ASTRONOVA, INC., 10-K filed on 4/10/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
12 Months Ended
Jan. 31, 2019
Apr. 05, 2019
Jul. 27, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Jan. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Trading Symbol ALOT    
Entity Registrant Name AstroNova, Inc.    
Entity Central Index Key 0000008146    
Current Fiscal Year End Date --01-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Accelerated Filer    
Entity Shell Company false    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Common Stock, Shares Outstanding   6,987,823  
Entity Public Float     $ 112,325,000
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jan. 31, 2019
Jan. 31, 2018
CURRENT ASSETS    
Cash and Cash Equivalents $ 7,534 $ 10,177
Securities Available for Sale   1,511
Accounts Receivable, net of reserves of $521 in 2019 and $377 in 2018 23,486 22,400
Inventories 30,161 27,609
Prepaid Expenses and Other Current Assets 1,427 1,251
Total Current Assets 62,608 62,948
Property, Plant and Equipment, net 10,380 9,752
Identifiable Intangibles, net 29,674 33,633
Goodwill 12,329 13,004
Deferred Tax Assets, net 2,928 1,829
Other 1,064 1,147
TOTAL ASSETS 118,983 122,313
CURRENT LIABILITIES    
Accounts Payable 5,956 11,808
Accrued Compensation 5,023 2,901
Other Accrued Expenses 2,911 2,414
Current Portion of Long-Term Debt 5,208 5,498
Current Liability -Royalty Obligation 1,875 1,625
Revolving credit facility 1,500  
Current Liability -Excess Royalty Payment Due 1,265 615
Income Taxes Payable 554 684
Deferred Revenue 373 367
Total Current Liabilities 24,665 25,912
NON CURRENT LIABILITIES    
Long-Term Debt, net of current portion 12,870 17,648
Royalty Obligation, net of current portion 9,916 11,760
Deferred Tax Liabilities 40 698
Other Long Term Liabilities 1,717 2,648
TOTAL LIABILITIES 49,208 58,666
Commitments and Contingencies (See Note 20)
SHAREHOLDERS' EQUITY    
Preferred Stock, $10 Par Value, Authorized 100,000 shares, None Issued
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 10,218,559 shares in 2019 and 9,996,120 shares in 2018 511 500
Additional Paid-in Capital 53,568 50,016
Retained Earnings 49,511 45,700
Treasury Stock, at Cost, 3,261,672 shares in 2019 and 3,227,942 shares in 2018 (32,997) (32,397)
Accumulated Other Comprehensive Loss, Net of Tax (818) (172)
TOTAL SHAREHOLDERS' EQUITY 69,775 63,647
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 118,983 $ 122,313
v3.19.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jan. 31, 2019
Jan. 31, 2018
Statement of Financial Position [Abstract]    
Accounts Receivable, Reserves $ 521 $ 377
Preferred Stock, Par Value $ 10 $ 10
Preferred Stock, Shares Authorized 100,000 100,000
Preferred Stock, Shares Issued 0 0
Common Stock, Par Value $ 0.05 $ 0.05
Common Stock, Shares Authorized 13,000,000 13,000,000
Common Stock, Shares Issued 10,218,559 9,996,120
Treasury Stock, Shares 3,261,672 3,227,942
v3.19.1
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Jan. 31, 2019
Jan. 31, 2018
Jan. 31, 2017
Income Statement [Abstract]      
Revenue $ 136,657 $ 113,401 $ 98,448
Cost of Revenue 82,658 69,399 58,959
Gross Profit 53,999 44,002 39,489
Costs and Expenses:      
Selling and Marketing 26,343 22,234 18,955
Research and Development 7,813 7,453 6,314
General and Administrative 11,123 8,903 7,939
Operating Expenses 45,279 38,590 33,208
Operating Income 8,720 5,412 6,281
Other Income (Expense):      
Interest Expense (876) (402)  
Investment Income 145 168 78
Other, Net (681) (21) 246
Other Income (Expense)-Net (1,412) (255) 324
Income before Income Taxes 7,308 5,157 6,605
Income Tax Provision 1,578 1,871 2,377
Net Income $ 5,730 $ 3,286 $ 4,228
Net Income Per Common Share-Basic $ 0.83 $ 0.48 $ 0.57
Net Income Per Common Share-Diluted $ 0.81 $ 0.47 $ 0.56
Weighted Average Number of Common Shares Outstanding-Basic 6,881 6,911 7,421
Dilutive Effect of Common Stock Equivalents 203 104 151
Weighted Average Number of Common Shares Outstanding-Diluted 7,084 7,015 7,572
v3.19.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Jan. 31, 2019
Jan. 31, 2018
Jan. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net Income $ 5,730 $ 3,286 $ 4,228
Other Comprehensive Income (Loss), net of taxes and reclassification adjustments:      
Foreign Currency Translation Adjustments (671) 867 (65)
Change in Value of Derivatives Designated as Cash Flow Hedge 622 (1,036)  
(Gains) Losses from Cash Flow Hedges Reclassified to Income Statement (600) 1,048  
Unrealized Gain (Loss) on Securities Available for Sale   5 (16)
Realized Gain on Securities Available for Sale Reclassified to Income Statement 3    
Other Comprehensive Income (Loss) (646) 884 (81)
Comprehensive Income $ 5,084 $ 4,170 $ 4,147
v3.19.1
Consolidated Statements of Changes in Shareholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Beginning Balance at Jan. 31, 2016 $ 67,373 $ 483 $ 45,675 $ 42,212 $ (20,022) $ (975)
Beginning Balance, Shares at Jan. 31, 2016   9,666,290        
Share-based compensation 1,019   1,019      
Employee option exercises $ 388 $ 5 834   (451)  
Employee option exercises, Shares 87,107 93,483        
Restricted stock awards vested, net $ (308) $ 4 (4)   (308)  
Restricted stock awards vested, net, Shares   75,133        
Common Stock - cash dividend-$0.28 per share (2,082)     (2,082)    
Net Income 4,228     4,228    
Other comprehensive income (loss) (81)         (81)
Ending Balance at Jan. 31, 2017 70,537 $ 492 47,524 44,358 (20,781) (1,056)
Ending Balance, Shares at Jan. 31, 2017   9,834,906        
Share-based compensation 1,583   1,583      
Employee option exercises $ 642 $ 4 913   (275)  
Employee option exercises, Shares 84,025 90,042        
Restricted stock awards vested, net $ (103) $ 4 (4)   (103)  
Restricted stock awards vested, net, Shares   71,172        
Repurchase of Common Stock (11,238)       (11,238)  
Common Stock - cash dividend-$0.28 per share (1,944)     (1,944)    
Net Income 3,286     3,286    
Other comprehensive income (loss) 884         884
Ending Balance at Jan. 31, 2018 63,647 $ 500 50,016 45,700 (32,397) (172)
Ending Balance, Shares at Jan. 31, 2018   9,996,120        
Share-based compensation 1,886   1,886      
Employee option exercises $ 1,310 $ 7 1,669   (366)  
Employee option exercises, Shares 150,125 150,125        
Restricted stock awards vested, net $ (233) $ 4 (3)   (234)  
Restricted stock awards vested, net, Shares   72,314        
Reclassification due to adoption of ASU 2018-02 14     14    
Common Stock - cash dividend-$0.28 per share (1,933)     (1,933)    
Net Income 5,730     5,730    
Other comprehensive income (loss) (646)         (646)
Ending Balance at Jan. 31, 2019 $ 69,775 $ 511 $ 53,568 $ 49,511 $ (32,997) $ (818)
Ending Balance, Shares at Jan. 31, 2019   10,218,559        
v3.19.1
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) - $ / shares
12 Months Ended
Jan. 31, 2019
Jan. 31, 2018
Jan. 31, 2017
Statement of Stockholders' Equity [Abstract]      
Cash dividend per share $ 0.28 $ 0.28 $ 0.28
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Jan. 31, 2019
Jan. 31, 2018
Jan. 31, 2017
Cash Flows from Operating Activities:      
Net Income $ 5,730 $ 3,286 $ 4,228
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:      
Depreciation and Amortization 6,152 3,994 2,431
Amortization of Debt Issuance Costs 51 34  
Share-Based Compensation 1,886 1,583 1,019
Deferred Income Tax Provision (Benefit) (1,638) 744 174
Gain on Sale of UK Property     (419)
Changes in Assets and Liabilities, Net of Impact of Acquisitions:      
Accounts Receivable (1,493) (4,722) (416)
Inventories (2,872) (5,509) (4,659)
Accounts Payable and Accrued Expenses (3,967) 5,207 1,426
Income Taxes Payable (151) (801) 2,187
Other (318) (92) 982
Net Cash Provided by Operating Activities 3,380 3,724 6,953
Cash Flows from Investing Activities:      
Proceeds from Sales/Maturities of Securities Available for Sale 1,511 5,539 4,029
Purchases of Securities Available for Sale   (321) (400)
Proceeds from Sale of UK Property     474
Cash Paid for TrojanLabel Acquisition, Net of Cash Acquired   (9,007)  
Cash Paid for Honeywell Asset Purchase and License Agreement (400) (14,873)  
Payments Received on Line of Credit and Note Receivable   85 256
Additions to Property, Plant and Equipment (2,645) (2,204) (1,238)
Net Cash Provided (Used) by Investing Activities (1,534) (20,781) 3,121
Cash Flows from Financing Activities:      
Net Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans, Net of Payment of Minimum Tax Withholdings 1,077 539 79
Purchase of Treasury Stock   (11,238)  
Proceeds from Issuance of Long-Term Debt   24,200  
Borrowings under Revolving Credit Facility 3,000    
Repayments under Revolving Credit Facility (1,500)    
Change in TrojanLabel Earn Out Liability   (1,438)  
Principal Payments on Long-Term Debt (4,762) (828)  
Payments of Debt Issuance Costs   (234)  
Dividends Paid (1,933) (1,944) (2,082)
Net Cash (Used) Provided by Financing Activities (4,118) 9,057 (2,003)
Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents (371) 79 (16)
Net (Decrease) Increase in Cash and Cash Equivalents (2,643) (7,921) 8,055
Cash and Cash Equivalents, Beginning of Year 10,177 18,098 10,043
Cash and Cash Equivalents, End of Year 7,534 10,177 18,098
Cash Paid (Received) During the Period for:      
Interest 636 246  
Income Taxes, Net of Refunds 3,472 1,940 (84)
Schedule of non-cash financing activities:      
Value of Shares Received in Satisfaction of Option Exercise Price $ 366 $ 275 $ 451
v3.19.1
Summary of Significant Accounting Policies
12 Months Ended
Jan. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 1—Summary of Significant Accounting Policies

