UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - -- EXCHANGE ACT OF 1934 For the quarterly period ended May 1, 1999 ------------------------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ------------------------ Commission file number 0-13200 ------------------------------------------------------- ASTRO-MED, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0318215 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 EAST GREENWICH AVENUE, WEST WARWICK, RHODE ISLAND 02893 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (401) 828-4000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.05 Par Value - 4,420,789 shares (excluding treasury shares) as of June 4, 1999 -1- ASTRO-MED, INC. INDEX Page No. -------- Part I. Financial Information: Consolidated Balance Sheets - January 31, 1999 and May 1, 1999. ........................ 3 Consolidated Statements of Operations - Three Months Ended May 2, 1998 and May 1, 1999............ 4 Consolidated Statements of Cash Flows - Three Months Ended May 2, 1998 and May 1, 1999............ 5 Notes to Consolidated Financial Statements - May 1, 1999............................................... 6,7 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 8-11 Part II. Other Information................................... 12 -2- Part I. FINANCIAL INFORMATION ASTRO-MED, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS January 31, May 1, ASSETS 1999 1999 ---- ---- (Unaudited) CURRENT ASSETS Cash and Cash Equivalents................... $ 4,946,289 $ 3,673,244 Securities Available for Sale............... 7,907,142 7,924,443 Accounts Receivable, Net.................... 7,708,806 6,989,929 Inventories................................. 10,217,020 10,730,367 Prepaid Expenses and Other Current Assets... 1,986,336 2,085,761 ----------- ----------- Total Current Assets................... 32,765,593 31,403,744 PROPERTY, PLANT AND EQUIPMENT 18,678,055 19,000,166 Less Accumulated Depreciation............... (11,448,380) (11,817,244) ----------- ----------- 7,229,675 7,182,922 OTHER ASSETS Excess of Cost Over Net Assets Acquired..... 903,784 894,709 Amounts Due from Officers................... 480,314 480,314 Other....................................... 374,866 444,913 ----------- ----------- 1,758,964 1,819,936 ----------- ----------- $41,754,232 $40,406,602 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable............................ $ 3,427,766 $ 3,450,349 Accrued Compensation........................ 1,446,770 1,207,998 Accrued Expenses............................ 1,110,484 905,715 Income Taxes................................ 1,062,892 1,018,737 Current Maturities of Long-Term Debt........ 211,021 169,792 ----------- ----------- Total Current Liabilities.............. 7,258,933 6,752,591 LONG-TERM DEBT, Less Current Maturities....... 16,977 -- EXCESS OF NET ASSETS ACQUIRED OVER COST....... 108,839 81,283 DEFERRED INCOME TAXES......................... 667,676 562,029 SHAREHOLDERS' EQUITY Preferred Stock, $10 Par Value, Authorized 100,000 Shares, None Issued.... Common Stock, $.05 Par Value, Authorized 13,000,000 Shares, Issued 5,143,520 and 5,144,360 Shares, Respectively........ 257,176 257,218 Additional Paid-In Capital.................. 5,641,317 5,645,588 Retained Earnings........................... 32,837,880 32,386,851 Treasury Stock, at Cost (662,295 Shares and 668,939 Shares, Respectively).......... (4,889,343) (4,985,655) Accumulated Other Comprehensive Income (Loss) (145,223) (293,303) ----------- ----------- 33,701,807 33,010,699 ----------- ----------- $41,754,232 $40,406,602 ----------- ----------- ----------- ----------- -3- ASTRO-MED, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended ------------------ May 2, May 1, 1998 1999 ---- ---- Net Sales.................................... $10,056,440 $10,377,257 Cost of Sales................................ 6,180,833 6,322,510 ----------- ----------- Gross Profit................................. 3,875,607 4,054,747 Costs and Expenses: Selling, General and Administrative........ 3,507,636 3,688,050 Research and Development................... 757,964 881,009 ----------- ----------- 4,265,600 4,569,059 ----------- ----------- Operating Loss............................... (389,992) (514,312) Other Income (Expense): Investment Income.......................... 208,804 171,489 Interest Expense........................... (6,143) (4,092) Other, Net................................. 46,523 (14,614) ----------- ----------- 249,184 152,783 ----------- ----------- Loss before Income Taxes..................... (140,808) (361,529) Benefit for Income Taxes..................... (37,000) (91,000) ----------- ----------- Net Loss..................................... $ (103,808) $ (270,529) ----------- ----------- ----------- ----------- Loss Per Common Share-basic.................. $(.02) $(.06) ----------- ----------- ----------- ----------- Loss Per Common Share-diluted................ $(.02) $(.06) ----------- ----------- ----------- ----------- Weighted Average Number of Common and Common Equivalent Shares Outstanding-basic........ 4,780,634 4,474,873 ----------- ----------- ----------- ----------- Weighted Average Number of Common and Common Equivalent Shares Oustanding-diluted....... 4,780,634 4,474,873 ----------- ----------- ----------- ----------- Dividends Declared Per Common Share.......... $.04 $.04 ----------- ----------- ----------- ----------- -4- ASTRO-MED, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended ------------------ May 2, May 1, 1998 1999 ---- ---- Cash Flows from Operating Activities: Net Loss............. ...................... $ (103,808) $ (270,529) Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation and Amortization.......... 312,273 350,384 Other.................................. 35,634 (159,576) Changes in Assets and Liabilities: Accounts Receivable.................... 430,329 718,876 Inventories............................ (376,027) (513,347) Other.................................. (228,723) (169,473) Accounts Payable and Accrued Expenses.. 334,341 (420,958) Income Taxes........................... (45,977) (44,155) ---------- ---------- Total Adjustments.................... 461,850 (238,249) Net Cash Provided (Used) by Operating Activities................... 358,042 (508,778) Cash Flows from Investing Activities: Proceeds from Sales of Securities Available for Sale....................... 1,417,000 1,891,670 Purchases of Securities Available for Sale................................. (1,462,917) (1,969,034) Additions to Property, Plant and Equipment. (184,487) (356,200) ---------- ---------- Net Cash Used by Investing Activities................... (230,404) (433,564) Cash Flows from Financing Activities: Principle Payments on Capital Leases....... (56,205) (58,207) Proceeds from Common Shares Issued Under Employee Benefit Plans............. 5,467 4,316 Purchases of Treasury Stock................ (39,961) (96,313) Dividends Paid............................. (191,720) (180,499) ---------- ---------- Net Cash Used by Financing Activities.... (282,419) (330,703) Net Decrease in Cash and Cash Equivalents...... (154,781) (1,273,045) Cash and Cash Equivalents, Beginning of Period. 5,659,552 4,946,289 ---------- ---------- Cash and Cash Equivalents, End of Period....... $5,504,771 $3,673,244 ---------- ---------- ---------- ---------- Supplemental Disclosures of Cash Flow Information: Cash Paid During the Period for: Interest............................... $ 8,956 $ 3,155 Income Taxes........................... $ 5,675 $ 45,830 -5- ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS May 1, 1999 Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) The accompanying financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company's annual report on Form 10-K for the year ended January 31, 1999. (b) Loss per common share has been computed and presented pursuant to the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, which was adopted in fiscal 1998. Net loss per share is based on the weighted average number of shares outstanding during the period. Net loss per share assuming dilution is based on the weighted average number of shares and, if dilutive, common equivalent shares for stock options outstanding during the period. Three Months Ended ------------------ May 2, May 1, 1998 1999 ---- ---- Weighted Average Common Shares Outstanding-basic and dilutive.......... 4,780,634 4,474,873 --------- --------- --------- --------- Diluted Effect of Options Outstanding (not considered because anti-dilutive).. 38,404 15,178 --------- --------- --------- --------- Note 2 - CHANGE IN ACCOUNTING PRINCIPLES Effective February 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This statement requires presentation of the components of comprehensive income, including the changes in equity from non-owner sources such as unrealized gains (losses) on securities and foreign currency translation adjustments. The Company's total comprehensive income is as follows. -6- Note 2 - CHANGE IN ACCOUNTING PRINCIPLES (continued) Three Months Ended ------------------ May 2, May 1, 1998 1999 ---- ---- Comprehensive Income: Net Loss................................... $(103,808) $(270,529) --------- --------- Other Comprehensive Income (Loss): Foreign currency translation adjustments. 58,408 (88,018) Unrealized gain(loss) on securities: Unrealized holding gain (loss) arising during the period........ (22,795) (62,210) Less: reclassification adjustment for losses included in net income -- 2,148 --------- --------- Other Comprehensive Income (Loss): ........ 35,613 (148,080) --------- --------- Comprehensive Income (Loss) ............... (68,195) (418,609) --------- --------- --------- --------- 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, May 1, 1999 1999 ---- ---- Materials and Supplies... $ 5,356,973 $ 5,763,676 Work-In-Process.......... 721,448 971,000 Finished Goods........... 4,138,599 3,995,691 ----------- ----------- $10,217,020 $10,730,367 ----------- ----------- ----------- ----------- -7- ASTRO-MED, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Net Sales in the first quarter were $10,377,000, an increase of 3% over the prior year's first quarter sales of $10,056,000. Export sales were up by 42% over the prior year's first quarter, offsetting a 7% decline in domestic channel sales. The shortfall in the domestic channels was concentrated in the Test & Measurement product line, which was down 24%, whereas growth in the QuickLabel Systems (QLS) and Grass product lines continued across both the domestic and export channels. QLS sales were $4,115,000, increasing by 24%, and Grass sales were $2,940,000, increasing by 26% over last year's first quarter results. Gross Profit dollars in the first quarter were $4,055,000, which represents a 39% gross profit margin. The first quarter gross profit margin matched last year's first quarter margin, despite the continued shift in product mix from T&M to QLS and Grass. Operating expenses were $4,569,000 in the first quarter, an increase of 7% over the prior year's first quarter. This increase was due to additions in sales personnel and sales incentives, personnel additions in research and development, and increased information technology expenditures. Other income in the first quarter was $153,000 as compared to $249,000 in the prior year's first quarter, with the decrease due to unfavorable foreign currency translation adjustments and lower interest and dividend income. Net loss after taxes in the quarter was $271,000, equal to a loss of 6 cents per share. This compares to a net loss of $104,000, equal to a loss of 2 cents per share in the prior year's first quarter. Due to the continuing softness in the Company's traditional Test & Measurement markets, the Company has taken steps to lower its break-even point through a reduction in personnel, which took place at the beginning of the second quarter. The Company will record severance pay of approximately $200,000 during the second quarter, to cover this reduction in force. Going forward, the reduction in force will lower the Company's break-even level by approximately $2 million on an annualized basis. FINANCIAL CONDITION: Total Assets as of May 1, 1999 were $40,407,000, down $1,347,000 or 3% from fiscal 1999 year end. Cash and marketable securities declined by $1,256,000 from fiscal 1999 year end, primarily due to the net loss, increased working capital, capital expenditures, and the Company's continuing common stock repurchase program. Accounts receivable dollars declined by 9% to $6,990,000 at quarter end, which reflects 57 days sales outstanding. -8- Inventories increased by 5% to $10,730,000. Overall, working capital excluding cash and marketable securities increased by 3% to $13,053,000, and the current ratio remains strong at 5 to 1. Capital expenditures during the first quarter were $356,000 and include the purchase of production and test equipment, hardware and software technology investments, and building improvements. Depreciation expense for the quarter was $369,000. The Company purchased 18,500 shares of its common stock during the first quarter, under its Board of Directors approved share repurchase program, for $96,000. Under the Board of Directors' authorization, the Company has approval to repurchase another 181,500 shares of the Company's common stock. Cash dividends of 4 cents per share were paid to shareholders of record during the first quarter. Shareholders' equity was $33,010,000 at the end of the quarter, reflecting a book value of $7.38 per share. YEAR 2000 READINESS DISCLOSURE The Year 2000 issue is the result of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000, and therefore being unable to correctly recognize and process date information beyond the year 1999. During 1998, the Company commenced a Year 2000 readiness program to assess the impact of the year 2000 issue on the Company's operations and address necessary remediation. Products. All of the Company's products, where applicable, are Year 2000 Compliant: Grass Instruments Product Group - Products manufactured before 1997 did not store time or date. Therefore, Year 2000 compliance is not applicable. New products that do store time and date use only WindowsTM 95 dates which are compliant. QuickLabel Systems Product Group - Printer products do not generate or store time and date; therefore, Year 2000 compliance is not applicable. Application software that stores time and date uses only WindowsTM 95 dates which are compliant. Label Applicator products and certain Print and Apply models do not store time or date; therefore, compliance is not an issue. Those Print and Apply and Thermal Recorder products which do store time and date are compliant. Test and Measurement Product Group - Data Acquisition Systems and application software for all instruments use only WindowsTM 95 dates which are compliant. Stand-alone Recorders use a two-digit year for reference only. The date is not used for time sorting or any calculations. Our Quality Assurance Department has verified that there are no anomalies associated with the turnover of the Year 2000. Year 2000 Readiness Program. The Company's Year 2000 readiness program is divided into three major sections - Information Technology (IT) infrastructure (which includes Manufacturing, Finance, Purchasing and Sales), Applications Software and Non-IT systems (including environmental, process control, and manufacturing control systems), and Third-party suppliers and customers. All non-compliant systems have -9- been identified and prioritized. Assessment and remediation are proceeding in tandem, and the Company currently plans to have all non-compliant systems repaired or replaced and tested by the fall of 1999. The Information Technology infrastructure section of the Year 2000 readiness program includes the Company's IBM AS400 Computer hardware system as well as its J. D. Edwards financial, manufacturing and distribution business software system. The AS400 system was made fully compliant in January 1998. In November 1998, the Company completed the installation of an upgrade to its J. D. Edwards software suite, which is now fully compliant. This section of the project is 100% complete. The Applications Software and Non-IT section includes the conversion or replacement of applications software and equipment that is not Year 2000 compliant. The Company utilizes both in-house and third-party software and equipment to operate certain aspects of its business, including telecommunications and sales contact management systems. The Company estimates that this section of the Year 2000 readiness program is approximately 50% complete at May 1, 1999, and the remaining conversion and testing projects are on schedule to be completed by the fall of 1999. Contingency planning for this section has begun and is scheduled to be complete by mid-1999. The Third-party suppliers and customers section includes the process of identifying and prioritizing critical suppliers and customers, and communicating with them directly about their plans and progress in addressing the Year 2000 problem. The Company is currently in the process of communicating with its significant vendors, service providers and customers. Detailed evaluations of the most critical third parties will be completed by mid-1999. These evaluations will be followed by the development of contingency plans, with follow-up reviews scheduled through the remainder of 1999. The total cost associated with required modifications to become Year 2000 compliant is not expected to be material to the Company's financial position. The estimated total cost related to the Year 2000 readiness program is approximately $723,000, which includes hardware and software upgrades that were previously planned to obtain greater capacity and functionality. The total amount expended through May 1, 1999 was $640,000, of which approximately $553,000 related to Information Technology Infrastructure, approximately $82,000 related to Applications Software and Non-IT projects, and approximately $5,000 related to the Third-party project. The future cost of completing the Year 2000 readiness program is estimated at approximately $83,000, including $81,000 to complete the Applications Software and Non-IT phase, and $2,000 to complete the Third-party compliance evaluation. The Company has funded the incurred costs to-date and intends to fund the estimated costs to complete the Year 2000 readiness program through operating cash flows. Although the Company is taking measures to address the impact, if any, of Year 2000 issues, it cannot predict the outcome or success of its Year 2000 readiness program, or whether the failure of third party systems or equipment to operate properly in the Year 2000 will have a material adverse effect on the Company's business, operating results, or financial condition, or require the Company to incur unanticipated material expenses to remedy any Year 2000 issue. The Year 2000 -10- readiness program is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem and, in particular, about the Year 2000 compliance and readiness of its material external suppliers and customers. The company believes that, with the implementation of upgraded business systems and completion of the Year 2000 readiness program as scheduled, the possibility of significant interruptions of normal operations should be reduced. The foregoing discussion regarding the Company's Year 2000 readiness program's implementation, effectiveness, and cost contains forward-looking statements which are based on management's expectations, determined utilizing certain assumptions of future events including third party compliance and other factors. However, there can be no guarantee that these expectations will be realized, and actual results could differ materially from management's expectations. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area and other similar uncertainties, and the remediation success of the Company's suppliers, service providers and customers. SAFE HARBOR STATEMENT This document contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include the following: general economic conditions and growth rates in the data acquisition, digital color printing, and neurophysiology markets, including but not limited to the electronic, printing, and medical markets; competitive factors and pricing pressures; changes in product mix; changes in the seasonality of demand patterns; the timely development and acceptance of new products; inventory risks due to shifts in market demand; component constraints and shortages; risk of non-payment of accounts receivable; ramp up and expansion of manufacturing capacity; all risks associated with the Year 2000 issue including, but not limited to, the impact on the Company's business due to internal systems or systems of suppliers and other third parties adversely affected by Year 2000 problems as previously discussed above; risks associated with the Euro conversion; and the risks described from time to time in Astro-Med's reports filed with the Securities and Exchange Commission. -11- PART II. OTHER INFORMATION Item 4. Results of Votes of Security Holders An Annual Meeting of Shareholders of the registrant was held May 18, 1999. The shareholders were asked to elect a Board of Directors to serve until the next Annual Meeting of Shareholders or until their successors are elected and qualified. In an uncontested election, nominees for directors were elected by the following votes: Name of Nominee Votes Votes for Director for Withheld --------------- ---- -------- Albert W. Ondis 3,907,547 15,194 Everett V. Pizzuti 3,907,697 15,044 Jacques V. Hopkins 3,905,597 17,144 Hermann Viets 3,905,597 17,144 Neil K. Robertson 3,905,597 15,144 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASTRO-MED, INC. (Registrant) Date: June 8, 1999 By ____________________________ A. W. Ondis, Chairman (Principal Executive Officer) Date: June 8, 1999 By ____________________________ Joseph P. O'Connell, Vice President and Treasurer (Principal Financial Officer) -12-