ASTRONOVA, INC., 10-K filed on 4/7/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 31, 2017
Mar. 24, 2017
Jul. 29, 2016
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jan. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
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 Common Stock, Shares Outstanding
 
7,525,046 
 
Entity Public Float
 
 
$ 85,985,000 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jan. 31, 2017
Jan. 31, 2016
CURRENT ASSETS
 
 
Cash and Cash Equivalents
$ 18,098 
$ 10,043 
Securities Available for Sale
6,723 
10,376 
Accounts Receivable, net of reserves of $266 in 2017 and $404 in 2016
15,702 
15,325 
Inventories
19,506 
14,890 
Prepaid Expenses and Other Current Assets
1,394 
3,880 
Total Current Assets
61,423 
54,514 
PROPERTY, PLANT AND EQUIPMENT
 
 
Land and Improvements
967 
967 
Buildings and Improvements
11,266 
11,350 
Machinery and Equipment
28,145 
27,396 
Total Property, Plant and Equipment, gross
40,378 
39,713 
Less Accumulated Depreciation
(31,098)
(29,906)
Total Property, Plant and Equipment, net
9,280 
9,807 
OTHER ASSETS
 
 
Identifiable Intangibles, net
5,264 
5,980 
Goodwill
4,521 
4,521 
Deferred Tax Assets
2,811 
3,049 
Other
366 
92 
Total Other Assets
12,962 
13,642 
TOTAL ASSETS
83,665 
77,963 
CURRENT LIABILITIES
 
 
Accounts Payable
4,957 
3,192 
Accrued Compensation
2,936 
3,436 
Other Accrued Expenses
2,171 
2,209 
Deferred Revenue
472 
529 
Income Taxes Payable
1,449 
182 
Total Current Liabilities
11,985 
9,548 
Deferred Tax Liabilities
11 
78 
Other Long Term Liabilities
1,132 
964 
TOTAL LIABILITIES
13,128 
10,590 
Commitments and Contingencies (See Note 18)
   
   
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 9,834,906 shares in 2017 and 9,666,290 shares in 2016
492 
483 
Additional Paid-in Capital
47,524 
45,675 
Retained Earnings
44,358 
42,212 
Treasury Stock, at Cost, 2,375,076 shares in 2017 and 2,323,545 shares in 2016
(20,781)
(20,022)
Accumulated Other Comprehensive Loss, Net of Tax
(1,056)
(975)
TOTAL SHAREHOLDERS' EQUITY
70,537 
67,373 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 83,665 
$ 77,963 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jan. 31, 2017
Jan. 31, 2016
Statement of Financial Position [Abstract]
 
 
Accounts Receivable, Reserves
$ 266 
$ 404 
Preferred Stock, Par Value
$ 10 
$ 10 
Preferred Stock, Shares Authorized
100,000 
100,000 
Preferred Stock, Shares Issued
Common Stock, Par Value
$ 0.05 
$ 0.05 
Common Stock, Shares Authorized
13,000,000 
13,000,000 
Common Stock, Shares Issued
9,834,906 
9,666,290 
Treasury Stock, Shares
2,375,076 
2,323,545 
Consolidated Statements of Income (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Jan. 31, 2017
Jan. 31, 2016
Jan. 31, 2015
Income Statement [Abstract]
 
 
 
Revenue
$ 98,448 
$ 94,658 
$ 88,347 
Cost of Revenue
58,959 
56,500 
51,370 
Gross Profit
39,489 
38,158 
36,977 
Costs and Expenses:
 
 
 
Selling and Marketing
18,955 
18,249 
18,289 
Research and Development
6,314 
6,945 
5,802 
General and Administrative
7,939 
7,030 
5,655 
Operating Expenses
33,208 
32,224 
29,746 
Operating Income
6,281 
5,934 
7,231 
Other Income (Expense):
 
 
 
Investment Income
78 
72 
81 
Other, Net
246 
903 
(380)
Other Income (Expense)-Net
324 
975 
(299)
Income before Income Taxes
6,605 
6,909 
6,932 
Income Tax Provision
2,377 
2,384 
2,270 
Net Income
$ 4,228 
$ 4,525 
$ 4,662 
Net Income Per Common Share-Basic
$ 0.57 
$ 0.62 
$ 0.61 
Net Income Per Common Share-Diluted
$ 0.56 
$ 0.61 
$ 0.60 
Weighted Average Number of Common Shares Outstanding-Basic
7,421 
7,288 
7,612 
Dilutive Effect of Common Stock Equivalents
151 
183 
222 
Weighted Average Number of Common Shares Outstanding-Diluted
7,572 
7,471 
7,834 
Dividends Declared Per Common Share
$ 0.28 
$ 0.28 
$ 0.28 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2017
Jan. 31, 2016
Jan. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Net Income
$ 4,228 
$ 4,525 
$ 4,662 
Other Comprehensive Loss, net of taxes and reclassification adjustments:
 
 
 
Foreign currency translation adjustments
(65)
(269)
(866)
Unrealized loss on securities available for sale
(16)
(7)
(9)
Net Other Comprehensive Loss
(81)
(276)
(875)
Comprehensive Income
$ 4,147 
$ 4,249 
$ 3,787 
Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Thousands, except Share data
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, 2014
$ 66,614 
$ 465 
$ 41,235 
$ 37,201 
$ (12,463)
$ 176 
Beginning Balance, Shares at Jan. 31, 2014
 
9,291,225 
 
 
 
 
Share-based compensation
511 
 
511 
 
 
 
Employee option exercises
1,009 
11 
1,887 
 
(889)
 
Employee option exercises, Shares
224,275 
227,512 
 
 
 
 
Tax benefit of employee stock options
107 
 
107 
 
 
 
Restricted stock awards vested, net
(139)
(140)
 
 
 
Restricted stock awards vested, net, Shares
 
26,127 
 
 
 
 
Repurchases of common stock
(6,250)
 
 
 
(6,250)
 
Dividends paid
(2,128)
 
 
(2,128)
 
 
Net Income
4,662 
 
 
4,662 
 
 
Other comprehensive loss
(875)
 
 
 
 
(875)
Ending Balance at Jan. 31, 2015
63,511 
477 
43,600 
39,735 
(19,602)
(699)
Ending Balance, Shares at Jan. 31, 2015
 
9,544,864 
 
 
 
 
Share-based compensation
1,209 
 
1,209 
 
 
 
Employee option exercises
436 
802 
 
(371)
 
Employee option exercises, Shares
93,344 
98,734 
 
 
 
 
Tax benefit of employee stock options
65 
 
65 
 
 
 
Restricted stock awards vested, net
(49)
(1)
 
(49)
 
Restricted stock awards vested, net, Shares
 
22,692 
 
 
 
 
Dividends paid
(2,048)
 
 
(2,048)
 
 
Net Income
4,525 
 
 
4,525 
 
 
Other comprehensive loss
(276)
 
 
 
 
(276)
Ending Balance at Jan. 31, 2016
67,373 
483 
45,675 
42,212 
(20,022)
(975)
Ending Balance, Shares at Jan. 31, 2016
 
9,666,290 
 
 
 
 
Share-based compensation
1,019 
 
1,019 
 
 
 
Employee option exercises
388 
834 
 
(451)
 
Employee option exercises, Shares
87,107 
93,483 
 
 
 
 
Restricted stock awards vested, net
(308)
(4)
 
(308)
 
Restricted stock awards vested, net, Shares
 
75,133 
 
 
 
 
Dividends paid
(2,082)
 
 
(2,082)
 
 
Net Income
4,228 
 
 
4,228 
 
 
Other comprehensive 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 
 
 
 
 
Consolidated Statements of Cash Flows
In Thousands, unless otherwise specified
12 Months Ended
Jan. 31, 2017
USD ($)
Jan. 31, 2016
USD ($)
Jan. 31, 2015
USD ($)
Cash Flows from Operating Activities:
 
 
 
Net Income
$ 4,228 
$ 4,525 
$ 4,662 
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
 
 
 
Depreciation and Amortization
2,431 
2,065 
2,063 
Share-Based Compensation
1,019 
1,209 
511 
Deferred Income Tax Provision (Benefit)
174 
(292)
(397)
Excess Tax Benefit From Share-Based Compensation
 
(65)
(107)
Gain on Sale of UK Property
(419)
 
 
Write-down of Asset Held for Sale
 
 
220 
Changes in Assets and Liabilities, Net of Impact of Acquisitions:
 
 
 
Accounts Receivable
(416)
(1,285)
(2,741)
Inventories
(4,659)
600 
(404)
Accounts Payable and Accrued Expenses
1,426 
151 
810 
Income Taxes Payable
2,187 
412 
(1,747)
Other
982 
407 
(1,379)
Net Cash Provided by Operating Activities
6,953 
7,727 
1,491 
Cash Flows from Investing Activities:
 
 
 
Proceeds from Maturities of Securities Available for Sale
4,029 
9,978 
12,885 
Purchases of Securities Available for Sale
(400)
(5,192)
(9,306)
Proceeds from Sale of UK Property
474 
 
 
Acquisition of RITEC's Aerospace Printer Business
 
(7,360)
 
Net Proceeds Received for Sale of Asset Held for Sale
 
1,698 
 
Release of Funds Held in Escrow From Sale of Grass
 
 
1,800 
Proceeds Received on Disposition of Grass Inventory
 
 
2,355 
Payments Received on Line of Credit and Note Receivable
256 
395 
258 
Additions to Property, Plant and Equipment
(1,238)
(3,061)
(2,247)
Net Cash Provided (Used) by Investing Activities
3,121 
(3,542)
5,745 
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
79 
387 
870 
Purchase of Treasury Stock
 
 
(6,250)
Excess Tax Benefit from Share-Based Compensation
 
65 
107 
Dividends Paid
(2,082)
(2,048)
(2,128)
Net Cash Used in Financing Activities
(2,003)
(1,596)
(7,401)
Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
(16)
(504)
(218)
Net Increase (Decrease) in Cash and Cash Equivalents
8,055 
2,085 
(383)
Cash and Cash Equivalents, Beginning of Year
10,043 
7,958 
8,341 
Cash and Cash Equivalents, End of Year
18,098 
10,043 
7,958 
Supplemental Information:
 
 
 
Income Taxes, Net of Refunds
$ (84)
$ 2,257 
$ 4,566 
Summary of Significant Accounting Policies
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 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. Cash of $5.1 million and $3.0 million was held in foreign bank accounts at January 31, 2017 and 2016, respectively.

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 loss in shareholders’ equity.

Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market 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 improvements—10 to 45 years; machinery and equipment—3 to 10 years). Depreciation expense was $1.7 million for fiscal 2017; $1.6 million for fiscal 2016 and $1.4 million for 2015.

Revenue Recognition: Product revenue is recognized when all of the following criteria have been met: persuasive evidence of an arrangement exists; price to the buyer is fixed or determinable; delivery has occurred and legal title and risk of loss have passed to the customer; and collectability is reasonably assured. Returns and customer credits are infrequent and are recorded as a reduction to revenue. Rights of return are not included in revenue arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Revenue is recorded net of any discounts from list price. Amounts billed to customers for shipping and handling fees are included in revenue, while related shipping and handling costs are included in cost of revenue.

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. Therefore, the Company’s hardware appliances are considered non-software elements and are not subject to industry-specific software revenue recognition guidance.

Our multiple-element arrangements are generally comprised of a combination of equipment, software, installation and/or training services. Hardware and software elements are typically delivered at the same time and revenue is recognized when all the revenue recognition criteria for each unit are met. Delivery of 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. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer.

We have evaluated the deliverables in our multiple-element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices. We determine the selling price for each deliverable based on a selling price hierarchy. The selling price for a deliverable is based on vendor specific objective evidence (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. Revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met.

Infrequently, we recognize revenue for non-recurring engineering (NRE) fees for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue. NRE fees have not been significant in the periods presented herein.

We also receive infrequent requests from customers to hold product purchased from us for the customer’s convenience. Revenue is recognized for such bill and hold arrangements in accordance with the requirements of SEC Staff Accounting Bulletin No. 104 which requires, among other things, the existence of a valid business purpose for the arrangement; the transfer of ownership of the purchased product; a fixed delivery date that is reasonable and consistent with the buyer’s business purpose; the readiness of the product for shipment; the use of customary payment terms; no continuing performance obligation by us; and segregation of the product from our inventories.

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 monthly average exchange rates. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our German subsidiary since its undistributed earnings are considered to be permanently invested. Our net foreign exchange losses were $0.2 million; $0.3 million and $0.2 million for fiscal 2017, 2016 and 2015, respectively.

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 $1.3 million; $1.1 million and $1.7 million in fiscal 2017, 2016 and 2015, 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 2017, 2016 and 2015, there were no impairment charges for long-lived assets.

Intangible Assets: Intangible assets include the value of customer relationships and non-competition agreements acquired in connection with business 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 2017, 2016 and 2015, 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 first qualitatively assessed to determine whether further impairment testing is necessary. Factors that management considers in this 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 amount, a two-step process is then performed. Step one compares the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, step two is required to determine if there is an impairment of the goodwill. Step two compares the implied fair value of the reporting unit goodwill to the carrying amount of the goodwill. 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.

We performed a qualitative assessment for our 2017 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying value of the reporting units exceed their fair values. Accordingly, no further testing 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. 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, 2017 and 2016, 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.

 

In fiscal 2015, the Company adopted the guidance in ASU 2015-17, “Income Taxes (Topic 740)” and accordingly has presented the Company’s deferred taxes as non-current in the accompanying consolidated balance sheet.

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 2017, 2016 and 2015, there were 459,700, 425,200 and 156,600, 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.

Allowance for Doubtful Accounts: In circumstances where we are aware of a customer’s inability to meet its financial obligations, an allowance is established. Accounts are individually evaluated on a regular basis and allowances are established to state such receivables at their net realizable value. The remainder of the allowance is based upon historical write-off experience and current market assessments.

Fair Value of Financial Instruments: Our financial instruments consist of cash and cash equivalents, investment securities, accounts receivable and accounts payable. The carrying amount reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term nature of these items. Investment securities, all of which are available for sale, are carried in the consolidated balance sheets at fair value based on quoted market prices, when available.

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.

In the first quarter of fiscal 2017, the Company prospectively adopted the provisions of ASU 2016-09, and, as such, the cash flow from tax benefits that are a result of 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 for the year ended January 31, 2017. Tax deductions from certain stock option exercises are treated as being realized when they reduce tax expense and taxes payable in accordance with relevant tax law.

 

Recent Accounting Pronouncements:

Statement of Cash Flows

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 standard is effective for interim and annual reporting periods beginning after December 15, 2017 (Q1 fiscal 2019 for AstroNova), with early adoption permitted. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

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. In August 2015, the FASB modified ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017 (Q1 fiscal 2019 for AstroNova), including interim periods within that reporting period. As modified, the FASB permits the adoption of the new revenue standard early, but not before annual periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information.

In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Consideration.” In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-11, “Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) – Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) – Narrow Scope Improvements and Practical Expedients.” All of these ASUs do not change the core principle of the guidance in Topic 606 (as amended by ASU 2014-09), but rather provide further guidance to improve the operability and understandability of the implementation guidance included in ASU 2014-09. The effective date for all of these ASUs is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years (Q1 fiscal 2019 for AstroNova). The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

Share-Based Compensation

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods (Q1 fiscal 2018 for AstroNova) and early adoption is allowed. As permitted by ASU 2016-09, the Company adopted this guidance prospectively in fiscal 2017 and the adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

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. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (Q1 fiscal 2020 for AstroNova), with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. The Company is currently evaluating the effect of this new guidance on the Company’s consolidated financial statements.

Inventory

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330).” ASU 2015-11 requires inventory to be measured at the lower of cost and net realizable value instead of at lower of cost or market. This guidance does not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method but applies to all other inventory, including inventory measured using first-in, first-out (FIFO) or the average cost method. ASU 2015-11 will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years (Q1 fiscal 2018 for AstroNova) and should be applied prospectively. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

Acquisition
Acquisition

Note 2—Acquisition

On June 19, 2015, we completed the acquisition of the aerospace printer product line for civil and commercial aircraft from Rugged Information Technology Equipment Corporation (RITEC) under the terms of an Asset Purchase Agreement dated June 18, 2015. The products of RITEC consist of aerospace printers for use in commercial aircraft sold primarily to aircraft manufacturers, tier one contractors and directly to airlines around the world. Our aerospace printer product line is part of the Test & Measurement (T&M) product group and is reported as part of the T&M segment. The Company began shipment of the RITEC products in the third quarter of fiscal 2016.

The purchase price of the acquisition was $7.4 million which was funded using available cash and investment securities. The Company withheld $0.8 million of the purchase price in escrow for twelve months following the acquisition date to support the sellers’ indemnifications in the event of any breach in the representations, warranties or covenants of RITEC. The Company retained $0.1 million from the escrow, which was recorded as other income in the consolidated statement of income for the period ended January 31, 2017.