Basis of Presentation: The accompanying financial data have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and are presented in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Our fiscal year end is January 31. Unless otherwise stated, all years and dates refer to our fiscal year.

Principles of Consolidation: The consolidated financial statements include the accounts of AstroNova, Inc. and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

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

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect these financial statements and accompanying notes. Some of the more significant estimates relate to the allowances for doubtful accounts, inventory valuation, valuation and estimated lives of intangible assets, impairment of long-lived assets, goodwill, income taxes, share-based compensation and warranty reserves. Management’s estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcome of these matters. Consequently, actual results could differ from those estimates.

Cash and Cash Equivalents: Highly liquid investments with an original maturity of 90 days or less are considered to be cash equivalents. Similar investments with original maturities beyond three months are classified as securities available for sale. At both January 31, 2019 and 2018, cash of $3.9 million was held in foreign bank accounts.

Securities Available for Sale: Securities available for sale are carried at fair value based on quoted market prices, where available. The difference between cost and fair value, net of related tax effects, is recorded as a component of accumulated other comprehensive income (loss) in shareholders’ equity.

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

Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets (land improvements—10 to 20 years; buildings and leasehold improvements—10 to 45 years; machinery and equipment—3 to 10 years and computer equipment and software—3 to 10 years).

Revenue Recognition: On February 1, 2018 we adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (“Topic 606”),” which superseded nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of 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. 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 Topic 606 as of the February 1, 2018 adoption date. Under 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 Topic 606.

The vast majority of our revenue is generated from the sale of distinct products. Revenue is measured as the amount of consideration we expect 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 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 year ended January 31, 2019. 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.

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. There has been no change in the Company’s accounting for these contracts as a result of the adoption of Topic 606. 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.

Accounts Receivables and Allowance for Doubtful Accounts: Standard payment terms are typically 30 days after shipment, but vary by type and geographic location of our customer. Credit is extended based upon an evaluation of the customer’s financial condition. In circumstances where we are aware of a customer’s inability to meet its financial obligations, an allowance is established. The remainder of the allowance established is based on a variety of factors, including the age of amounts outstanding relative to their contractual due date, historical write-off experience and current market assessments. Accounts receivable are stated at their estimated net realizable value.

Research and Development Costs: We charge costs to expense in the period incurred, and these expenses are presented in the consolidated statement of income. The following costs are included in research and development expense: salaries and benefits, external engineering service costs, engineering related information costs and supplies.

Foreign Currency Translation: The financial statements of foreign subsidiaries and branches are measured using the local currency as the functional currency. Foreign currency-denominated assets and liabilities are translated into U.S. dollars at year-end exchange rates with the translation adjustment recorded as a component of accumulated comprehensive income (loss) in shareholders’ equity. Revenues and expenses are translated at the average monthly exchange rates in effect during the related period. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our subsidiaries in Germany, Denmark and China since their undistributed earnings are considered to be permanently invested. Our net transactional foreign exchange losses included in the consolidated statements of income were $0.7 million in fiscal 2019 and $0.2 million for both fiscal 2018 and 2017.

Advertising: The Company expenses advertising costs as incurred. Advertising costs including advertising production, trade shows and other activities are designed to enhance demand for our products and amounted to approximately $1.9 million; $1.8 million and $1.6 million in fiscal 2019, 2018 and 2017, respectively.

Long-Lived Assets: Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be recorded for the excess of the carrying value over the fair value, as determined by the discounting of future cash flows. For 2019, 2018 and 2017, there were no impairment charges for long-lived assets.

Intangible Assets: Intangible assets include the value of customer and distributor relationships, existing technology and non-competition agreements acquired in connection with business and asset acquisitions and are stated at cost (fair value at acquisition) less accumulated amortization. These intangible assets have a definite life and are amortized over the assets’ useful lives using a systematic and rational basis which is representative of the assets’ use. Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. If necessary, an impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. For 2019, 2018 and 2017, there were no impairment charges for intangible assets.

Goodwill: Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in revenue, earnings or cash flows, or material adverse changes in the business climate indicate that the carrying value of an asset might be impaired. Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment, or a business unit one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. However, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. We determined that each of our operating segments (Product Identification and T&M) represents a reporting unit for purposes of goodwill impairment testing.

The accounting guidance related to goodwill impairment testing allows for the performance of an optional qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Factors that management considers in this qualitative assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is required for the reporting unit. The quantitative assessment compares the fair value of the reporting unit with its carrying value. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow model. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. In addition, the Company uses the market approach, which compares the reporting unit to publicly-traded companies and transactions involving similar business, to support the conclusions based upon the income approach. The income approach requires the use of many assumptions and estimates including future revenue, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates. If the fair value of the reporting unit exceeds the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then we record an impairment charge based on that difference.

We performed a qualitative assessment for our fiscal 2019 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying values of the reporting units exceed their fair values. Accordingly, no quantitative assessment was performed, as management believes that there are no impairment issues in regards to goodwill at this time.

Income Taxes: We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of the assets and liabilities and are measured using statutory tax rates that will be in effect when the differences are expected to reverse. The Company’s deferred taxes are presented as non-current in the accompanying consolidated balance sheet. An allowance against deferred tax assets is recognized when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. At January 31, 2019 and 2018, a valuation allowance was provided for deferred tax assets attributable to certain state R&D credit carryforwards.

AstroNova accounts for uncertain tax positions in accordance with the guidance provided in ASC 740, “Accounting for Income Taxes.” This guidance describes a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken in a tax return and requires recognition of tax benefits that satisfy a more-likely-than-not threshold. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

 

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (“Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. All accounting under SAB 118 was finalized during the quarter ending January 31, 2019 with no material changes from the provisional amounts previously recorded. Refer to Note 15 “Income Taxes” in the audited consolidated financial statements included elsewhere in this report for further details.

Net Income Per Common Share: Basic net income per share is based on the weighted average number of shares outstanding during the period. Diluted net income per share is based on the basic weighted average number of shares and potential common equivalent shares for stock options, restricted stock awards and restricted stock units outstanding during the period using the treasury stock method. In fiscal years 2019, 2018 and 2017, there were 326,275, 675,600 and 459,700, respectively, of common equivalent shares that were not included in the computation of diluted net income per common share because their inclusion would be anti-dilutive.

Fair Value Measurement: We measure our financial assets at fair value on a recurring basis in accordance with the guidance provided in ASC 820, “Fair Value Measurement and Disclosures,” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, ASC 820 establishes a three-tiered hierarchy for inputs used in management’s determination of fair value of financial instruments that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect management’s belief about the assumptions market participants would use in pricing a financial instrument based on the best information available in the circumstances.

The fair value hierarchy is summarized as follows:

 

   

Level 1—Quoted prices in active markets for identical assets or liabilities;

 

   

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

   

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Cash and cash equivalents, accounts receivable, accounts payable, accrued compensation, other accrued expenses and income tax payable are reflected in the consolidated balance sheet at carrying value, which approximates fair value due to the short term nature of these instruments.

Share-Based Compensation: Share-based compensation expense is measured based on the estimated fair value of the share-based award when granted and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). We have estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model. Our estimate of share-based compensation requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), the risk-free interest rate and the Company’s dividend yield. The stock price volatility assumption is based on the historical weekly price data of our common stock over a period equivalent to the weighted average expected life of our options. Management evaluated whether there were factors during that period which were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. In determining the expected life of the option grants, the Company has observed the actual terms of prior grants with similar characteristics and the actual vesting schedule of the grant and has assessed the expected risk tolerance of different option groups. The risk-free interest rate is based on the actual U.S. Treasury zero coupon rates for bonds matching the expected term of the option as of the option grant date. The dividend assumption is based upon the prior year’s average dividend yield. No compensation expense is recognized for options that are forfeited for which the employee does not render the requisite service. Our accounting for share-based compensation for restricted stock awards (RSA) and restricted stock units (RSU) is also based on the fair value method. The fair value of the RSUs and RSAs is based on the closing market price of the Company’s common stock on the grant date. Reductions in compensation expense associated with forfeited awards are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience.

Cash flow from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) is classified with other income tax cash flows as an operating activity.

Share-based compensation becomes deductible for determining income taxes when the related award vests, is exercised, or is forfeited depending on the type of share-based award and subject to relevant tax law.

Derivative Financial Instruments: The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in foreign currency exchange rates and interest rates. Derivative instruments are recognized as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the statement of income during the current period. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same line item associated with the forecasted transaction, and in the same period or periods during which the hedged transaction affects earnings (e.g., in “Interest Expense” when the hedged transactions are interest cash flows associated with floating-rate debt, or “Other, Net” for portions reclassified relating to the remeasurement of the debt). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffectiveness portion), or hedge components excluded from the assessment of effectiveness, are recognized in the statement of income during the current period.

Recent Accounting Pronouncements

Recently Adopted:

Share-Based Compensation

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07 “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 reduces the cost and complexity and improves financial reporting by expanding the scope of Topic 718 to include share-based payment transactions to nonemployees. ASU 2018-07 is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The Company adopted the provisions of this guidance effective beginning in the second quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Income Taxes

In March 2018, the FASB issued ASU 2018-05—“Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” ASU 2018-05 provides guidance for companies related to the U.S. government-enacted comprehensive tax legislation commonly referred to as the Tax Act. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company adopted this standard in the first quarter of fiscal 2019 and has properly reflected the income tax effects of all aspects of the legislation for which the accounting under ASC 740 was impacted. All conclusions under SAB 118 were finalized during the fourth quarter of 2019 with no material changes to the provisional amounts. Refer to Note 15, “Income Taxes” for further details.

Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 amends ASU Topic 220 and allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act, to eliminate the stranded tax effects resulting from the Tax Act. This ASU is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The amendments in this update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company early adopted this amendment in the second quarter of fiscal 2019 and reclassified $14,000 from accumulated other comprehensive income to retained earnings.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. Under this guidance, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this guidance effective February 1, 2018 using the modified retrospective method. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. Refer to the significant accounting policy discussion for “Revenue Recognition” included above for further details.

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.” The objective of this new guidance is to improve the financial reporting of hedging relationships by, among other things, eliminating the requirement to separately measure and record hedge ineffectiveness. ASU 2017-12 is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. We adopted the provisions of this guidance effective for the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Share-Based Compensation

In May 2017, the FASB issued ASU 2017-09 “Stock Compensation: Scope of Modification Accounting.” ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The Company adopted this guidance effective February 1, 2018. The adoption of this guidance did not have a material impact on its consolidated financial statements.

 

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230).” ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for certain cash receipts and cash payments. The Company adopted this guidance affective February 1, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Standards Not Yet Adopted

Internal-Use Software

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (Q1 fiscal 2021 for AstroNova), with early adoption permitted. Implementation should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact this new guidance will have on its consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. This ASU is effective for annual periods beginning after December 15, 2019 including interim periods within those fiscal years (Q1 fiscal 2021 for AstroNova), with early adoption permitted. The provisions of ASU 2018-13 relating to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The remaining provisions should be applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the impact this new guidance will have on its consolidated financial statements and related disclosures.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 supersedes current guidance related to accounting for leases and is intended to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities in the balance sheet for operating leases with lease terms greater than twelve months. The update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842” which includes certain clarifications to address potential narrow-scope implementation issues. Additionally in July 2018 the FASB issued ASU 2018-11, “Leases (Topic 842) Targeted Improvements,” which amends ASU 2016-02 to provide an alternative transition method to adopt the new lease standard which will not require adjustments to comparative periods nor require modified disclosure in those comparative periods. The new standard will be effective for Astronova at the beginning of fiscal 2020.

Upon the adoption of this guidance, the Company expects to recognize approximately $2.0 million of right-of-use assets and lease liabilities on its consolidated balance sheet related to its operating leases. The Company anticipates electing the package of practical expedients, which among other things, allows the carryforward of the historical lease classification. The Company is in the process of identifying appropriate changes to its accounting policies and procedures, system processes, and related internal controls to support the requirements of this new guidance. This standard will not have a material impact on our liquidity or debt-covenant compliance under our current credit agreement, and is not expected to have any significant impact on the Company’s results of operations.

No other new accounting pronouncements, issued or effective during fiscal 2019, have had or are expected to have a material impact on our consolidated financial statements.

v3.19.1
Revenue Recognition
12 Months Ended
Jan. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition

Note 2—Revenue Recognition

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.

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

Primary geographical markets:

 

     Year Ended  
(In thousands)    January 31,
2019
     January 31,
2018
     January 31,
2017
 

United States

   $ 83,668      $ 69,795      $ 69,850  

Europe

     31,574        29,948        18,848  

Asia

     8,207        3,808        1,664  

Canada

     6,692        5,373        5,008  

Central and South America

     4,147        3,402        3,053  

Other

     2,369        1,075        25  
  

 

 

    

 

 

    

 

 

 

Total Revenue

   $ 136,657      $ 113,401      $ 98,448  
  

 

 

    

 

 

    

 

 

 

Major product types:

 

     Year Ended  
(In thousands)    January 31,
2019
     January 31,
2018
     January 31,
2017
 

Hardware

   $ 53,207      $ 37,501      $ 33,797  

Supplies

     71,178        65,265        56,169  

Service and Other

     12,272        10,635        8,482  
  

 

 

    

 

 

    

 

 

 

Total Revenue

   $ 136,657      $ 113,401      $ 98,448  
  

 

 

    

 

 

    

 

 

 

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 $373,000 and $367,000 at January 31, 2019 and January 31, 2018, respectively, and are recorded as deferred revenue in the consolidated balance sheet. The slight increase in the deferred revenue at January 31, 2019 is primarily due to approximately $622,000 of revenue recognized during the year that was included in the deferred revenue balance of the prior year end, offset by cash payments received in advance of satisfying performance obligations.

 

Contract Costs

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. The balance of these contract assets at January 31, 2018 was $832,000 which was reported in other assets in the consolidated balance sheet. In fiscal 2019, the Company incurred an additional $150,000 in incremental direct costs which were deferred. The amortization of incremental direct costs was $79,000 for the period ended January 31, 2019. The balance of the deferred incremental direct contract costs net of accumulated amortization at January 31, 2019 is $903,000, of which $109,000 was reported in other current assets and $794,000 was reported in other assets in the consolidated balance sheet. The contract costs are expected to be amortized over the estimated remaining period of benefit, which we currently estimate to be approximately 7 years.

v3.19.1
Acquisitions
12 Months Ended
Jan. 31, 2019
Text Block [Abstract]  
Acquisitions

Note 3—Acquisitions

Honeywell Asset Purchase and License Agreement

On September 28, 2017, AstroNova, Inc. entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc. (“Honeywell”) 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 payment of $14.6 million in cash, paid at the closing of the transaction using borrowings from the Company’s revolving credit facility and guaranteed minimum royalty payments of $15.0 million, to be paid 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 ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” and was accounted for as an asset acquisition.

The minimum royalty payment obligation of $15.0 million was recorded at the present value of the minimum annual royalty payments using a present value factor of 2.8%, which is based on the estimated after tax cost of debt for similar companies. During fiscal 2019, the Company paid $1.9 million of guaranteed minimum royalty payments. At January 31, 2019, the current portion of the outstanding guaranteed royalty obligation of $1.875 million is to be paid over the next twelve months and is reported as a current liability and the remainder of $9.9 million is reported as a long-term liability on the Company’s consolidated balance sheet at January 31, 2019. In addition to the guaranteed minimum royalty payments paid in fiscal 2019 and 2018, the Company incurred $2.8 million and $0.6 million, respectively, in excess royalty expense, which is included in cost of revenue in the Company’s consolidated statements of income for the years ended January 31, 2019 and 2018, respectively. A total of $1.3 million and $0.6 million of excess royalty is payable and reported as a current liability on the Company’s consolidated balance sheet at January 31, 2019 and 2018, respectively.

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 fiscal 2019, the Company paid an additional $0.4 million to acquire another repair facility revenue stream in accordance with the terms of the TSA. The additional $0.4 million 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 of the acquisition date as follows:

 

(In thousands)       

Inventory

   $ 1,411  

Identifiable Intangible Assets

     27,243
  

 

 

 

Total Purchase Price

   $ 28,654  
  

 

 

 

 

*

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

The purchase price, including the initial payment, minimum royalty payment obligation, transaction costs and subsequent additional TSA obligation payment, was 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  
  

 

 

    

Trojan Label

On February 1, 2017, the Company’s wholly-owned Danish subsidiary, ANI ApS, completed the acquisition of the issued and outstanding equity interests of TrojanLabel ApS (“TrojanLabel”). The acquisition of TrojanLabel was accounted for as a purchase of a business under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”

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. The acquisition was funded using available cash and investment securities. In the first quarter of fiscal 2019, the Company settled the post-closing adjustment with TrojanLabel and recovered approximately 891,000 Danish Krone (approximately $145,000) of the amount held in the escrow account, which was recognized as an adjustment to the allowance account for TrojanLabel receivables. The remaining escrow balance was retained by TrojanLabel.

Part of the purchase agreement included an additional contingent consideration to be paid to the sellers of TrojanLabel if 80% of specified earnings targets were achieved by the TrojanLabel business during the seven years following the closing. However, subsequent to the acquisition, the Company restructured the operating model for the TrojanLabel business such that most of the sales and some of the expenses of the business would be transferred to other legal entities of the Company. This caused the expected earnings targets in TrojanLabel, which was the basis upon which the contingent consideration was structured, to become unlikely to be met. As a result, during fiscal 2018, the estimated fair value of the contingent consideration was reduced resulting in the Company recognizing an additional $1.4 million of income for the year which is offset in general and administrative expense on the Company’s Consolidated Income Statement for the period ended January 31, 2018.

Total acquisition-related costs were approximately $0.7 million, of which $0.1 million and $0.6 million are included in the general and administrative expenses in the Company’s consolidated statements of income for the years ending January 31, 2018 and January 31, 2017, respectively.

The US dollar purchase price of the acquisition has been allocated on the basis of fair value as follows:

 

(In thousands)       

Accounts Receivable

   $ 1,322  

Inventory

     796  

Other Current Assets

     166  

Property, Plant and Equipment

     15  

Identifiable Intangible Assets

     3,264  

Goodwill

     7,388  

Accounts Payable and Other Current Liabilities

     (1,821

Other Liability

     (114

Contingent Liability (Earnout)

     (1,314

Deferred Tax Liability

     (695
  

 

 

 

Total Purchase Price

   $ 9,007  
  

 

 

 

The fair value of the intangible assets acquired was estimated by applying the income approach, and the fair value of the contingent consideration liability was estimated by applying the real options method. 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) remaining life of existing technology acquired based on estimate of percentage of revenue from 0% – 100% for each product, (2) the Company’s internal rate of return of 19.0% and (3) a range of earnings projections from $121,000 – $1,070,000. Key assumptions in estimating the fair value of the contingent consideration liability (earnout) include (1) the estimated earnout targets over the next seven years of $407,000–$1,280,000, (2) the probability of success (achievement of the various contingent events) from 1.6%–87.2% and (3) a risk-adjusted discount rate of approximately 1.77%–3.35% used to adjust the probability-weighted earnout payments to their present value. The fair value of the contingent liability is revalued every reporting period based on updated assumptions. Refer above and to Note 21 “Fair Value Measurements” for further details.

Goodwill of $7.4 million, which is not deductible for tax purposes, represents the excess of the purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired and liabilities assumed from TrojanLabel. The goodwill recognized is attributable to synergies which are expected to enhance and expand the Company’s overall product portfolio and opportunities in new and existing markets, future technologies that have yet to be determined and TrojanLabel’s assembled work force. The carrying amount of the goodwill was allocated to the Product Identification segment of the Company.

 

The following table reflects the fair value of the acquired identifiable intangible assets and related estimated useful lives:

 

(In thousands)    Fair
Value
     Useful Life
(Years)
 

Existing Technology

   $ 2,327        7  

Distributor Relations

     937        10  
  

 

 

    

Total

   $ 3,264     
  

 

 

    

The existing technology intangible asset acquired represents the various technologies TrojanLabel has developed related to its series of printing presses, including hardware components of the presses and the software utilized to optimize their performance.

Beginning February 1, 2017, the results of operations for TrojanLabel have been included in the Company’s statement of income for the period ended January 31, 2019 and 2018 and are reported as part of the Product Identification segment. Assuming the acquisition of TrojanLabel had occurred on February 1, 2016, the impact would not have had a material effect on the Company’s results for period ended January 31, 2017, as the acquisition was not considered a significant subsidiary.

v3.19.1
Intangible Assets
12 Months Ended
Jan. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

Note 4—Intangible Assets

Intangible assets are as follows:

 

    January 31, 2019     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     $ (1,723   $ —       $ 1,377     $ 3,100     $ (1,438   $ —       $ 1,662  

RITEC:

               

Customer Contract Relationships

    2,830       (725     —         2,105       2,830       (461     —         2,369  

Non-Competition Agreement

    950       (681     —         269       950       (491     —         459  

TrojanLabel:

               

Existing Technology

    2,327       (711     140       1,756       2,327       (350     313       2,290  

Distributor Relations

    937       (200     56       793       937       (99     130       968  

Honeywell:

               

Customer Contract Relationships

    27,243     (3,869     —         23,374       26,843       (958     —         25,885  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible Assets, net

  $ 37,387     $ (7,909   $     196     $ 29,674     $ 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 January 31, 2019, 2018 and 2017. Amortization expense of $4.1 million; $2.2 million and $0.7 million with regard to acquired intangibles has been included in the consolidated statements of income for years ended January 31, 2019, 2018 and 2017, respectively.

 

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

 

(In thousands)    2020      2021      2022      2023      2024  

Estimated amortization expense

   $ 4,223      $ 4,093      $ 4,005      $ 4,001      $ 3,997  

v3.19.1
Securities Available for Sale
12 Months Ended
Jan. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Securities Available for Sale

Note 5—Securities Available for Sale

Pursuant to our investment policy, securities available for sale include state and municipal securities with contractual or anticipated maturity dates ranging from 1 to 13 months. These securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss), net of taxes, in shareholders’ equity until realized. Realized gains and losses from the sale of available for sale securities, if any, are determined on a specific identification basis. A decline in the fair value of any available for sale security below cost that is determined to be other than temporary will result in a write-down of its carrying amount to fair value. No such impairment charges were recorded for any period presented. All short-term investment securities have original maturities greater than 90 days.

The fair value, amortized cost and gross unrealized gains and losses of the securities are as follows:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 
(In thousands)                            

January 31, 2019

           

State and Municipal Obligations

   $ —        $    —        $    —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2018

           

State and Municipal Obligations

   $ 1,513      $ —        $ (2    $ 1,511  
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturity dates of these securities are as follows:

 

     January 31  
     2019      2018  
(In thousands)              

Less than one year

   $    —        $ 1,096  

One to two years

     —          415  
  

 

 

    

 

 

 
   $ —        $ 1,511  
  

 

 

    

 

 

 

Actual maturities may differ from contractual dates as a result of revenue or earlier issuer redemptions.

v3.19.1
Inventories
12 Months Ended
Jan. 31, 2019
Inventory Disclosure [Abstract]  
Inventories

Note 6—Inventories

The components of inventories are as follows:

 

     January 31  
     2019      2018  
(In thousands)              

Materials and Supplies

   $ 17,517      $ 13,715  

Work-in-Progress

     1,633        1,404  

Finished Goods

     15,688        17,210  
  

 

 

    

 

 

 
     34,838        32,329  

Inventory Reserve

     (4,677      (4,720
  

 

 

    

 

 

 

Balance at January 31

   $ 30,161      $ 27,609  
  

 

 

    

 

 

 

Finished goods inventory includes $2.1 million and $2.0 million of demonstration equipment at January 31, 2019 and 2018, respectively.

v3.19.1
Property, Plant and Equipment
12 Months Ended
Jan. 31, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment

Note 7—Property, Plant and Equipment

Property, plant and equipment consist of the following:

 

     January 31  
     2019      2018  
(In thousands)              

Land and Land Improvements

   $ 967      $ 967  

Buildings and Leasehold Improvements

     12,165        12,056  

Machinery and Equipment

     22,810        22,125  

Computer Equipment and Software

     9,385        7,729  
  

 

 

    

 

 

 

Gross Property, Plant and Equipment

     45,327        42,877  

Accumulated Depreciation

     (34,947      (33,125
  

 

 

    

 

 

 

Net Property Plant and Equipment

   $ 10,380      $ 9,752  
  

 

 

    

 

 

 

Depreciation expense on property, plant and equipment was $2.0 million, $1.8 million and $1.7 million for the years ended January 31, 2019, 2018 and 2017, respectively.

v3.19.1
Accrued Expenses
12 Months Ended
Jan. 31, 2019
Payables and Accruals [Abstract]  
Accrued Expenses

Note 8—Accrued Expenses

Accrued expenses consisted of the following:

 

     January 31  
     2019      2018  
(In thousands)              

Warranty

   $ 832      $ 575  

Professional Fees

     403        392  

Dealer Commissions

     320        232  

Accrued Payroll & Sales Tax

     97        191  

Product Replacement Cost Reserve

     —          158  

Other

     1,259        866  
  

 

 

    

 

 

 
   $ 2,911      $ 2,414  
  

 

 

    

 

 

 
v3.19.1
Revolving Line of Credit
12 Months Ended
Jan. 31, 2019
Debt Disclosure [Abstract]  
Revolving Line of Credit

Note 9—Revolving Line of Credit

The Company has a $10.0 million revolving line of credit under its existing Credit Agreement with Bank of America. 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.

During fiscal 2019, $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 January 31, 2019. The outstanding balance bears interest at a weighted average annual rate of 5.6% and $61,000 of interest has been accrued and paid on this obligation and included in other expense in the accompanying consolidated income statement for the period ended January 31, 2019. As of January 31, 2019, there is $8.5 million available for borrowing under the revolving credit facility.

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.

v3.19.1
Debt
12 Months Ended
Jan. 31, 2019
Debt Disclosure [Abstract]  
Debt

Note 10—Debt

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

 

     January 31  
(In thousands)    2019      2018  

USD Term Loan (4.02% and 2.85% as of January 31, 2019 and 2018, respectively); maturity date November 30, 2022

   $ 11,250      $ 15,000  

USD Term Loan (4.02% and 3.06% as of January 31, 2019 and 2018, respectively); maturity date of January 31, 2022

     6,992        8,372  
  

 

 

    

 

 

 
     18,242        23,372  

Debt Issuance Costs, net of accumulated amortization

     (164      (226

Current Portion of Term Loan

     (5,208      (5,498
  

 

 

    

 

 

 

Long-Term Debt

   $ 12,870      $ 17,648  
  

 

 

    

 

 

 

The schedule of required principal payments remaining during the next five years on long-term debt outstanding as of January 31, 2019 is as follows:

 

(In thousands)       

Fiscal 2020

   $ 5,208  

Fiscal 2021

     5,208  

Fiscal 2022

     5,576  

Fiscal 2023

     2,250  

Fiscal 2024

     —    
  

 

 

 
   $ 18,242  
  

 

 

 

On February 28, 2017, the Company and the Company’s wholly owned Danish subsidiary, ANI ApS (together, the “Parties”) entered into a Credit Agreement with Bank of America, N.A. (the “Lender”). The Parties also entered into a related Security and Pledge Agreement with the Lender. The Credit Agreement provided for a term loan to ANI ApS in the amount of $9.2 million. 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 loan outstanding under the revolving credit facility as of that date.

The term loans bear interest at a rate per annum equal to the LIBOR rate plus a margin that varies within a range of 1.0% to 1.5% based on the Company’s consolidated leverage ratio. 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 $9.2 million term loan. In connection with the Second Amendment to the Credit Agreement, AstroNova entered into certain hedging arrangements with the Lender to manage the variable interest rate risk and currency exchange risk associated with its payments in respect of the $15.0 million term loan. Refer to Note 11, “Derivative Financial Instruments and Risk Management” for further information about these arrangements.

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 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 ApS. 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 AstroNova GmbH), subject to certain exceptions.

As of January 31, 2019, the Company believes it is in compliance with all of the covenants in the Credit Agreement.

v3.19.1
Derivative Financial Instruments and Risk Management
12 Months Ended
Jan. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Risk Management

Note 11—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 term loan borrowing by the Company. In accordance with the guidance in ASC 815, both swaps have been designated as cash flow hedges of floating-rate borrowings and are recorded at fair value.

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 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 January 31, 2019 and 2018, the total notional amount of the Company’s cross-currency interest rate swap was $6.3 million and $7.8 million, respectively.

The interest rate swap agreement utilized by the Company on the term loan effectively modifies the Company’s exposure to interest rate risk by converting the Company’s floating-rate debt to fixed-rate debt for the next five years, 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 January 31, 2019 and 2018, the total notional amount of the Company’s interest rate swap was $11.3 million and $14.3 million, respectively.

The following table provides a summary of the fair values of the Company’s derivatives recorded in the consolidated balance sheets:

 

Cash Flow Hedges

(In thousands)

   Balance Sheet Classification      January 31,
2019
     January 31,
2018
 

Cross-currency interest rate swap

     Other Long Term Liabilities      $ 600      $ 1,513
     

 

 

    

 

 

 

Interest rate swap

     Other Assets      $ 85      $ 101
     

 

 

    

 

 

 

 

The following tables present the impact of the derivative instruments in our condensed consolidated financial statements for the years ended January 31, 2019 and 2018:

 

     Years Ended  
     Amount of Gain
(Loss)
Recognized in OCI
on
Derivative
    Location of Gain
(Loss)
Reclassified from
Accumulated OCI  into
Income
     Amount of Gain
(Loss)
Reclassified from
Accumulated OCI into
Income
 

Cash Flow Hedge

(In thousands)

   January 31,
2019
     January 31,
2018
     January 31,
2019
     January 31,
2018
 

Swap contracts

   $ 797      $ (1,330 )     Other Income (Expense)      $ 769      $ (1,344 )
  

 

 

    

 

 

      

 

 

    

 

 

 

At January 31, 2019, the Company expects to reclassify approximately $0.4 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.

v3.19.1
Accumulated Other Comprehensive Loss
12 Months Ended
Jan. 31, 2019
Equity [Abstract]  
Accumulated Other Comprehensive Loss

Note 12—Accumulated Other Comprehensive Loss

The changes in the balance of accumulated other comprehensive loss by component are as follows:

 

(In thousands)    Foreign Currency
Translation
Adjustments
    Unrealized Holding
Gain (Loss)
on Available for
Sale Securities
    Net
Unrealized
Gain (Losses)
on Cash Flow
Hedges
    Total  

Balance at January 31, 2016

   $ (983   $ 8       —       $ (975

Other Comprehensive Loss

     (65     (16     —         (81

Amounts Reclassified to Net Income

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Other Comprehensive Loss

     (65     (16     —         (81
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 31, 2017

   $ (1,048   $ (8   $ —       $ (1,056

Other Comprehensive Income (Loss) before reclassification

     867       5       (1,036     (164

Amounts reclassified from AOCI to Earnings

     —         —         1,048       1,048  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income

     867       5       12       884  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 31, 2018

   $ (181   $ (3   $ 12     $ (172

Other Comprehensive Income (Loss) before reclassification

     (671     —         622       (49

Amounts reclassified from AOCI to Earnings

     —         3     (600     (597
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income (Loss)

     (671     3       22       (646
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 31, 2019

   $ (852   $  —       $ 34     $ (818
  

 

 

   

 

 

   

 

 

   

 

 

 

The amounts presented above in other comprehensive income (loss) are net of taxes except for translation adjustments associated with our German and Danish subsidiaries.

v3.19.1
Shareholders' Equity
12 Months Ended
Jan. 31, 2019
Federal Home Loan Banks [Abstract]  
Shareholders' Equity

Note 13—Shareholders’ Equity

During fiscal 2019, 2018 and 2017, certain of the Company’s employees delivered a total of 33,430, 26,561 and 51,531 shares, respectively, of the Company’s common stock to satisfy the exercise price and related taxes for stock options exercised and restricted stock vesting. The shares delivered were valued at a total of $0.6 million, $0.4 million and $0.8 million, respectively, and are included in treasury stock in the accompanying consolidated balance sheets at January 31, 2019, 2018 and 2017. These transactions did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.

 

On May 1, 2017, the Company entered into a stock repurchase agreement to repurchase 826,305 shares of the Company’s common stock held by a trust established by Albert W. Ondis at a per share price of $13.60, for an aggregate repurchase price of $11.2 million. This stock repurchase was consummated on May 2, 2017 and was funded using existing cash on hand. Following this stock repurchase, the Ondis trust owns 36,000 shares of the Company’s common stock.

April L. Ondis, who was then a director of the Company, is a beneficiary of the trust. The stock repurchase was authorized and approved by the Company’s Audit Committee as a related party transaction. Prior to entering into the agreement, the Company obtained an opinion from an independent investment banking firm that the consideration to be paid by the Company to the trust pursuant to the stock repurchase agreement would be fair to the public stockholders of the Company, other than the trust, from a financial point of view.

As of January 31, 2019, the Company’s Board of Directors has authorized the purchase of up to an additional 390,000 shares of the Company’s common stock on the open market or in privately negotiated transactions.

v3.19.1
Share-Based Compensation
12 Months Ended
Jan. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation

Note 14—Share-Based Compensation

The Company maintains the following share-based compensation plans:

Stock Plans:

During the year ending January 31, 2019, we were authorized to grant equity awards under two equity incentive plans: the 2015 Equity Incentive Plan (the “2015 Plan”) and the AstroNova, Inc. 2018 Equity Incentive Plan (the “2018 Plan”).

The 2018 Plan was approved by the Company’s shareholders at the Company’s annual meeting of shareholders held on June 4, 2018. 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 2015 Plan 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). The 2015 Plan was to expire in May 2025, however following the approval of the 2018 Plan, the Company ceased granting new equity awards pursuant to the 2015 Plan. As of January 31, 2019, 80,934 unvested shares of restricted stock granted and options to purchase an aggregate of 151,000 shares were outstanding under the 2018 Plan.

Under the 2015 Plan, the Company could grant incentive stock options, non-qualified stock options, stock appreciation rights, time or performance-based restricted stock units (RSUs), restricted stock awards (RSAs), and other stock-based awards to executives, key employees, directors and other eligible individuals. Options granted to employees under the plan vest over four years and expire after ten years. The exercise price of each stock option is established at the discretion of the Compensation Committee; however, all options granted under the 2015 Plan must be issued at an exercise price of not less than the fair market value of the Company’s common stock on the date of grant. As of January 31, 2019, 50,585 unvested shares of restricted stock granted and options to purchase an aggregate of 202,450 shares were outstanding under the 2015 Plan.

Under the 2015 Plan, each non-employee director received an automatic annual grant of ten-year options to purchase 5,000 shares of stock upon the adjournment of each annual shareholders meeting. Each such option is exercisable at the fair market value of the Company’s common stock as of the grant date, and vests immediately prior to the next annual shareholders’ meeting. Accordingly, on May 17, 2017, 30,000 options were issued to the non-employee directors.

In addition to the 2015 Plan and the 2018 Plan, we previously granted equity awards under our 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan expired in May 2017 and no new awards may be issued under it, but outstanding awards will continue to be governed by it. As of January 31, 2019, 2,148 unvested shares of restricted stock granted and options to purchase an aggregate of 417,695 shares were outstanding under the 2007 Plan.

The Company had a Non-Employee Director Annual Compensation Program (the “Prior Program”) under which each non-employee director received an automatic grant of RSAs on the first business day of each fiscal quarter. Under the Program, the number of whole shares to be granted each quarter was 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 $55,000 in fiscal year 2017, $65,000 in fiscal year 2018 and $75,000 in fiscal year 2019. In addition, the Chairman of the Board received 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 become 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 26,515, 28,062 and 11,379 shares were awarded to the non-employee directors as compensation under the Program in fiscal 2019, 2018 and 2017, respectively.

Refer to Note 22, “Subsequent Event” for details regarding the Amended and Restated Non-Employee Director Annual Compensation Program adopted January 31, 2019 and effective beginning on February 1, 2019.

In May 2015 (fiscal year 2016), the Company granted an aggregate of 80,000 time-based and 155,000 performance-based RSUs to certain officers of the Company. 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 an Equity Incentive Award Agreement dated as of November 24, 2014 (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-qualifiedoptions 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.

In May 2018 (fiscal year 2019), the Company granted 40,000 options to certain key employees.

In June 2018 (fiscal year 2019), 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. Of the 38,000 performance-based RSUs, 35,657 were earned based upon achievement of fiscal 2019 revenue and operating income targets.

 

Share-Based Compensation:

Share-based compensation expense has been recognized as follows:

 

    Years Ended January 31  
            2019                      2018                      2017          
(In thousands)                    

Stock Options

  $ 783      $ 437      $ 321  

Restricted Stock Awards and Restricted Stock Units

    1,088        1,134        685  

Employee Stock Purchase Plan

    15        12        13  
 

 

 

    

 

 

    

 

 

 

Total

  $ 1,886      $ 1,583      $ 1,019  
 

 

 

    

 

 

    

 

 

 

Stock Options:

Aggregated information regarding stock options granted under the plans is summarized below:

 

     Number
of Shares
    Weighted-
Average
Exercise
Price Per
Share
 

Options Outstanding, January 31, 2016

     657,936     $ 11.00  

Options Granted

     122,000       14.82  

Options Exercised

     (87,107     8.73  

Options Forfeited

     (4,250     13.91  

Options Cancelled

     (3,123     8.95  
  

 

 

   

 

 

 

Options Outstanding, January 31, 2017

     685,456     $ 11.96  

Options Granted

     187,189       13.57  

Options Exercised

     (84,025     10.08  

Options Forfeited

     (18,750     14.49  

Options Cancelled

     (24,600     11.76  
  

 

 

   

 

 

 

Options Outstanding, January 31, 2018

     745,270     $ 12.52  

Options Granted

     196,000       18.21  

Options Exercised

     (150,125     10.62  

Options Forfeited

     (16,300     15.10  

Options Cancelled

     (3,700     8.95  
  

 

 

   

 

 

 

Options Outstanding, January 31, 2019

     771,145     $ 14.30  
  

 

 

   

 

 

 

Set forth below is a summary of options outstanding at January 31, 2019:

 

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      74,981      $ 7.72        2.6        74,981      $ 7.72        2.6  
$10.01-15.00      453,164        13.65        6.8        313,347        13.66        6.3  
$15.01-20.00      243,000        17.55            8.9        30,000        15.17        7.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     771,145      $ 14.30            7.0        418,328      $ 12.70        5.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

     Years Ended January 31  
             2019                     2018                     2017          

Risk-Free Interest Rate

     2.6     1.9     1.4

Expected Life (years)

     9       9       5  

Expected Volatility

     39.4     39.0     28.3

Expected Dividend Yield

     1.5     2.0     1.9

The weighted-average estimated fair value of options granted during fiscal 2019, 2018 and 2017 was $7.43, $4.79 and $3.22, respectively. As of January 31, 2019, there was $1.5 million of unrecognized compensation expense related to the unvested stock options granted under the plans. This expense is expected to be recognized over a weighted-average period of 2.3 years.

As of January 31, 2019, the aggregate intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock on January 31, 2019, and the exercise price of the outstanding options) that would have been received by the option holders if all options had been exercised was $3.0 million for all exercisable options and $4.4 million for all options outstanding. The total aggregate intrinsic value of options exercised during 2019, 2018 and 2017 was $1.1 million, $0.4 million, and $0.6 million, respectively

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

Aggregated information regarding RSUs and RSAs granted under the Plan is summarized below:

 

     RSAs & RSUs      Weighted-Average
Grant Date Fair Value
 

Outstanding at January 31, 2016

     293,088      $ 13.02  

Granted

     24,839        14.89  

Vested

     (75,133      12.05  

Forfeited

     (28,926      11.49  
  

 

 

    

 

 

 

Outstanding at January 31, 2017

     213,868      $ 14.08  

Granted

     43,737        13.78  

Vested

     (71,171      14.12  

Forfeited

     (9,087      14.05  
  

 

 

    

 

 

 

Outstanding at January 31, 2018

     177,347      $ 13.99  

Granted

     108,790        17.85  

Vested

     (67,447      14.26  

Forfeited

     (85,023      14.17  
  

 

 

    

 

 

 

Outstanding at January 31, 2019

     133,667      $ 16.90  
  

 

 

    

 

 

 

As of January 31, 2019, there was $1.4 million of unrecognized compensation expense related to unvested RSUs and RSAs. This expense is expected to be recognized over a weighted average period of 1.9 years.

Employee Stock Purchase Plan (ESPP):

AstroNova’s ESPP allows eligible employees to purchase shares of common stock at a 15% discount from fair market value on the date of purchase. A total of 247,500 shares were initially reserved for issuance under this plan. Summarized plan activity is as follows:

 

     Years Ended January 31  
         2019              2018              2017      

Shares Reserved, Beginning

     39,207        45,224        51,600  

Shares Purchased

     (5,354      (6,017      (6,376
  

 

 

    

 

 

    

 

 

 

Shares Reserved, Ending

     33,853        39,207        45,224  
  

 

 

    

 

 

    

 

 

 

v3.19.1
Income Taxes
12 Months Ended
Jan. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

Note 15—Income Taxes

The components of income before income taxes are as follows:

 

     January 31  
     2019      2018      2017  
(In thousands)                     

Domestic

   $ 6,859      $ 2,110      $ 4,026  

Foreign

     449        3,047        2,579  
  

 

 

    

 

 

    

 

 

 
   $ 7,308      $ 5,157      $ 6,605  
  

 

 

    

 

 

    

 

 

 

The components of the provision for income taxes are as follows:

 

     January 31  
     2019     2018     2017  
(In thousands)                   

Current:

      

Federal

   $ 1,807     $ 592     $ 1,269  

State

     457       251       209  

Foreign

     952       284       725  
  

 

 

   

 

 

   

 

 

 
     3,216       1,127       2,203  
  

 

 

   

 

 

   

 

 

 

Deferred:

      

Federal

   $ (843   $ 903     $ 150  

State

     (170     (25     37  

Foreign

     (625     (134     (13
  

 

 

   

 

 

   

 

 

 
     (1,638     744       174  
  

 

 

   

 

 

   

 

 

 
   $ 1,578     $ 1,871     $ 2,377  
  

 

 

   

 

 

   

 

 

 

On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 (“Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, we wrote down our net deferred tax assets as of January 31, 2018 by $1.0 million to reflect the impact of the Tax Act and recorded a corresponding provisional net one-time non-cash charge of $1.0 million. The Company filed its 2017 federal income tax return in November 2018, which increased the tax expense related to the one-time non-cash charge by $0.1 million as a result of certain provision to return adjustments.

The Tax Act taxes certain unrepatriated earnings and profits (E&P) of our foreign subsidiaries (“transition tax”). In order to determine the transition tax, we were required to 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. The U.S. Treasury issued certain notices and proposed regulations (“interpretative guidance”) during fiscal 2019 which provided additional guidance to assist companies in calculating the one-time deemed repatriation tax. The U.S. Treasury issued final regulations in January 2019. The final regulations did not impact the computation of the final income tax expense. The final one-time deemed repatriation tax remained $0.1 million.

The SEC issued Staff Accounting Bulletin 118 (“SAB 118”) in December 2017, which provides guidance on accounting for the tax effects of Tax Reform. SAB 118 provides a measurement period in which to finalize the accounting under ASC 740, Income Taxes (“ASC 740”) as it relates to the Tax Act. This measurement period should not extend beyond one year from the Tax Act enactment date. In accordance with SAB 118, the Company has properly reflected the income tax effects of all aspects of the legislation for which the accounting under ASC 740 was impacted. All conclusions under SAB 118 were finalized during the fourth quarter of 2018 with no material changes to the provisional amounts.

 

The Company’s effective tax rate for 2019 was 21.6% compared to 36.3% in 2018 and 36.0% in 2017. The decrease in 2019 from 2018 is primarily related to the Tax Act. This includes the reduction in the U.S. corporate income tax rate from 35% to 21%, the absence of the one-time U.S. deferred tax asset and liability remeasurement and transition tax. This decrease was offset by the absence of R&D credits from amended tax returns and the absence of the non-taxable TrojanLabel earn out liability adjustment in TrojanLabel ApS. The increase in the effective tax rate in 2018 from 2017 is primarily related to provisional Tax Act tax expenses related to the remeasurement of U.S. deferred tax assets and liabilities and the transition tax, substantially offset by increased R&D credits resulting from a completed study, a decrease in non-deductible transaction costs, the non-taxable TrojanLabel earn out liability adjustment in TrojanLabel ApS, and a decrease in unrecognized tax benefits. The increase in 2017 from 2016 is primarily related to non-deductible transaction costs and increased unrecognized tax benefits. The provision for income taxes differs from the amount computed by applying the United States federal statutory income tax rate of 21.0% (32.9% for FY18 and 34% FY17) to income before income taxes. The reasons for this difference were due to the following:

 

     January 31  
     2019     2018     2017  
(In thousands)                   

Income Tax Provision at Statutory Rate

   $ 1,534     $ 1,697     $ 2,246  

U.S Corporate Rate Change

     52       1,010       —    

State Taxes, Net of Federal Tax Effect

     226       149       162  

Transition Tax on Repatriated Earnings

     14       104       —    

Capitalized Transaction Costs

     —         —         179  

Unrecognized State Tax Benefits

     (34     (20     165  

Domestic Production Deduction

     —         (47     (103

Return to Provision Adjustment

     58       (122     (75

TrojanLabel Earn Out Liability Adjustment

     —         (316     —    

R&D Credits

     (218     (537     (168

Foreign Deferred Intangible Income

     (53     —         —    

Other

     (1     (47     (29
  

 

 

   

 

 

   

 

 

 
   $ 1,578     $ 1,871     $ 2,377  
  

 

 

   

 

 

   

 

 

 

 

The components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of income. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:

 

     January 31  
     2019     2018  
(In thousands)             

Deferred Tax Assets:

    

Inventory

   $ 1,800     $ 1,648  

Honeywell Royalty Liability

     3,146       3,382  

State R&D Credits

     1,305       1,161  

Share-Based Compensation

     493       399  

Compensation Accrual

     155     194  

Warranty Reserve

     201       139  

Unrecognized State Tax Benefits

     133       138  

Deferred Service Contract Revenue

     91       84  

Bad Debt

     101       —    

Net Operating Loss

     505       —    

Other

     142       176  
  

 

 

   

 

 

 
     8,072       7,321  

Deferred Tax Liabilities:

    

Intangibles

     2,660       3,679  

Accumulated Tax Depreciation in Excess of Book Depreciation

     982       1,028  

Other

     238       322  
  

 

 

   

 

 

 
     3,880       5,029  
  

 

 

   

 

 

 

Subtotal

     4,192       2,292  

Valuation Allowance

     (1,304     (1,161
  

 

 

   

 

 

 

Net Deferred Tax Assets

   $ 2,888     $ 1,131  
  

 

 

   

 

 

 

The valuation allowance of $1.3 million at January 31, 2019 and $1.2 million at January 31, 2018 related to state research and development tax credit carryforwards, which are expected to expire unused. The valuation allowance increased $0.1 million in 2019 and $0.5 million in 2018 due to the decrease in the federal tax effect of state taxes from the federal rate reduction provided for in the Tax Act and the generation of research and development credits in excess of the Company’s ability to currently utilize them. The Company has reached this conclusion after considering the availability of taxable income in prior carryback years, tax planning strategies, and the likelihood of future state taxable income and credits exclusive of reversing temporary differences and carryforwards in the relevant state jurisdiction.

We believe that it is reasonably possible that some unrecognized tax benefits, accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation. The changes in the balances of unrecognized tax benefits, excluding interest and penalties are as follows:

 

     2019     2018     2017  
(In thousands)                   

Balance at February 1

   $ 665     $ 708     $ 591  

Increases in prior period tax positions

                 75  

Increases in current period tax positions

     7       55       133  

Reductions related to lapse of statute of limitations

     (54     (98     (91
  

 

 

   

 

 

   

 

 

 

Balance at January 31

   $ 618     $ 665     $ 708  
  

 

 

   

 

 

   

 

 

 

 

During fiscal 2019, 2018 and 2017, the Company recognized $8,000, $24,000 and $52,000, respectively, of expenses related to a change in interest and penalties, which are included as a component of income tax expense in the accompanying statements of income. The Company has accrued potential interest and penalties of $0.5 million and $0.4 million at the end of January 31, 2019 and 2018, respectively.

The Company and its subsidiaries file income tax returns in U.S. federal jurisdictions, various state jurisdictions, and various foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for fiscal years ended prior to January 2014. The Company is currently under audit by the IRS for the tax years ended January 31, 2014, 2015, and 2016. No proposed adjustments have been raised at this time.

U.S. income taxes have not been provided on $6.6 million of undistributed earnings of the Company’s foreign subsidiaries since it is the Company’s intention to permanently reinvest such earnings offshore. If the earnings were distributed in the form of dividends, the Company would not be subject to U.S. Tax as a result of the Tax Act but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practical.

v3.19.1
Nature of Operations, Segment Reporting and Geographical Information
12 Months Ended
Jan. 31, 2019
Segment Reporting [Abstract]  
Nature of Operations, Segment Reporting and Geographical Information

Note 16—Nature of Operations, Segment Reporting and Geographical Information

The Company’s operations consist of the design, development, manufacture and sale of specialty printers and data acquisition and analysis systems, including both hardware and software and related consumable supplies. The Company organizes and manages its business as a portfolio of products and services designed around a common theme of data acquisition and information output. The Company has two reporting segments consistent with its revenue product groups: Product Identification (PI) and Test & Measurement (T&M).

The Product Identification segment produces an array of high-technology digital color and monochrome label printers and mini presses, labeling software and consumables for a variety of commercial industries worldwide. AstroNova’s T&M segment produces data acquisition systems used worldwide for a variety of recording, monitoring and troubleshooting applications for many industries including aerospace, automotive, defense, rail, energy, industrial and general manufacturing.

Business is conducted in the United States and through foreign branch offices and subsidiaries in Canada, Europe, China, Southeast Asia and Mexico. Manufacturing activities are primarily conducted in the United States. Revenue and service activities outside the United States are conducted through wholly-owned entities and, to a lesser extent, through authorized distributors and agents. Transfer prices are intended to produce gross profit margins as would be associated with an arms-length transaction.

On September 28, 2017, AstroNova entered into the Honeywell Agreement to acquire the exclusive perpetual world-wide license to manufacture Honeywell’s narrow format flight deck printers for two aircraft families. Revenue from the sales of these printers is reported as part of our T&M segment beginning in the third quarter of fiscal 2018. Refer to Note 3, “Acquisitions,” for further details.

On February 1, 2017, AstroNova completed its acquisition of TrojanLabel. TrojanLabel is reported as part of our Product Identification segment beginning with the first quarter of fiscal 2018. Refer to Note 3, “Acquisitions,” for further details.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies herein. The Company evaluates segment performance based on the segment profit before corporate and financial administration expenses.

 

Summarized below are the revenue and segment operating profit (both in dollars and as a percentage of revenue) for each reporting segment:

 

($ in thousands)   Revenue     Segment Operating Profit     Segment Operating Profit as a
% of Revenue
 
    2019     2018     2017         2019             2018             2017           2019         2018         2017    

Product Identification

  $ 86,786     $ 81,681     $ 69,862     $ 7,910     $ 10,561     $ 9,821       9.1     12.9     14.1

T&M

    49,871       31,720       28,586       11,933       3,754       4,399       23.9     11.8     15.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 136,657     $ 113,401     $ 98,448       19,843       14,315       14,220       14.5     12.6     14.4
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

 

Corporate Expenses

          11,123       8,903       7,939        
       

 

 

   

 

 

   

 

 

       

Operating Income

          8,720       5,412       6,281        

Other Income (Expense), Net

          (1,412)       (255)       324        
       

 

 

   

 

 

   

 

 

       

Income Before Income Taxes

          7,308       5,157       6,605        

Income Tax Provision

          1,578       1,871       2,377        
       

 

 

   

 

 

   

 

 

       

Net Income

        $ 5,730     $ 3,286     $ 4,228        
       

 

 

   

 

 

   

 

 

       

No customer accounted for greater than 10% of net revenue in fiscal 2019, 2018 and 2017.

Other information by segment is presented below:

 

(In thousands)    Assets  
     2019      2018  

Product Identification

   $ 49,091      $ 49,832  

T&M

     62,250        60,579  

Corporate*

     7,642        11,902  
  

 

 

    

 

 

 

Total

   $ 118,983      $ 122,313  
  

 

 

    

 

 

 

 

*

Corporate assets consist principally of cash, cash equivalents and securities available for sale.

 

(In thousands)    Depreciation and
Amortization
     Capital Expenditures  
     2019      2018      2017      2019      2018      2017  

Product Identification

   $ 1,888      $ 1,536      $ 885      $ 1,935      $ 1,497      $ 767  

T&M

     4,264        2,458        1,546        710        707        471  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,152      $ 3,994      $ 2,431      $ 2,645      $ 2,204      $ 1,238  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Geographical Data

Presented below is selected financial information by geographic area:

 

(In thousands)    Revenue      Long-Lived Assets*  
     2019      2018      2017      2019      2018  

United States

   $ 83,668      $ 69,795      $ 69,850      $ 36,750      $ 39,432  

Europe

     31,574        29,948        18,848        3,223        3,808  

Asia

     8,207        3,808        1,664        —          —    

Canada

     6,692        5,373        5,008        81        145  

Central and South America

     4,147        3,402        3,053        —          —    

Other

     2,369        1,075        25        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 136,657      $ 113,401      $ 98,448      $ 40,054      $ 43,385  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Long-lived assets excludes goodwill assigned to the T&M segment of $4.5 million at both January 31, 2019 and 2018 and $7.8 million assigned to the PI segment at January 31, 2019.

v3.19.1
Employee Benefit Plans
12 Months Ended
Jan. 31, 2019
Postemployment Benefits [Abstract]  
Employee Benefit Plans

Note 17—Employee Benefit Plans

Employee Stock Ownership Plan (ESOP):

AstroNova had an ESOP which provided retirement benefits to all eligible employees. Annual contributions of either cash or stock in amounts determined by the Company’s Board of Directors were invested by the ESOP’s Trustees in shares of common stock of AstroNova. On January 23, 2017, the Compensation Committee of the Board of Directors voted to terminate the ESOP and the Company did not make contributions to the ESOP in fiscal years 2019, 2018 and 2017. AstroNova is in the process of allocating all shares owned by the ESOP to the participants; once completed, the ESOP will be terminated.

Profit-Sharing Plan:

AstroNova sponsors a Profit-Sharing Plan (the “Plan”) which provides retirement benefits to all eligible domestic employees. The Plan allows participants to defer a portion of their cash compensation and contribute such deferral to the Plan through payroll deductions. The Company makes matching contributions up to specified levels. The deferrals are made within the limits prescribed by Section 401(k) of the Internal Revenue Code.

All contributions are deposited into trust funds. It is the policy of the Company to fund any contributions accrued. The Company’s annual contribution amounts are determined by the Board of Directors. Contributions paid or accrued amounted to $0.5 million in fiscal years 2019, 2018 and 2017.

v3.19.1
Product Warranty Liability
12 Months Ended
Jan. 31, 2019
Guarantees and Product Warranties [Abstract]  
Product Warranty Liability

Note 18—Product Warranty Liability

AstroNova offers a manufacturer’s warranty for the majority of its hardware products. The specific terms and conditions of warranty vary depending upon the products sold and country in which the Company does business. For products sold in the United States, the Company provides a basic limited warranty, including parts and labor. The Company estimates the warranty costs based on historical claims experience and records a liability in the amount of such estimates at the time product revenue is recognized. The Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Activity in the product warranty liability, which is included in other accrued expenses in the accompanying consolidated balance sheet, is as follows: