-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HlS2sYgG6cm5cGwougBOX4Id+xS6O9Nm4KYtekWmEdpYiETtBUjKgx4hJBhoBKGy xQzv0CKovV0bZrtj1CzESw== 0000927016-98-001567.txt : 19980421 0000927016-98-001567.hdr.sgml : 19980421 ACCESSION NUMBER: 0000927016-98-001567 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980420 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTRO MED INC /NEW/ CENTRAL INDEX KEY: 0000008146 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 050318215 STATE OF INCORPORATION: RI FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13200 FILM NUMBER: 98597255 BUSINESS ADDRESS: STREET 1: 600 E GREENWICH AVE CITY: WEST WARWICK STATE: RI ZIP: 02893 BUSINESS PHONE: 4018284000 MAIL ADDRESS: STREET 1: 600 E GREENWICH AVENUE CITY: WEST WARWICK STATE: RI ZIP: 02893 FORMER COMPANY: FORMER CONFORMED NAME: ATLAN TOL INDUSTRIES INC DATE OF NAME CHANGE: 19850220 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ---------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934] FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 600 EAST GREENWICH AVENUE, WEST WARWICK, RHODE ISLAND 02893 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (401) 828-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH NAME OF EACH EXCHANGE 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 17, 1998. Common Stock, $.05 Par Value: $28,473,288 Indicate the number of shares outstanding (excluding treasury shares) of each of the issuer's classes of common stock as of March 17, 1998. Common Stock, $.05 Par Value: 4,784,827 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the 1998 annual meeting of shareholders are incorporated by reference into Part III. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 9 ASTRO-MED, INC. FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business................................................... 11 Item 2. Properties................................................. 14 Item 3. Legal Proceedings.......................................... 14 Item 4. Submission of Matters to a Vote of Security Holders........ 14 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters........................................ 15 Item 6. Selected Financial Data.................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 15 Item 8. Financial Statements and Supplementary Data................ 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................... 18 PART III Item 10. Directors and Executive Officers of the Registrant......... 19 Item 11. Executive Compensation..................................... 19 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................. 20 Item 13. Certain Relationships and Related Transactions............. 20 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................................ 20
10 ASTRO-MED, INC. PART I ITEM 1. BUSINESS GENERAL Astro-Med, Inc., incorporated in Rhode Island in January 1969, operates in the industry segment described below. There was no significant change in the nature of the Company's business during the year ended January 31, 1998 (herein referred to as "fiscal 1998"). 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 that term 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 & measurement markets, especially defense and aerospace; competition in the specialty printer industry; ability to develop market acceptance of the QLS printer products and effective design of customer required features; competition in the data acquisition industry; competition in the neurophysiology industry; the business abilities and judgment of personnel; the impacts of unusual items resulting from ongoing evaluations of business strategies; and changes in business strategy. NARRATIVE DESCRIPTION OF BUSINESS PRODUCTS OVERVIEW The Company develops, designs, manufactures and sells three distinct product groups that are tied together by a common thread--the ability to acquire information and present it in a more useable form. The Test & Measurement Group of products takes scientific signals and prints them onto charts or electronic media; the Bar Code Printer Products Group known as QuickLabel(R) Systems (QLS), includes printers and media that create product and packaging labels and tags in one or many colors from a computer file; the Grass Group takes signals that reflect the physiological status of living creatures--from crayfish to man--and records them on paper--or hard drive--or on a CD-ROM. Test and Measurement(T&M) Products The Test and Measurement Group started with the stylus-based chart recorder introduced in 1971, progressing to recorders with solid-state electronic printheads and now featuring our completely digital Data Acquisition Systems. Test and Measurement product lines include the MT-series(TM), multi-channel, multi-function machines that emphasize expandability and flexibility; the Dash-series(TM) of portable recorders that can record data wherever it may be, under almost any condition in the field as well as the lab; and the new Astro- DAQ(TM) paperless data acquisition system that acquires data directly to a hard drive where it can be transferred--either by a direct connection or over a modem--to a personal computer for analysis. The size of the recorders range from the portable 2-channel Dash II(TM) to the world-standard 32-channel rack mounted MT95K2(TM), and range in price from about $5,500 to $25,000 each. The AstroDAQ(TM) can record from 11 4 to 300 channels depending on the configuration of the individual machine and the number of systems linked together. All recording systems have corresponding software packages that provide for recorder control and data review and manipulation. One other specialty printer completes the Company's T & M product offerings--the TOUGH WRITER(TM) ruggedized COTS PostScript page printer for military, airborne, shipboard and heavy industrial applications. QuickLabel Systems Products(TM) (QLS) The Company continues to expand its line of digital color label printers. The Company recently introduced in February of fiscal year 1999 the 2000 and 3000 series of color label printers. This exciting line of four printers significantly broadens the customer base for color printers. With either two or three print stations and both one- and two-side configurations, the 2000 and 3000 series brings color printing to general applications, at a remarkably affordable price. The Color QuickLabel-4(TM), including its exclusive algorithm for near photographic quality printers, MicroCell(TM), continues as the top-of-the-line, full process color printer for creating near lithographic quality labels and tags in both full process and spot color, in any quantity, on-site and on-demand. The Company also manufactures monochrome thermal/thermal transfer printers that produce high-quality bar code labels quickly and easily in almost any format required. The TOP HAND 2(TM) printer produces labels up to 5 inches wide at up to 10 inches per second while the RANGE BOSS(TM) 8 1/2 inch wide format printer creates shipping labels and other large formats quickly and reliably. Rounding out the Company's printer products is a large variety of printer