The assets acquired consist principally of accounts receivable and certain intangible assets. Acquisition related costs of approximately $0.1 million are included in the general and administrative expenses in the Company’s consolidated statements of income for fiscal year ended 2016. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”

The Company also entered into a Transition Services Agreement, under which RITEC provided transition services and continued to manufacture products in the acquired product line until the Company transitioned the manufacturing to its West Warwick, Rhode Island facility. The TSA concluded in the third quarter of fiscal 2017 and AstroNova purchased the remaining inventory held by RITEC for $0.2 million.

Also as part of the Asset Purchase Agreement, the Company entered into a License Agreement, which grants RITEC certain rights to use the intellectual property acquired by the Company in the design, development, marketing, manufacture, sale and servicing of aerospace printers for aircraft sold to the military end-user market and printers sold to other non-aircraft market segments. RITEC will pay royalties equal to 7.5% of the revenue price on all products sold into the military end-user aircraft market during the first five years of the License Agreement. No royalty revenue was accrued in fiscal 2017.

 

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

 

(In thousands)       

Accounts Receivable

   $ 50  

Identifiable Intangible Assets

     3,780  

Goodwill

     3,530  
  

 

 

 

Total Purchase Price

   $ 7,360  
  

 

 

 

The fair value of the intangible assets acquired was estimated by applying the income approach. This fair value measurement is 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 include (1) a weighted average cost of capital of 15.5%; (2) a range of earnings projections from $0.1-$0.7 million and (3) a range of contract renewal probability from 30%-100%.

Goodwill of $3.5 million, which is 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 from RITEC. The carrying amount of the goodwill was allocated to the T&M 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)
 

Customer Contract Relationships

   $ 2,830        10  

Non-Competition Agreement

     950        5  
  

 

 

    

Total

   $ 3,780     
  

 

 

    

Assuming the acquisition of RITEC occurred on February 1, 2014, the impact on net revenue, net income and earnings per share would not have been material to the Company for the years ended January 31, 2017, 2016 and 2015.

Intangible Assets
Intangible Assets

Note 3—Intangible Assets

Intangible assets are as follows:

 

    January 31, 2017     January 31, 2016  
(In thousands)   Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Miltope:

           

Customer Contract Relationships

  $ 3,100     $ (1,108   $ 1,992     $ 3,100     $ (758   $ 2,342  

RITEC:

           

Customer Contract Relationships

    2,830       (207     2,623       2,830       (31     2,799  

Non-Competition Agreement

    950       (301     649       950       (111     839  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible assets, net

  $ 6,880     $ (1,616   $ 5,264     $ 6,880     $ (900   $ 5,980  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

There were no impairments to intangible assets during the periods ended January 31, 2017, 2016 and 2015. Amortization expense of $0.7 million; $0.5 million and $0.7 million with regard to acquired intangibles has been included in the consolidated statements of income for years ended January 31, 2017, 2016 and 2015, respectively.

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

 

(In thousands)    2018      2019      2020      2021      2022  

Estimated amortization expense

   $ 774      $ 769      $ 803      $ 706      $ 633  
Securities Available for Sale
Securities Available for Sale

Note 4—Securities Available for Sale

Pursuant to our investment policy, securities available for sale include state and municipal securities with various contractual or anticipated maturity dates ranging from one month to two years. 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, 2017

           

State and Municipal Obligations

   $ 6,732      $ —        $ (9    $ 6,723  
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2016

           

State and Municipal Obligations

   $ 10,363      $ 15      $ (2    $ 10,376  
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturity dates of these securities are as follows:

 

     January 31  
     2017      2016  
(In thousands)              

Less than one year

   $ 3,563      $ 3,833  

One to two years

     3,160        6,543  
  

 

 

    

 

 

 
   $ 6,723      $ 10,376  
  

 

 

    

 

 

 

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

Inventories
Inventories

Note 5—Inventories

The components of inventories are as follows:

 

     January 31  
     2017      2016  
(In thousands)              

Materials and Supplies

   $ 11,865      $ 10,197  

Work-in-Progress

     1,216        1,025  

Finished Goods

     10,270        7,491  
  

 

 

    

 

 

 
     23,351        18,713  

Inventory Reserve

     (3,845      (3,823
  

 

 

    

 

 

 

Balance at January 31

   $ 19,506      $ 14,890  
  

 

 

    

 

 

 

Finished goods inventory includes $1.6 million and $1.4 million of demonstration equipment at January 31, 2017 and 2016, respectively.

Accrued Expenses
Accrued Expenses

Note 6—Accrued Expenses

Accrued expenses consisted of the following:

 

     January 31  
     2017      2016  
(In thousands)              

Professional Fees

   $ 584      $ 328  

Warranty

     515        400  

Product Replacement Cost Reserve

     174        278  

Dealer Commissions

     180        221  

Other

     718        982  
  

 

 

    

 

 

 
   $ 2,171      $ 2,209  
  

 

 

    

 

 

 
Line of Credit
Line of Credit

Note 7—Line of Credit

At January 31, 2017 the Company had a $10.0 million revolving line of credit available to be used as needed for ongoing working capital requirements, business acquisitions or general corporate purposes. Any borrowings made under the line of credit would bear interest at a fluctuating variable rate of either (i) the Prime Rate plus an agreed upon margin of between 0% and 0.50%, based upon the consolidated leverage ratio (funded debt: EBITDA, as defined); or (ii) the Eurocurrency Rate (LIBOR) plus an agreed-upon margin of between 1.00% and 1.50%, based upon the consolidated leverage ratio. In addition, the agreement provides for two financial covenant requirements: Total Funded Debt to Adjusted EBITDA (as defined) of not greater than 3 to 1 and a Fixed Charge Coverage Ratio (as defined) of not less than 1.25 to 1, both measured at the end of each quarter on a rolling four quarter basis. As of January 31, 2017, there had been no borrowings against this line of credit and the Company was in compliance with its financial covenants. Under the terms, the line of credit would have expired on August 30, 2017. Subsequent to year-end, this $10.0 million revolving line of credit was terminated. As part of a new credit facility, the Company entered into a $10.0 million revolving credit facility with a different Lender. Refer to Note 20 for additional details.

Sale of Property
Sale of Property

Note 8—Sale of Property

In December of 2016, we sold our Slough UK real estate and related machinery, computers and equipment at that location. Proceeds from the sale amounted to $0.5 million (0.4 million in British Pounds) and a gain of $0.4 million was recognized in other income in the Company’s consolidated statement of income for the period ended January 31, 2017. Our UK branch is currently leasing property for its operations in Maidenhead, UK.

Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss

Note 9—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
     Total  

Balance at January 31, 2014

   $ 152      $ 24      $ 176  

Other Comprehensive Loss

     (866      (9      (875

Amounts Reclassified to Net Income

     —        —        —  
  

 

 

 

Net Other Comprehensive Loss

     (866      (9      (875)  
  

 

 

 

Balance at January 31, 2015

     (714      15        (699

Other Comprehensive Loss

     (269      (7      (276

Amounts Reclassified to Net Income

     —        —        —  
  

 

 

 

Net Other Comprehensive Loss

     (269      (7      (276
  

 

 

 

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
  

 

 

 

The amounts presented above in other comprehensive loss are net of taxes except for translation adjustments associated with our German subsidiary.

Shareholders' Equity
Shareholders' Equity

Note 10—Shareholders’ Equity

During fiscal 2017, 2016 and 2015, certain of the Company’s employees delivered a total of 51,531, 29,939 and 62,797 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 $0.8 million, $0.4 million and $0.9 million, respectively, and are included in treasury stock in the accompanying consolidated balance sheets at January 31, 2017, 2016 and 2015. These transactions did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.

During fiscal 2015, the Company repurchased 500,000 shares of the Company’s common stock from the Estate of Albert W. Ondis for an aggregate purchase price of $6.3 million. Prior to entering into the Stock Purchase Agreement, the Company obtained an opinion from an independent investment banking firm as to the fairness, from a financial point of view, to the public shareholders of the Company other than the selling shareholders, of the consideration paid by the Company in the transaction. The purchase was funded using existing cash on hand. This transaction did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.

As of January 31, 2017, 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.

