
herein).
(4) Specimen form of common stock certificate of the Company (filed as Exhibit No. 4 to the
Company's report on Form 10-K for the year ended January 31, 1985 and by this reference
incorporated herein).
(10.1) Astro-Med, Inc. 1989 Non-Qualified Stock Option Plan, as amended, filed as Exhibit 4.3 to
Registration Statement on Form S-8, Registration No. 333-32317 and incorporated by reference
herein. (a)
(10.2) Astro-Med, Inc. 1989 Incentive Stock Option Plan, as amended, filed as Exhibit 28 to Registration
Statement on Form S-8, Registration No. 333-43700, and incorporated by reference herein. (a)
(10.3) Astro-Med, Inc. 1993 Incentive Stock Option Plan filed as Exhibit 4.3 to Registration Statement on
Form S-8, Registration No. 333-24127, and incorporated by reference herein. (a)
(10.4) Astro-Med, Inc. Non-Employee Director Stock Option Plan filed as Exhibit 4.3 to Registration
Statement on Form S-8, Registration No. 333-24123, and incorporated by reference herein. (a)
(10.5) Astro-Med, Inc. 1997 Incentive Stock Option Plan, as amended, filed as Exhibit 4.3 to Registration
Statements on Form S-8, Registration Nos. 333-32315, 333-93565 and 333-44414, and
incorporated by reference herein. (a)
(10.6) Astro-Med, Inc. 1998 Non-Qualified Stock Option Plan, as amended, filed as Exhibit 4.3 to
Registration Statement on Form S-8, Registration Nos. 333-62431 and 333-63526, and
lincorporated by reference herein.
(10.7) Employment Agreement between Astro-Med, Inc. and John B. Chatten dated as of December 14,
1999(a).
(21) List of Subsidiaries of the Company. See page 21.
(23) Consent of Independent Public Accountants. See page 21.
(99) Letter regarding Arthur Andersen LLP's Quality Control required under Temporary Note 3T to
Article 3 of Regulation SX.
- --------
(a) Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
None
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 10, 2002
By /s/ ALBERT W. ONDIS
----------------------------------
(Albert W. Ondis, Chairman)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ ALBERT W. ONDIS Chairman and Director April 10, 2002
- ----------------------------- (Principal Executive
Albert W. Ondis Officer)
/s/ EVERETT V. PIZZUTI President and Director April 10, 2002
- ----------------------------- (Principal Operating
Everett V. Pizzuti Officer)
/s/ JOSEPH P. O'CONNELL Vice President and Treasurer April 10, 2002
- ----------------------------- (Principal Financial
Joseph P. O'Connell Officer)
/s/ MICHAEL F. SILVEIRA Controller (Principal April 10, 2002
- ----------------------------- Accounting Officer)
Michael F. Silveira
/s/ JACQUES V. HOPKINS Director April 10, 2002
- -----------------------------
Jacques V. Hopkins
20
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
Jurisdiction of
Name Organization
---- ------------
AWO, Inc. Delaware
Astro-Med International Inc. Barbados
Astro-Med SRL Italy
Astro-Med GMBH Germany
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated March 15, 2002, included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8: File No. 2-21081
pertaining to the Astro-Med, Inc. Employee Stock Purchase Plan, File No.
33-43700 pertaining to the Astro-Med, Inc. 1989 Incentive Stock Option Plan,
File No. 333-24127 pertaining to the Astro-Med, Inc. 1993 Incentive Stock
Option Plan, File Nos. 333-32315, 333-93565 and 333-44414 pertaining to the
Astro-Med, Inc. 1997 Incentive Stock Option Plan. File No. 333-32317 pertaining
to the 1989 Astro-Med, Inc. Non-Qualified Stock Option Plan as amended May 28,
1991, File Nos. 333-62431 and 333-63526 pertaining to the 1998 Astro-Med, Inc.
Non-Qualified Stock Option Plan, as amended June 21, 2001 and File No.
333-24123 pertaining to the Astro-Med, Inc. Non-Employee Director Stock Option
Plan. It should be noted that we have not audited any financial statements of
the Company subsequent to January 31, 2002 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 10, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Astro-Med, Inc.:
We have audited the accompanying consolidated balance sheets of Astro-Med,
Inc. (a Rhode Island Corporation) and subsidiaries as of January 31, 2002 and
2001, and the related consolidated statements of income, comprehensive income
and changes in shareholders' equity and cash flows for each of the three years
in the period ended January 31, 2002. These financial statements and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Astro-Med, Inc. and
subsidiaries as of January 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2002, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 2002
21
ASTRO-MED, INC.
CONSOLIDATED BALANCE SHEETS
As of January 31, 2002 and 2001
2002 2001
- - ------------ ------------
ASSETS
------
CURRENT ASSETS
Cash and Cash Equivalents.............................................. $ 2,569,721 $ 806,069
Securities Available for Sale (Note 2)................................. 3,340,874 5,362,523
Accounts Receivable, net of reserves $352,442 and $467,882,
respectively......................................................... 9,173,568 10,663,624
Inventories (Note 3)................................................... 10,243,182 10,782,425
Prepaid Expenses and Other Current Assets (Note 6)..................... 2,229,660 2,038,227
------------ ------------
Total Current Assets............................................... 27,557,005 29,652,868
PROPERTY, PLANT AND EQUIPMENT
Land and Improvements.................................................. 398,191 398,191
Buildings and Improvements............................................. 7,280,097 7,236,148
Machinery and Equipment................................................ 15,780,015 14,912,966
------------ ------------
23,458,303 22,547,305
Less Accumulated Depreciation.......................................... (15,478,613) (14,259,992)
------------ ------------
7,979,690 8,287,313
OTHER ASSETS
Goodwill, net (Note 10)................................................ 2,310,798 2,465,494
Amounts Due from Officers.............................................. 480,314 480,314
Other.................................................................. 76,422 172,941
------------ ------------
2,867,534 3,118,749
------------ ------------
$ 38,404,229 $ 41,058,930
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable....................................................... $ 3,325,133 $ 3,711,248
Accrued Compensation................................................... 1,114,490 1,974,223
Accrued Expenses....................................................... 1,637,826 1,916,597
Income Taxes Payable (Note 6).......................................... -- 96,058
Current Maturities of Long-Term Debt (Note 4).......................... 24,755 46,832
------------ ------------
Total Current Liabilities.......................................... 6,102,204 7,744,958
LONG-TERM DEBT, Less Current Maturities (Note 4).......................... -- 24,755
DEFERRED INCOME TAXES (Note 6)............................................ 876,867 996,157
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10)
SHAREHOLDERS' EQUITY (Note 5)
Preferred Stock, $10 Par Value, Authorized 100,000 Shares, Issued None. -- --
Common Stock, $0.05 Par Value, Authorized 13,000,000 Shares, Issued
5,165,027 and 5,160,780, respectively................................ 258,251 258,039
Additional Paid-in Capital............................................. 5,636,570 5,706,870
Retained Earnings...................................................... 31,753,694 32,667,859
Treasury Stock, at Cost, 897,895 and 930,895 Shares, respectively...... (5,860,609) (6,076,003)
Accumulated Other Comprehensive Loss................................... (362,748) (263,705)
------------ ------------
31,425,158 32,293,060
------------ ------------
$ 38,404,229 $ 41,058,930
============ ============
The accompanying notes are an integral part of these financial statements.
22
ASTRO-MED, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended January 31, 2002, 2001 and 2000
2002 2001 2000
----------- ----------- -----------
Net Sales............................................. $49,390,937 $51,687,763 $46,143,206
Cost of Sales......................................... 30,284,573 30,895,584 27,280,835
----------- ----------- -----------
Gross Profit.......................................... 19,106,364 20,792,179 18,862,371
Costs and Expenses:
Selling, General and Administrative................ 16,090,402 16,455,696 14,717,092
Research and Development........................... 3,743,516 4,255,434 3,353,883
----------- ----------- -----------
19,833,918 20,711,130 18,070,975
----------- ----------- -----------
Operating Income (Loss)............................... (727,554) 81,049 791,396
Other Income (Expense):
Interest and Dividend Income....................... 247,813 458,191 665,687
Interest Expense................................... (3,903) (11,051) (18,239)
Other, net......................................... 191,837 (125,700) (189,987)
----------- ----------- -----------
435,747 321,440 457,461
----------- ----------- -----------
Income (Loss) before Income Taxes..................... (291,807) 402,489 1,248,857
Income Taxes Expense (Benefit)........................ (58,706) 100,000 312,214
----------- ----------- -----------
Net Income (Loss)..................................... $ (233,101) $ 302,489 $ 936,643
=========== =========== ===========
Net Income (Loss) Per Common Share--Basic and Diluted. $ (0.05) $ 0.07 $ 0.21
=========== =========== ===========
Weighted Average Number of Common Shares Outstanding--
Basic............................................... 4,259,423 4,386,852 4,434,108
=========== =========== ===========
Weighted Average Number of Common Shares Outstanding--
Diluted............................................. 4,259,423 4,407,632 4,475,371
=========== =========== ===========
Dividends Declared Per Common Share................... $ 0.16 $ 0.16 $ 0.16
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
23
ASTRO-MED, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN SHAREHOLDERS'
EQUITY
Years Ended January 31, 2002, 2001 and 2000
2002 2001 2000
----------- ----------- -----------
Comprehensive Income (Loss)
Net Income (Loss)............................................. $ (233,101) $ 302,489 $ 936,643
Other Comprehensive Income (Loss), Net
Foreign currency translation adjustments................... (142,454) (52,303) (34,865)
Unrealized gain (loss) on securities available for sale.... 43,411 270,558 (301,872)
----------- ----------- -----------
Other comprehensive income (loss), net........................ (99,043) 218,255 (336,737)
----------- ----------- -----------