consumables including thermal transfer ribbons, labels and tags. A wide range of materials are available, all manufactured on-site, to guarantee a finished label that meets almost any requirements from single-use paper labels to garment labels, to outdoor signage and product labels of almost any description. Grass Products The Grass(R) Instrument Division serves both research and clinical neurophysiology markets world-wide. The Grass name and product line is renowned in universities, medical centers and pharmaceutical companies and the Company is now building on that brand recognition by combining superior quality and market understanding with the newest technology. This year the Company introduced the Grass Heritage PSG system, the Company's first complete digital system designed exclusively as a sleep system. This system, designed for the growing sleep studies market, complements the Heritage EEG system, providing solutions for all clinical physiological recording requirements. Other new products include PolyVIEW PRO(TM), a Windows 95 based system for data acquisition and analysis of signals in biomedical research, and the BrainTree(TM) system designed to offer users the best of both the traditional analog and the new digital worlds. The Company continues to offer the traditional Grass product line of classical EEG and polysomnograph systems as well as neurodata acquisition systems such as the Model 12 and newer Model 15 which feature the world renowned Grass amplifiers. Rounding out the offerings from Grass is a complete line of stimulators, transducers, electrodes and consumables, products with traditionally strong sales year-to-year which should continue to expand with the installed base of Grass products. TECHNOLOGY Historically, the Company has concentrated its research and development efforts toward various methods to acquire, process, store and print data so that the data can be analyzed, manipulated, stored or affixed to a product. 12 In recent years, the Company has developed and refined its digital printing and data acquisition systems. As its technology has become more advanced and comprehensive, the Company has been able to enter an increasingly wide range of markets. PATENTS AND COPYRIGHTS The Company holds a number of product patents in the United States and in foreign countries. It has filed application for other patents that are pending. In April 1988, the Company was granted Patent No. 4,739,344 covering 28 claims related to the MT-9500 as well as the newer MT-95000 and MT95K2. The Company has a patent for its dual sided label printing and has a patent pending for its two side,--4 color process printer,--the CQL-4. 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 are produced by suppliers to the Company's specifications. 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 1996, 1997 and 1998, the Company incurred costs of $2,415,494, $2,493,072 and $2,820,292 respectively, on Company-sponsored product development. The Company is committed to product development as a requisite to its growth and expects to continue to increase its research and development efforts in the new year. MARKETING AND COMPETITION The Company competes in varied markets throughout the world for all of its products on the basis of proprietary technology, product reputation, delivery, technical assistance and service to customers. The Company's products are sold to customers in North America and selected European countries by a direct field sales force. The Company distributes a limited number of products within the QLS Division through a nationwide network of dealers. Export sales are distributed primarily through wholly- owned entities formed between fiscal 1988 and 1994 in England, France, Germany, Italy and Canada. Other export sales are made through authorized distributors or agents located in approximately forty countries. No single customer accounted for 10% of the Company's net sales in any of the last three fiscal years. During the last fiscal year, the Company's products were sold to approximately 4,500 customers. The Company's product promotion includes full-color advertising campaigns in many leading trade magazines, exhibitions at trade shows, special mailings, and public relations activities. INTERNATIONAL SALES Astro-Med International, Inc., a subsidiary of the Company, participates in all export sales. The subsidiary is a Foreign Sales Corporation and qualifies for certain tax benefits provided as an incentive for exports. In fiscal 1996, 1997 and 1998, net sales to customers in various geographic areas outside the U.S.A., primarily in Canada and Western Europe, amounted to $13,234,380, $11,840,750, and $10,123,156, respectively. 13 ORDER BACKLOG The backlog regularly fluctuates. It consists of a blend of orders for end user customers as well as OEM customers. Manufacturing is geared to forecasted demands and applies a rapid turn cycle to meeting 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 warranted for one year against defects in materials or workmanship. Warranty expenses have averaged approximately $187,000 a year for the Company's last four fiscal years. As of March 17, 1998, the Company employed approximately 365 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 LOCATION SQUARE 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 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. 14 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 YEAR ENDED JANUARY 31, HIGH LOW PER SHARE ---------------------- ---- --- --------- 1997: First Quarter.................................... 9 1/4 7 3/4 .03 Second Quarter................................... 9 3/4 7 5/8 .03 Third Quarter.................................... 9 7 3/4 .03 Fourth Quarter................................... 9 7 1/2 .03 1998: First Quarter.................................... 9 1/4 7 3/4 .04 Second Quarter................................... 9 3/8 8 1/4 .04 Third Quarter.................................... 9 1/4 8 .04 Fourth Quarter................................... 8 7/8 7 1/2 .04
The Company had approximately 497 shareholders of record on March 17, 1998 which does not reflect shareholders with beneficial ownership in shares held in nominee name. ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1995 1996 1997 1998 ------- ------- ------- ------- ------- Results of Operations: Net Sales............................ $32,268 $38,233 $43,941 $44,175 $43,748 Net Income........................... 2,981 1,923 1,328 2,288 1,041 Earnings per Common Share-basic...... .59 .38 .26 .46 .21 Earnings per Common Share-diluted.... .58 .38 .26 .46 .21 Cash Dividends per Common Share...... .12 .12 .12 .12 .16 Financial Condition: Working Capital...................... $24,895 $25,487 $26,420 $28,810 $27,111 Total Assets......................... 39,955 42,177 42,303 43,321 42,814 Long-Term Debt, less Current Maturities.......................... 296 244 175 258 228
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table provides percentage comparisons of the components of net income as presented in the consolidated statements of income included elsewhere herein for the last three fiscal years.
% OF NET SALES % INCREASE (DECREASE) ---------------- -------------------------- YEARS ENDED JANUARY 31, 1996 1997 1998 ---------------- COMPARED COMPARED COMPARED 1996 1997 1998 TO 1995 TO 1996 TO 1997 ---- ---- ---- -------- -------- -------- Net Sales............................. 100% 100% 100% 15 % 1 % (1)% Gross Profit.......................... 39 38 38 5 (1) (3) Selling, General and Administrative... 30 28 30 13 (5) 5 Research and Development.............. 6 6 6 (5) 3 13
15 Sales decreased 1% to $43,748,000 in fiscal 1998 compared to $44,175,000 in fiscal 1997. Excluding changes in foreign currency exchange rates, sales in fiscal year 1998 were slightly higher than fiscal 1997. Looking at the Company's sales by channel presents a varied profile. Domestically, sales rose 4% as our new QuickLabel(R) Systems and Grass Instruments Divisions expanded their respective product lines. Conversely, export sales were disappointing, declining 14% from the previous year as the strong US dollar and Asia's financial crisis had a negative impact on export volume. The Company's Test and Measurement (T&M) product group declined 10% as soft demand in the aerospace and defense industries adversely affected sales of the recorder products, Dash 10(TM), Dash IV(TM), and MT 95K(TM). On the domestic front, T & M product sales declined 6% while export sales were lower than last year by 23%. Progress was made in sales of the new recorder and data acquisition products, Dash 8(TM) and AstroDAQ I & II(TM). Combined, these products contributed nearly $2 million in sales during their first full year of introduction. The QuickLabel(R) Systems (QLS) Product Group reported an 18% increase in sales during the current fiscal year. This group includes the Company's Color QuickLabel Printer, CQL-4(TM), monochrome bar code printers, TOP HAND(TM) and RANGE BOSS(TM), as well as related consumable products. It does not include sales of the 2000 and 3000 series color printers, as these products were launched in February of fiscal year 1999. In the domestic markets, sales increased 19% while growth in the export markets was somewhat lower at 12%. Grass Instruments sales increased 2% in fiscal year 1998. Sales through our domestic channels rose 10% as demand for the Company's new Digital EEG and PSG systems, Albert Grass Heritage(TM), exceeded $1.4 million. Sales in the export markets tempered that result, with a decrease of 16%. The Company plans to increase its marketing and promotional efforts of the Grass Heritage products in the export market during fiscal year 1999. Gross Profit Margins were 37.7% in fiscal 1998 as compared to last year's 38.3%. This year's result was more an outgrowth of product mix and lower unit volume rather than any pricing or product cost influences. Selling, General and Administrative expenses rose 5% during the year to $13,043,000 from $12,451,000. The increment is traceable to the additions in sales personnel and increased spending in promotional activities of marketing, advertising and trade shows. The Company believes its strategy for growth is dependent on an aggressive investment in selling and marketing programs. Historically, the Company has funded its commitment to selling & marketing at greater than 20% of Astro-Med's annual sales volume. This funding level is expected to continue. R & D expenditures rose 13% during the year to 6% of annual sales. The increase is attributable to new hires, including electrical, software and mechanical engineers, as well as project expenses related to new and existing product lines. The Company will continue to fund R & D at 6% to 7% of its annual sales dollars to ensure a continuous stream of customer focused new products in the recorder, data acquisition, digital printing and neurophysiology markets. Interest and dividend income rose 37% during fiscal 1998. The improvement is due to the increased cash position provided by operations as well as investing strategies. Interest expense rose 3% from the prior year as capital lease obligations associated with the acquisition of computer hardware and software were contracted. Other income (expense) net, was significantly lower than prior years due to the one time gain realized in the prior year from the sale of securities in the Company's investment portfolio. The Company was nominally affected by fluctuations in foreign currency exchange rates as the US dollar strenghthened against most European currencies. Income before taxes, as a percent of sales was 3.2% for fiscal 1998 as compared with 6.6% for fiscal 1997. The effective tax rate was 26% for fiscal 1998 against 22% for fiscal 1997. Changes in effective income tax rates from year to year are explained in Note 6 of Notes to Consolidated Financial Statements. Net Income declined to $1.0 million in fiscal 1998 from $2.3 million in the prior year. Net Income as a percent of sales was 2.4% in fiscal 1998 and 5.2% for fiscal 1997, respectively. 16 FINANCIAL CONDITION Net cash flow from operating activities was $2,715,000 in fiscal 1998 as compared with $4,764,000 in fiscal 1997. The decrease in net cash flow in fiscal 1998 was due to changes in working capital requirements and the reduced level of profit in fiscal 1998. Shareholders' equity declined to $35,759,000 from $36,759,000 at fiscal year end 1997 as a result of the stock repurchase activities. During fiscal 1998, the Company repurchased 151,500 shares of common stock at a cost of $1,301,300. As of fiscal year end 1998, 265,824 cumulative shares of common stock had been purchased since fiscal 1996 and 401,676 shares remain available for repurchase under the Board of Directors' authorization. LIQUIDITY AND CAPITAL RESOURCES In addition to cash flow from operations, the Company has adequate cash balances and financing arrangements to conduct its operations. The Company's long-term debt includes debt acquired for facilities construction, acquisition of machinery and equipment and major additions to the Company's information technology infrastructure. Capital Expenditures during the year totalled $810,000 and were funded from cash on hand and internally generated funds. The annual dividend rate per share increased to 16 cents in fiscal 1998 from 12 cents in fiscal 1997. At fiscal 1998 year end, the Company's current ratio was 5.7 to 1. Long term debt was less than 1% of Shareholders' Equity. The Company is financially strong and has no material commitments for capital expenditures and believes capital resources would be available to meet the needs of its business, both on a short-term and long-term basis. YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in system failures or miscalculations. The Company is currently working to resolve the Year 2000 issue and has established processes for evaluating and managing the risks and costs associated with products sold as well as products purchased by the Company. The Company will utilize both internal and external resources to reprogram or replace, and test the software for Year 2000 modifications. In addition, the Company is communicating with suppliers and customers with whom the Company does business to coordinate the Year 2000 conversion. The Company plans to complete the Year 2000 project by fiscal year end 1999. Based on current assessments, costs of addressing the Year 2000 issue are not expected to have a material impact on the Company's future financial results. 17 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 4, AUGUST 3, NOVEMBER 2, JANUARY 31, 1996 1996 1996 1997 ------- --------- ----------- ----------- Net Sales............................ $10,490 $11,179 $11,111 $11,396 Gross Profit......................... 3,958 4,403 4,539 4,034 Net Income........................... 443 586 684 574 Earnings Per Common Share-basic...... .09 .12 .14 .12 Earnings Per Common Share-diluted.... .09 .12 .14 .12 MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, 1997 1997 1997 1998 ------- --------- ----------- ----------- Net Sales............................ $11,707 $10,677 $11,344 $10,020 Gross Profit......................... 4,504 4,001 4,487 3,520 Net Income (Loss).................... 578 138 498 (173) Earnings (Loss) Per Common Share-ba- sic................................. .12 .03 .10 (.04) Earnings (Loss) Per Common Share-di- luted............................... .12 .03 .10 (.04)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 18 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 1998 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...... 72 Chairman, Chief Executive Officer and Director Everett V. Pizzuti... 61 President, Chief Operating Officer and Director David M. Gaskill..... 52 Vice President--Research and Development Joseph P. O'Connell.. 54 Vice President and Treasurer, Chief Financial Officer Elias G. Deeb........ 56 Vice President--Manufacturing A. Eric Bartholomay.. 49 Vice President--Sales Gary A. Dalton....... 40 Controller
All of the persons named above have held the positions identified since January 31, 1985, except as indicated. Mr. Ondis was previously a Director, the Chief Executive Officer (President) and the Chief Financial Officer (Treasurer) of the Company since 1969. Mr. Pizzuti was previously a Vice President of the Company functioning as Chief Operating Officer since 1971. Mr. Gaskill previously had functioned as Vice President--Engineering of the Company since 1974. He is a nephew of Mr. Ondis. Mr. O'Connell joined the Company in 1996. He previously held senior financial management positions with Cherry Tree Products Inc. (1994-1995), IBI Corporation (1991-1994) and Dennison Manufacturing Company (1975-1990). Mr. O'Connell is also Assistant Secretary of the Company. 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. Bartholomay has held the position identified since 1991. From 1988, to 1991, he was Manager of International Operations. He previously held various sales and sales-related positions with Rhone-Poulenc Inc. beginning in the United States in 1981. He transferred to France in 1985 and last held the position of Manager of Product and Market Development. Mr. Dalton joined the Company in 1997. He previously held financial management positions with CVS Corporation (1996-1997), GTECH Corporation (1988-1996), Teradyne Inc. (1983-1987), and Data General Corporation (1981- 1983). ITEM 11. EXECUTIVE COMPENSATION The response to this item is incorporated by reference to the Company's definitive proxy statement for the 1998 annual meeting of shareholders. 19 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 1998 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 1998 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.................................. 23 Consolidated Balance Sheets--January 31, 1997 and 1998.................... 24 Consolidated Statements of Income--Years Ended January 31, 1996, 1997 and 1998..................................................................... 25 Consolidated Statements of Shareholders' Equity--Years Ended January 31, 1996, 1997 and 1998...................................................... 26 Consolidated Statements of Cash Flows--Years Ended January 31, 1996, 1997 and 1998................................................................. 27 Notes to Consolidated Financial Statements--January 31, 1998.............. 28
(a)(2) Financial Statement Schedules: Schedule II--Valuation and Qualifying Accounts and Reserves--Years Ended January 31, 1996, 1997 and 1998............................................ 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. (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. (1) (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. (1)
20
EXHIBIT NUMBER ------- (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. (1) (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. (1) (10.5) Astro-Med, Inc. 1997 Incentive Stock Option Plan filed as Exhibit 4.3 to Registration Statement on Form S-8, Registration No. 333-32315. (1) (21) List of Subsidiaries of the Company. See page 23. (23) Consent of Independent Public Accountants. See page 23.
- -------- (1) Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report. 21 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) /s/ Albert W. Ondis By___________________________________ (Albert W. Ondis, Chairman) Date: April 15, 1998 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.
SIGNATURE TITLE DATE /s/ Albert W. Ondis Chairman and April 15, 1998 - ----------------------------------- Director (Principal Albert W. Ondis Executive Officer) /s/ Everett V. Pizzuti President and April 15, 1998 - ----------------------------------- Director (Principal Everett V. Pizzuti Operating Officer) /s/ Joseph P. O'Connell Vice President and April 15, 1998 - ----------------------------------- Treasurer (Principal Joseph P. O'Connell Financial Officer) /s/ Gary A. Dalton Controller (Principal April 15, 1998 - ----------------------------------- Accounting Officer) Gary A. Dalton /s/ Jacques V. Hopkins Director April 15, 1998 - ----------------------------------- Jacques V. Hopkins 22 EXHIBIT 21 LIST OF SUBSIDIARIES OF THE COMPANY
NAME JURISDICTION OF 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 included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8: File No. 2-81081 pertaining to the Astro- Med, Inc. Employee Stock Purchase Plan, File No. 33-43699 pertaining to the Astro-Med, Inc. 1982 Incentive Stock Option 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 No. 333-32315 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 and File No. 333-24123 pertaining to the Astro-Med, Inc. Non- Employee Director Stock Option Plan. ARTHUR ANDERSEN LLP Boston, Massachusetts April 15, 1998 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Astro-Med, Inc.: We have audited the accompanying consolidated balance sheets of Astro-Med, Inc. and subsidiaries as of January 31, 1997 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audits 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, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. 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 17, 1998 23 ASTRO-MED, INC. CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 1997 AND 1998
ASSETS 1997 1998 ------ ----------- ------------ CURRENT ASSETS Cash and Cash Equivalents......................... $ 6,561,184 $ 5,659,552 Securities Available for Sale..................... 7,099,358 7,472,693 Accounts Receivable, Less Reserve of $175,000 in 1997 and $175,788 in 1998........................ 8,311,736 7,828,064 Inventories....................................... 10,361,505 10,341,856 Prepaid Expenses and Other Current Assets......... 1,441,505 1,561,313 ----------- ------------ Total Current Assets............................ 33,775,288 32,863,478 PROPERTY, PLANT AND EQUIPMENT Land and Improvements............................. 376,502 398,191 Buildings and Improvements........................ 6,852,715 6,978,394 Machinery and Equipment........................... 9,817,752 10,680,108 ----------- ------------ 17,046,969 18,056,693 Less Accumulated Depreciation..................... (8,986,149) (10,155,952) ----------- ------------ 8,060,820 7,900,741 OTHER ASSETS Excess of Cost over Net Assets Acquired, Net...... 976,384 940,084 Amounts Due from Officers......................... 453,264 453,264 Other............................................. 55,671 656,147 ----------- ------------ 1,485,319 2,049,495 ----------- ------------ $43,321,427 $ 42,813,714 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Accounts Payable.................................. $ 1,614,986 $ 2,267,722 Accrued Compensation.............................. 1,115,026 1,221,662 Accrued Expenses.................................. 1,318,103 1,470,849 Income Taxes...................................... 819,535 614,631 Current Maturities of Long-Term Debt.............. 97,706 177,774 ----------- ------------ Total Current Liabilities....................... 4,965,356 5,752,638 LONG-TERM DEBT, Less Current Maturities............. 258,135 227,998 EXCESS OF NET ASSETS ACQUIRED OVER COST, NET........ 544,199 326,519 DEFERRED INCOME TAXES............................... 794,895 747,560 SHAREHOLDERS' EQUITY Preferred Stock, $10 Par Value, Authorized 100,000 Shares, Issued None.............................. Common Stock, $.05 Par Value, Authorized 13,000,000 Shares, Issued 5,136,737 in 1997 and 5,140,448 in 1998................................ 256,837 257,023 Additional Paid-in Capital........................ 5,624,239 5,649,101 Retained Earnings................................. 32,772,044 33,085,917 Treasury Stock, at Cost, 209,395 Shares in 1997 and 355,895 in 1998.............................. (1,804,986) (3,062,945) Cumulative Translation Adjustment................. (76,649) (191,829) Net Unrealized Gain (Loss) on Securities Available for Sale......................................... (12,643) 21,732 ----------- ------------ 36,758,842 35,758,999 ----------- ------------ $43,321,427 $ 42,813,714 =========== ============
The accompanying notes are an integral part of these financial statements. 24 ASTRO-MED, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED JANUARY 31, 1996, 1997 AND 1998
1996 1997 1998 ----------- ----------- ----------- Net Sales............................... $43,941,311 $44,175,133 $43,747,540 Cost of Sales........................... 26,923,192 27,241,473 27,236,046 ----------- ----------- ----------- Gross Profit............................ 17,018,119 16,933,660 16,511,494 Costs and Expenses: Selling, General and Administrative... 13,108,828 12,451,030 13,043,315 Research and Development.............. 2,415,494 2,493,072 2,820,292 ----------- ----------- ----------- 15,524,322 14,944,102 15,863,607 ----------- ----------- ----------- Operating Income........................ 1,493,797 1,989,558 647,887 Other Income (Expense): Interest and Dividend Income.......... 353,393 597,995 822,775 Interest Expense...................... (37,456) (27,278) (27,872) Other, Net............................ (49,199) 375,750 (35,454) ----------- ----------- ----------- 266,738 946,467 759,449 ----------- ----------- ----------- Income before Income Taxes.............. 1,760,535 2,936,025 1,407,336 Provision for Income Taxes.............. 433,000 648,000 366,000 ----------- ----------- ----------- Net Income.............................. $ 1,327,535 $ 2,288,025 $ 1,041,336 =========== =========== =========== Net Income Per Common Share-basic....... $ .26 $ .46 $ .21 =========== =========== =========== Net Income Per Common Share-diluted..... $ .26 $ .46 $ .21 =========== =========== =========== Weighted Average Number of Common Shares Outstanding--basic..................... 5,031,338 4,968,731 4,852,787 =========== =========== =========== Weighted Average Number of Common Shares Outstanding--diluted................... 5,095,661 5,018,143 4,900,460 =========== =========== =========== Dividends Declared Per Common Share..... $ .12 $ .12 $ .16 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 25 ASTRO-MED, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED JANUARY 31, 1996, 1997 AND 1998
NET UNREALIZED GAIN (LOSS) ON ADDITIONAL CUMULATIVE SECURITIES COMMON PAID-IN RETAINED TREASURY TRANSLATION AVAILABLE STOCK CAPITAL EARNINGS STOCK ADJUSTMENT FOR SALE -------- ---------- ----------- ----------- ----------- -------------- Balance, January 31, 1995................... $255,913 $5,515,632 $30,355,938 $ (672,755) $ (80,722) $(94,072) Net Income.............. 1,327,535 Shares Sold Under Employee Stock Purchase Plan................... 196 35,312 Exercise of Stock Options, Including Related Tax Benefits... 57 3,694 Shares Issued to Employee Stock Ownership Plan......... (538) 60,913 Purchase of Stock for Treasury............... (290,327) Dividends Declared...... (603,850) Cumulative Translation Adjustment............. 42,354 Change in Net Unrealized Gain (Loss) on Securities Available for Sale............... 126,026 -------- ---------- ----------- ----------- --------- -------- Balance, January 31, 1996................... 256,166 5,554,100 31,079,623 (902,169) (38,368) 31,954 Net Income.............. 2,288,025 Shares Sold Under Employee Stock Purchase Plan................... 221 33,440 Exercise of Stock Options, Including Related Tax Benefits... 450 42,550 Shares Issued to Employee Stock Ownership Plan......... (5,851) 69,811 Purchase of Stock for Treasury............... (972,628) Dividends Declared...... (595,604) Cumulative Translation Adjustment............. (38,281) Change in Net Unrealized Gain (Loss) on Securities Available for Sale............... (44,597) -------- ---------- ----------- ----------- --------- -------- Balance, January 31, 1997................... 256,837 5,624,239 32,772,044 (1,804,986) (76,649) (12,643) Net Income.............. 1,041,336 Shares Sold Under Employee Stock Purchase Plan................... 186 28,203 Shares Issued to Employee Stock Ownership Plan......... (3,341) 43,341 Purchase of Stock for Treasury............... (1,301,300) Dividends Declared...... (727,463) Cumulative Translation Adjustment............. (115,180) Change in Net Unrealized Gain (Loss) on Securities Available for Sale............... 34,375 -------- ---------- ----------- ----------- --------- -------- Balance, January 31, 1998................... $257,023 $5,649,101 $33,085,917 $(3,062,945) $(191,829) $ 21,732 ======== ========== =========== =========== ========= ========
The accompanying notes are an integral part of these financial statements. 26 ASTRO-MED, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 31, 1996, 1997 AND 1998
1996 1997 1998 ----------- ----------- ----------- Cash Flows from Operating Activities: Net Income............................. $ 1,327,535 $ 2,288,025 $ 1,041,336 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization......... 909,771 921,088 988,423 Gain on Sale of Assets................ (495,761) Deferred Income Taxes................. 108,576 (39,859) (301,713) Other................................. 165,277 (56,358) 242,558 Changes in Assets and Liabilities: Accounts Receivable.................. (489,612) 6,269 483,672 Inventories.......................... 359,991 2,172,048 19,649 Other................................ 749,718 (399,118) (465,906) Accounts Payable and Accrued Expenses............................ (562,101) (19,137) 912,118 Income Taxes......................... (283,093) 386,995 (204,904) ----------- ----------- ----------- Total Adjustments................... 958,527 2,476,167 1,673,897 ----------- ----------- ----------- Net Cash Provided (Used) by Operating Activities........................... 2,286,062 4,764,192 2,715,233 Cash Flows from Investing Activities: Proceeds from Sales of Securities Available for Sale.................... 3,307,328 2,470,402 2,450,508 Purchases of Securities Available for Sale.................................. (2,879,153) (2,527,562) (3,147,206) Proceeds from Sales of Assets.......... 599,500 Proceeds from Sales of Investment...... 1,514,779 Additions to Property, Plant and Equipment............................. (922,397) (816,229) (809,724) ----------- ----------- ----------- Net Cash Provided (Used) by Investing Activities........................... (494,222) 1,240,890 (1,506,422) Cash Flows from Financing Activities: Proceeds from Short-Term Borrowing..... 500,000 Payments of Debt....................... (570,775) (50,000) (50,000) Principal Payments on Capital Leases... (100,069) Proceeds from Common Shares Issued Under Employee Benefit Plans.......... 99,634 70,810 68,389 Purchases of Treasury Stock............ (290,327) (902,817) (1,301,300) Dividends Paid......................... (603,850) (595,604) (727,463) ----------- ----------- ----------- Net Cash Used by Financing Activities. (865,318) (1,477,611) (2,110,443) ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents............................ 926,522 4,527,471 (901,632) Cash and Cash Equivalents, Beginning of Year................................... 1,107,191 2,033,713 6,561,184 ----------- ----------- ----------- Cash and Cash Equivalents, End of Year.. $ 2,033,713 $ 6,561,184 $ 5,659,552 =========== =========== =========== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest............................. $ 69,263 $ 33,108 $ 27,872 Income Taxes......................... $ 260,869 $ 437,855 $ 758,070
The accompanying notes are an integral part of these financial statements. 27 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1998 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation. Cash and Cash Equivalents: Highly liquid investments with an original maturity of three months 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 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: Excess of cost over net assets acquired is amortized on the straight-line method over forty years. Accumulated amortization amounted to $420,434 and $456,734 as of January 31, 1997 and 1998, respectively. Excess of net assets acquired over cost is amortized on the straight-line method over five years. Accumulated amortization amounted to $493,548 and $711,228 as of January 31, 1997 and 1998, respectively. The shorter amortization period for the excess of net assets acquired over cost reflects the more limited life of the assets involved. Foreign Currency: The financial statements of subsidiaries outside the United States 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, and income and expenses are translated at average exchange rates during the year. Income Taxes: The Company utilizes a liability approach which 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. Earnings Per Common Share: Earnings per common share have 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 income per share is based on the weighted average number of shares outstanding during the period. Net income per share assuming dilution is based on the weighted average number of shares and common equivalent shares for stock options outstanding during the period. Adoption of SFAS No. 128 had no impact on previously reported Earnings per Share for Fiscal Years 1996 and 1997.
1996 1997 1998 --------- --------- --------- Weighted Average Common Shares Outstanding-- basic....................................... 5,031,338 4,968,731 4,852,787 Dilutive Effect of Options Outstanding....... 64,323 49,412 47,673 --------- --------- --------- Weighted Average Common Shares Outstanding-- diluted..................................... 5,095,661 5,018,143 4,900,460
Use of Estimates in the Preparation of Financial Statements: The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and 28 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. 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, 1998 approximate fair value. NOTE 2--SECURITIES AVAILABLE FOR SALE As of January 31, 1998, securities included corporate and governmental debt obligations of $2,565,295 with contractual or anticipated maturities of one year or less and $4,907,398 with contractual or anticipated maturities of more than one year through twenty-five years. As of January 31, 1997, securities included corporate and governmental debt obligations of $1,100,703 with contractual or anticipated maturities of one year or less and $5,998,655 with contractual or anticipated maturities of more than one year through twenty- five years. Actual maturities may differ as a result of sales or early issuer redemptions. The amortized cost of securities available for sale as of January 31, 1998 was $7,436,318. The difference between market value and the cost basis as of that date was $36,375 ($21,732 net of tax), which represented gross unrealized gains of $36,375. As of January 31, 1997, the amortized cost of securities available for sale was $7,119,426. The difference between market value and the cost basis as of that date was $20,069, which represented gross unrealized gains of $13,859 and gross unrealized losses of $33,928 . 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 statement of income for fiscal 1998 and 1997. 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, ----------------------- 1997 1998 ----------- ----------- Materials and Supplies........................... $ 5,558,216 $ 5,620,041 Work-in-Progress................................. 779,337 993,149 Finished Goods................................... 4,023,952 3,728,666 ----------- ----------- $10,361,505 $10,341,856 =========== ===========
NOTE 4--LONG-TERM DEBT Long-term debt consisted of the following:
JANUARY 31, ----------------- 1997 1998 -------- -------- Capital Lease Obligations.............................. $355,841 $405,772 Less Current Maturities................................ 97,706 177,774 -------- -------- $258,135 $227,998 ======== ========
Other real estate and certain equipment are financed under a capital lease obligation with the Rhode Island Port Authority and Economic Development Corporation pursuant to an industrial development revenue bond financing arrangement. Monthly principal installments of $4,167 plus interest at 7 1/2% are due to 2000. The 29 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) obligation contains an option to purchase the particular real estate and machinery and equipment at any time for the amount necessary to retire the bonds involved. It also contains certain restrictive covenants including, among other things, minimum working capital and net worth requirements, and a maximum debt-to-equity ratio. During fiscal year 1998, the Company entered into a three year, $200,000 capital lease obligation for the purpose of upgrading its information technology software. Expenditures for property and equipment during the past three fiscal years have been made from on hand and internally generated funds. The aggregate amounts of long-term debt as of January 31, 1998 scheduled to mature in each of the succeeding three fiscal years are as follows: $177,774 in fiscal 1999, $179,581 in fiscal 2000 and $48,417 in fiscal 2001. NOTE 5--COMMON STOCK The Company's Board of Directors has authorized the purchase of up to 500,000 shares of the Company's common stock on the open market. As purchased, such shares will become treasury stock available for general corporate purposes. The Company purchased 114,324 and 151,500 shares of treasury stock in fiscal 1997 and 1998, respectively. The Company maintains the following benefit plans involving the Company's common stock: Stock Option Plans: As of January 31, 1998, the Company has three incentive stock option plans and a non-qualified stock option plan under which options may be granted to officers and key employees. Options for an aggregate of 800,000 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 150,000 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:
NUMBER WEIGHTED AVERAGE OF OPTION PRICE OPTION PRICE PER SHARES PER SHARE SHARE ------- ------------ ---------------- Outstanding Options, January 31, 1995.... 382,850 $3.33-$14.30 $9.17 Options Exercised........................ (1,125) $ 3.33 3.33 Options Expired.......................... (6,000) $3.33-$13.00 10.89 ------- Outstanding Options, January 31, 1996.... 375,725 $3.33-$14.30 9.17 Options Granted.......................... 152,000 $8.31-$ 9.25 8.40 Options Exercised........................ (9,000) $3.33-$ 5.50 5.00 Options Expired.......................... (37,125) $5.50-$13.00 10.47 ------- Outstanding Options, January 31, 1997.... 481,600 $3.33-$14.30 8.90 Options Granted.......................... 162,500 $8.31-$ 8.94 8.45 Options Expired.......................... (23,250) $3.33-$13.00 8.89 ------- Outstanding Options, January 31, 1998.... 620,850 $3.33-$14.30 8.79 ------- Options Exercisable, January 31, 1997.... 416,200 $3.33-$14.30 8.61 ------- Options Exercisable, January 31, 1998.... 556,300 $3.33-$14.30 8.59 =======
30 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Set forth below is a summary of options outstanding at January 31, 1998:
[OUTSTANDING] [EXERCISABLE] - ------------------------------------------------------- ------------------------ RANGE OF EXERCISE WEIGHTED AVERAGE REMAINING WEIGHTED AVERAGE PRICES OPTIONS EXERCISE PRICE CONTRACTUAL LIFE OPTIONS EXERCISE PRICE -------- ------- ---------------- ---------------- ------- ---------------- $ 3.33- 5.50 110,100 $ 5.05 2 yrs. 110,100 $ 5.05 8.25-11.28 478,750 9.36 8 yrs. 421,200 9.24 13.00-14.30 32,000 13.12 5 yrs. 25,000 13.16
At January 31, 1998, options covering 269,250 shares under the incentive plans, and 50,000 shares under the non-qualified plan and 21,000 shares under the Non-Employee Director Stock Option Plan were available for future grant. Accounting for Stock-Based Compensation: In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. 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 earnings per share would have been reduced to the pro forma amounts indicated below:
JANUARY 31 -------------------------------- 1996 1997 1998 ---------- ---------- ---------- Net income As reported............................ $1,327,535 $2,288,025 $1,041,336 Pro forma.............................. $1,327,535 $1,821,039 $ 546,039 Earnings per share As reported............................ $ .26 $ .46 $ .21 Pro forma, basic....................... $ .26 $ .37 $ .11 Pro forma, diluted..................... $ .26 $ .36 $ .11
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 was $3.24 and $3.40 in fiscal 1997 and 1998 respectively.
1997 1998 ------ ------ Risk-free interest rate................................... 6.5% 5.5% Expected life (years)..................................... 5 5 Expected volatility....................................... 37.481% 34.879% Expected dividend yield................................... 1.4% 1.9%
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 was initially reserved for issuance under the Plan. Summarized Plan activity is as follows:
YEARS ENDED JANUARY 31, ------------------------- 1996 1997 1998 ------- ------- ------- Shares Reserved, Beginning..................... 113,562 109,645 105,218 Shares Purchased............................... (3,917) (4,427) (3,711) ------- ------- ------- Shares Reserved, Ending........................ 109,645 105,218 101,507 ======= ======= =======
31 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 $75,000 for fiscal 1996, $100,000 for fiscal 1997 and $123,000 for fiscal 1998. NOTE 6--INCOME TAXES The components of the provision for income taxes were as follows:
YEARS ENDED JANUARY 31, ---------------------------- 1996 1997 1998 -------- -------- -------- Current: Federal................................... $380,213 $564,953 $511,324 State..................................... 100,473 173,284 88,092 Foreign................................... 24,000 -------- -------- -------- 480,686 738,237 623,416 -------- -------- -------- Deferred: Federal................................... (36,302) (68,474) (210,093) State..................................... (11,384) (21,763) (47,323) -------- -------- -------- (47,686) (90,237) (257,416) -------- -------- -------- $433,000 $648,000 $366,000 ======== ======== ========
The provision 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, ------------------------------- 1996 1997 1998 --------- --------- --------- Income Tax Provision at Statutory Rate... $ 598,582 $ 998,249 $ 478,494 State Taxes, Net of Federal Income Tax Benefits................................ 66,312 114,367 26,862 Nontaxable Interest Income............... (39,558) (38,420) (39,100) Amortization of Intangibles.............. (62,623) (57,683) (57,683) Utilization of Net Operating Loss Carryforward............................ (171,749) (117,300) (117,580) Other, Net............................... 42,036 (251,213) 75,007 --------- --------- --------- $ 433,000 $ 648,000 $ 366,000 ========= ========= =========
Other, Net in fiscal 1997 includes the reversal of tax reserves no longer required. 32 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, -------------------- 1997 1998 --------- --------- Deferred Tax Assets: Reserves and Accruals Not Yet Deducted for Tax Purposes.............................................. $ 684,925 $ 949,282 Unrealized Foreign Currency Losses..................... 123,685 133,345 Net Operating Loss Carryforwards....................... 666,059 389,981 Other.................................................. 92,166 64,363 Valuation Allowance.................................... (666,059) (389,981) --------- --------- 900,776 1,146,990 Deferred Tax Liabilities: Accumulated Tax Depreciation in Excess of Book Depreciation.......................................... 794,895 747,560 Other.................................................. 81,693 73,529 --------- --------- 876,588 821,089 --------- --------- Net Deferred Tax Assets.................................. $ 24,188 $ 325,901 ========= =========
The total of deferred tax assets, net of other deferred tax liabilities, is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. The valuation allowance relates to net operating loss carryforwards (approximately $416,000 domestic and $481,000 foreign) expiring through 2007, the future tax benefits of which to be realized are uncertain because they are limited to future annual taxable income of certain subsidiaries. Also, the domestic net operating loss carryforward may only be used at the rate of approximately $345,000 per year. 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, --------------------- 1997 1998 ---------- ---------- Real Estate........................................ $4,354,402 $4,477,966 Machinery and Equipment............................ 280,924 481,484 ---------- ---------- 4,635,326 4,959,450 Less: Accumulated Amortization..................... 1,562,542 1,802,149 ---------- ---------- $3,072,784 $3,157,301 ========== ==========
33 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Minimum lease payments under noncancellable leases at January 31, 1998, were as follows:
YEAR ENDING CAPITAL OPERATING JANUARY 31, LEASE LEASES ----------- -------- --------- 1999................................................. $198,201 $359,116 2000................................................. 194,451 207,394 2001................................................. 43,002 114,734 2002................................................. 88,831 2003................................................. 69,360 2004 and Thereafter.................................. 54,346 -------- -------- Net Minimum Lease Payments........................... 435,654 $893,781 ======== Less Amount Representing Interest.................... 29,882 -------- Current Value of Net Minimum Lease Payments.......... $405,772 ========
Total rental expense for fiscal 1996, 1997 and 1998 was $481,498, $425,817 and $432,654, respectively. NOTE 8--OPERATIONS The Company's operations consist of the design, development, manufacture and sale of specialty data acquisition and data printing systems and consumable printer supplies. Business is conducted primarily in two major geographic areas: North America and Europe. Substantially all manufacturing activities are conducted in the United States. Sales and service activities outside North America are conducted primarily through wholly-owned entities and, to a lesser extent, through authorized distributors or agents. Transfer prices are intended to produce gross profit margins commensurate with the sales and service effort associated with the product sold. Certain information on a geographic basis for fiscal 1996, 1997 and 1998 is set forth below.
NORTH AMERICA EUROPE ELIMINATIONS CONSOLIDATED ------------- ---------- ------------ ------------ FISCAL 1996 - ----------- Net Sales to Unaffiliated Customers................. $37,311,249 $6,630,062 $43,941,311 Transfers between Geo- graphic Areas............. 4,690,824 $(4,690,824) ----------- ----------- $42,002,073 $6,630,062 $(4,690,824) $43,941,311 =========== ========== =========== =========== Operating Income........... $ 1,224,422 $ 299,022 $ (29,647) $ 1,493,797 =========== ========== =========== =========== Identifiable Assets........ $37,989,186 $4,313,545 $42,302,731 =========== ========== =========== FISCAL 1997 - ----------- Net Sales to Unaffiliated Customers................. $38,289,675 $5,885,458 $44,175,133 Transfers between Geo- graphic Areas............. $ 4,260,847 $ 142,843 $(4,403,690) ----------- ---------- ----------- ----------- $42,550,522 $6,028,301 $(4,403,690) $44,175,133 =========== ========== =========== =========== Operating Income........... $ 1,873,249 $ 146,309 $ (30,000) $ 1,989,558 =========== ========== =========== =========== Identifiable Assets........ $40,718,264 $2,603,163 $43,321,427 =========== ========== =========== FISCAL 1998 - ----------- Net Sales to Unaffiliated Customers................. $38,574,396 $5,173,144 $43,747,540 Transfers between Geo- graphic Areas............. $ 4,195,162 $ 19,616 $(4,214,778) ----------- ---------- ----------- $42,769,558 $5,192,760 $(4,214,778) $43,747,540 =========== ========== =========== =========== Operating Income (Loss).... $ 867,488 $ (219,601) $ 647,887 =========== ========== =========== Identifiable Assets........ $40,153,959 $2,659,755 $42,813,714 =========== ========== ===========
34 ASTRO-MED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) North America sales as shown above include export sales of $6,604,317 in fiscal 1996, $5,812,450 in fiscal 1997, and $4,950,012 in fiscal 1998. No single customer accounted for 10% of net sales in fiscal 1996, 1997 or 1998. 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. The Company's former subsidiary, Grass Instrument Co., also had a non-contributory profit-sharing plan which was terminated during fiscal 1996. 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 $135,000 for fiscal 1996, $185,000 for fiscal 1997, and $227,400 for fiscal 1998. 35 ASTRO-MED, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BALANCE AT PROVISION BALANCE BEGINNING CHARGED TO AT END DESCRIPTION OF PERIOD OPERATIONS DEDUCTIONS(2) OF PERIOD ----------- ---------- ---------- ------------- --------- Allowance for Doubtful Accounts(1): Year Ended January 31, 1996........................ 157,000 58,227 58,227 157,000 1997........................ 157,000 2,152 (15,848) 175,000 1998........................ 175,000 38,585 37,797 175,788
- -------- (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. 36 EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR JAN-31-1998 FEB-01-1997 JAN-31-1998 5,659,552 7,472,693 8,003,852 175,788 10,341,856 32,863,478 18,056,693 10,155,952 42,813,714 5,752,638 227,998 0 0 257,023 35,501,976 42,813,714 43,747,540 43,747,540 27,236,046 43,099,653 0 0 27,872 1,407,336 366,000 1,041,336 0 0 0 1,041,336 .21 .21
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