Share-Based Compensation
Share-Based Compensation

Note 11—Share-Based Compensation

The Company maintains the following share-based compensation plans:

Stock Plans:

We have two equity incentive plans – the 2007 Equity Incentive Plan (the “2007 Plan”) and the 2015 Equity Incentive Plan (the “2015 Plan”). Under these plans, the Company may 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. At January 31, 2017, 87,989 shares were available for grant under the 2007 Plan, of which 50,000 are reserved for stock options that the Company is obligated to issue to its CEO in fiscal 2018 pursuant to an Equity Incentive Award Agreement dated as of November 24, 2014 (the “CEO Equity Incentive Agreement”). The 2007 Plan will expire in May 2017. The 2015 Plan authorizes the issuance of up to 500,000 shares (subject to adjustment for stock dividends and stock splits), and at January 31, 2017, 151,987 shares were available for grant under the 2015 Plan. The 2015 Plan will expire in May 2025. Options granted to date to employees under both plans 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, any incentive stock options granted under the 2007 Plan, and 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.

Under the plans, each non-employee director receives 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 succeeding annual shareholders’ meeting. Accordingly, on May 18, 2016, 30,000 options were issued to the non-employee directors.

In addition to the plans, the Company has a Non-Employee Director Annual Compensation Program (the “Program”). Prior to August 1, 2016, this program provided that each non-employee director was entitled to an annual cash retainer of $7,000 (the “Annual Cash Retainer”), plus $500 for each Board and committee meeting attended. In addition, the Chairman of the Board received an annual retainer of $6,000, and the Chairs of the Audit and Compensation Committees each received an annual retainer of $4,000 (“Chair Retainer”). The non-employee directors could elect, for any fiscal year, to receive all or a portion of the Annual Cash Retainer and/or Chair Retainer (collectively the “Cash Retainer”) in the form of common stock of the Company, which was issued under one of the Plans. If a non-employee director elected to receive all or a portion of the Cash Retainer in the form of common stock, such shares were issued in four quarterly installments on the first day of each fiscal quarter, and the number of shares of common stock issued was based on the fair market value of the Company’s common stock on the date such installment was payable. The common stock received in lieu of such Cash Retainer was fully vested upon issuance. However, a non-employee director who received common stock in lieu of all or a portion of the Cash Retainer could not sell, transfer, assign, pledge or otherwise encumber the common stock prior to the first anniversary of the date on which such shares were issued. In the event of the death or disability of a non-employee director, or a change in control of the Company, any shares of common stock issued in lieu of the Cash Retainer would no longer be subject to such restrictions on transfer. During fiscal 2017 and 2016, a total of 1,168 and 2,947 shares were awarded to non-employee directors in lieu of the Cash Retainer. In addition, under the Program, each non-employee director received RSAs with a value equal to $20,000 (the “Equity Retainer”) upon the adjournment of the annual shareholders’ meeting. The Equity Retainer vests on the earlier of 12 months after the grant date or the date immediately prior to the next annual meeting of the shareholders following the meeting at which such RSAs were granted. However, a non-employee director could not sell, transfer, assign, pledge or otherwise encumber the vested common stock prior to the second anniversary of the vesting date. In the event of the death or disability of a non-employee director, or a change in control of the Company, the RSAs would immediately vest and would no longer be subject to such restrictions on transfer. During the second quarter of fiscal 2017, 8,262 shares were awarded as the Equity Retainer to the non-employee directors.

Effective August 1, 2016, the Non-Employee Director Annual Compensation Program was amended. Under the amended Program, and commencing on the first business day of the third fiscal quarter of fiscal 2017, each non-employee director receives an automatic grant of RSAs on the first business day of each fiscal quarter. The number of whole shares to be granted each quarter is equal to 25% of the number calculated by dividing the director compensation amount by the fair market value of the Company’s stock on such day. The director annual compensation amount is $55,000 for the remainder of fiscal year 2017, $65,000 for fiscal 2018, and $75,000 for fiscal 2019. In addition, the Chairman of the Board receives RSAs with an aggregate value of $6,000, and the Chairs of the Audit and Compensation Committees each receive RSAs with an aggregate value of $4,000, also issued in quarterly installments and calculated in the same manner as the directors’ RSA grants. RSAs granted pursuant to the amended Program become fully vested on the first anniversary of the date of grant. A total of 11,379 shares were awarded to the non-employee directors as compensation under the amended Program in fiscal 2017.

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

In March 2015 (fiscal year 2016), the Company granted 50,000 options and 537 RSAs to its CEO pursuant to the CEO Equity Incentive Agreement, and 35,000 options to other key employees. The options and RSAs vest in four equal annual installments commencing on the first anniversary of the grant date.

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

In March 2016 (fiscal year 2017), the Company granted 50,000 options and 4,030 RSAs to its CEO pursuant to the CEO Equity Incentive Agreement. The options and RSAs vest in four equal annual installments commencing on the first anniversary of the grant date.

In May 2016, the Company granted 37,000 options to certain key employees. On August 1, 2016 the Company granted 5,000 options to its Chief Financial Officer. The options vest in four equal installments commencing on the first anniversary of the grant date.

Share-Based Compensation:

Share-based compensation expense has been recognized as follows:

 

     Years Ended January 31  
             2017                      2016                      2015      
(In thousands)         

Stock Options

   $ 321      $ 286      $ 234  

Restricted Stock Awards and Restricted Stock Units

     685        912        270  

Employee Stock Purchase Plan

     13        11        7  
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,019      $ 1,209      $ 511  
  

 

 

    

 

 

    

 

 

 

 

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, 2014

     736,647     $ 8.63  

Options Granted

     158,600     $ 13.99  

Options Exercised

     (224,275   $ 8.29  

Options Forfeited

     (8,975   $ 11.84  

Options Cancelled

     (5,986   $ 8.70  
  

 

 

   

 

 

 

Options Outstanding, January 31, 2015

     656,011     $ 10.01  

Options Granted

     115,000     $ 13.95  

Options Exercised

     (93,344   $ 7.95  

Options Forfeited

     (5,550   $ 12.75  

Options Cancelled

     (14,181   $ 8.82  
  

 

 

   

 

 

 

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  
  

 

 

   

 

 

 

Set forth below is a summary of options outstanding at January 31, 2017:

 

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

     190,706      $ 7.85        3.9        190,706      $ 7.85        3.9  

$10.01-15.00

     439,750      $ 13.36        6.6        241,950      $ 12.79        5.3  

$15.01-20.00

     55,000      $ 15.07        9.2        —        $ —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     685,456      $ 11.96        6.1        432,656      $ 10.61        4.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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
             2017                    2016                    2015        

Risk-Free Interest Rate

   1.4%    1.6%    1.6%

Expected Life (years)

   5    5    5

Expected Volatility

   28.3%    22.7%    26.5%

Expected Dividend Yield

   1.9%    2.0%    2.0%

 

The weighted-average estimated fair value of options granted during fiscal 2017, 2016 and 2015 was $3.22; $2.43 and $2.85, respectively. As of January 31, 2017, there was $0.5 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, 2017, the aggregate intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock on January 31, 2017, and the exercise price of the outstanding options) that would have been received by the option holders if all options had been exercised was $1.4 million for all exercisable options and $1.5 million for all options outstanding. The total aggregate intrinsic value of options exercised during fiscal 2017, 2016 and 2015 was $0.6 million; $0.6 million and $1.1 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, 2014

     106,496      $ 9.12  

Granted

     7,245        13.80  

Vested

     (35,662      8.75  

Forfeited

     (5,834      10.07  
  

 

 

    

 

 

 

Outstanding at January 31, 2015

     72,245      $ 9.70  

Granted

     246,335        14.05  

Vested

     (22,692      14.02  

Forfeited

     (2,800      10.07  
  

 

 

    

 

 

 

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      $ 13.78  
  

 

 

    

 

 

 

As of January 31, 2017, there was $0.9 million of unrecognized compensation expense related to unvested RSUs and RSAs. This expense is expected to be recognized over a weighted average period of 2.1 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  
         2017              2016              2015      

Shares Reserved, Beginning

     51,600        57,005        60,242  

Shares Purchased

     (6,376      (5,405      (3,237
  

 

 

    

 

 

    

 

 

 

Shares Reserved, Ending

     45,224        51,600        57,005  
  

 

 

    

 

 

    

 

 

 
Income Taxes
Income Taxes

Note 12—Income Taxes

The components of income before income taxes are as follows:

 

     January 31  
     2017      2016      2015  
(In thousands)                     

Domestic

   $ 4,026      $ 5,982      $ 5,401  

Foreign

     2,579        927        1,531  
  

 

 

    

 

 

    

 

 

 
   $ 6,605      $ 6,909      $ 6,932  
  

 

 

    

 

 

    

 

 

 

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

 

     January 31  
     2017     2016     2015  
(In thousands)                   

Current:

      

Federal

   $ 1,269     $ 1,930     $ 1,666  

State

     209       470       466  

Foreign

     725       276       535  
  

 

 

   

