ASTRONOVA, INC., 10-Q filed on 12/4/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Oct. 27, 2018
Nov. 30, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Oct. 27, 2018  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Trading Symbol ALOT  
Entity Registrant Name AstroNova, Inc.  
Entity Central Index Key 0000008146  
Current Fiscal Year End Date --01-31  
Entity Filer Category Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Common Stock, Shares Outstanding   6,952,794
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Oct. 27, 2018
Jan. 31, 2018
CURRENT ASSETS    
Cash and Cash Equivalents $ 7,816 $ 10,177
Securities Available for Sale   1,511
Accounts Receivable, net of allowance for doubtful accounts of $501 at October 27, 2018 and $377 at January 31, 2018 21,717 22,400
Inventories, net 28,330 27,609
Prepaid Expenses and Other Current Assets 2,014 1,251
Total Current Assets 59,877 62,948
PROPERTY, PLANT AND EQUIPMENT 44,568 42,877
Less Accumulated Depreciation (34,459) (33,125)
Property, Plant and Equipment, net 10,109 9,752
OTHER ASSETS    
Intangible Assets, net 30,685 33,633
Goodwill 12,283 13,004
Deferred Tax Assets 1,827 1,829
Other 1,275 1,147
Total Other Assets 46,070 49,613
TOTAL ASSETS 116,056 122,313
CURRENT LIABILITIES    
Accounts Payable 5,355 11,808
Accrued Compensation 3,853 2,901
Other Liabilities and Accrued Expenses 2,697 2,414
Current Portion of Long-Term Debt 5,116 5,498
Current Portion of Royalty Obligation 1,750 1,625
Revolving Credit Facility 1,500  
Current Liability – Excess Royalty Payment Due 1,246 615
Deferred Revenue 374 367
Income Taxes Payable   684
Total Current Liabilities 21,891 25,912
NON CURRENT LIABILITIES    
Long-Term Debt, net of current portion 14,068 17,648
Royalty Obligation, net of current portion 10,408 11,760
Deferred Tax Liabilities 614 698
Other Liabilities 1,667 2,648
TOTAL LIABILITIES 48,648 58,666
SHAREHOLDERS’ EQUITY    
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 10,196,755 shares and 9,996,120 shares at October 27, 2018 and January 31, 2018, respectively 510 500
Additional Paid-in Capital 52,948 50,016
Retained Earnings 47,693 45,700
Treasury Stock, at Cost, 3,259,473 and 3,227,942 shares at October 27, 2018 and January 31, 2018, respectively (32,960) (32,397)
Accumulated Other Comprehensive Loss, net of tax (783) (172)
TOTAL SHAREHOLDERS’ EQUITY 67,408 63,647
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 116,056 $ 122,313
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Oct. 27, 2018
Jan. 31, 2018
Statement Of Financial Position [Abstract]    
Accounts Receivable, Allowance for Doubt for Accounts $ 501 $ 377
Common Stock, Par Value $ 0.05 $ 0.05
Common Stock, Shares Authorized 13,000,000 13,000,000
Common Stock, Shares Issued 10,196,755 9,996,120
Treasury Stock, Shares 3,259,473 3,227,942
v3.10.0.1
Condensed Consolidated Statements of Income - USD ($)
3 Months Ended 9 Months Ended
Oct. 27, 2018
Oct. 28, 2017
Oct. 27, 2018
Oct. 28, 2017
Income Statement [Abstract]        
Revenue $ 34,196,000 $ 28,760,000 $ 99,490,000 $ 80,701,000
Cost of Revenue 20,288,000 16,966,000 60,073,000 49,342,000
Gross Profit 13,908,000 11,794,000 39,417,000 31,359,000
Operating Expenses:        
Selling and Marketing 6,587,000 5,532,000 19,484,000 15,958,000
Research and Development 2,123,000 2,033,000 5,844,000 5,340,000
General and Administrative 2,836,000 2,597,000 8,298,000 6,780,000
Operating Expenses 11,546,000 10,162,000 33,626,000 28,078,000
Operating Income, net 2,362,000 1,632,000 5,791,000 3,281,000
Other Income (Expense) (538,000) (12,000) (1,320,000) (45,000)
Income before Income Taxes 1,824,000 1,620,000 4,471,000 3,236,000
Income Tax Provision 407,000 201,000 1,046,000 579,000
Net Income $ 1,417,000 $ 1,419,000 $ 3,425,000 $ 2,657,000
Net Income per Common Share—Basic: $ 0.21 $ 0.21 $ 0.50 $ 0.38
Net Income per Common Share—Diluted: $ 0.20 $ 0.21 $ 0.49 $ 0.38
Weighted Average Number of Common Shares Outstanding:        
Basic 6,924,554 6,725,414 6,858,365 6,968,285
Diluted 7,166,628 6,820,921 7,056,125 7,082,361
Dividends Declared Per Common Share $ 0.07 $ 0.07 $ 0.21 $ 0.21
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Oct. 27, 2018
Oct. 28, 2017
Oct. 27, 2018
Oct. 28, 2017
Statement Of Income And Comprehensive Income [Abstract]        
Net Income $ 1,417 $ 1,419 $ 3,425 $ 2,657
Other Comprehensive Income (Loss), Net of Taxes and Reclassification Adjustments:        
Foreign Currency Translation Adjustments (157) (108) (775) 210
Change in Value of Derivatives Designated as Cash Flow Hedge 221 60 766 (700)
Losses (Gains) from Cash Flow Hedges Reclassified to Income Statement (150) (58) (605) 646
Unrealized Holding Gain (Loss) on Securities Available for Sale   (2)   5
Realized Gain on Securities Available for Sale reclassified to income statement     3  
Other Comprehensive Income (Loss) (86) (108) (611) 161
Comprehensive Income $ 1,331 $ 1,311 $ 2,814 $ 2,818
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Oct. 27, 2018
Oct. 28, 2017
Cash Flows from Operating Activities:    
Net Income $ 3,425 $ 2,657
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:    
Depreciation and Amortization 4,633 2,394
Amortization of Debt Issuance Costs 38 22
Share-Based Compensation 1,339 1,125
Deferred Income Tax Provision (67) (14)
Changes in Assets and Liabilities, Net of Impact of Acquisition:    
Accounts Receivable 248 (575)
Inventories (1,140) (1,769)
Income Taxes (244) (1,078)
Accounts Payable and Accrued Expenses (6,043) (610)
Other (916) (175)
Net Cash Provided (Used) by Operating Activities 1,273 1,977
Cash Flows from Investing Activities:    
Proceeds from Sales/Maturities of Securities Available for Sale 1,511 3,766
Purchases of Securities Available for Sale   (321)
Cash Paid for TrojanLabel Acquisition, net of cash acquired   (9,007)
Cash Paid for Honeywell Asset Purchase and License Agreement   (14,873)
Payments Received on Line of Credit Issued to Label Line   85
Additions to Property, Plant and Equipment (1,902) (1,719)
Net Cash Provided (Used) by Investing Activities (791) (22,069)
Cash Flows from Financing Activities:    
Net cash proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans, Net of Payment of Minimum Tax Withholdings 1,041 471
Purchase of Treasury Stock   (11,238)
Proceeds from Issuance of Long-Term Debt   9,200
Borrowings under Revolving Credit Facility 3,000 14,600
Repayments under Revolving Credit Facility (1,500)  
Change in Fair Value of Trojan Label Earn-Out   (477)
Principal Payments of Long-Term Debt (4,012) (552)
Payments of Debt Issuance Costs   (155)
Dividends Paid (1,446) (1,470)
Net Cash Provided (Used) by Financing Activities (2,917) 10,379
Effect of Exchange Rate Changes on Cash and Cash Equivalents 74 81
Net Decrease in Cash and Cash Equivalents (2,361) (9,632)
Cash and Cash Equivalents, Beginning of Period 10,177 18,098
Cash and Cash Equivalents, End of Period 7,816 8,466
Supplemental Disclosures of Cash Flow Information:    
Cash Paid During the Period for Interest 449 138
Cash Paid During the Period for Income Taxes, Net of Refunds 3,154 1,736
Schedule of Non-Cash Financing Activities:    
Value of Shares Received in Satisfaction of Option Exercise Price 366 $ 242
TSA Agreement [Member]    
Cash Flows from Investing Activities:    
Cash Paid for Honeywell Asset Purchase and License Agreement $ (400)  
v3.10.0.1
Overview
9 Months Ended
Oct. 27, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Overview

(1) Overview

Headquartered in West Warwick, Rhode Island, AstroNova, Inc. leverages its expertise in data visualization technologies to design, develop, manufacture and distribute a broad range of specialty printers and data acquisition and analysis systems. Our products are distributed through our own sales force and authorized dealers in the United States. We also sell to customers outside of the United States primarily through our Company offices in Canada, China, Europe, Mexico and Southeast Asia as well as through independent dealers and representatives. AstroNova, Inc. products are employed around the world in a wide range of aerospace, apparel, automotive, avionics, chemical, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging and transportation applications.

The business consists of two segments, Product Identification, which includes specialty printing systems sold under the QuickLabel® and TrojanLabel® brand names, and Test & Measurement which includes test and measurement systems sold under the AstroNova® brand name.

Products sold under the QuickLabel and TrojanLabel brands are used in industrial and commercial product packaging, branding and labeling applications to digitally print custom labels and corresponding visual content in house. Products sold under the AstroNova brand enable our customers to acquire and record visual and electronic signal data from local and networked data streams and sensors. The recorded data is processed and analyzed and then stored and presented in various visual output formats. In the aerospace market, the Company has a long history of using its data visualization technologies to provide high-resolution light-weight flight deck and cabin printers.

Unless otherwise indicated, references to “AstroNova,” the “Company,” “we,” “our,” and “us” in this Quarterly Report on Form 10-Q refer to AstroNova, Inc. and its consolidated subsidiaries.

v3.10.0.1
Basis of Presentation
9 Months Ended
Oct. 27, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods included herein. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2018.

Results of operations for the interim periods presented herein are not necessarily indicative of the results that may be expected for the full year.

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Some of the more significant estimates relate to revenue recognition, the allowances for doubtful accounts and credits, inventory valuation, impairment of long-lived assets and goodwill, income taxes, share-based compensation, accrued expenses and warranty reserves. Management’s estimates are based on the facts and circumstances available at the time estimates are made, historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcome of these matters. Consequently, actual results could differ from those estimates.

Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation.

v3.10.0.1
Principles of Consolidation
9 Months Ended
Oct. 27, 2018
Accounting Policies [Abstract]  
Principles of Consolidation

(3) Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

v3.10.0.1
Revenue Recognition
9 Months Ended
Oct. 27, 2018
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

(4) Revenue Recognition

On February 1, 2018 we adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Accounting Standards Codification “ASC” Topic 606),” which superseded nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASC Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC Topic 606 defines a five step process to recognize revenue and requires more judgment and estimates within the revenue recognition process than required under previous U.S. GAAP, which includes identifying contracts with customers, identifying performance obligations in the contract, determining and estimating the amount of any variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation and recognizing revenue when the entity satisfies each performance obligation.

We adopted this standard using the modified retrospective method and have applied the guidance to all contracts within the scope of ASC Topic 606 as of the February 1, 2018 adoption date. Under ASC Topic 606, based on the nature of our contracts and consistent with prior practice, we recognize the large majority of our revenue upon shipment, which is when the performance obligation has been satisfied. Accordingly, the adoption of this standard did not have a material impact on our revenue recognition and there was no cumulative effective adjustment as of February 1, 2018 as a result of the adoption of ASC Topic 606.

Significant judgments primarily include the identification of performance obligation arrangements as well as the pattern of delivery for those services.

We derive revenue from the sale of (i) hardware including, digital color label printers and specialty OEM printing systems, portable data acquisition systems and airborne printers used in the flight deck and in the cabin of military, commercial and business aircraft, (ii) related supplies required in the operation of the hardware, (iii) repairs and maintenance of equipment and (iv) service agreements.

The vast majority of our revenue is generated from the sale of distinct products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for such products, which is generally at the contractually stated prices, and is recognized when we satisfy a performance obligation by transferring control of a product to a customer. The transfer of control generally occurs at one point in time, upon shipment, when title and risk of loss pass to the customer. Returns and customer credits are infrequent and are recorded as a reduction to revenue. Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue.

Many of the contracts entered into with customers are commonly comprised of a combination of equipment, supplies, installation and/or training services. We determine performance obligations by assessing whether the products or services are distinct from other elements of the contract. In order to be distinct, the product must perform either on its own or with readily available resources and must be separate within the context of the contract.

The majority of our hardware products contain embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole as it is not sold or marketed separately and its production costs are minor compared to those of the hardware system. Hardware and software elements are typically delivered at the same time and are accounted for as a single performance obligation for which revenue is recognized at the point in time when ownership is transferred to the customer.

Installation and training services vary based on certain factors such as the complexity of the equipment, staffing availability in a geographic location and customer preferences, and can range from a few days to a few months. The delivery of installation and training services are not assessed to determine whether they are separate performance obligations, as the amounts are not material to the contract.

Shipping and handling activities that occur after control over a product has transferred to a customer are accounted for as fulfillment activities rather than performance obligations, as allowed under a practical expedient provided by ASC Topic 606. The shipping and handling fees charged to customers are recognized as revenue and the related costs are included in cost of revenue at the point in time when ownership of the product is transferred to the customer.

We may perform service at the request of the customer, generally for the repair and maintenance of products previously sold. These services are short in duration, typically less than one month, and total less than 9% of revenue for the nine months ended October 27, 2018. Revenue is recognized as services are rendered and accepted by the customer. We also provide service agreements on certain of our Product Identification equipment. Service agreements are purchased separately from the equipment and provide for the right to obtain service and maintenance on the equipment for a period of typically one to two years. Accordingly, revenue on these agreements is recognized over the term of the agreements. The portion of service agreement contracts that are uncompleted at the end of any reporting period are included in deferred revenue.

We generally provide warranties for our products. The standard warranty period is typically 12 months for most hardware products except for airborne printers, which typically have warranties that extend for 4-5 years, consistent with industry practice. Such assurance-type warranties are not deemed to be separate performance obligations from the hardware product and costs associated with providing the warranties are accrued in accordance with ASC 450, “Contingencies,” as we have the ability to ascertain the likelihood of the liability and can reasonably estimate the amount of the liability. Our estimate of costs to service the warranty obligations is based on historical experience and expectations of future conditions. To the extent that our experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liability are recorded at that time, with an offsetting adjustment to cost of revenue. On occasion, customers request a warranty period longer than our standard warranty. In those instances, in which extended warranty services are separately quoted to the customer, an additional performance obligation is created, and the associated revenue is deferred and recognized as service revenue ratably over the term of the extended warranty period. The portion of service contracts and extended warranty services agreements that are uncompleted at the end of any reporting period are included in deferred revenue.

Revenues disaggregated by primary geographic markets and major product type are as follows:

Primary geographical markets:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

United States

 

$

21,542

 

 

$

18,116

 

 

$

60,752

 

 

$

51,048

 

Europe

 

 

7,573

 

 

 

6,771

 

 

 

23,292

 

 

 

20,545

 

Canada

 

 

1,560

 

 

 

1,428

 

 

 

4,653

 

 

 

3,854

 

Asia

 

 

1,860

 

 

 

1,183

 

 

 

5,836

 

 

 

2,270

 

Central and South America

 

 

921

 

 

 

1,045

 

 

 

3,078

 

 

 

2,529

 

Other

 

 

740

 

 

 

217

 

 

 

1,879

 

 

 

455

 

Total Revenue

 

$

34,196

 

 

$

28,760

 

 

$

99,490

 

 

$

80,701

 

 

Major product type:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

Hardware

 

$

13,096

 

 

$

9,394

 

 

$

37,989

 

 

$

25,285

 

Supplies

 

 

18,107

 

 

 

16,608

 

 

 

52,690

 

 

 

47,734

 

Service and Other

 

 

2,993

 

 

 

2,758

 

 

 

8,811

 

 

 

7,682

 

Total Revenue

 

$

34,196

 

 

$

28,760

 

 

$

99,490

 

 

$

80,701

 

 

Accounts Receivable

Credit is extended based upon an evaluation of the customer’s financial condition. Accounts receivable are stated at their estimated net realizable value. The allowance for doubtful accounts is based on a variety of factors, including the age of amounts outstanding relative to their contractual due date, specific customer factors, historical write-off experience and current market assessments. Standard payment terms are typically 30 days after shipment, but vary by type and geographic location of our customers.

Contract Assets and Liabilities

We normally do not have contract assets, which are primarily unbilled accounts receivable that are conditional on something other than the passage of time. Our contract liabilities, which represent billings in excess of revenue recognized, are related to advanced billings for purchased service agreements and extended warranties and were $374,000 and $367,000 at October 27, 2018 and January 31, 2018, respectively, and are recorded as deferred revenue in the condensed consolidated balance sheet. The slight increase in the deferred revenue at October 27, 2018 is primarily due to approximately $610,000 of revenue recognized during the period that was included in the deferred revenue balance at January 31, 2018, offset by cash payments received in advance of satisfying performance obligations.

Contract Costs

We recognize an asset for the incremental direct costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain costs related to obtaining sales contracts for our aerospace printer products meet the requirement to be capitalized. These costs are deferred and amortized based on the forecasted number of units sold over the estimated benefit term. There has been no change in the Company’s accounting for these contracts as a result of the adoption of ASC Topic 606. The balance of these contract assets at January 31, 2018 was $832,000 and was reported in other assets in the consolidated balance sheet. In the first quarter of fiscal 2019, the Company incurred an additional $150,000 in incremental direct costs which were deferred. The amortization of incremental direct costs was $50,000 and $65,000 for the three and nine months periods ended October 27, 2018. The balance of the deferred incremental direct contract costs net of accumulated amortization at October 27, 2018 is $916,000 and is reported in other assets in the condensed consolidated balance sheet. This amount is expected to be amortized over its estimated remaining period of benefit, which we currently estimate to be approximately 8 years.

We apply the practical expedient to expense costs incurred for costs to obtain a contract when the amortization period would have been less than a year. These costs include sales commissions paid to the internal direct sales team as well as to third-party representatives and distributors. Contractual agreements with each of these parties outline commission structures and rates to be paid. Generally speaking, the contracts are all individual procurement decisions by the customers and do not include renewal provisions and as such the majority of the contracts have an economic life of significantly less than a year.

v3.10.0.1
Acquisitions
9 Months Ended
Oct. 27, 2018
Text Block [Abstract]  
Acquisitions

(5) Acquisitions

On September 28, 2017, AstroNova, Inc. entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc. to acquire an exclusive perpetual world-wide license to manufacture Honeywell’s narrow-format flight deck printers for two aircraft families along with certain inventory used in the manufacturing of the licensed printers. The purchase price consisted of an initial upfront payment of $14.6 million in cash. The Honeywell Agreement also provided for guaranteed minimum royalty payments of $15.0 million, to be paid to Honeywell over the next ten years, based on gross revenues from the sales of the printers, paper and repair services of the licensed products. The royalty rates vary based on the year in which they are paid or earned and product sold or service provided, and range from single-digit to mid double-digit percentages of gross revenue.

This transaction was evaluated under Accounting Standard Update 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” and was accounted for as an asset acquisition.

The initial upfront payment of $14.6 million was paid at the closing of this transaction using borrowings from the Company’s revolving credit facility under its amended Credit Agreement with Bank of America, N.A.

The minimum royalty payment obligation of $15.0 million was recorded at the present value of the annual minimum royalty payments using a present value factor of 2.8%, which is based on the estimated after tax cost of debt for similar companies. At October 27, 2018, the current portion of the minimum royalty obligation to be paid over the next twelve months is $1.8 million and is reported as a current liability, and the remainder of $10.4 million is reported as a long-term liability on the Company’s condensed consolidated balance sheet. For the three and nine months ended October 27, 2018, the Company incurred $0.7 million and $2.0 million, respectively, in excess royalty expense, which is included in cost of revenue in the Company’s condensed consolidated statement of income for the period ended October 27, 2018. A total of $1.2 million of excess royalty is payable at October 27, 2018 and reported as a current liability on the Company’s condensed consolidated balance sheet.

In connection with the Honeywell Agreement, the Company also entered into a Transition Services Agreement (“TSA”) with Honeywell related to the transfer of the manufacturing and repair of the licensed printers from their current locations to AstroNova’s plant in West Warwick, Rhode Island. During the current year, the Company paid $0.4 million to acquire an additional repair facility revenue stream in accordance with the terms of the TSA. The additional $0.4 million TSA obligation payment was included as part of the Honeywell Agreement purchase price and recorded as an increase to the related intangible asset.

Under the terms of the TSA, the Company is required to pay for certain expenses incurred by Honeywell during the period in which product manufacturing is transferred to the Company’s facilities. In the first quarter of fiscal 2019, a change in accounting estimates for product costs and operating expenses related to the TSA resulted in an increase of $1.0 million in operating income ($0.8 million net of tax or $0.12 per diluted share). Additionally, in the first quarter of fiscal 2019, a change in accounting estimates for revenue subject to customer rebates under the Honeywell Agreement increased operating income by $0.4 million ($0.3 million net of tax or $0.05 per diluted share). These changes in accounting estimates were the result of actual amounts billed and received differing from initial estimates.

Transaction costs incurred for this acquisition were $0.3 million and were included as part of the purchase price.

The assets acquired in connection with the acquisition were recorded by the Company at their estimated relative fair values as follows:

 

(In thousands)

 

 

 

 

Inventory

 

$

1,411

 

Identifiable Intangible Assets

 

 

27,243

 

Total Purchase Price

 

$

28,654

 

 

The purchase price, including the initial payment, the minimum royalty payment obligation, transaction costs, and the subsequent TSA $0.4 million obligation payment, were allocated based on the relative fair value of the assets acquired. The fair value of the intangible assets acquired was estimated by applying the income approach. These fair value measurements are based on significant inputs that are not observable in the market and therefore represent a Level 3 measurement as defined in ASC 820, “Fair Value Measurement and Disclosure.” Key assumptions in estimating the fair value of the intangibles include (1) the remaining life of the intangibles based on the term of the Honeywell Asset Purchase and License Agreement of 10 years, (2) a range of annual earnings projections from $3.9 million – $5.4 million and (3) the Company’s internal rate of return of 21.0%.

The acquired identifiable intangible assets are as follows:

 

(In thousands)

 

Fair

Value

 

 

Useful Life

(Years)

 

Customer Contract Relationships

 

$

27,243

 

 

 

10

 

 

TrojanLabel

On February 1, 2017, our wholly-owned Danish subsidiary, ANI ApS, completed the acquisition of the issued and outstanding equity interests of TrojanLabel ApS (TrojanLabel). The purchase price of this acquisition was 62.9 million Danish Krone (approximately $9.1 million), net of cash acquired of 976,000 Danish Krone (approximately $0.1 million), of which 6.4 million Danish Krone (approximately $0.9 million) was placed in escrow to secure certain post-closing working capital adjustments and indemnification obligations of the sellers. In the first quarter of fiscal 2019, the Company settled the post-closing adjustments with TrojanLabel and recovered approximately 891,000 Danish Krone (approximately $145,000) of the amount held in escrow account, which was recognized as an adjustment to the allowance account for TrojanLabel receivables. The remaining escrow balance was retained by TrojanLabel.

v3.10.0.1
Net Income Per Common Share
9 Months Ended
Oct. 27, 2018
Earnings Per Share [Abstract]  
Net Income Per Common Share

(6) Net Income Per Common Share

Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of shares and, if dilutive, common equivalent shares, determined using the treasury stock method for stock options, restricted stock awards and restricted stock units outstanding during the period. A reconciliation of the shares used in calculating basic and diluted net income per share is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 27, 2018

 

 

October 28,

2017

 

 

October 27, 2018

 

 

October 28,

2017

 

Weighted Average Common Shares Outstanding - Basic

 

 

6,924,554

 

 

 

6,725,414

 

 

 

6,858,365

 

 

 

6,968,285

 

Effect of Dilutive Options, Restricted Stock Awards and

   Restricted Stock Units

 

 

242,074

 

 

 

95,507

 

 

 

197,760

 

 

 

114,076

 

Weighted Average Common Shares Outstanding - Diluted

 

 

7,166,628

 

 

 

6,820,921

 

 

 

7,056,125

 

 

 

7,082,361

 

 

For the three and nine months ended October 27, 2018, the diluted per share amounts do not reflect common equivalent shares outstanding of 228,600 and 333,175, respectively. For the three and nine months ended October 28, 2017, the diluted per share amounts do not reflect common equivalent shares outstanding of 609,934 and 612,248, respectively. These outstanding common equivalent shares were not included due to their anti-dilutive effect. Anti-dilutive shares consist of those common stock equivalents that have an exercise price above the average stock price for the period or for which the common stock equivalent’s related average unrecognized stock compensation expense is sufficient to “buy back” the entire amount of shares. Restricted stock units which vest based upon achievement of performance targets are excluded from the diluted shares outstanding unless the performance targets have been met as of the end of the reporting period, regardless of whether such performance targets are probable of achievement as of the end of the measurement period.

v3.10.0.1
Intangible Assets
9 Months Ended
Oct. 27, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

(7) Intangible Assets

Intangible assets are as follows:

 

 

 

October 27, 2018

 

 

January 31, 2018

 

(In thousands)

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Currency

Translation

Adjustment

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Currency

Translation

Adjustment

 

 

Net

Carrying

Amount

 

Miltope:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Contract Relationships

 

$

3,100

 

 

$

(1,644

)

 

$

 

 

$

1,456

 

 

$

3,100

 

 

$

(1,438

)

 

$

 

 

$

1,662

 

RITEC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Contract Relationships

 

 

2,830

 

 

 

(667

)

 

 

 

 

 

2,163

 

 

 

2,830

 

 

 

(461

)

 

 

 

 

 

2,369

 

Non-Competition Agreement

 

 

950

 

 

 

(633

)

 

 

 

 

 

317

 

 

 

950

 

 

 

(491

)

 

 

 

 

 

459

 

TrojanLabel:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Existing Technology

 

 

2,327

 

 

 

(624

)

 

 

130

 

 

 

1,833

 

 

 

2,327

 

 

 

(350

)

 

 

313

 

 

 

2,290

 

Distributor Relations

 

 

937

 

 

 

(176

)

 

 

51

 

 

 

812

 

 

 

937

 

 

 

(99

)

 

 

130

 

 

 

968

 

Honeywell:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Contract Relationships

 

 

27,243

 

*

 

(3,139

)

 

 

 

 

 

24,104

 

 

 

26,843

 

 

 

(958

)

 

 

 

 

 

25,885

 

Intangible Assets, net

 

$

37,387

 

 

$

(6,883

)

 

$

181

 

 

$

30,685

 

 

$

36,987

 

 

$

(3,797

)

 

$

443

 

 

$

33,633

 

 

*

Includes additional $0.4 million related to the payment in fiscal 2019 in accordance with the terms of the TSA.

There were no impairments to intangible assets during the periods ended October 27, 2018 and October 28, 2017. With respect to the acquired intangibles included in the table above, amortization expense of $1,039,000 and $508,000 related to the above acquired intangibles has been included in the condensed consolidated statement of income for the three months ended October 27, 2018 and October 28, 2017, respectively. Amortization expense of $3,085,000 and $1,111,000 related to the above acquired intangibles has been included in the condensed consolidated statement of income for the nine months ended October 27, 2018 and October 28, 2017, respectively.

Estimated amortization expense for the next five fiscal years is as follows:

 

(In thousands)

 

Remaining

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

Estimated amortization expense

 

$

1,031

 

 

$

4,228

 

 

$

4,098

 

 

$

4,010

 

 

$

4,006

 

v3.10.0.1
Share-Based Compensation
9 Months Ended
Oct. 27, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

(8) Share-Based Compensation

At the Company’s annual meeting of shareholders held on June 4, 2018, the Company’s shareholders approved the AstroNova, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for, among other things, the issuance of awards with respect to up to 650,000 shares of the Company’s common stock, plus an additional number of shares equal to the number of shares subject to awards granted under the 2018 Plan or the Company’s 2015 Equity Incentive Plan (the “2015 Plan” and, together with the 2018 Plan, the “Plans”) that are, following the effectiveness of the 2018 Plan, forfeited, cancelled, satisfied without the issuance of stock, otherwise terminated (other than by exercise), or, for shares of stock issued pursuant to any unvested award, reacquired by the Company at not more than the grantee’s purchase price (other than by exercise). Following the approval of the 2018 Plan at the Company’s annual meeting of shareholders, the Company ceased granting new equity awards pursuant to the 2015 Plan.

The Company has a Non-Employee Director Annual Compensation Program (the “Program”) under which each non-employee director receives an automatic grant of restricted stock awards (“RSAs”) on the first business day of each fiscal quarter. Under the Program, the number of whole shares to be granted each quarter is equal to 25% of the number calculated by dividing the director compensation amount by the fair market value of the Company’s stock on such day. The director annual compensation amount was $65,000 in fiscal year 2018 and is $75,000 in fiscal year 2019. In addition, the Chairman of the Board receives RSAs with an aggregate value of $6,000, and the Chairs of the Audit and Compensation Committees each receive RSAs with an aggregate value of $4,000, also issued in quarterly installments and calculated in the same manner as the directors’ RSA grants. RSAs granted prior to March 30, 2017 became fully vested on the first anniversary of the date of grant. RSAs granted subsequent to March 30, 2017 become vested three months after the date of grant. A total of 5,300 and 7,314 shares were awarded to the non-employee directors as compensation under the Program in the third quarter of fiscal 2019 and 2018, respectively.

In April 2013 (fiscal year 2014), the Company granted options and RSUs to officers (“2014 RSUs”). The 2014 RSUs vested as follows: twenty-five percent vested on the third anniversary of the grant date, fifty percent vested upon the Company achieving its cumulative budgeted net revenue target for fiscal years 2014 through 2016 (the “Measurement Period”), and twenty-five percent vested upon the Company achieving a target average annual ORONA (operating income return on net assets as calculated under the Domestic Management Bonus Plan) for the Measurement Period. The grantee may not sell, transfer or otherwise dispose of more than fifty percent of the common stock issued upon vesting of the 2014 RSUs until the first anniversary of the vesting date. In April 2016, 9,300 of the 2014 RSUs vested, as the Company achieved the targeted average annual ORONA, as defined in the plan, for the Measurement Period and another 9,300 vested as a result of the third year anniversary date of the grant. Additionally, on February 1, 2014, the Company accelerated the vesting of 4,166 of the 2014 RSUs held by Everett Pizzuti in connection with his retirement.

In March 2015 (fiscal year 2016), the Company granted 50,000 options and 537 RSAs to its Chief Executive Officer pursuant to an Equity Incentive Award Agreement dated as of November 24, 2014 (“CEO Equity Incentive Agreement”), and 35,000 options to other key employees.

In May 2015 (fiscal year 2016), the Company granted an aggregate of 80,000 time-based and 155,000 performance-based RSUs (“2016 RSUs”) to certain officers of the Company. The time-based 2016 RSUs vest in four equal annual installments commencing on the first anniversary of the grant date. The performance-based 2016 RSUs vest over three years based upon the increase in revenue, if any, achieved each fiscal year relative to a three-year revenue increase goal. Performance-based 2016 RSUs that are earned based on organic revenue growth are fully vested when earned, while those earned based on revenue growth via acquisitions vest annually over a three-year period following the fiscal year in which the revenue growth occurs. Any performance-based 2016 RSUs that were not earned at the end of fiscal 2018 were forfeited. The expense for such shares was recognized in the fiscal year in which the results were achieved, however, the shares were not fully earned until approved by the Compensation Committee in the first quarter of the following fiscal year. Based upon revenue in fiscal 2018, 2017 and 2016, 33,638, 9,025 and 15,810 shares of the performance based RSUs were earned in the first quarter of fiscal 2019, 2018 and 2017, respectively.

In March 2016 (fiscal year 2017), the Company granted 50,000 options and 4,030 RSAs to its Chief Executive Officer pursuant to the CEO Equity Incentive Agreement.

In May 2016 (fiscal year 2017) the Company granted 37,000 options to certain key employees. On August 1, 2016 (fiscal year 2017) the Company granted 5,000 options to its Chief Financial Officer.

In March 2017 (fiscal year 2018), the Company granted 50,000 options to the Chief Executive Officer pursuant to the CEO Equity Incentive Agreement. In February and April 2017 the Company granted 52,189 options to certain other key employees. In December 2017, upon election to the Board, the Company granted 5,000 non-qualified options and 675 RSUs to a Board member. In January 2018, the Company granted 50,000 non-qualified options and 15,000 RSUs to the newly appointed Chief Financial Officer.

In April 2018 (fiscal year 2019), the Company granted 5,000 non-qualified options and 341 RSUs to a newly elected member of the Board of Directors.

In May 2018, the Company granted 40,000 options to certain key employees.

In June 2018, the Company granted an aggregate of 25,000 non-qualified options to the members of the Board of Directors. Also in June 2018, the Company granted an aggregate of 126,000 options, 44,275 time-based RSUs and 38,000 performance-based RSUs to certain officers of the Company, all of which vest over three years. The number of performance-based RSUs that are eligible to vest will be determined based upon achievement of fiscal 2019 revenue and operating income targets.

Share-based compensation expense was recognized as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

Stock Options

 

$

215

 

 

$

105

 

 

$

571

 

 

$

316

 

Restricted Stock Awards and Restricted Stock Units

 

 

290

 

 

 

436

 

 

 

757

 

 

 

800

 

Employee Stock Purchase Plan

 

 

5

 

 

 

3

 

 

 

11

 

 

 

9

 

Total

 

$

510

 

 

$

544

 

 

$

1,339

 

 

$

1,125

 

 

Stock Options

The fair value of stock options granted during the nine months ended October 27, 2018 and October 28, 2017 was estimated using the following assumptions:

 

 

 

Nine Months Ended

 

 

 

October 27,

2018

 

 

October 28,

2017

 

Risk Free Interest Rate

 

 

2.6

%

 

 

1.7

%

Expected Volatility

 

 

39.3

%

 

 

37.9

%

Expected Life (in years)

 

 

9.0

 

 

 

8.0

 

Dividend Yield

 

 

1.5

%

 

 

2.2

%

 

There were no options granted during the three month period ended October 27, 2018.  The weighted average fair value per share for options granted was $7.41 during the nine month period ended October 27, 2018, compared to $4.46 during the nine month period ended October 28, 2017.

Aggregated information regarding stock options granted under the Plans for the nine months ended October 27, 2018, is summarized below:

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise Price

 

Outstanding at January 31, 2018

 

 

745,270

 

 

$

12.52

 

Granted

 

 

196,000

 

 

 

18.21

 

Exercised

 

 

(144,875

)

 

 

10.65

 

Forfeited

 

 

(11,250

)

 

 

14.61

 

Canceled

 

 

(3,700

)

 

 

8.95

 

Outstanding at October 27, 2018

 

 

781,445

 

 

$

14.28

 

 

Set forth below is a summary of options outstanding at October 27, 2018:

 

 

Outstanding

 

 

Exercisable

 

Range of

Exercise prices

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

 

$

5.00-10.00

 

 

78,181

 

 

$

7.71

 

 

 

2.8

 

 

 

78,181

 

 

$

7.71

 

 

 

2.8

 

$

10.01-15.00

 

 

457,664

 

 

$

13.65

 

 

 

7.1

 

 

 

302,497

 

 

$

13.65

 

 

 

6.4

 

$

15.01-20.00

 

 

245,600

 

 

$

17.56

 

 

 

9.1

 

 

 

30,000

 

 

$

15.17

 

 

 

7.7

 

 

 

 

 

781,445

 

 

$

14.28

 

 

 

7.3

 

 

 

410,678

 

 

$

12.63

 

 

 

5.8

 

 

As of October 27, 2018, there was approximately $1.7 million of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted average period of approximately 2.5 years.

Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs)

Aggregated information regarding RSUs and RSAs granted under the Plans for the nine months ended October 27, 2018 is summarized below:

 

 

 

RSAs & RSUs

 

 

Weighted

Average

Grant Date

Fair Value

 

Unvested at January 31, 2018

 

$

177,347

 

 

$

13.99

 

Granted

 

 

101,764

 

 

 

17.80

 

Vested

 

 

(52,371

)

 

 

14.35

 

Forfeited

 

 

(82,672

)

 

 

14.05

 

Unvested at October 27, 2018

 

$

144,068

 

 

$

16.53

 

 

As of October 27, 2018, there was approximately $1.2 million of unrecognized compensation expense related to RSUs and RSAs which is expected to be recognized over a weighted average period of 1.2 years.

Employee Stock Purchase Plan

AstroNova has an Employee Stock Purchase Plan allowing eligible employees to purchase shares of common stock at a 15% discount from fair value on the first or last day of an offering period, whichever is less. A total of 247,500 shares were reserved for issuance under this plan. During the nine months ended October 27, 2018 and October 28, 2017, there were 3,912 and 4,657 shares, respectively, purchased under this plan. As of October 27, 2018, 35,294 shares remain available.

v3.10.0.1
Inventories
9 Months Ended
Oct. 27, 2018
Inventory Disclosure [Abstract]  
Inventories

(9) Inventories

Inventories are stated at the lower of cost (first-in, first-out) and net realizable value and include material, labor and manufacturing overhead. The components of inventories are as follows:

 

(In thousands)

 

October 27,

2018

 

 

January 31,

2018

 

Materials and Supplies

 

$

15,557

 

 

$

13,715

 

Work-In-Process

 

 

1,790

 

 

 

1,404

 

Finished Goods

 

 

15,696

 

 

 

17,210

 

 

 

 

33,043

 

 

 

32,329

 

Inventory Reserve

 

 

(4,713

)

 

 

(4,720

)

 

 

$

28,330

 

 

$

27,609

 

 

v3.10.0.1
Income Taxes
9 Months Ended
Oct. 27, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

(10) Income Taxes

The Company’s effective tax rates for the period are as follows:

 

 

 

Three Months

Ended

 

 

Nine Months

Ended

 

Fiscal 2019

 

 

22.3

%

 

 

23.4

%

Fiscal 2018

 

 

12.4

%

 

 

17.9

%

 

The Company determines its estimated annual effective tax rate at the end of each interim period based on full-year forecasted pre-tax income and facts known at that time. The estimated annual effective tax rate is applied to the year-to-date pre-tax income at the end of each interim period with the cumulative effect of any changes in the estimated annual effective tax rate being recorded in the fiscal quarter in which the change is determined. The tax effect of significant unusual items is reflected in the period in which they occur.

During the three months ended October 27, 2018, the Company recognized an income tax expense of approximately $407,000. The effective tax rate in this period was directly impacted by a $98,000 benefit arising from windfall tax benefits related to the Company’s stock. During the three months ended October 28, 2017, the Company recognized an income tax expense of approximately $201,000. The effective tax rate in this period was directly impacted by $334,000 of prior period tax benefits recognized upon the completion of an R&D study, partially offset by tax increases due to the mix of forecasted pre-tax earnings to higher taxing jurisdictions.

During the nine months ended October 27, 2018, the Company recognized an income tax expense of approximately $1,046,000. The effective tax rate in this period was directly impacted by a $210,000 benefit arising from windfall tax benefits related to the Company’s stock and a $78,000 benefit related to the expiration of the statute of limitations on a previously uncertain tax position. During the nine months ended October 28, 2017, the Company recognized an income tax expense of approximately $579,000. The effective tax rate in this period was impacted by $334,000 of prior period tax benefits recognized upon the completion of an R&D study, partially offset by tax increases due to the mix of forecasted pre-tax earnings to higher taxing jurisdictions.

The Company maintains a valuation allowance on some of its deferred tax assets in certain jurisdictions. A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial reporting purposes. As of October 27, 2018, the Company’s cumulative unrecognized tax benefits totaled $626,000 compared to $665,000 as of January 31, 2018. During the first quarter, the Company was notified by the IRS that the fiscal 2015 and 2017 income tax returns were selected for audit. No adjustments have been raised at this time. There were no other developments affecting unrecognized tax benefits during the quarter ended October 27, 2018.

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly changes U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the Tax Act, we wrote down our net deferred tax assets as of January 31, 2018 by $1.0 million to reflect the estimated impact of the Tax Act. Accordingly, we recorded a corresponding provisional net one-time non-cash charge of $1.0 million, related to re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate. We were capable of reasonably estimating the impact of the reduction to the U.S. Corporate tax rate on the deferred tax balances. However, the estimate may be affected by other aspects of the Tax Act.

The Tax Act taxes certain unrepatriated earnings and profits (“E&P”) of our foreign subsidiaries (the “Transition Tax”). In order to determine the Transition Tax, we must determine, along with other information, the amount of our accumulated post-1986 E&P for our foreign subsidiaries, as well as the non-U.S. income tax paid by those subsidiaries on such E&P. We were capable of reasonably estimating the one-time deemed repatriation tax and recorded a provisional expense of $0.1 million at January 31, 2018.

ASC 740, “Income Taxes,” requires a company to record the effects of a tax law change in the period of enactment. ASU 2018-05 allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the changes in the Tax Reform Act. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from the date of enactment of the Tax Reform Act.

During the nine months ended October 27, 2018, there were no changes made to the provisional amounts recognized in fiscal 2018. While we have substantially completed our provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects, the net one-time charge related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of our calculations, changes in interpretations and assumptions that we have made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions we may take as a result of the Tax Act. We will complete our analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined.

The Tax Act also established a new law that affects fiscal 2019 and beyond, which includes, but is not limited to, (1) a reduction of the U.S. corporate income tax rate from 35% to 21%; (2) general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (3) a new limitation on the deduction of interest expense; (4) repeal of the domestic production activity deduction; (5) additional limitations on deduction of compensation for certain executives; (6) a new provision designed to tax global intangible low-taxed income (“GILTI”) which allows for the possibility of utilizing foreign tax credits (“FTCs”) and a deduction of up to 50% to offset the income tax liability (subject to certain limitations); (7) the introduction of the base erosion anti-abuse tax which represents a new minimum tax; (8) limitations on utilization of FTCs to reduce U.S. income tax liability; (9) a new provision designed to provide a preferential tax rate for income derived by domestic corporations from servicing foreign markets (“FDII”) and (10) limitations on net operating losses (“NOLs”) generated after December 31, 2017 to 80% of taxable income.

v3.10.0.1
Credit Agreement
9 Months Ended
Oct. 27, 2018
Text Block [Abstract]  
Credit Agreement

(11) Credit Agreement

On February 28, 2017, the Company and its wholly owned Danish subsidiaries, ANI ApS and TrojanLabel ApS (together, the “Parties”), entered into a Credit Agreement with Bank of America, N.A. (the “Lender”). The Credit Agreement provided for a term loan to ANI ApS in the principal amount of $9.2 million. The Credit Agreement also provided for a $10.0 million revolving credit facility available to the Company for general corporate purposes.

In connection with the Honeywell Purchase and License Agreement, on September 28, 2017, the Parties entered into a First Amendment to the Credit Agreement with the Lender. The First Amendment amended the existing Credit Agreement to permit the Honeywell Asset Purchase and License Agreement and temporarily increased the amount available for borrowing under the revolving credit facility from $10.0 million to $15.0 million. The initial upfront payment of $14.6 million for the Honeywell Agreement was paid using borrowings under the Company’s revolving credit facility.

On November 30, 2017, the Parties entered into a Second Amendment to the Credit Agreement with the Lender. The Second Amendment provided for a term loan to the Company in the principal amount of $15.0 million, in addition to the revolving credit facility for the Company and the term loan previously borrowed by ANI ApS at the original closing under the Credit Agreement. The proceeds from the term loan were used to repay the entire $14.6 million principal balance of the revolving loans outstanding under the revolving credit facility. The principal amount of the revolving credit facility which had been temporarily increased to $15.0 million was reduced to $10.0 million effective upon the closing of the Second Amendment and the maturity date for the revolving credit facility was extended to November 30, 2022.

On April 17, 2018, the Parties entered into a Third Amendment to the Credit Agreement with the Lender. The Third Amendment provides that no “Immaterial Subsidiary” will be required to become a guarantor or securing party under (unless requested by the Lender during default) or have its equity pledged pursuant to the Credit Agreement. The Third Amendment defines “Immaterial Subsidiary” as any subsidiary of the Company with (a) consolidated total assets that do not exceed 5.0% of the consolidated total assets of the Company and its subsidiaries and (b) revenues that do not exceed 5.0% of the consolidated revenues of the Company and its subsidiaries, as of the last day of the most recent fiscal quarter; provided that Immaterial Subsidiaries shall not account for, in the aggregate, more than 10% the of consolidated total assets or consolidated revenues of the Company and its subsidiaries.

In connection with the Credit Agreement, AstroNova and ANI ApS entered into certain hedging arrangements with the Lender to manage the variable interest rate risk and currency risk associated with its payments in respect of the term loans. Refer to Note 13, “Derivative Financial Instruments and Risk Management” for further information about these arrangements.

Revolving credit loans may be borrowed, at the Company’s option, in U.S. Dollars or, subject to certain conditions, Euros, British Pounds, Canadian Dollars or Danish Krone. Amounts borrowed under the revolving credit facility bear interest at a rate per annum equal to, at the Company’s option, either (a) the LIBOR rate (or in the case of revolving credit loans denominated in a currency other than U.S. Dollars, the applicable quoted rate), plus a margin that varies within a range of 1.0% to 1.5% based on the Company’s consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal funds’ rate plus 0.50%, (ii) Bank of America’s publicly announced prime rate or (iii) the LIBOR rate plus 1.00%, plus a margin that varies within a range of 0.0% to 0.5% based on the Company’s consolidated leverage ratio. The Company is required to pay a commitment fee on the undrawn portion of the revolving credit facility at the rate of 0.25% per annum.

The Parties must comply with various customary financial and non-financial covenants under the Credit Agreement. The financial covenants consist of a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. The Credit Agreement contains limitations, in each case subject to various exceptions and thresholds, on the Company’s and its subsidiaries’ ability to incur future indebtedness, to place liens on assets, to conduct mergers or acquisitions, to sell assets, to alter their capital structure, to make investments and loans, to change the nature of their business, and to prepay subordinated indebtedness. The Credit Agreement permits the Company to pay cash dividends on and repurchase shares of its common stock, subject to certain limitations. The Company believes it is in compliance with all of the covenants in the Credit Agreement as of October 27, 2018.

The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the Credit Agreement upon the occurrence of any of various customary events of default, which include, among other events, the following: failure to pay when due any principal, interest or other amounts in respect of the loans, breach of any of the Company’s covenants or representations under the loan documents, default under any other of the Company’s or its subsidiaries’ significant indebtedness agreements, a bankruptcy, insolvency or similar event with respect to the Company or any of its subsidiaries, a significant unsatisfied judgment against the Company or any of its subsidiaries, or a change of control of the Company.

The obligations of ANI ApS in respect of the $9.2 million term loan are guaranteed by the Company and TrojanLabel. The Company’s obligations in respect of the $15.0 million term loan, revolving credit facility and its guarantee in respect of the ANI ApS term loan are secured by substantially all of the assets of the Company (including a pledge of a portion of the equity interests held by the Company in ANI ApS and the Company’s wholly-owned German subsidiary Astro-Med GmbH), subject to certain exceptions.

In the second quarter of the current year, $3.0 million was drawn on the revolving credit facility, of which $1.5 million was repaid and $1.5 million remains outstanding as of October 27, 2018. The outstanding balance bears interest at a weighted average annual rate of 5.5% and $38,000 of interest has been accrued on this obligation and included in other expense in the accompanying condensed consolidated income statement for the three and nine months ended October 27, 2018. As of October 27, 2018, there is $8.5 million available for borrowing under the revolving credit facility.

v3.10.0.1
Debt
9 Months Ended
Oct. 27, 2018
Debt Disclosure [Abstract]  
Debt

(12) Debt

Long-term debt in the accompanying condensed consolidated balance sheets is as follows:

 

(In thousands)

 

October 27,

2018

 

 

January 31,

2018

 

USD Term Loan with a rate equal to LIBOR plus a margin of
   1.0% to 1.5%, (3.74% as of October 27, 2018 and 2.85%
   as of January 31, 2018), and maturity date of
   November 30, 2022

 

$

12,000

 

 

$

15,000

 

USD Term Loan with a rate equal to LIBOR plus a margin of
   1.0% to 1.5%, (3.74% as of October 27, 2018 and 3.06% as
   of January 31, 2018), and maturity date of January 31, 2022

 

 

7,360

 

 

 

8,372

 

 

 

 

19,360

 

 

 

23,372

 

Debt Issuance Costs, net of accumulated amortization

 

 

(176

)

 

 

(226

)

Current Portion of Term Loan

 

 

(5,116

)

 

 

(5,498

)

Long-Term Debt

 

$

14,068

 

 

$

17,648

 

 

The schedule of required principal payments remaining during the next five years on long-term debt outstanding as of October 27, 2018 is as follows:

 

(In thousands)

 

 

 

 

Fiscal 2019 (remaining)

 

$

1,486

 

Fiscal 2020

 

 

4,840

 

Fiscal 2021

 

 

5,208

 

Fiscal 2022

 

 

5,576

 

Fiscal 2023

 

 

2,250

 

 

 

$

19,360

 

 

v3.10.0.1
Derivative Financial Instruments and Risk Management
9 Months Ended
Oct. 27, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Risk Management

(13) Derivative Financial Instruments and Risk Management

The Company has entered into a cross-currency interest rate swap to manage the interest rate risk and foreign currency exchange risk associated with the floating-rate foreign currency-denominated term loan borrowing by our Danish Subsidiary and an interest rate swap to manage the interest rate risk associated with the variable rate $15.0 million term loan borrowing by the Company. In accordance with the guidance in ASC 815 “Derivatives and Hedging,” both swaps have been designated as cash flow hedges of floating-rate borrowings.

The cross-currency interest rate swap agreement utilized by the Company effectively modifies the Company’s exposure to interest rate risk and foreign currency exchange rate risk by converting approximately $8.9 million of the Company’s floating-rate debt denominated in U.S. Dollars on our Danish subsidiary’s books to a fixed-rate debt denominated in Danish Krone for the term of the loan, thus reducing the impact of interest-rate and foreign currency exchange rate changes on future interest expense and principal repayments. This swap involves the receipt of floating rate amounts in U.S. Dollars in exchange for fixed-rate interest payments in Danish Krone, as well as exchanges of principal at the inception spot rate, over the life of the term loan. As of October 27, 2018, the total notional amount of the Company’s cross-currency interest rate swap was $6.7 million and is included in other long term liabilities in the Company’s condensed consolidated balance sheet at its fair value amount of $0.5 million.

The interest rate swap agreement utilized by the Company on the $15.0 million term loan effectively modifies the Company’s exposure to interest rate risk by converting the Company’s floating-rate debt to fixed-rate debt over the life of the loan, thus reducing the impact of interest-rate changes on future interest expense. This swap involves the receipt of floating rate amounts in U.S. Dollars in exchange for fixed rate payments in U.S. dollars over the life of the term loan. As of October 27, 2018, the total notional amount of the Company’s interest rate swap was $12.0 million and is included in other assets in the Company’s condensed consolidated balance at its fair value amount of $0.2 million.

The following tables present the impact of the derivative instruments in our condensed consolidated financial statements for the three and nine months ended October 27, 2018 and October 28, 2017:

 

 

 

Three Months Ended

 

 

 

Amount of Gain (Loss)

Recognized in OCI

on Derivative

 

 

Location of

Gain (Loss)

Reclassified

 

Amount of Gain (Loss)

Reclassified from

Accumulated OCI

into Income

 

Cash Flow Hedge

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

from Accumulated

OCI into Income

 

October 27,

2018

 

 

October 28,

2017

 

Swap contracts

 

$

283

 

 

$

137

 

 

Other Income (Expense)

 

$

192

 

 

$

134

 

 

 

 

Nine Months Ended

 

 

 

Amount of Gain (Loss)

Recognized in OCI

on Derivative

 

 

Location of

Gain (Loss)

Reclassified

 

Amount of Gain (Loss)

Reclassified from

Accumulated OCI

into Income

 

Cash Flow Hedge

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

from Accumulated

OCI into Income

(Effective Portion)

 

October 27,

2018

 

 

October 28,

2017

 

Swap contracts

 

$

981

 

 

$

(898

)

 

Other Income (Expense)

 

$

775

 

 

$

(819

)

 

At October 27, 2018, the Company expects to reclassify approximately $0.3 million of net gains on the swap contracts from accumulated other comprehensive income (loss) to earnings during the next 12 months due to changes in foreign exchange rates and the payment of variable interest associated with the floating-rate debt.