Comprehensive Income (Loss)................................... $ (332,144) $ 520,744 $ 599,906
=========== =========== ===========
Shareholders' Equity
Common Stock, $0.05 Par Value:
Balance at beginning of year............................... $ 258,039 $ 257,402 $ 257,176
Net proceeds from issuance of Company common stock
(Note 5)................................................. 212 637 226
----------- ----------- -----------
Balance at end of year..................................... 258,251 258,039 257,402
----------- ----------- -----------
Additional Paid-In Capital:
Balance at beginning of year............................... 5,706,870 5,647,791 5,641,317
Net proceeds from issuance of Company common stock
(Note 5)................................................. 15,139 59,079 23,714
Net cost of shares issued to Employee Stock Ownership Plan
(Note 5)................................................. (85,439) -- (17,240)
----------- ----------- -----------
Balance at end of year..................................... 5,636,570 5,706,870 5,647,791
----------- ----------- -----------
Retained Earnings:
Balance at beginning of year............................... 32,667,859 33,065,454 32,837,880
Net income (loss).......................................... (233,101) 302,489 936,643
Dividends paid............................................. (681,064) (700,084) (709,069)
----------- ----------- -----------
Balance at end of year..................................... 31,753,694 32,667,859 33,065,454
----------- ----------- -----------
Treasury Stock:
Balance at beginning of year............................... (6,076,003) (5,268,103) (4,889,343)
Purchases of Company common stock
(Note 5)................................................. -- (807,900) (451,000)
Shares issued to Employee Stock Ownership Plan
(Note 5)................................................. 215,394 -- 72,240
----------- ----------- -----------
Balance at end of year..................................... (5,860,609) (6,076,003) (5,268,103)
----------- ----------- -----------
Accumulated Other Comprehensive Loss:
Balance at beginning of year............................... (263,705) (481,960) (145,223)
Other comprehensive income (loss), net..................... (99,043) 218,255 (336,737)
----------- ----------- -----------
Balance at end of year..................................... (362,748) (263,705) (481,960)
----------- ----------- -----------
Total Shareholders' Equity............................. $31,425,158 $32,293,060 $33,220,584
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
24
ASTRO-MED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 31, 2002, 2001 and 2000
2002 2001 2000
----------- ----------- -----------
Cash Flows from Operating Activities:
Net Income (Loss)............................................. $ (233,101) $ 302,489 $ 936,643
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) By Operating Activities:
Depreciation and Amortization............................. 1,641,971 1,774,764 1,355,513
(Gain) Loss on Sale of Assets............................. (25,650) -- 3,017
Deferred Income Taxes..................................... (160,694) (182,410) (212,951)
Other..................................................... (99,044) 258,807 76,674
Changes in Assets and Liabilities:
Accounts Receivable.................................... 1,490,056 (1,392,810) (986,656)
Inventories............................................ 253,394 (419,461) (439,547)
Other.................................................. (95,578) 133,010 371,381
Accounts Payable and Accrued Expenses.................. (1,394,663) (2,563,107) 3,484,198
Income Taxes Payable................................... (96,058) (503,166) 106,342
----------- ----------- -----------
Total Adjustments.................................. 1,513,734 (2,894,373) 3,757,971
----------- ----------- -----------
Net Cash Provided (Used) by Operating Activities.......... 1,280,633 (2,591,884) 4,694,614
Cash Flows from Investing Activities:
Proceeds from Sales/Maturities of Securities Available
for Sale.................................................... 2,244,742 5,170,695 3,838,473
Purchases of Securities Available for Sale.................... (163,798) (3,321,296) (3,446,395)
Proceeds from Sales of Assets................................. 25,650 -- 2,800
Escrow Returned, (Payment) for Acquisition.................... -- 225,000 (3,657,098)
Additions to Property, Plant and Equipment.................... (911,030) (1,203,592) (975,113)
----------- ----------- -----------
Net Cash Provided (Used) by Investing Activities.......... 1,195,564 870,807 (4,237,333)
Cash Flows from Financing Activities:
Payments of Debt.............................................. -- -- (75,000)
Principal Payments on Capital Leases.......................... (46,832) (60,453) (156,574)
Proceeds from Common Shares Issued Under Employee
Benefit Plans............................................... 15,351 59,716 23,940
Purchases of Treasury Stock................................... -- (807,900) (451,000)
Dividends Paid................................................ (681,064) (700,084) (709,069)
----------- ----------- -----------
Net Cash Used by Financing Activities..................... (712,545) (1,508,721) (1,367,703)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents............. 1,763,652 (3,229,798) (910,422)
Cash and Cash Equivalents, Beginning of Year..................... 806,069 4,035,867 4,946,289
----------- ----------- -----------
Cash and Cash Equivalents, End of Year........................... $ 2,569,721 $ 806,069 $ 4,035,867
=========== =========== ===========
Supplemental Information:
Cash Paid During the Period for:
Interest.................................................. $ 3,903 $ 11,104 $ 17,504
Income Taxes.............................................. $ 129,016 $ 746,000 $ 406,182
Non-Cash Transfers:
Demonstration Equipment Transferred from Inventory to
Property, Plant and Equipment........................... $ 285,849 $ 508,000 $ 261,750
The accompanying notes are an integral part of these financial statements.
25
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2002
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of Astro-Med, Inc. (the Company) and its subsidiaries. All
material intercompany accounts and transactions are eliminated in
consolidation. Certain prior year balances have been reclassified to conform to
the current-year reporting format.
Cash and Cash Equivalents: Highly liquid investments with an original
maturity of 90 days or less at date of acquisition are considered to be cash
equivalents when purchased as part of the Company's cash management activities.
Similar investments with original maturities beyond three months are classified
as securities available for sale.
Securities Available for Sale: Securities available for sale are carried at
market value based on quoted market prices. The difference between cost and
market value, net of related tax effects, is recorded as a component of
accumulated other comprehensive income of shareholders' equity.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets (land improvements--10 to 20 years; buildings and
improvements--10 to 45 years; machinery and equipment--3 to 10 years).
Amortization of Intangibles: Goodwill from the acquisition of Telefactor is
being amortized over 15 years. All other goodwill is amortized on the
straight-line method over 40 years. Accumulated amortization amounted to
$876,643 and $721,947 as of January 31, 2002 and 2001, respectively. In
accordance with Statement of Financial Accounting Standard (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the Company evaluates the carrying value of long-lived assets
whenever events or changes in circumstances indicate the carrying amounts of
such assets may not be recovered.
Derivative Instruments and Hedging: On February 1, 2001, the Company adopted
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133, and as amended in
June 2000 by SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities--an Amendment to SFAS No. 133 (combined SFAS No.
133). The statement requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting.The adoption of this statement did not have a material impact on the
Company's results of operations or financial position.
Revenue Recognition: The majority of the Company's product sales are
recorded at the time of shipment and when persuasive evidence of an arrangement
exists, the seller's price to the buyer is fixed or determinable and
collectibility is reasonably assured. Provisions are made at the time the
related revenue is recognized for the cost of any installation obligations.
When other significant obligations remain after products are delivered, revenue
is recognized only after such obligation are fulfilled.
In July 2000, the Emerging Issues Task Force, a body of the Financial
Accounting Standards Board (FASB), reached a consensus on Issue No. 00-10,
Accounting for Shipping and Handling Fees and Costs. The consensus requires
companies to start reporting amounts billed to customers in a sales transaction
related to shipping and handling as revenue in the fourth quarter of fiscal
year 2001. The Company previously reported these amounts as a reduction of cost
of goods sold. All periods presented have been reclassified to conform to the
current practice. The amounts reclassed were $650,295, and $574,460 for the two
years ending January 31, 2001 and 2000, respectively.
26
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency: The financial statements of foreign subsidiaries are
measured using the local currency as the functional currency. The Company
translates foreign currency denominated assets and liabilities into U.S.
dollars at year-end exchange rates with the translation adjustment reported as
a separate component of shareholders' equity. Revenues and expenses are
translated at average exchange rates during the year.
Long-Lived Assets: In July 2001, FASB released for issuance SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Under SFAS No. 142, amortization of goodwill to earnings will cease
and instead, the carrying value of goodwill will be evaluated for impairment on
at least an annual basis. If these new rules were applied to fiscal 2002 the
Company would have reported approximately $155,000 less of amortization expense
on a pre-tax basis. The Company is currently determining the impact (if any) of
adopting this standard.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company believes the adoption of this Statement will not
have a material impact on its financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and the accounting and reporting provisions of Accounting Principles Board
(APB) No. 30. SFAS No. 144 addresses the financial and reporting for the
impairment or disposal of long-lived assets and is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company is currently reviewing this statement to determine its
effect (if any) on the Company's financial statements.
Income Taxes: The Company accounts for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. This SFAS requires that deferred income
taxes be determined based on estimated future tax effects of differences
between the tax and book bases of assets and liabilities considering the
provisions of enacted tax laws.
Net Income (Loss) Per Common Share: Net income (loss) per common share have
been computed and presented pursuant to the provisions of SFAS No. 128,
Earnings per Share. Net income (loss) 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
potential common shares for stock options outstanding during the period using
the treasury stock method. In accordance with SFAS No. 128, options to purchase
1,653,075, 1,093,825, and 600,325 shares of common stock were outstanding
during fiscal 2002, 2001 and 2000, respectively, but were not included in the
computation of diluted EPS because their inclusion would be anti-dilutive.
2002 2001 2000
--------- --------- ---------
Weighted Average Common Shares Outstanding--Basic.. 4,259,423 4,386,852 4,434,108
Dilutive Effect of Options Outstanding............. -- 20,780 41,263
--------- --------- ---------
Weighted Average Common Shares Outstanding--Diluted 4,259,423 4,407,632 4,475,371
27
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates: The presentation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect these financial statements and
accompanying notes. Some of the more significant estimates include the
allowances for bad debt and credits, inventory valuation, income taxes 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.
Fair Value of Financial Instruments: The Company's financial instruments
consist mainly of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt. The carrying amounts of these financial instruments
as of January 31, 2002 approximate fair value.
Note 2--Securities Available for Sale
Securities available for sale include corporate and governmental obligations
with various contractual or anticipated maturity dates. Governmental
obligations include U.S. Government, State, Municipal and Federal Agencies
securities. The market value, amortized cost and gross unrealized gains and
losses of the securities are as follows:
Gross Gross
Market Unrealized Unrealized Amortized
Value Gains Losses Cost
---------- ---------- ---------- ----------
January 31, 2002
Corporate....... $1,218,892 $22,253 $ -- $1,196,639
Governmental.... 2,121,982 38,004 (20,235) 2,104,213
---------- ------- -------- ----------
$3,340,874 $60,257 $(20,235) $3,300,852
========== ======= ======== ==========
January 31, 2001
Corporate....... $1,486,495 $12,801 $(11,239) $1,484,933
Governmental.... 3,876,028 17,063 (22,014) 3,880,979
---------- ------- -------- ----------
$5,362,523 $29,864 $(33,253) $5,365,912
========== ======= ======== ==========
The cost of securities available for sale that were sold was based on
specific identification in determining realized gains or losses included in the
accompanying consolidated statements of income.
The expected maturity dates of these securities are as follows: Less than
one year--$507,876; One to Five Years--$1,887,726; Six to Ten Years--$619,010
and greater than Ten Years--$326,262. Actual maturities may differ as a result
of sales or earlier issuer redemptions.
Note 3--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 were as follows:
January 31,
-----------------------
2002 2001
----------- -----------
Materials and Supplies $ 5,850,797 $ 5,921,934
Work-in-Progress...... 961,279 1,282,466
Finished Goods........ 3,431,106 3,578,025
----------- -----------
$10,243,182 $10,782,425
=========== ===========
28
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Debt
Debt consists of the following:
January 31,
---------------
2002 2001
------- -------
Capital Lease Obligations $24,755 $71,587
Less: Current Maturities. 24,755 46,832
------- -------
$ -- $24,755
======= =======
Note 5--Shareholders' Equity
Common Stock: The Company's Board of Directors has authorized the purchase
of up to an additional 290,000 shares of the Company's common stock on the open
market in the future. The Company repurchased 201,600, and 77,000 shares, of
its common stock in fiscal 2001 and 2000, respectively.
The Company maintains the following benefit plans involving the Company's
common stock:
Stock Option Plans: As of January 31, 2002, the Company has two incentive
stock option plans and one non-qualified stock option plan under which options
may be granted to officers and key employees. Options vest over various periods
that range from six months to five years. Options for an aggregate of 1,500,000
shares may be granted under the incentive stock option plans at option prices
of not less than fair market value at the date of grant. Options for an
aggregate of 1,000,000 shares may be granted under the non-qualified plan at
option prices of not less than 50% of fair market value at the date of grant.
In addition, the Company has a Non-Employee Director Stock Option Plan under
which each non-employee director automatically receives an annual grant of
options to acquire 1,000 shares of common stock. The options are granted as of
the first business day of January of each year at an option price equal to the
fair market value at the date of grant. Options for a total of 30,000 shares
may be granted under the plan.
Summarized option data for all plans is as follows:
Weighted Average
Number Option Price Option Price Per
of Shares Per Share Share
--------- -------------- ----------------
Options Outstanding, January 31, 1999 781,100 $ 3.33-$13.00 $8.51
Options Granted...................... 253,700 $4.94- $6.25 $5.22
Options Exercised.................... (1,000) $ 4.94 $4.94
Options Expired...................... (158,325) $ 4.94-$11.29 $8.93
---------
Options Outstanding, January 31, 2000 875,475 $ 3.33-$13.00 $7.49
Options Granted...................... 568,500 $ 3.75- $7.50 $6.90
Options Exercised.................... (9,500) $ 3.33- $4.94 $4.77
Options Expired...................... (100,025) $ 3.33-$10.25 $6.93
---------
Options Outstanding, January 31, 2001 1,334,450 $ 3.33-$13.00 $7.30
Options Granted...................... 363,000 $ 3.75- $4.31 $4.31
Options Expired...................... (44,375) $ 4.31-$11.25 $7.20
---------
Options Outstanding, January 31, 2002 1,653,075 $ 3.33-$13.00 $6.64
---------
Options Exercisable, January 31, 2002 1,503,033 $ 3.33-$13.00 $6.74
---------
Options Exercisable, January 31, 2001 1,198,450 $ 3.33-$13.00 $7.40
=========
29
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Set forth below is a summary of options outstanding at January 31, 2002:
Outstanding Exercisable
- ----------------------------------------------------------- --------------------------
Range of Weighted Average Remaining Weighted Average
Exercise prices Options Exercise Price Contractual Life Options Exercise Price
- --------------- --------- ---------------- ---------------- --------- ----------------
$3.33-$5.00 598,125 $ 4.51 9 yrs. 556,210 $ 4.53
$5.50-$8.25 725,450 $ 7.15 7 yrs. 631,448 $ 7.37
$8.31-$8.50 207,500 $ 8.40 5 yrs. 207,500 $ 8.40
$9.25-$13.00 122,000 $11.10 2 yrs. 107,875 $11.21
--------- ---------
1,653,075 $ 6.64 1,503,033 $ 6.74
At January 31, 2002, options covering 572,300 shares under the incentive
plans, 600,000 shares under the non-qualified plan and 9,000 shares under the
Non-Employee Director Stock Option Plan were available for future grant.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for its stock-based compensation in accordance with Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees". Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates consistent
with the method set forth under SFAS No. 123, the Company's net income and net
income per share would have been reduced to the pro forma amounts indicated
below:
Years Ended January 31
------------------------------
2002 2001 2000
--------- --------- --------
Net Income (Loss)
As reported............... $(233,101) $ 302,489 $936,643
Pro forma................. $(605,180) $(659,956) $599,322
Net Income (Loss) per share
As reported............... $ (0.05) $ 0.07 $ 0.21
Pro forma, Basic.......... $ (0.14) $ (0.15) $ 0.14
Pro forma, Diluted........ $ (0.14) $ (0.15) $ 0.13
The fair value of each option granted was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted average
assumptions: The weighted average grant date fair value of options granted
during fiscal 2002, 2001 and 2000 was $1.11, $2.22, and $1.60, respectively.
Years Ended January 31,
----------------------
2002 2001 2000
---- ---- ----
Risk-free interest rate 4.1% 6.3% 5.5%
Expected life (years).. 5 5 5
Expected volatility.... 36.0% 36.0% 35.5%
Expected dividend yield 4.0% 2.9% 2.8%
30
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employee Stock Purchase Plan: The Company has an Employee Stock Purchase
Plan allowing eligible employees to purchase shares of common stock at a 10%
discount from fair market value on the date of purchase. A total of 180,000
shares were initially reserved for issuance under the Plan. Summarized Plan
activity is as follows:
Years Ended January 31,
----------------------
2002 2001 2000
------ ------ ------
Shares Reserved, Beginning 91,675 94,920 98,426
Shares Purchased.......... (4,247) (3,245) (3,506)
------ ------ ------
Shares Reserved, Ending... 87,428 91,675 94,920
====== ====== ======
Employee Stock Ownership Plan: The Company has an Employee Stock Ownership
Plan providing retirement benefits to all eligible employees. Annual
contributions in amounts determined by the Company's Board of Directors are
invested by the Plan's Trustees in shares of common stock of the Company.
Contributions may be in cash or stock. The Company's contributions paid or
accrued amounted to $130,000 in both fiscal 2001 and 2000.No amounts were owed
or accrued in fiscal 2002.
Note 6--Income Taxes
The components of domestic and foreign income (loss) before the provision
(benefit) for income taxes are as follows:
Years Ended January 31,
-------------------------------
2002 2001 2000
--------- -------- ----------
Domestic. $(457,950) $ (6,989) $1,021,075
Foreign.. 166,143 409,478 227,782
--------- -------- ----------
Total. $(291,807) $402,489 $1,248,857
========= ======== ==========
The components of the provision (benefit) for income taxes were as follows:
Years Ended January 31,
-------------------------------
2002 2001 2000
--------- --------- ---------
Current:
Federal. $ 38,689 $ 194,810 $ 387,820
State... 11,300 (6,600) 53,842
Foreign. 51,999 94,200 57,000
--------- --------- ---------
101,988 282,410 498,662
--------- --------- ---------
Deferred:
Federal. (143,018) (160,598) (164,143)
State... (17,676) (21,812) (22,305)
--------- --------- ---------
(160,694) (182,410) (186,448)
--------- --------- ---------
$ (58,706) $ 100,000 $ 312,214
========= ========= =========
31
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory federal income tax rate (34%) to income before income
taxes, due to the following:
Years Ended January 31,
-----------------------------
2002 2001 2000
-------- -------- ---------
Income Tax Provision (Benefit) at Statutory Rate $(99,215) $136,846 $ 424,611
State Taxes, Net of Federal Income Tax Benefits. (13,879) (18,763) 57,697
Nontaxable Interest Income...................... (14,654) (17,625) (19,219)
Amortization of Intangibles..................... 12,342 12,342 (24,663)
Utilization of Net Operating Loss Carryforward.. -- -- (92,048)
Research and Development Tax Credits............ -- -- (133,000)
Other, Net...................................... 56,700 (12,800) 98,836
-------- -------- ---------
$(58,706) $100,000 $ 312,214
======== ======== =========
The tax effects of temporary differences and carryforwards which gave rise
to significant portions of deferred tax assets and liabilities in the
accompanying consolidated balance sheets were as follows:
January 31,
----------------------
2002 2001
---------- ----------
Deferred Tax Assets:
Reserves and Accruals Not Yet Deducted for Tax Purposes..... $1,332,827 $1,319,618
Unrealized Foreign Currency Losses.......................... 65,946 66,950
Net Operating Loss Carryforwards............................ 105,000 94,485
Other....................................................... 427,647 398,448
Valuation Allowance......................................... (105,000) (94,485)
---------- ----------
1,826,420 1,785,016
Deferred Tax Liabilities:
Accumulated Tax Depreciation in Excess of Book Depreciation. 610,157 580,915
Other....................................................... 266,710 415,242
---------- ----------
876,867 996,157
---------- ----------
Net Deferred Tax Assets........................................ $ 949,553 $ 788,859
========== ==========
At January 31, 2002, the valuation allowance relates to the Company's wholly
owned subsidiaries, Astro-Med GMBH and Astro-Med SRL, net operating loss
carryforward (NOLs) of approximately $105,000 which can be carryforward
indefinitely. The future tax benefits of these NOLs are uncertain because it is
limited to future annual taxable income of the subsidiary.
Note 7--Leases
There are both capital and operating lease commitments for the Company's
facilities and certain machinery and equipment. Following is an analysis of
assets which are under capital leases.
January 31,
-----------------
2002 2001
-------- --------
Machinery and Equipment....... $176,020 $176,020
Less: Accumulated Amortization 146,681 88,008
-------- --------
$ 29,339 $ 88,012
======== ========
32
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Minimum lease payments under noncancellable leases at January 31, 2002 were
as follows:
Capital Operating
Year Ending January 31, Lease Leases
----------------------- ------- ---------
2003....................................... $25,296 $293,526
2004....................................... -- 163,623
2005....................................... -- 60,111
2006....................................... -- 33,492
2007 and Thereafter........................ -- 80,128
------- --------
Net Minimum Lease Payments................. 25,296 $630,880
--------
Less Amount Representing Interest.......... (541)
-------
Current Value of Net Minimum Lease Payments $24,755
=======
The Company incurred rent expense in the amount of $349,940, $381,560 and
$315,200 for the fiscal years 2002, 2001 and 2000, respectively.
Note 8--Nature of Operations, Segment Reporting and Geographical Information
The Company's operations consist of the design, development, manufacture and
sale of specialty data recorder and acquisition systems, label printing and
applicator systems, neurophysiological instrumentation systems, and consumable
printer supplies. The Company organizes and manages its business as a portfolio
of products and services designed around a common theme of data acquisition and
information output. The Company's operations have historically been aggreagated
into a single reporting segment based on certain similarities in the nature and
characteristics of the products and services and the lack of the availiability
of the financial information at the product group level. The Company has
evolved to the point where it can now place additional emphasis on the
finanical information generated at the product group level, consequently, the
Company will report three reporting segments consistent with its sales product
groups Test & Measurement (T&M); QuickLabel Systems (QLS) and Grass-Telefactor
(G-T). As a result, the Company has restated the prior years segment data to
present all periods on a comparable basis.
T&M produces data recording equipment used worldwide for a variety of
recording, monitoring and troubleshooting applications for the aerospace,
automotive, metal mill, power and telecommunications industries. QLS produces
an array of high-technology digital label printers, automatic labelers, print
and apply systems, labeling software and consumables for a variety of
commerical industries worldwide. Grass-Telefactor produces a range of
instrumentation equipment and supplies for clinical neurophysiology (EEG and
epilepsy monitoring), polysomnography (PSG - Sleep Monitoring) and biomedical
research applications used worldwide by universities, medical centers and
companies engaged in a variety of clinical and research activities. The
accounting policies of the reporting segments are the same as those described
in the summary of significant accounting policies within the notes to the
consolidated financial statements. The Company evaluates segment performance
based on the segment profit before corporate and financial administration
expenses.
Business is conducted primarily in the United States and through foreign
affiliates in Canada and Europe. Substantially all manufacturing activities are
conducted in the United States. Sales and service activities outside the United
States are conducted primarily through wholly-owned entities and, to a lesser
extent, through authorized distributors and agents. Transfer prices are
intended to produce gross profit margins commensurate with the sales and
service effort associated with the product sold.
33
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize selected financial information by segment:
Sales Segment Operating Profit Operating Profit %
(in thousands) ----------------------- ------------------------ -----------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
------- ------- ------- ------ ------ ------ ---- ---- ----
T&M.............................. $12,057 $13,905 $14,829 $ 675 $1,639 $2,006 5.6% 11.8% 13.5%
QLS.............................. 20,928 19,891 17,914 863 1,295 688 4.1% 6.5% 3.8%
Grass-Telefactor................. 16,406 17,892 13,400 817 535 1,350 5.0% 3.0% 10.1%
------- ------- ------- ------ ------ ------ --- ---- ----
Total............................ $49,391 $51,688 $46,143 2,355 3,469 4,044 4.8% 6.7% 8.8%
======= ======= ======= ====== ====== ====== === ==== ====
Corporate Expenses............... 3,083 3,388 3,253
------ ------ ------
Operating Income (Loss).......... (728) 81 791
Other Income (Expenses).......... 436 321 458
------ ------ ------
Income (Loss) Before Income Taxes (292) 402 1,249
Income Taxes Expense (Benefit)... (59) 100 312
------ ------ ------
Net Income (Loss)................ $ (233) $ 302 $ 937
====== ====== ======
Presented below is selected information by segment:
Amortization and
Depreciation Capital Expenditures
(in thousands) -------------------- --------------------
2002 2001 2000 2002 2001 2000
------ ------ ------ ---- ------ ----
T&M............. $ 490 $ 514 $ 453 $303 $ 321 $164
QLS............. 572 810 582 325 455 558
Grass-Telefactor 580 451 321 283 428 253
------ ------ ------ ---- ------ ----
Total........... $1,642 $1,775 $1,356 $911 $1,204 $975
====== ====== ====== ==== ====== ====
Presented below is selected assets by segment:
Assets
(in thousands) -----------------------
2002 2001 2000
------- ------- -------
T&M............. $ 7,568 $ 8,220 $ 6,934
QLS............. 12,891 13,546 14,157
Grass-Telefactor 9,861 10,625 10,498
Corporate*...... 8,084 8,668 13,796
------- ------- -------
Total........... $38,404 $41,059 $45,385
======= ======= =======
* Corporate assets consist primarily of cash, investments and income tax
accounts.
34
ASTRO-MED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Presented below is selected financial information by geographic area:
Sales Long-Lived Assets
(in thousands) ----------------------- -----------------------
2002 2001 2000 2002 2001 2000
------- ------- ------- ------- ------- -------
United States............ $35,657 $37,893 $33,866 $ 9,645 $10,106 $10,906
Europe................... 7,588 7,994 7,054 558 582 468
Asia..................... 2,141 1,532 1,296 -- -- --
Canada................... 1,853 2,096 1,976 87 65 7
Central and South America 1,559 1,337 1,216 -- -- --
Other.................... 593 836 735 -- -- --
------- ------- ------- ------- ------- -------
Total.................... $49,391 $51,688 $46,143 $10,290 $10,753 $11,381
======= ======= ======= ======= ======= =======
No single customer accounted for 10% of net sales in fiscal 2002, 2001, or
2000.
Note 9--Profit-Sharing Plan
Along with the Employee Stock Ownership Plan described in Note 5, the
Company has a non-contributory Profit-Sharing Plan which provides retirement
benefits to all eligible employees. In addition, the Plan allows participants
to defer a portion of their cash compensation and contribute such deferral to
the Plan through payroll deductions. The Company makes matching contributions
up to specified levels. The deferrals are made within the limits prescribed by
Section 401(k) of the Internal Revenue Code.
All contributions are deposited into trust funds. It is the policy of the
Company to fund any contributions accrued. The Company's annual contribution
amounts are determined by the Board of Directors. The Company's contributions
paid or accrued amounted to $165,000 in 2002 and $230,000 in both 2001 and
2000, respectively.
Note 10--Acquisitions
Effective December 1, 1999, the Company acquired the assets and business of
Telefactor Corporation (Telefactor), a privately held corporation, for an
aggregate purchase price of approximately $3.7 million in cash, including
transaction fees. The acquisition was accounted for as a purchase under APB
Opinion No. 16, Business Combinations. At the time of closing, $225,000 was
established in an escrow account that was designated to be used to settle any
post-closing purchase price adjustments. In the first quarter of fiscal 2001,
the Company received $225,000 from the escrow. The purchase and sales agreement
contains a clause which will require the Company to pay additional purchase
price of up to $3,000,000 if certain sales levels are achieved. The earnout
provision is effective over a period of 72 months. At January 31, 2002, no
additional consideration is owed to the sellers. The purchase price allocation
was completed during fiscal 2001 and it resulted in a final goodwill amount of
$1,776,000. Goodwill resulting from the Telefactor acquisition is being
amortized over 15 years. However, see Long-Lived Assets under Note 1 Summary of
Significant Accounting policies with respect to the required changes in the
accounting for goodwill.
35
ASTRO-MED, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Balance at Provision Balance
Beginning Charged to at End
Description of Year Operations Deductions(2) Other(3) of Year
----------- ---------- ---------- ------------- -------- --------
Allowance for Doubtful Accounts(1):
Year Ended January 31,
2002........................ $467,882 $ 30,000 $145,440 -- $352,442
2001........................ $405,783 $193,341 $131,242 -- $467,882
2000........................ $212,337 $167,234 $ 42,414 $68,626 $405,783
- --------
(1) The allowance for doubtful accounts has been netted against accounts
receivable as of the respective balance sheet dates.
(2) Uncollectible accounts written off, net of recoveries.
(3) Reserve addition from the acquisition of Telefactor.
36