 

 

   

 

 

 
     2,203       2,676       2,667  
  

 

 

   

 

 

   

 

 

 

Deferred:

      

Federal

   $ 150     $ (402   $ (290

State

     37       126       (107

Foreign

     (13     (16     —  
  

 

 

   

 

 

   

 

 

 
     174       (292     (397
  

 

 

   

 

 

   

 

 

 
   $ 2,377     $ 2,384     $ 2,270  
  

 

 

   

 

 

   

 

 

 

The Company’s effective tax rate for 2017 was 36.0% compared to 34.5% in 2016 and 32.7% in 2015. The increase from 2016 is primarily related to non-deductible transaction costs and increased unrecognized tax benefits. The increase in 2016 from 2015 is primarily related to the change in valuation allowance. The provision for income taxes differs from the amount computed by applying the United States federal statutory income tax rate of 34% to income before income taxes. The reasons for this difference were due to the following:

 

     January 31  
     2017     2016     2015  
(In thousands)                   

Income Tax Provision at Statutory Rate

   $ 2,246     $ 2,349     $ 2,357  

Capitalized Transaction Costs

     179       —         —    

Unrecognized Tax Benefits

     165       (67     23  

State Taxes, Net of Federal Tax Effect

     162       277       233  

Domestic Production Deduction

     (103     (134     (164

R&D Credits

     (168     (176     (135

Other

     (104     135       (44
  

 

 

   

 

 

   

 

 

 
   $ 2,377     $ 2,384     $ 2,270  
  

 

 

   

 

 

   

 

 

 

 

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

 
     2017     2016  
(In thousands)             

Deferred Tax Assets:

    

Inventory

   $ 2,151     $ 1,948  

State R&D Credits

     679       583  

Share-Based Compensation

     546       830  

Foreign Tax Credit

     508       426  

Compensation Accrual

     281       346  

Unrecognized State Tax Benefits

     241       237  

Warranty Reserve

     192       149  

Deferred Service Contract Revenue

     176       200  

Other

     348       383  
  

 

 

   

 

 

 
     5,122       5,102  

Deferred Tax Liabilities:

    

Accumulated Tax Depreciation in Excess of Book Depreciation

     1,380       1,355  

Other

     263       193  
  

 

 

   

 

 

 
     1,643       1,548  
  

 

 

   

 

 

 

Subtotal

     3,479       3,554  

Valuation Allowance

     (679     (583
  

 

 

   

 

 

 

Net Deferred Tax Assets

   $ 2,800     $ 2,971  
  

 

 

   

 

 

 

As of January 31, 2017 there are $0.5 million of foreign tax credit carryforwards which are expected to be utilized prior to their expiration. Carryforwards will expire during fiscal years 2024 to 2027.

The valuation allowance of $0.7 million at January 31, 2017 and $0.6 million at January 31, 2016 related to state research and development tax credit carryforwards which are expected to expire unused. The valuation allowance increased $0.1 million in 2017 and $0.3 million in 2016 due to the generation of research and development credits in excess of the Company’s ability to currently utilize credits, and the decision to fully reserve for the state tax benefits of all R&D tax credit carryforwards, net of federal benefit. 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 taxable income exclusive of reversing temporary differences and carryforwards in the relevant state jurisdiction.

The Company believes 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:

 

     2017     2016     2015  
(In thousands)                   

Balance at February 1

   $ 591     $ 707     $ 715  

Increases in prior period tax positions

     75       —       —  

Increases in current period tax positions

     133       49       87  

Reductions related to lapse of statute of limitations

     (91     (165     (95
  

 

 

   

 

 

   

 

 

 

Balance at January 31

   $ 708     $ 591     $ 707  
  

 

 

   

 

 

   

 

 

 

 

If the $0.7 million balance as of January 31, 2017 is recognized, $0.5 million would decrease the effective tax rate in the period in which each of the benefits is recognized and the remainder would be offset by a reversal of deferred tax assets.

During fiscal 2017, 2016 and 2015, the Company recognized an expense of $52,000, a benefit of $87,000 and an expense of $43,000, respectively, related to 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 $0.4 million at the end of both January 31, 2017 and 2016.

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.

U.S. income taxes have not been provided on $4.7 million of undistributed earnings of the Company’s German subsidiary since it is the Company’s intention to permanently reinvest such earnings offshore or to repatriate them only when it is tax efficient to do so. It is impracticable to estimate a total tax liability or benefit, if any, created by the future distribution of all or portions of these earnings due to complexities related to taxation and foreign tax credit benefits. If circumstances change and it becomes apparent that some, or all of these undistributed earnings as of January 31, 2017 will not be indefinitely reinvested, the provision for the tax consequence, if any, will be recorded in the period when circumstances change.

Nature of Operations, Segment Reporting and Geographical Information
Nature of Operations, Segment Reporting and Geographical Information

Note 13—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 and Test & Measurement (T&M).

The Product Identification segment produces an array of tabletop, high-technology digital color and monochrome label printers, labeling software and consumables for a variety of commercial industries worldwide. T&M produces data recording equipment 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 affiliates 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 June 19, 2015, AstroNova completed the asset purchase of the aerospace printer product line from RITEC. AstroNova’s aerospace printer product line is part of the T&M product group and is reported as part of the T&M segment. The Company began shipment of the RITEC products in the third quarter of fiscal 2016. Refer to Note 2, “Acquisition,” 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 %
of Revenue
 
    2017     2016     2015         2017             2016             2015         2017     2016     2015  

Product Identification

  $ 69,862     $ 67,127     $ 59,779     $ 9,821     $ 9,300     $ 7,259       14.1%       13.9%       12.1%  

T&M

    28,586       27,531       28,568       4,399       3,664       5,627       15.4%       13.3%       19.7%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 98,448     $ 94,658     $ 88,347       14,220       12,964       12,886       14.4%       13.7%       14.6%  
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

 

Corporate Expenses

          7,939       7,030       5,655        
       

 

 

   

 

 

   

 

 

       

Operating Income

          6,281       5,934       7,231        

Other Income (Expense)

          324       975       (299)        
       

 

 

   

 

 

   

 

 

       

Income before Income Taxes

          6,605       6,909       6,932        

Income Tax Provision

          2,377       2,384       2,270        
       

 

 

   

 

 

   

 

 

       

Net Income

        $ 4,228     $ 4,525     $ 4,662        
       

 

 

   

 

 

   

 

 

       

No customer accounted for greater than 10% of net revenue in fiscal 2017, 2016 and 2015.

Other information by segment is presented below:

 

(In thousands)    Assets  
     2017      2016  

Product Identification

   $ 30,624      $ 27,143  

T&M

     28,129        28,570  

Corporate*

     24,912        22,250  
  

 

 

    

 

 

 

Total

   $ 83,665      $ 77,963  
  

 

 

    

 

 

 

 

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

 

(In thousands)    Depreciation and
Amortization
     Capital Expenditures  
     2017      2016      2015      2017      2016      2015  

Product Identification

   $ 885      $ 690      $ 678      $ 767      $ 2,284      $ 1,408  

T&M

     1,546        1,375        1,385        471        777        839  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,431      $ 2,065      $ 2,063      $ 1,238      $ 3,061      $ 2,247  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Geographical Data

Presented below is selected financial information by geographic area:

 

(In thousands)    Revenue      Long-Lived Assets*  
     2017      2016      2015      2017      2016  

United States

   $ 69,850      $ 68,316      $ 61,494      $ 8,940      $ 9,310  

Europe

     18,848        16,830        18,181        168        290  

Canada

     5,008        4,487        3,934        172        207  

Central and South America

     3,053        2,436        1,919        0        —  

Asia

     1,664        1,741        1,408        0        —  

Other

     25        848        1,411        0        —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 98,448      $ 94,658      $ 88,347      $ 9,280      $ 9,807  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Long-lived assets excludes goodwill assigned to the T&M segment of $4.5 million at both January 31, 2017 and 2016.
Employee Benefit Plans
Employee Benefit Plans

Note 14—Employee Benefit Plans

Employee Stock Ownership Plan (ESOP):

AstroNova has an ESOP providing retirement benefits to all eligible employees. Annual contributions in amounts determined by the Company’s Board of Directors are invested by the ESOP’s Trustees in shares of common stock of AstroNova. Contributions may be in cash or stock. The Company did not make a contribution to the ESOP in fiscal 2017 or 2016. The Company’s contribution of $0.1 million in fiscal 2015 was recorded as compensation expense. All shares owned by the ESOP have been allocated to participants. On January 23, 2017, the Compensation Committee of the Board of Directors has voted to terminate the ESOP.

