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ALOT > SEC Filings for ALOT > Form 10-Q on 9-Sep-2013All Recent SEC Filings

Show all filings for ASTRO MED INC /NEW/ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ASTRO MED INC /NEW/


9-Sep-2013

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Business Overview

This section should be read in conjunction with Astro-Med's Condensed Consolidated Financial Statements included elsewhere herein and our Annual Report on Form 10-K for the fiscal year ended January 31, 2013.

Astro-Med is a multi-national enterprise, which designs, develops, manufactures, distributes and services a broad range of products that acquire, store, analyze and present data in multiple formats. The Company organizes its structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. We market and sell our products and services through the following two product groups:

Test and Measurement Product Group (T&M)-offers a suite of Ruggedized Printer products designed for military and commercial applications to be used in the avionics industry to print weather maps, communications and other critical flight information. T&M also manufactures and markets a suite of telemetry recorder products sold to the aerospace and defense industries, as well as portable data acquisition recorders, which offer diagnostic and test functions to a wide range of manufacturers including automotive, energy, paper and steel fabrication.

QuickLabel Systems Product Group (QuickLabel)-offers label printer hardware, labeling software, service contracts and label and ink consumable products that digitally print color labels on a broad range of label and tag substrates.

On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) in order to focus on its existing core businesses. Grass manufactured polysomnography and electroenecephalography systems for both clinical and research use along with the related accessories and proprietary electrodes. Consequently, the Company has classified the results of operations of its Grass segment as discontinued operations for all periods presented.

Astro-Med markets and sells its products and services globally through a diverse distribution structure of direct sales personnel, manufacturer's representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets.

Results of Operations

Three Months Ended August 3, 2013 vs. Three Months Ended July 28, 2012

Net sales by product group and current quarter percentage change over prior year
for the three months ended August 3, 2013 and July 28, 2012 were:



                                            As a                           As a           % Change
                          August 3,         % of          July 28,         % of             Over
(Dollars in thousands)      2013          Net Sales         2012         Net Sales       Prior Year
T&M                      $     4,999            29.1 %    $   3,856            26.3 %           29.6 %
QuickLabel                    12,195            70.9 %       10,807            73.7 %           12.8 %

Total                    $    17,194           100.0 %    $  14,663           100.0 %           17.3 %

Net sales for the second quarter of the current year were $17,194,000, representing a 17.3% increase as compared to the previous year's second quarter sales of $14,663,000 as well as a 11.0% increase as compared to current year first quarter sales of $15,485,000. Sales through the domestic channels for the current quarter were $12,074,000, an increase of 11.7% over the prior year's second quarter. International shipments for the second quarter of the current year were $5,120,000, representing an 33.0% increase from the previous year. Current year's second quarter international sales include favorable foreign exchange rate impact of $93,000.

Hardware sales in the current quarter were $7,071,000, an increase compared to both prior year's second quarter sales of $5,677,000 and current year's first quarter sales of $5,638,000. The current quarter increase is primarily due to the continued double-digit increase in sales of T&M's Ruggedized product line, as sales were up in the current period compared to prior year second quarter sales. Also contributing to the current quarter increase in hardware sales is the increase in sales of QuickLabel's color printer product line as compared to the prior year.


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Consumables sales in the current quarter were $9,205,000, representing a 12.8% increase over prior year's second quarter consumable sales of $8,160,000 and slight increase overcurrent year's first quarter sales of $8,902,000. The current quarter increase in consumable sales as compared to the second quarter of the prior year is primarily due to the double-digit increase in both digital color printer supplies and print head product sales in the QuickLabel segment.

Service and other revenues of $918,000 in the current quarter were up 11.0% from prior year's second quarter service and other revenues of $827,000, primarily due to the increase in parts revenue during the quarter.

Current year second quarter gross profit was $6,923,000, representing a 35.6% improvement over current year's first quarter gross profit of $5,105,000 and a 24.6% improvement as compared to prior year's second quarter gross profit of $5,557,000. The Company's gross profit margin of 40.3% in the current quarter also reflects an increase from the prior year's second quarter gross profit margin of 37.9%. The higher gross profit and related margin for the current quarter as compared to prior year is primarily attributable a favorable product mix.

Operating expenses for the current quarter were $6,036,000, which increased as compared to prior year's second quarter operating expenses of $4,993,000. The Company increased its spending in selling and market activities from additional personnel and related costs; expanded its R&D investments with new product programs; and incurred higher G&A costs from healthcare and professional service fees. The current quarter spending in R&D represents 7.4% of sales, an increase as compared to prior year's second quarter level of 6.0%.

Second quarter operating income of $887,000, resulted in operating profit margin of 5.2%, an increase compared to the prior year's second quarter operating income of $564,000 and related operating margin of 3.8%. The increase in operating income and related margin is primarily attributable to favorable product mix in the current quarter.

Other expense during the second quarter was $25,000 compared to other expense of $89,000 in the second quarter of the previous year. The lower expense was primarily due to the decrease in foreign exchange loss recognized in the second quarter of the current year as compared to the prior year.

The provision for federal, state and foreign taxes on continuing operations for the second quarter of the current year were $331,000, reflecting an effective tax rate of 38.4%. This compares to the prior year's second quarter tax expense for continued operations of $187,000, reflecting an effective tax rate of 39.5%.

The Company reported $531,000 of income from continuing operations for the second quarter of the current year, reflecting a return on sales of 3.1% and generating EPS of $0.07 per diluted share, an improvement compared to the prior year's second quarter income from continuing operations of $288,000 , reflecting a return on sales of 2.0% and an EPS of $0.04 per diluted share.

Discontinued Operation

On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) for a purchase price of $18,600,000. Consequently, the Company has classified the results of operations of its Grass segment as discontinued operations for all periods presented.

Results for discontinued operations are as follows:

                                                          Three Months
                                                             Ended
                                                    August 3,       July 28,
         (In thousands)                               2013            2012
         Net Sales                                 $     1,965     $    4,909
         Gross Profit                              $       327     $    2,743
         Net Income from Discontinued Operations   $       165     $      699


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Six Months Ended August 3, 2013 vs. Six Months Ended July 28, 2012

Net sales by product group and current quarter percentage change over prior year
for the six months ended August 3, 2013 and July 28, 2012 were:



                                            As a                           As a           % Change
                          August 3,         % of          July 28,         % of             Over
(Dollars in thousands)      2013          Net Sales         2012         Net Sales       Prior Year
T&M                      $     9,087            27.8 %    $   7,829            27.0 %           16.1 %
QuickLabel                    23,592            72.2 %       21,171            73.0 %           11.4 %

Total                    $    32,679           100.0 %    $  29,000           100.0 %           12.7 %

Net sales for the first six months of the current year were $32,679,000, representing a 12.7% increase as compared to the previous year's sales of $29,000,000. Sales through the domestic channels for the first half of the current year were $22,767,000, an increase of 7.1% over the prior year. International shipments for the first six months of the current year were $9,912,000, representing a 28.0% increase from the previous year. The current year's first six months international sales include a favorable foreign exchange rate impact of $33,000.

Hardware sales in the first six months of the current year were $12,708,000, a 13.1% increase compared to prior sales of $11,235,000. Both product groups experienced growth in the current year, with T&M hardware sales at $8,278,000, an 18.6% increase as compared to prior year sales of $6,978,000 and QuickLabel hardware sales at $4,430,000 in the current year, a 4.1% increase from prior year sales of $4,256,000. The main source of the current year's increase in sales is sales of both T&M's Ruggedized product line and QuickLabel's new Kairo! product line.

Consumables sales in first half of the current year were $18,107,000, representing a 12.6% increase over prior year's first six months sales of $16,081,000. The current year increase in consumable sales is primarily due to the double-digit increase in both digital color printer supplies and label and tag product sales in the QuickLabel segment.

Service and other revenues of $1,864,000 in the first six months of the current year were up 10.7% from prior year's first six months service and other revenues of $1,684,000, primarily due to the increase in parts and service revenue during the current year.

Current year first six months gross profit was $12,027,000, reflecting an 8.8% improvement as compared to prior year's first six months gross profit of $11,056,000; however, the Company's gross profit margin of 36.8% in the current year is lower than the prior year's first six months gross profit margin of 38.1%. The lower gross profit margin for the current year as compared to prior year is primarily attributable to $672,000 in product replacement program costs recognized in the first quarter related to replacing materials on certain of T&M's Ruggedized printers after the Company discovered that one of its suppliers was using non-conforming material in the cover of the power supply used in certain models. Astro-Med intends to seek full recovery from the supplier for all costs and any other damages associated with this issue since the supplier deviated from the agreed upon specifications for the power supply while providing certificates of conformance to the original specifications.

Operating expenses for the first six months of the fiscal year were $11,862,000, an increase as compared to prior year's first six months operating expenses of $10,064,000. Specifically, selling and marketing expenses for the current year increased as compared to the previous year's first six months of selling and marketing expenses due to increases in personnel costs as well as travel expenditures. G&A expenses increased to $2,521,000 in the first six months of the current year as compared to prior year's first six months G&A expenses. The increase in G&A was primarily due to an increase in personnel costs, professional fees and travel spending. Investment in R&D in the first six months of the current year of $2,387,000 compared to prior year's first six months investment of $1,870,000. The current year spending in R&D represents 7.3% of sales, an increase as compared to prior year's first six months level of 6.4%.

First six months operating income of $165,000, resulted in a operating profit margin of less than 1.0%, lower as compared to the prior year's first six months operating income of $992,000 and related operating margin of 3.4%. The decrease in operating income and related margin is primarily attributable to the $672,000 of product replacement program costs recognized in the first quarter as discussed above, as well as higher operating expenses in the current fiscal year.


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Other expense during the first six months was $62,000 compared to other expense of $102,000 in the first six months of the previous year. The lower expense was primarily due to the decline in foreign exchange loss recognized in the first six months of the current year as compared to the prior year.

The Company recognized a $11,000 tax expense on income from continuing operations for the first six months of the current fiscal year. This compares to the prior year's first six months income tax expense on income from continued operations of $43,000, which included an expense of $312,000 on the six month's pretax income from continuing operations and a benefit $269,000 related to the favorable resolution of a previously uncertain tax position.

The Company reported income from continuing operations of $92,000 for the first six months of the current year, reflecting a return on sales of less than 1.0% and generating a EPS of $0.01 per diluted share. On a comparative basis, in the prior year's first six months, the Company recognized income from continuing operations of $847,000, reflecting a return on sales of 2.9% and an EPS of $0.11 per diluted share.

Discontinued Operation

On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) for a purchase price of $18,600,000. Consequently, the Company has classified the results of operations of its Grass segment as discontinued operations for all periods presented.

Results for discontinued operations are as follows:

                                                       Six Months Ended
                                                   August 3,       July 28,
         (In thousands)                               2013           2012
         Net Sales                                 $    3,716     $    8,997
         Gross Profit                              $      378     $    4,615
         Net Income from Discontinued Operations   $      155     $      977

Segment Analysis

The Company reports two segments consistent with its product groups: Test & Measurement (T&M) and QuickLabel Systems (QuickLabel). The Company evaluates segment performance based on the segment profit before corporate and financial administration expenses.

Summarized below are the Net Sales and Segment Operating Profit for each reporting segment:

                                                              Three Months Ended                                                  Six Months Ended
                                                 Net Sales                Segment Operating Profit                  Net Sales                Segment Operating Profit
                                          August 3,      July 28,       August 3,           July 28,         August 3,      July 28,       August 3,           April 28,
(In thousands)                              2013           2012           2013                2012             2013           2012           2013                2012
T&M                                      $     4,999     $   3,856     $       691         $       588      $     9,087     $   7,829     $       890         $     1,140
QuickLabel                                    12,195        10,807           1,576               1,091           23,592        21,171           2,468               2,003

Total                                    $    17,194     $  14,663           2,267               1,679      $    32,679     $  29,000           3,358               3,143

Product Replacement Related Costs                                               -                   -                                             672                  -
Corporate Expenses                                                           1,380               1,115                                          2,521               2,151

Operating Income                                                               887                 564                                            165                 992
Other Expense-Net                                                              (25 )               (89 )                                          (62 )              (102 )

Income From Continuing Operations
Before Income Taxes                                                            862                 475                                            103                 890
Income Tax Provision                                                           331                 187                                             11                  43

                                                                               531                 288                                             92                 847
Income From Discontinued Operations,
Net of Income Taxes                                                            165                 699                                            155                 977


Net Income                                                             $       696         $       987                                    $       247         $     1,824


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Test & Measurement-T&M

Sales revenues from the T&M product group were $4,999,000 for the second quarter of the current fiscal year, representing a 29.6% increase as compared to sales of $3,856,000 for the same period in the prior year. The increase is primarily attributable to the double-digit growth in second quarter in the Ruggedized product line sales as compared to prior year's sales volume. The overall increase in T&M sales for the second quarter were slightly tempered by lower sales of the traditional recorder product line. T&M's second quarter segment operating profit of $691,000 resulted in a 13.8% profit margin as compared to the prior year's segment operating profit of $588,000 and related operating margin of 15.2%. The lower segment operating profit margin was due to product mix.

Sales revenues from the T&M product group were $9,087,000 for the first six months of the current fiscal year, representing a 16.1% increase as compared to sales of $7,829,000 for the same period in the prior year. The increase is primarily attributable to the hardware product line, as both the Ruggedized and TMX product lines experienced growth over prior year. T&M's operating profit for the first six months of the current fiscal year segment was $890,000 which resulted in a 9.8% profit margin as compared to the prior year's segment operating profit of $1,140,000 and related operating margin of 14.6%. The lower segment operating profit and related margin was due to product mix and higher manufacturing costs.

QuickLabel Systems-QuickLabel

Sales revenues from the QuickLabel product group increased 12.8% with sales of $12,195,000 in the second quarter of the current year as compared to $10,807,000 in the same period of the prior year. The current quarter increase in sales is primarily due to the consumables product line which increased 13.3% from the same period in the prior year, primarily attributable to the increased demand for digital color printer supplies and labels, as well as for the printer head product lines, which both experienced double-digit growth as compared to the prior year. Also contributing to the current quarter increase was the new Kario! product line. QuickLabel's current quarter segment operating profit was $1,576,000, reflecting a profit margin of 12.9%, an increase from prior year's second quarter segment profit of $1,091,000 and related profit margin of 10.1%. The increase in QuickLabel's current year's segment operating profit and related margin is primarily due to favorable product mix.

Sales revenues from the QuickLabel product group were $23,592,000 for the first six months of the current fiscal year as compared to $21,171,000 in the same period of the prior year. The increase in sales is primarily due to the consumables product line which increased 12.7% from the prior year, primarily attributable to the increased demand for digital color printer supplies, as well as for the label and tag product lines. Also contributing to the current quarter increase was the new Kario! product line. QuickLabel's current year's segment operating profit was $2,468,000, reflecting a profit margin of 10.5% an increase from prior year's segment profit of $2,003,000 related profit margin of 9.5%. The increase in QuickLabel's current year's segment operating profit and related margin is primarily due to favorable product mix.


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Financial Condition and Liquidity

The Company believes that cash provided by operations will continue to be sufficient to meet operating and capital needs for at least the next twelve months. However, in the event that cash from operations is not sufficient, the Company has a substantial cash and short term marketable securities balance, as well as a $5.0 million revolving bank line of credit, all of which is currently available. Borrowings under this line of credit bear interest at either a fluctuating rate equal to 75 basis points below the base rate, as defined in the agreement, or at a fixed rate equal to 150 basis points above LIBOR.

The Company's statements of cash flows for the six months ended August 3, 2013 and July 28, 2012 are included on page 6. Net cash flows used by operating activities was $5,999,000 in the current year compared to net cash provided by operating activities of $1,105,000 in the previous year. The decline in operating cash flow provided in the first six months of the current year as compared to the previous year is related to income tax payments made in connection with the gain on the sale of Grass Technologies as well as higher accounts receivable and inventory balances. Accounts receivables increased to $9,674,000 at the end of the second quarter as compared to $9,376,000 at year-end and the accounts receivable collection cycle increased to 52 days sales outstanding at the end of the current quarter as compared to 51 days outstanding at year end. Inventory increased to $12,505,000 at the end of the second quarter compared to $11,179,000 at year end and inventory days on hand also increased to 113 days on hand at the end of the current quarter from 109 days at year end.

The Company's cash, cash equivalents and investments at the end of the second quarter totaled $32,583,000 compared to $39,508,000 at year end. The lower cash and investment position at August 3, 2013 resulted from the increase in inventory and the decrease in income taxes payable, as noted above, as well as cash used to acquire property, plant and equipment of $374,000 and to pay cash dividends of $1,047,000.

The Company's backlog increased 29.0% from year-end to $7,936,000 at the end of the second quarter.

Critical Accounting Policies, Commitments and Certain Other Matters

In the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2013, the Company's most critical accounting policies and estimates upon which our financial status depends were identified as those relating to revenue recognition, warranty claims, bad debts, inventories, income taxes, long-lived assets, goodwill and share-based compensation. We considered the disclosure requirements of Financial Release ("FR") 60 ("FR-60") regarding critical accounting policies and FR-61 regarding liquidity and capital resources, certain trading activities and related party/certain other disclosures, and concluded that nothing materially changed during the quarter that would warrant further disclosure under these releases.

Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, but rather reflect our current expectations concerning future events and results. We generally use the words "believes," "expects," "intends," "plans," "anticipates," "likely," "continues," "may," "will," and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors which could cause actual results to differ materially from those anticipated include, but are not limited to (a) general economic, financial and business conditions;
(b) declining demand in the test and measurement markets, especially defense and aerospace; (c) competition in the specialty printer industry; (d) ability to develop market acceptance of our products and effective design of customer required features; (e) competition in the data acquisition industry; (f) the impact of changes in foreign currency exchange rates on the results of operations; (g) the ability to successfully integrate acquisitions and realize benefits from divestitures; (h) the business abilities and judgment of personnel and changes in business strategy; (i) the efficacy of research and development investments to develop new products; (j) the launching of significant new products which could result in unanticipated expenses; (k) bankruptcy or other financial problems at major suppliers or customers that could cause disruptions in the Company's supply chain or difficulty in collecting amounts owed by such customers; (l) and other risks included under "Item 1A-Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended January 31, 2013. We assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.


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