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 2017 and $0.3 million in both 2016 and 2015.

Product Warranty Liability
Product Warranty Liability

Note 15—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:

 

     January 31  
     2017     2016     2015  
(In thousands)                   

Balance, beginning of the year

   $ 400     $ 375     $ 355  

Provision for Warranty Expense

     971       887       546  

Cost of Warranty Repairs

     (856     (862     (526
  

 

 

   

 

 

   

 

 

 

Balance, end of the year

   $ 515     $ 400     $ 375  
  

 

 

   

 

 

   

 

 

 
Product Replacement Costs
Product Replacement Costs

Note 16—Product Replacement Costs

In April 2013, tests conducted by the Company revealed that one of its suppliers had been using a non-conforming material in certain models of AstroNova’s Test & Measurement printers. No malfunctions have been reported by customers as a result of the non-conforming material.

Upon identifying this issue, we immediately suspended production of the printers, notified all customers and contacted the supplier who confirmed the problem. We are continuing to work with our customers to replace the non-conforming material on existing printers with conforming material. The estimated costs associated with the replacement program were $0.7 million, which was based upon the number of printers shipped during the period the non-conforming material was used. Those costs were recognized and recorded in the first quarter of fiscal 2014. As of January 31, 2017, the Company had expended $0.4 million in replacement costs which have been charged against this reserve and has adjusted the reserve amount to reflect the estimate of remaining cost associated with the replacement program. The remaining reserve amount of $0.2 million is included in other accrued expenses in the accompanying consolidated balance sheet as of January 31, 2017.

Since the supplier deviated from the agreed upon specifications for the power supply while providing certificates of conformance to the original specifications, AstroNova received a $0.5 million settlement from the supplier in January 2014 for recovery of the costs and expense associated with this issue. In addition to this cash settlement, the Company received lower product prices from the supplier through the first quarter of fiscal 2017.

Concentration of Risk
Concentration of Risk

Note 17—Concentration of Risk

Credit is generally extended on an uncollateralized basis to almost all customers after review of credit worthiness. Concentration of credit and geographic risk with respect to accounts receivable is limited due to the large number and general dispersion of accounts which constitute the Company’s customer base. The Company periodically performs on-going credit evaluations of its customers. The Company has not historically experienced significant credit losses on collection of its accounts receivable.

Excess cash is invested principally in investment grade government and state municipal securities. The Company has established guidelines relative to diversification and maturities that maintain safety of principal, liquidity and yield. These guidelines are periodically reviewed and modified to reflect changes in market conditions. The Company has not historically experienced any significant losses on its cash equivalents or investments.

During the years ended January 31, 2017, 2016 and 2015, one vendor accounted for 33.2%, 23.7% and 21.9% of purchases, and 42.7%, 16.7% and 55.1% of accounts payable, respectively.

Commitments and Contingencies
Commitments and Contingencies

Note 18—Commitments and Contingencies

Contractual Obligations

The following table summarizes our contractual obligations:

 

(In thousands)    Total      2018      2019      2020      2021      2022
and
Thereafter
 

Purchase Commitments*

   $ 19,271      $ 17,848      $ —        $ 1,352      $ —        $ 71

Operating Lease Obligations

     706        371        214        101        20        —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 19,977      $ 18,219      $ 214      $ 1,453      $ 20      $ 71
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*Purchase commitments consist primarily of inventory and equipment purchase orders made in the ordinary course of business.

The Company is also subject to contingencies, including legal proceedings and claims arising in the normal course of business that cover a wide range of matters including, among others, contract and employment claims; workers compensation claims; product liability; warranty and modification; and adjustment or replacement of component parts of units sold.

Direct costs associated with the estimated resolution of contingencies are accrued at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the Company’s control.

Fair Value Measurements
Fair Value Measurements

Note 19—Fair Value Measurements

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 and other 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 the these instruments.

Assets measured at fair value on a recurring basis are summarized below:

 

January 31, 2017

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 2      $ –      $ –      $ 2  

State and municipal obligations (included in securities available for sale)

     –        6,723        –        6,723  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2      $ 6,723      $ –      $ 6,725  
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2016

   Level 1      Level 2      Level 3      Total  
(In thousands)                            

Money market funds (included in cash and cash equivalents)

   $ 4,340      $ –      $ –      $ 4,340  

State and municipal obligations (included in securities available for sale)

     –        10,376        –        10,376  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,340      $ 10,376      $ –      $ 14,716  
  

 

 

    

 

 

    

 

 

    

 

 

 

For our money market funds and state and municipal obligations, we utilize the market approach to measure fair value. The market approach is based on using quoted market prices for similar assets.

Non-financial assets such as goodwill, intangible assets, and property, plant and equipment are required to be measured at fair value only when an impairment loss is recognized. The Company did not record an impairment loss related to these assets during the periods ended January 31, 2017, 2016 or 2015.

Subsequent Event
Subsequent Event

Note 20—Subsequent Event

On February 1, 2017, our wholly-owned Danish subsidiary, ANI ApS, completed the acquisition of the issued and outstanding equity interests of TrojanLabel ApS, a Danish private limited liability company, pursuant to the terms of a Share Purchase Agreement, dated January 7, 2017, by and among the ANI ApS, Holdingselskabet af 20. marts 2014 ApS (“Holding”), a Danish private limited liability company and Li Wei Chong, an individual (Holding, together with Li Wei Chong, the “Sellers”). Based in Copenhagen, Denmark, TrojanLabel ApS is a manufacturer of products including digital color label presses and specialty printing systems for a broad range of end markets. Upon the consummation of the acquisition, TrojanLabel ApS became an indirect wholly-owned subsidiary of AstroNova.

The purchase price of this acquisition was DKK 62.9 million (approximately $9.1 million), of which DKK 6.4 million (approximately $0.9 million) was placed in escrow to secure certain post-closing working capital adjustments and indemnification obligations of the Sellers. The Sellers may be entitled to additional contingent consideration if 80% of specified earnings targets are achieved by Trojanlabel ApS during the seven years following the closing, subject to certain closing working capital adjustments and potential offsets to satisfy the Sellers’ indemnification obligations. The contingent consideration consists of potential earn-out payments to the Sellers of between DKK 32.5 million (approximately $5 million) if 80% of the specified earnings targets are achieved, DKK 40.6 million (approximately $5.8 million) if 100% of the specified earnings targets are achieved, and a maximum of DKK 48.7 million (approximately $7 million) if 120% of the specified earnings targets are achieved. Transaction costs related to this acquisition of $0.6 million are included in the general and administrative expenses in the consolidated statement of income for the period ended January 31, 2017. The Company is currently in the process of completing the purchase accounting allocations and does not expect this transaction to have a material impact on the consolidated financial statements.

On February 28, 2017, ANI ApS, entered into a Credit Agreement with Bank of America, N.A. (the “Lender”), ANI ApS, and Trojanlabel ApS. The Company also entered into a related Security and Pledge Agreement with the Lender. The Credit Agreement provides for a term loan to AstroNova in the amount of $9.2 million. The Credit Agreement also provides for a $10.0 million revolving credit facility available to the Company for general corporate purposes. 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. No amount was drawn under the revolving credit facility as of the filing of this Annual Report on 10-K.

In connection with the Credit Agreement, AstroNova entered into certain hedging arrangements with the Lender to manage the variable interest rate risk and currency risk associated with its payments in respect of the term loan. Under these arrangements, payments of principal and interest in respect of approximately $8.9 million of the principal of the term loan will be made in Danish Krone, and interest on such principal amount will be payable at a fixed rate of 0.67% per annum for the entire term, subject only to potential increases of 0.25% or 0.50% per annum based on the Company’s consolidated leverage ratio. The obligations of ANI ApS under these arrangements are guaranteed by the Company.

In connection with the entry into the Credit Agreement on February 28, 2017, the Company’s existing Credit Agreement, dated as of September 5, 2014, among the Company, as borrower, and Wells Fargo Bank was terminated. No loans or other amounts were outstanding or owed under the existing Credit Agreement with Wells Fargo Bank at the time of termination.

Valuation and Qualifying Accounts and Reserves
Valuation and Qualifying Accounts and Reserves

ASTRONOVA, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

 

Description

   Balance at
Beginning
of Year
     Provision/
(Benefit)
Charged to
Operations
    Deductions(2)     Balance
at End
of Year
 

Allowance for Doubtful Accounts(1):

         
(In thousands)                          

Year Ended January 31,

         

2017

   $ 404      $ (80   $ (58   $ 266  

2016

   $ 343      $ 112     $ (51   $ 404  

2015

   $ 370      $ 60     $ (87   $ 343  

 

(1) The allowance for doubtful accounts has been netted against accounts receivable in the balance sheets as of the respective balance sheet dates.
(2) Uncollectible accounts written off, net of recoveries. Also includes foreign exchange adjustment.
Summary of Significant Accounting Policies (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 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. Cash of $5.1 million and $3.0 million was held in foreign bank accounts at January 31, 2017 and 2016, respectively.

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 loss in shareholders’ equity.

Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market 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 improvements—10 to 45 years; machinery and equipment—3 to 10 years). Depreciation expense was $1.7 million for fiscal 2017; $1.6 million for fiscal 2016 and $1.4 million for 2015.

Revenue Recognition: Product revenue is recognized when all of the following criteria have been met: persuasive evidence of an arrangement exists; price to the buyer is fixed or determinable; delivery has occurred and legal title and risk of loss have passed to the customer; and collectability is reasonably assured. Returns and customer credits are infrequent and are recorded as a reduction to revenue. Rights of return are not included in revenue arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Revenue is recorded net of any discounts from list price. Amounts billed to customers for shipping and handling fees are included in revenue, while related shipping and handling costs are included in cost of revenue.

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. Therefore, the Company’s hardware appliances are considered non-software elements and are not subject to industry-specific software revenue recognition guidance.

Our multiple-element arrangements are generally comprised of a combination of equipment, software, installation and/or training services. Hardware and software elements are typically delivered at the same time and revenue is recognized when all the revenue recognition criteria for each unit are met. Delivery of 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. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer.

We have evaluated the deliverables in our multiple-element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices. We determine the selling price for each deliverable based on a selling price hierarchy. The selling price for a deliverable is based on vendor specific objective evidence (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. Revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met.

Infrequently, we recognize revenue for non-recurring engineering (NRE) fees for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue. NRE fees have not been significant in the periods presented herein.

We also receive infrequent requests from customers to hold product purchased from us for the customer’s convenience. Revenue is recognized for such bill and hold arrangements in accordance with the requirements of SEC Staff Accounting Bulletin No. 104 which requires, among other things, the existence of a valid business purpose for the arrangement; the transfer of ownership of the purchased product; a fixed delivery date that is reasonable and consistent with the buyer’s business purpose; the readiness of the product for shipment; the use of customary payment terms; no continuing performance obligation by us; and segregation of the product from our inventories.

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 monthly average exchange rates. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our German subsidiary since its undistributed earnings are considered to be permanently invested. Our net foreign exchange losses were $0.2 million; $0.3 million and $0.2 million for fiscal 2017, 2016 and 2015, respectively.

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 $1.3 million; $1.1 million and $1.7 million in fiscal 2017, 2016 and 2015, 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 2017, 2016 and 2015, there were no impairment charges for long-lived assets.

Intangible Assets: Intangible assets include the value of customer relationships and non-competition agreements acquired in connection with business 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 2017, 2016 and 2015, 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 first qualitatively assessed to determine whether further impairment testing is necessary. Factors that management considers in this 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 amount, a two-step process is then performed. Step one compares the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, step two is required to determine if there is an impairment of the goodwill. Step two compares the implied fair value of the reporting unit goodwill to the carrying amount of the goodwill. 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.

We performed a qualitative assessment for our 2017 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying value of the reporting units exceed their fair values. Accordingly, no further testing 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. 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, 2017 and 2016, 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.

 

In fiscal 2015, the Company adopted the guidance in ASU 2015-17, “Income Taxes (Topic 740)” and accordingly has presented the Company’s deferred taxes as non-current in the accompanying consolidated balance sheet.

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 2017, 2016 and 2015, there were 459,700, 425,200 and 156,600, 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.

Allowance for Doubtful Accounts: In circumstances where we are aware of a customer’s inability to meet its financial obligations, an allowance is established. Accounts are individually evaluated on a regular basis and allowances are established to state such receivables at their net realizable value. The remainder of the allowance is based upon historical write-off experience and current market assessments.

Fair Value of Financial Instruments: Our financial instruments consist of cash and cash equivalents, investment securities, accounts receivable and accounts payable. The carrying amount reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term nature of these items. Investment securities, all of which are available for sale, are carried in the consolidated balance sheets at fair value based on quoted market prices, when available.

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.

In the first quarter of fiscal 2017, the Company prospectively adopted the provisions of ASU 2016-09, and, as such, the cash flow from tax benefits that are a result of 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 for the year ended January 31, 2017. Tax deductions from certain stock option exercises are treated as being realized when they reduce tax expense and taxes payable in accordance with relevant tax law.

Recent Accounting Pronouncements:

Statement of Cash Flows

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 standard is effective for interim and annual reporting periods beginning after December 15, 2017 (Q1 fiscal 2019 for AstroNova), with early adoption permitted. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

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. In August 2015, the FASB modified ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017 (Q1 fiscal 2019 for AstroNova), including interim periods within that reporting period. As modified, the FASB permits the adoption of the new revenue standard early, but not before annual periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information.

In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Consideration.” In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-11, “Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) – Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) – Narrow Scope Improvements and Practical Expedients.” All of these ASUs do not change the core principle of the guidance in Topic 606 (as amended by ASU 2014-09), but rather provide further guidance to improve the operability and understandability of the implementation guidance included in ASU 2014-09. The effective date for all of these ASUs is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years (Q1 fiscal 2019 for AstroNova). The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

Share-Based Compensation

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods (Q1 fiscal 2018 for AstroNova) and early adoption is allowed. As permitted by ASU 2016-09, the Company adopted this guidance prospectively in fiscal 2017 and the adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

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. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (Q1 fiscal 2020 for AstroNova), with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. The Company is currently evaluating the effect of this new guidance on the Company’s consolidated financial statements.

Inventory

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330).” ASU 2015-11 requires inventory to be measured at the lower of cost and net realizable value instead of at lower of cost or market. This guidance does not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method but applies to all other inventory, including inventory measured using first-in, first-out (FIFO) or the average cost method. ASU 2015-11 will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years (Q1 fiscal 2018 for AstroNova) and should be applied prospectively. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

Acquisition (Tables) (RITEC [Member])

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

 

(In thousands)       

Accounts Receivable

   $ 50  

Identifiable Intangible Assets

     3,780  

Goodwill

     3,530  
  

 

 

 

Total Purchase Price

   $ 7,360  
  

 

 

 

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)
 

Customer Contract Relationships

   $ 2,830        10  

Non-Competition Agreement

     950        5  
  

 

 

    

Total

   $ 3,780     
  

 

 

    
Intangible Assets (Tables)

Intangible assets are as follows:

 

    January 31, 2017     January 31, 2016  
(In thousands)   Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Miltope:

           

Customer Contract Relationships

  $ 3,100     $ (1,108   $ 1,992     $ 3,100     $ (758   $ 2,342  

RITEC:

           

Customer Contract Relationships

    2,830       (207     2,623       2,830       (31     2,799  

Non-Competition Agreement

    950       (301     649       950       (111     839  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible assets, net

  $ 6,880     $ (1,616   $ 5,264     $ 6,880     $ (900   $ 5,980  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

(In thousands)    2018      2019      2020      2021      2022  

Estimated amortization expense

   $ 774      $ 769      $ 803      $ 706      $ 633  
Securities Available for Sale (Tables)

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, 2017

           

State and Municipal Obligations

   $ 6,732      $ —        $ (9    $ 6,723  
  

 

 

    

 

 

    

 

 

    

 

 

 

January 31, 2016

           

State and Municipal Obligations

   $ 10,363      $ 15      $ (2    $ 10,376  
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturity dates of these securities are as follows:

 

     January 31  
     2017      2016  
(In thousands)              

Less than one year

   $ 3,563      $ 3,833  

One to two years

     3,160        6,543  
  

 

 

    

 

 

 
   $ 6,723      $ 10,376  
  

 

 

    

 

 

 
Inventories (Tables)
Components of Inventories

The components of inventories are as follows:

 

     January 31  
     2017      2016  
(In thousands)              

Materials and Supplies

   $ 11,865      $ 10,197  

Work-in-Progress

     1,216        1,025  

Finished Goods

     10,270        7,491  
  

 

 

    

 

 

 
     23,351        18,713  

Inventory Reserve

     (3,845      (3,823
  

 

 

    

 

 

 

Balance at January 31

   $ 19,506      $ 14,890  
  

 

 

    

 

 

 
Accrued Expenses (Tables)
Summary of Accrued Expenses

Accrued expenses consisted of the following:

 

     January 31  
     2017      2016  
(In thousands)              

Professional Fees

   $ 584      $ 328  

Warranty

     515        400  

Product Replacement Cost Reserve

     174        278  

Dealer Commissions

     180        221  

Other

     718        982  
  

 

 

    

 

 

 
   $ 2,171      $ 2,209  
  

 

 

    

 

 

 
Accumulated Other Comprehensive Loss (Tables)
Changes in Balance of 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
     Total  

Balance at January 31, 2014

   $ 152      $ 24      $ 176  

Other Comprehensive Loss

     (866      (9      (875

Amounts Reclassified to Net Income

     —        —        —  
  

 

 

 

Net Other Comprehensive Loss

     (866      (9      (875)  
  

 

 

 

Balance at January 31, 2015

     (714      15        (699

Other Comprehensive Loss

     (269      (7      (276

Amounts Reclassified to Net Income

     —        —        —  
  

 

 

 

Net Other Comprehensive Loss

     (269      (7      (276
  

 

 

 

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
  

 

 

 
Share-Based Compensation (Tables)

Share-based compensation expense has been recognized as follows:

 

     Years Ended January 31  
             2017                      2016                      2015      
(In thousands)         

Stock Options

   $ 321      $ 286      $ 234  

Restricted Stock Awards and Restricted Stock Units

     685        912        270  

Employee Stock Purchase Plan

     13        11        7  
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,019      $ 1,209      $ 511  
  

 

 

    

 

 

    

 

 

 

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, 2014

     736,647     $ 8.63  

Options Granted

     158,600     $ 13.99  

Options Exercised

     (224,275   $ 8.29  

Options Forfeited

     (8,975   $ 11.84  

Options Cancelled

     (5,986   $ 8.70  
  

 

 

   

 

 

 

Options Outstanding, January 31, 2015

     656,011     $ 10.01  

Options Granted

     115,000     $ 13.95  

Options Exercised

     (93,344   $ 7.95  

Options Forfeited

     (5,550   $ 12.75  

Options Cancelled

     (14,181   $ 8.82  
  

 

 

   

 

 

 

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  
  

 

 

   

 

 

 

Set forth below is a summary of options outstanding at January 31, 2017:

 

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

     190,706      $ 7.85        3.9        190,706      $ 7.85        3.9  

$10.01-15.00

     439,750      $ 13.36        6.6        241,950      $ 12.79        5.3  

$15.01-20.00

     55,000      $ 15.07        9.2        —        $ —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     685,456      $ 11.96        6.1        432,656      $ 10.61        4.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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
             2017                    2016                    2015        

Risk-Free Interest Rate

   1.4%    1.6%    1.6%

Expected Life (years)

   5    5    5

Expected Volatility

   28.3%    22.7%    26.5%

Expected Dividend Yield

   1.9%    2.0%    2.0%

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, 2014

     106,496      $ 9.12  

Granted

     7,245        13.80  

Vested

     (35,662      8.75  

Forfeited

     (5,834      10.07  
  

 

 

    

 

 

 

Outstanding at January 31, 2015

     72,245      $ 9.70  

Granted

     246,335        14.05  

Vested

     (22,692      14.02  

Forfeited

     (2,800      10.07  
  

 

 

    

 

 

 

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      $ 13.78  
  

 

 

    

 

 

 

Summarized plan activity is as follows:

 

     Years Ended January 31  
         2017              2016              2015      

Shares Reserved, Beginning

     51,600        57,005        60,242  

Shares Purchased

     (6,376      (5,405      (3,237
  

 

 

    

 

 

    

 

 

 

Shares Reserved, Ending

     45,224        51,600        57,005  
  

 

 

    

 

 

    

 

 

 
Income Taxes (Tables)

The components of income before income taxes are as follows:

 

     January 31  
     2017      2016      2015  
(In thousands)                     

Domestic

   $ 4,026      $ 5,982      $ 5,401  

Foreign

     2,579        927        1,531  
  

 

 

    

 

 

    

 

 

 
   $ 6,605      $ 6,909      $ 6,932  
  

 

 

    

 

 

    

 

 

 

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

 

     January 31  
     2017     2016     2015  
(In thousands)                   

Current:

      

Federal

   $ 1,269     $ 1,930     $ 1,666  

State

     209       470       466  

Foreign

     725       276       535  
  

 

 

   

 

 

   

 

 

 
     2,203       2,676       2,667  
  

 

 

   

 

 

   

 

 

 

Deferred:

      

Federal

   $ 150     $ (402   $ (290

State

     37       126       (107

Foreign

     (13     (16     —  
  

 

 

   

 

 

   

 

 

 
     174       (292     (397
  

 

 

   

 

 

   

 

 

 
   $ 2,377     $ 2,384     $ 2,270  
  

 

 

   

 

 

   

 

 

 

The provision for income taxes differs from the amount computed by applying the United States federal statutory income tax rate of 34% to income before income taxes. The reasons for this difference were due to the following:

 

     January 31  
     2017     2016     2015  
(In thousands)                   

Income Tax Provision at Statutory Rate

   $ 2,246     $ 2,349     $ 2,357  

Capitalized Transaction Costs

     179       —         —    

Unrecognized Tax Benefits

     165       (67     23  

State Taxes, Net of Federal Tax Effect

     162       277       233  

Domestic Production Deduction

     (103     (134     (164

R&D Credits

     (168     (176     (135

Other

     (104     135       (44
  

 

 

   

 

 

   

 

 

 
   $ 2,377     $ 2,384     $ 2,270  
  

 

 

   

 

 

   

 

 

 

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:

 

    

January 31

 
     2017     2016  
(In thousands)             

Deferred Tax Assets:

    

Inventory

   $ 2,151     $ 1,948  

State R&D Credits

     679       583  

Share-Based Compensation

     546       830  

Foreign Tax Credit

     508       426  

Compensation Accrual

     281       346  

Unrecognized State Tax Benefits

     241       237  

Warranty Reserve

     192       149  

Deferred Service Contract Revenue

     176       200  

Other

     348       383  
  

 

 

   

 

 

 
     5,122       5,102  

Deferred Tax Liabilities:

    

Accumulated Tax Depreciation in Excess of Book Depreciation

     1,380       1,355  

Other

     263       193  
  

 

 

   

 

 

 
     1,643       1,548  
  

 

 

   

 

 

 

Subtotal

     3,479       3,554  

Valuation Allowance

     (679     (583
  

 

 

   

 

 

 

Net Deferred Tax Assets

   $ 2,800     $ 2,971  
  

 

 

   

 

 

 

expiration of certain statutes of limitation. The changes in the balances of unrecognized tax benefits, excluding interest and penalties are as follows:

 

     2017     2016     2015  
(In thousands)                   

Balance at February 1

   $ 591     $ 707     $ 715  
Nature of Operations, Segment Reporting and Geographical Information (Tables)

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 %
of Revenue
 
    2017     2016     2015         2017             2016             2015         2017     2016     2015  

Product Identification

  $ 69,862     $ 67,127     $ 59,779     $ 9,821     $ 9,300     $ 7,259       14.1%       13.9%       12.1%  

T&M

    28,586       27,531       28,568       4,399       3,664       5,627       15.4%       13.3%       19.7%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 98,448     $ 94,658     $ 88,347       14,220       12,964       12,886       14.4%       13.7%       14.6%  
 

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

 

Corporate Expenses

          7,939       7,030       5,655        
       

 

 

   

 

 

   

 

 

       

Operating Income

          6,281       5,934       7,231        

Other Income (Expense)

          324       975       (299)        
       

 

 

   

 

 

   

 

 

       

Income before Income Taxes

          6,605       6,909       6,932        

Income Tax Provision

          2,377       2,384       2,270        
       

 

 

   

 

 

   

 

 

       

Net Income

        $ 4,228     $ 4,525     $ 4,662        
       

 

 

   

 

 

   

 

 

       

Other information by segment is presented below:

 

(In thousands)    Assets  
     2017      2016  

Product Identification

   $ 30,624      $ 27,143  

T&M

     28,129        28,570  

Corporate*

     24,912        22,250  
  

 

 

    

 

 

 

Total

   $ 83,665      $ 77,963  
  

 

 

    

 

 

 

 

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

 

(In thousands)    Depreciation and
Amortization
     Capital Expenditures  
     2017      2016      2015      2017      2016      2015  

Product Identification

   $ 885      $ 690      $ 678      $ 767      $ 2,284      $ 1,408  

T&M

     1,546        1,375        1,385        471        777        839  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,431      $ 2,065      $ 2,063      $ 1,238      $ 3,061      $ 2,247  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Presented below is selected financial information by geographic area: