ASTRONOVA, INC., 10-K filed on 4/10/2020
Annual Report
v3.20.1
Cover Page - USD ($)
12 Months Ended
Jan. 31, 2020
Apr. 03, 2020
Aug. 02, 2019
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Jan. 31, 2020    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Entity Registrant Name AstroNova, Inc.    
Entity Central Index Key 0000008146    
Current Fiscal Year End Date --01-31    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Well-known Seasoned Issuer No    
Entity Filer Category Accelerated Filer    
Trading Symbol ALOT    
Entity Shell Company false    
Entity Small Business true    
Entity Emerging Growth Company false    
Title of 12(b) Security Common Stock    
Security Exchange Name NASDAQ    
Document Annual Report true    
Document Transition Report false    
Entity Address, State or Province RI    
Entity Public Float     $ 158,496,000
Entity Common Stock, Shares Outstanding   7,097,000  
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jan. 31, 2020
Jan. 31, 2019
CURRENT ASSETS    
Cash and Cash Equivalents $ 4,249 $ 7,534
Accounts Receivable, net of reserves of $856 in 2020 and $521 in 2019 19,784 23,486
Inventories 33,925 30,161
Prepaid Expenses and Other Current Assets 2,193 1,427
Total Current Assets 60,151 62,608
Property, Plant and Equipment, net 11,268 10,380
Identifiable Intangibles, net 25,383 29,674
Goodwill 12,034 12,329
Deferred Tax Assets, net 5,079 2,928
Right of Use Asset 1,661  
Other 1,088 1,064
TOTAL ASSETS 116,664 118,983
CURRENT LIABILITIES    
Accounts Payable 4,409 5,956
Accrued Compensation 2,700 5,023
Other Accrued Expenses 4,711 2,911
Revolving Credit Facility 6,500 1,500
Current Portion of Long-Term Debt 5,208 5,208
Current Liability — Royalty Obligation 2,000 1,875
Current Liability — Excess Royalty Payment Due 773 1,265
Deferred Revenue 466 373
Income Taxes Payable   554
Total Current Liabilities 26,767 24,665
NON CURRENT LIABILITIES    
Long-Term Debt, net of current portion 7,715 12,870
Royalty Obligation, net of current portion 8,012 9,916
Lease Liabilities, net of current portion 1,279  
Deferred Tax Liabilities 435 40
Other Long-Term Liabilities 1,081 1,717
TOTAL LIABILITIES 45,289 49,208
Commitments and Contingencies (See Note 19)
SHAREHOLDERS' EQUITY    
Preferred Stock, $10 Par Value, Authorized 100,000 shares, None Issued
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 10,343,610 shares in 2020 and 10,218,559 shares in 2019 517 511
Additional Paid-in Capital 56,130 53,568
Retained Earnings 49,298 49,511
Treasury Stock, at Cost, 3,281,701 shares in 2020 and 3,261,672 shares in 2019 (33,477) (32,997)
Accumulated Other Comprehensive Loss, net of tax (1,093) (818)
TOTAL SHAREHOLDERS' EQUITY 71,375 69,775
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 116,664 $ 118,983
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jan. 31, 2020
Jan. 31, 2019
Statement of Financial Position [Abstract]    
Accounts Receivable, Reserves $ 856 $ 521
Preferred Stock, Par Value $ 10 $ 10
Preferred Stock, Shares Authorized 100,000 100,000
Preferred Stock, Shares Issued 0 0
Common Stock, Par Value $ 0.05 $ 0.05
Common Stock, Shares Authorized 13,000,000 13,000,000
Common Stock, Shares Issued 10,343,610 10,218,559
Treasury Stock, Shares 3,281,701 3,261,672
v3.20.1
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Jan. 31, 2018
Income Statement [Abstract]      
Revenue $ 133,446 $ 136,657 $ 113,401
Cost of Revenue 84,688 82,658 69,399
Gross Profit 48,758 53,999 44,002
Costs and Expenses:      
Selling and Marketing 26,884 26,343 22,234
Research and Development 8,084 7,813 7,453
General and Administrative 11,357 11,123 8,903
Operating Expenses 46,325 45,279 38,590
Operating Income 2,433 8,720 5,412
Other Expense:      
Interest Expense (826) (876) (402)
Investment Income 143 145 168
Other, Net (380) (681) (21)
Other Expense, net (1,063) (1,412) (255)
Income before Income Taxes 1,370 7,308 5,157
Income Tax Provision (Benefit) (389) 1,578 1,871
Net Income $ 1,759 $ 5,730 $ 3,286
Net Income Per Common Share—Basic $ 0.25 $ 0.83 $ 0.48
Net Income Per Common Share—Diluted $ 0.24 $ 0.81 $ 0.47
Weighted Average Number of Common Shares Outstanding—Basic 7,024 6,881 6,911
Dilutive Effect of Common Stock Equivalents 214 203 104
Weighted Average Number of Common Shares Outstanding—Diluted 7,238 7,084 7,015
v3.20.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Jan. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net Income $ 1,759 $ 5,730 $ 3,286
Other Comprehensive Income (Loss), net of taxes and reclassification adjustments:      
Foreign Currency Translation Adjustments (133) (671) 867
Change in Value of Derivatives Designated as Cash Flow Hedge 122 622 (1,036)
(Gains) Losses from Cash Flow Hedges Reclassified to Income Statement (264) (600) 1,048
Unrealized Gain (Loss) on Securities Available for Sale     5
Realized Gain on Securities Available for Sale Reclassified to Income Statement   3  
Other Comprehensive Income (Loss) (275) (646) 884
Comprehensive Income $ 1,484 $ 5,084 $ 4,170
v3.20.1
Consolidated Statements of Changes in Shareholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Beginning Balance at Jan. 31, 2017 $ 70,537 $ 492 $ 47,524 $ 44,358 $ (20,781) $ (1,056)
Beginning Balance, Shares at Jan. 31, 2017   9,834,906        
Share-Based Compensation 1,583   1,583      
Employee Option Exercises $ 642 $ 4 913   (275)  
Employee Option Exercises, Shares 84,025 90,042        
Restricted Stock Awards Vested, net $ (103) $ 4 (4)   (103)  
Restricted Stock Awards Vested, net, Shares   71,172        
Repurchase of Common Stock (11,238)       (11,238)  
Common Stock – cash dividend (1,944)     (1,944)    
Net Income 3,286     3,286    
Other Comprehensive Income (Loss) 884         884
Ending Balance at Jan. 31, 2018 63,647 $ 500 50,016 45,700 (32,397) (172)
Ending Balance, Shares at Jan. 31, 2018   9,996,120        
Share-Based Compensation 1,886   1,886      
Employee Option Exercises $ 1,310 $ 7 1,669   (366)  
Employee Option Exercises, Shares 150,125 150,125        
Restricted Stock Awards Vested, net $ (233) $ 4 (3)   (234)  
Restricted Stock Awards Vested, net, Shares   72,314        
Reclassification due to adoption of ASU 2018-02 14     14    
Common Stock – cash dividend (1,933)     (1,933)    
Net Income 5,730     5,730    
Other Comprehensive Income (Loss) (646)         (646)
Ending Balance at Jan. 31, 2019 69,775 $ 511 53,568 49,511 (32,997) (818)
Ending Balance, Shares at Jan. 31, 2019   10,218,559        
Share-Based Compensation 1,775   1,775      
Employee Option Exercises $ 782 $ 3 790   (11)  
Employee Option Exercises, Shares 57,175 65,121        
Restricted Stock Awards Vested, net $ (469) $ 3 (3)   (469)  
Restricted Stock Awards Vested, net, Shares   59,930        
Common Stock – cash dividend (1,972)     (1,972)    
Net Income 1,759     1,759    
Other Comprehensive Income (Loss) (275)         (275)
Ending Balance at Jan. 31, 2020 $ 71,375 $ 517 $ 56,130 $ 49,298 $ (33,477) $ (1,093)
Ending Balance, Shares at Jan. 31, 2020   10,343,610        
v3.20.1
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) - $ / shares
12 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Jan. 31, 2018
Statement of Stockholders' Equity [Abstract]      
Cash dividend per share $ 0.28 $ 0.28 $ 0.28
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Jan. 31, 2020
Jan. 31, 2019
Jan. 31, 2018
Cash Flows from Operating Activities:      
Net Income $ 1,759 $ 5,730 $ 3,286
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:      
Depreciation and Amortization 6,284 6,152 3,994
Amortization of Debt Issuance Costs 49 51 34
Share-Based Compensation 1,775 1,886 1,583
Deferred Income Tax Provision (Benefit) (1,638) (1,638) 744
Changes in Assets and Liabilities, Net of Impact of Acquisitions:      
Accounts Receivable 3,594 (1,493) (4,722)
Inventories (3,938) (2,872) (5,509)
Accounts Payable and Accrued Expenses (2,732) (2,342) 5,207
Income Taxes Payable (1,773) (151) (801)
Other (156) (318) (92)
Net Cash Provided by Operating Activities 3,224 5,005 3,724
Cash Flows from Investing Activities:      
Proceeds from Sales/Maturities of Securities Available for Sale   1,511 5,539
Purchases of Securities Available for Sale     (321)
Cash Paid for TrojanLabel Acquisition, Net of Cash Acquired     (9,007)
Cash Paid for Honeywell Asset Purchase and License Agreement   (400) (14,873)
Payments Received on Line of Credit and Note Receivable     85
Additions to Property, Plant and Equipment (2,906) (2,645) (2,204)
Net Cash Used by Investing Activities (2,906) (1,534) (20,781)
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 313 1,077 539
Purchase of Treasury Stock     (11,238)
Proceeds from Issuance of Long-Term Debt     24,200
Borrowings under Revolving Credit Facility, net 5,000 1,500  
Change in TrojanLabel Earn Out Liability     (1,438)
Payment of Minimum Guarantee Royalty Obligation (1,875) (1,625)  
Principal Payments on Long-Term Debt (5,208) (5,130) (828)
Payments of Debt Issuance Costs     (234)
Dividends Paid (1,972) (1,933) (1,944)
Net Cash (Used) Provided by Financing Activities (3,742) (6,111) 9,057
Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents 139 (3) 79
Net Decrease in Cash and Cash Equivalents (3,285) (2,643) (7,921)
Cash and Cash Equivalents, Beginning of Year 7,534 10,177 18,098
Cash and Cash Equivalents, End of Year 4,249 7,534 10,177
Supplemental Information:      
Cash Paid During the Period for Interest 531 636 246
Cash Paid During the Period for Income Taxes, Net of Refunds 2,913 3,472 1,940
Schedule of non-cash financing activities:      
Value of Shares Received in Satisfaction of Option Exercise Price $ 11 $ 366 $ 275
v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Jan. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Note 1—Summary of Significant Accounting Policies
Basis of Presentation:
The accompanying financial data have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and are presented in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Our fiscal year end is January 31. Unless otherwise stated, all years and dates refer to our fiscal year.
Principles of Consolidation:
The consolidated financial statements include the accounts of AstroNova, Inc. and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.
Reclassification:
Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.
Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect these financial statements and accompanying notes. Some of the more significant estimates relate to the allowances for doubtful accounts, inventory valuation, valuation and estimated lives of intangible assets, impairment of long-lived assets, goodwill, income taxes, share-based compensation and warranty reserves. Management’s estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcome of these matters. Consequently, actual results could differ from those estimates.
Cash and Cash Equivalents:
Highly liquid investments with an original maturity of 90 days or less are considered to be cash equivalents. Similar investments with original maturities beyond three months are classified as securities available for sale. At January 31, 2020 and 2019, $3.4 million and $3.9 million, respectively, was held in foreign bank accounts.
Inventories:
Inventories are stated at the lower of cost
(first-in,
first-out)
or net realizable value and include material, labor and manufacturing overhead.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets (land improvements—10 to 20 years; buildings and leasehold improvements—10 to 45 years; machinery and equipment—3 to 10 years and computer equipment and software—3 to 10 years).
Revenue Recognition:
On February 1, 2018 we adopted Accounting Standards Update (“ASU”)
2014-09, “Revenue
from Contracts with Customers (“Topic 606”),” which superseded nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five step process to recognize revenue and requires more judgment and estimates within the revenue recognition process than required under previous U.S. GAAP, which includes identifying contracts with customers, identifying performance obligations in the contract, determining and estimating the amount of any variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation and recognizing revenue when the entity satisfies each performance obligation.
We adopted this standard using the modified retrospective method and have applied the guidance to all contracts within the scope of Topic 606 as of the February 1, 2018 adoption date. Under Topic 606, based on the nature of our contracts and consistent with prior practice, we recognize most of our revenue upon shipment, which is when the performance obligation has been satisfied. Accordingly, the adoption of this standard did not have a material impact on our revenue recognition and there was no cumulative effective adjustment as of February 1, 2018 as a result of the adoption of Topic 606.
 
The vast majority of our revenue is generated from the sale of distinct products. Revenue is measured as the amount of consideration we expect to receive in exchange for such products, which is generally at the contractually stated prices, and is recognized when we satisfy a performance obligation by transferring control of a product to a customer. The transfer of control generally occurs at one point in time, upon shipment, when title and risk of loss pass to the customer. Returns and customer credits are infrequent and are recorded as a reduction to revenue. Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue.
Many of the contracts entered into with customers are commonly comprised of a combination of equipment, supplies, installation and/or training services. We determine performance obligations by assessing whether the products or services are distinct from other elements of the contract. In order to be distinct, the product must perform either on its own or with readily available resources and must be separate within the context of the contract.
Most of our hardware products contain embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole, as it is not sold or marketed separately, and its production costs are minor compared to those of the hardware system. Hardware and software elements are typically delivered at the same time and are accounted for as a single performance obligation for which revenue is recognized at the point in time when ownership is transferred to the customer.
Installation and training services vary based on certain factors such as the complexity of the equipment, staffing availability in a geographic location and customer preferences, and can range from a few days to a few months. The delivery of installation and training services are not assessed to determine whether they are separate performance obligations, as the amounts are not material to the contract.
Shipping and handling activities that occur after control over a product has transferred to a customer are accounted for as fulfillment activities rather than performance obligations, as allowed under a practical expedient provided by Topic 606. The shipping and handling fees charged to customers are recognized as revenue and the related costs are included in cost of revenue at the point in time when ownership of the product is transferred to the customer.
We may perform service at the request of the customer, generally for the repair and maintenance of products previously sold. These services are short in duration, typically less than one month, and total less than 10% of revenue for the year ended January 31, 2020. Revenue is recognized as services are rendered and accepted by the customer. We also provide service agreements on certain of our Product Identification equipment. Service agreements are purchased separately from the equipment and provide for the right to obtain service and maintenance on the equipment for a period of typically one to two years. Accordingly, revenue on these agreements is recognized over the term of the agreements. The portion of service agreement contracts that are uncompleted at the end of any reporting period are included in deferred revenue.
We generally provide warranties for our products. The standard warranty period is typically 12 months for most hardware products except for airborne printers, which typically have warranties that extend for
4-5
years, consistent with industry practice. Such assurance-type warranties are not deemed to be separate performance obligations from the hardware product and costs associated with providing the warranties are accrued in accordance with ASC 450, “Contingencies,” as we have the ability to ascertain the likelihood of the liability and can reasonably estimate the amount of the liability. Our estimate of costs to service the warranty obligations is based on historical experience and expectations of future conditions. To the extent that our experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liability are recorded at that time, with an offsetting adjustment to cost of revenue. On occasion, customers request a warranty period longer than our standard warranty. In those instances, in which extended warranty services are separately quoted to the customer, an additional performance obligation is created, and the associated revenue is deferred and recognized as service revenue ratably over the term of the extended warranty period. The portion of service contracts and extended warranty services agreements that are uncompleted at the end of any reporting period are included in deferred revenue.
 
We recognize an asset for the incremental direct costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. There has been no change in the Company’s accounting for these contracts as a result of the adoption of Topic 606. Costs related to obtaining sales contracts for our aerospace printer products have been capitalized and are being amortized based on the forecasted number of units sold over the estimated benefit term. We apply the practical expedient to expense costs incurred for costs to obtain a contract when the amortization period would have been less than a year These costs include sales commissions paid to the internal direct sales team as well as to third-party representatives and distributors. Contractual agreements with each of these parties outline commission structures and rates to be paid. Generally speaking, the contracts are all individual procurement decisions by the customers and do not include renewal provisions and as such the majority of the contracts have an economic life of significantly less than a year.
Accounts Receivables and Allowance for Doubtful Accounts:
Standard payment terms are typically 30 days after shipment but vary by type and geographic location of our customer. Credit is extended based upon an evaluation of the customer’s financial condition. In circumstances where we are aware of a customer’s inability to meet its financial obligations, an allowance is established. The remainder of the allowance established is based on a variety of factors, including the age of amounts outstanding relative to their contractual due date, historical
write-off
experience and current market assessments. Accounts receivable are stated at their estimated net realizable value.
Research and Development Costs:
We charge costs to expense in the period incurred, and these expenses are presented in the consolidated statement of income. The following costs are included in research and development expense: salaries and benefits, external engineering service costs, engineering related information costs and supplies.
Foreign Currency Translation:
The financial statements of foreign subsidiaries and branches are measured using the local currency as the functional currency. Foreign currency-denominated assets and liabilities are translated into U.S. dollars at
year-end
exchange rates with the translation adjustment recorded as a component of accumulated comprehensive income (loss) in shareholders’ equity. Revenues and expenses are translated at the average monthly exchange rates in effect during the related period. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our subsidiaries in Germany, Denmark and China since their undistributed earnings are considered to be permanently invested. Our net transactional foreign exchange losses included in the consolidated statements of income were $0.4 million in fiscal 2020, $0.7 million in fiscal 2019 and $0.2 million for fiscal 2018.
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 $1.8 million; $1.9 million and $1.8 million in fiscal 2020, 2019 and 2018, 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 2020, 2019 and 2018, there were no impairment charges for long-lived assets.
Intangible Assets:
Intangible assets include the value of customer and distributor relationships, existing technology and
non-competition
agreements acquired in connection with business and asset acquisitions and are stated at cost (fair value at acquisition) less accumulated amortization. These intangible assets have a definite life and are amortized over the assets’ useful lives using a systematic and rational basis which is representative of the assets’ use. Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. If necessary, an impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. For 2020, 2019 and 2018, there were no impairment charges for intangible assets.
Goodwill:
Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in revenue, earnings or cash flows, or material adverse changes in the business climate indicate that the carrying value of an asset might be impaired. Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment, or a business unit one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. However, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. We determined that each of our operating segments (Product Identification and T&M) represents a reporting unit for purposes of goodwill impairment testing.
The accounting guidance related to goodwill impairment testing allows for the performance of an optional qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Factors that management considers in this qualitative assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is required for the reporting unit. The quantitative assessment compares the fair value of the reporting unit with its carrying value. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow model. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. In addition, the Company uses the market approach, which compares the reporting unit to publicly traded companies and transactions involving similar business, to support the conclusions based upon the income approach. The income approach requires the use of many assumptions and estimates including future revenue, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates. If the fair value of the reporting unit exceeds the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then we record an impairment charge based on that difference.
We performed a qualitative assessment for our fiscal 2020 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying values of the reporting units exceed their fair values. Accordingly, no quantitative assessment was performed, as management believes that there are no impairment issues in regard to goodwill at this time.
Leases:
On February 1, 2019 the Company adopted ASC 842, Leases. This new guidance requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the recognition of a right of use (ROU) asset and a lease liability. The lease liability is equal to the present value of the minimum lease payments for the term of the lease, including any optional renewal periods determined to be reasonably certain to be exercised, using a discount rate determined at lease commencement. This discount rate is the rate implicit in the lease, if known; otherwise, the incremental borrowing rate for the expected lease term is used. The Company’s incremental borrowing rate approximates the rate the Company would have to pay to borrow on a collateralized basis over a similar term at lease inception. The value of the ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement date and any unamortized initial direct costs incurred by the lessee, less any unamortized lease incentives received. Several of the Company’s lease contracts include options to extend the lease term and the Company includes the renewal options for these leases in the determination of the ROU asset and lease liability when the likelihood of renewal is determined to be reasonably certain.
The Company enters into lease contracts for certain of its facilities at various locations worldwide. At inception of a contract, the Company determines whether the contract is or contains a lease. If the Company has a right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the asset, then the contract contains a lease.
There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. The Company has made an accounting policy election to apply the short-term exception, which does not require the capitalization of leases with terms of 12 months or less. All of the Company’s leases are classified as operating leases. Operating lease expense is recognized on a straight-line basis over the lease term and included in general and administrative expense on the consolidated statement of income. ROU assets are classified in other long-term assets, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other long-term liabilities on the consolidated balance sheet at January 31, 2020. On the statement of cash flow, payments for operating leases are classified as operating activities for the year ending January 31, 2020.
In addition, several of our lease agreements include
non-lease
components for items such as common area maintenance and utilities which are accounted for separately from the lease component.
Income Taxes:
We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of the assets and liabilities and are measured using statutory tax rates that will be in effect when the differences are expected to reverse. The Company’s deferred taxes are presented as
non-current
in the accompanying consolidated balance sheet. An allowance against deferred tax assets is recognized when it is
more-likely-than-not
that some portion or all of the deferred tax assets will not be realized. At January 31, 2020 and 2019, a valuation allowance was provided for deferred tax assets attributable to certain
domestic
R&D credit carryforwards. In addition, during fiscal 2020, the Company provided a valuation allowance for deferred tax assets attributable to foreign tax credit carryforwards and net operating loss carryforwards in China, both of which would expire unused.
AstroNova accounts for uncertain tax positions in accordance with the guidance provided in ASC 740, “Accounting for Income Taxes.” This guidance describes a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken in a tax return and requires recognition of tax benefits that satisfy a
more-likely-than-not
threshold. ASC 740 also provides guidance on
de-recognition,
classification, interest and penalties, accounting in interim periods and disclosure.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (“Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected us, including a
one-time
mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. All accounting under SAB 118 was finalized during the quarter ending January 31, 2019 with no material changes from the provisional amounts previously recorded.
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 2020, 2019 and 2018, there were 202,187, 326,275 and 675,600, 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.
Fair Value Measurement:
We measure our financial assets at fair value on a recurring basis in accordance with the guidance provided in ASC 820, “Fair Value Measurement and Disclosures,” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, ASC 820 establishes a three-tiered hierarchy for inputs used in management’s determination of fair value of financial instruments that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect management’s belief about the assumptions market participants would use in pricing a financial instrument based on the best information available in the circumstances.
The fair value hierarchy is summarized as follows:
 
 
 
Level 1—Quoted prices in active markets for identical assets or liabilities;
 
 
 
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
 
 
 
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
Cash and cash equivalents, accounts receivable, accounts payable, accrued compensation, other accrued expenses and income tax payable are reflected in the consolidated balance sheet at carrying value, which approximates fair value due to the short-term nature of these instruments.
Self-Insurance:
We are self-insured for
 U.S.
medical and dental benefits for qualifying employees and maintain stop-loss coverage from a third party which limits our exposure to large claims. We record a liability associated with these benefits that includes an estimate of both claims filed and losses incurred but not yet reported based on historical claims experience. In estimating this accrual, we utilize an independent third-party broker to estimate expected losses, which are based on analyses of historical data. Assumptions are closely monitored and adjusted when warranted by changing circumstances. Our liability for self-insured claims is included within accrued compensation in our consolidated balance sheets and was $0.6 million and $0.1 million, as of January 31, 2020 and 2019.
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 several complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), the risk-free interest rate and the Company’s dividend yield. The stock price volatility assumption is based on the historical weekly price data of our common stock over a period equivalent to the weighted average expected life of our options. Management evaluated whether there were factors during that period which were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. In determining the expected life of the option grants, the Company has observed the actual terms of prior grants with similar characteristics and the actual vesting schedule of the grant and has assessed the expected risk tolerance of different option groups. The risk-free interest rate is based on the actual U.S. Treasury zero coupon rates for bonds matching the expected term of the option as of the option grant date. The dividend assumption is based upon the prior year’s average dividend yield. No compensation expense is recognized for options that are forfeited for which the employee does not render the requisite service. Our accounting for share-based compensation for restricted stock awards (RSA) and restricted stock units (RSU) is also based on the fair value method. The fair value of the RSUs and RSAs is based on the closing market price of the Company’s common stock on the grant date. Reductions in compensation expense associated with forfeited awards are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience.
Cash flow from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) is classified with other income tax cash flows as an operating activity.
Share-based compensation becomes deductible for determining income taxes when the related award vests, is exercised, or is forfeited depending on the type of share-based award and subject to relevant tax law.
Derivative Financial Instruments:
The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in foreign currency exchange rates and interest rates. Derivative instruments are recognized as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the statement of income during the current period. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same line item associated with the forecasted transaction, and in the same period or periods during which the hedged transaction affects earnings (e.g., in “Interest Expense” when the hedged transactions are interest cash flows associated with floating-rate debt, or “Other, Net” for portions reclassified relating to the remeasurement of the debt). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, are recognized in the statement of income during the current period.
Recent Accounting Pronouncements
Recently Adopted:
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued
ASU2016-02,
“Leases (Topic 842).” ASU
2016-02
and its subsequent amendments superseded previous guidance related to accounting for leases and are 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 updates also require improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases.
The Company applied ASU
2016-02
to all leases in effect at February 1, 2019 and adopted this standard using the
non-comparative
transition option, which does not require the restatement of prior years. Accordingly, comparative information has not been adjusted and continues to be reported under the previous accounting guidance. The Company has elected the package of practical expedients, which allows entities to not reassess (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Also, the Company has made an accounting policy election to apply the short-term exception, which does not require the capitalization of leases with terms of 12 months or less. On February 1, 2019, the Company recognized $2.0 million of Right of Use (“ROU”) assets and lease liabilities on its consolidated balance sheet and currently has $1.7 million of ROU assets as of January 31, 2020. The adoption did not have a material impact on the Company’s results of operations or cash flows.
Recent Accounting Standards Not Yet Adopted:
Fair Value Measurement
In August 2018, the FASB issued ASU
2018-13, “Fair
Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU
2018-13
modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. This ASU is effective for annual periods beginning after December 15, 2019 including interim periods within those fiscal years (Q1 fiscal 2021 for AstroNova), with early adoption permitted. The provisions of ASU
2018-13
relating to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The remaining provisions should be applied retrospectively to all periods presented upon their effective date. This standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
No other new accounting pronouncements, issued or effective during fiscal 2020, have had or are expected to have a material impact on our consolidated financial statements.
v3.20.1
Revenue Recognition
12 Months Ended
Jan. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
Note 2—Revenue Recognition
We derive revenue from the sale of (i) hardware including, digital color label printers and specialty OEM printing systems, portable data acquisition systems and airborne printers used in the flight deck and in the cabin of military, commercial and business aircraft, (ii) related consumable supplies including paper, labels, tags, inks, toners and ribbons, (iii) repairs and maintenance of equipment and (iv) service agreements.
Revenues disaggregated by primary geographic markets and major product types are as follows:
Primary geographical markets:
 
 
  
Year Ended
 
(In thousands)
  
January 31,
2020
 
  
January 31,
2019
 
  
January 31,
2018
 
United States
  
$
83,671
 
  
$
83,668
 
  
$
69,795
 
Europe
  
 
29,617
 
  
 
31,574
 
  
 
29,948
 
Asia
  
 
8,316
 
  
 
8,207
 
  
 
3,808
 
Canada
  
 
5,719
 
  
 
6,692
 
  
 
5,373
 
Central and South America
  
 
4,145
 
  
 
4,147
 
  
 
3,402
 
Other
  
 
1,978
 
  
 
2,369
 
  
 
1,075
 
  
 
 
   
 
 
   
 
 
 
Total Revenue
  
$
133,446
 
  
$
136,657
 
  
$
113,401
 
  
 
 
   
 
 
   
 
 
 
Major product types:
 
 
  
Year Ended
 
(In thousands)
  
January 31,
2020
 
  
January 31,
2019
 
  
January 31,
2018
 
Hardware
  
$
48,959
 
  
$
53,207
 
  
$
37,501
 
Supplies
  
 
71,838
 
  
 
71,178
 
  
 
65,265
 
Service and Other
  
 
12,649
 
  
 
12,272
 
  
 
10,635
 
  
 
 
   
 
 
   
 
 
 
Total Revenue
  
$
133,446
 
  
$
136,657
 
  
$
113,401
 
  
 
 
   
 
 
   
 
 
 
Contract Assets and Liabilities
We normally do not have contract assets, which are primarily unbilled accounts receivable that are conditional on something other than the passage of time. Our contract liabilities, which represent billings in excess of revenue recognized, are related to advanced billings for purchased service agreements and extended warranties. Contract liabilities were $466,000 and $373,000 at January 31, 2020 and January 31, 2019, respectively and are recorded as deferred revenue in the consolidated balance sheet. During the year ended January 31, 2020, the Company recognized $361,000 of revenue that was included in the contract liability balance at the beginning of the period.
 
Contract Costs
We have determined that certain costs related to obtaining sales contracts for our aerospace printer products meet the requirement to be capitalized. These costs are deferred and amortized based on the forecasted number of units sold over the estimated benefit term. The balance of these contract assets at January 31, 2019 was $903,000 of which $109,000 was reported in other current assets and $794,000 was reported in other assets in the consolidated balance sheet. In fiscal 2020, the Company incurred an additional $120,000 in incremental direct costs which were deferred. Amortization of incremental direct costs was $79,000 for the period ended January 31, 2020. The balance of the deferred incremental direct contract costs net of accumulated amortization at January 31, 2020 is $944,000, of which $59,000 was reported in other current assets and $885,000 was reported in other assets in the consolidated balance sheet. The contract costs are expected to be amortized over the estimated remaining period of benefit, which we currently estimate to be approximately 6 years.
v3.20.1
Intangible Assets
12 Months Ended
Jan. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets
Note 3—Intangible Assets
Intangible assets are as follows:
 
 
 
January 31, 2020
 
 
January 31, 2019
 
(In thousands)
 
Gross
Carrying
Amount
 
 
Accumulated
Amortization
 
 
Currency
Translation
Adjustment
 
 
Net
Carrying
Amount
 
 
Gross
Carrying
Amount
 
 
Accumulated
Amortization
 
 
Currency
Translation
Adjustment
 
 
Net
Carrying
Amount
 
Miltope:
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Customer Contract Relationships
 
$
3,100
 
 
$
(2,021
 
$
—  
 
 
$
1,079
 
 
$
3,100
 
 
$
(1,723
 
$
—  
 
 
$
1,377
 
RITEC:
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Customer Contract Relationships
 
 
2,830
 
 
 
(1,076
 
 
—  
 
 
 
1,754
 
 
 
2,830
 
 
 
(725
 
 
—  
 
 
 
2,105
 
Non-Competition
Agreement
 
 
950
 
 
 
(871
 
 
—  
 
 
 
79
 
 
 
950
 
 
 
(681
 
 
—  
 
 
 
269
 
TrojanLabel:
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Existing Technology
 
 
2,327
 
 
 
(1,053
 
 
78
 
 
 
1,352
 
 
 
2,327
 
 
 
(711
 
 
140
 
 
 
1,756
 
Distributor Relations
 
 
937
 
 
 
(297
 
 
27
 
 
 
667
 
 
 
937
 
 
 
(200
 
 
56
 
 
 
793
 
Honeywell:
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Customer Contract Relationships
 
 
27,243
 
 
 
(6,791
 
 
—  
 
 
 
20,452
 
 
 
27,243
 
 
 
(3,869
 
 
—  
 
 
 
23,374
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible Assets, net
 
$
37,387
 
 
$
(12,109
 
$
105
 
 
$
25,383
 
 
$
37,387
 
 
$
(7,909
 
$
196
 
 
$
29,674
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
There were no impairments to intangible assets during the periods ended January 31, 2020 and 2019. Amortization expense of $4.2 million; $4.1 million and $2.2 million with regard to acquired intangibles has been included in the consolidated statements of income for years ended January 31, 2020, 2019 and 2018, respectively.
Estimated amortization expense for the next five fiscal years is as follows:
 
(In thousands)
  
2021
 
  
2022
 
  
2023
 
  
2024
 
  
2025
 
Estimated amortization expense
  
$
4,069
 
  
$
3,972
 
  
$
3,966
 
  
$
3,969
 
  
$
3,394
 
 
v3.20.1
Inventories
12 Months Ended
Jan. 31, 2020
Inventory Disclosure [Abstract]  
Inventories
Note 4—Inventories
The components of inventories are as follows:
 
 
  
January 31
 
 
  
2020
 
  
2019
 
(In thousands)
  
 
 
  
 
 
Materials and Supplies
  
$
20,151
 
  
$
17,517
 
Work-in-Progress
  
 
1,408
 
  
 
1,633
 
Finished Goods
  
 
17,992
 
  
 
15,688
 
  
 
 
   
 
 
 
  
 
39,551
 
  
 
34,838
 
Inventory Reserve
  
 
(5,626
  
 
(4,677
  
 
 
   
 
 
 
Balance at January 31
  
$
33,925
 
  
$
30,161
 
  
 
 
   
 
 
 
Finished goods inventory includes $3.4 million and $2.1 million of demonstration equipment at January 31, 2020 and 2019, respectively.
v3.20.1
Property, Plant and Equipment
12 Months Ended
Jan. 31, 2020
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
Note 5—Property, Plant and Equipment
Property, plant and equipment consist of the following:
 
 
  
January 31
 
 
  
2019
 
  
2019
 
(In thousands)
  
 
 
  
 
 
Land and Land Improvements
  
$
967
 
  
$
967
 
Buildings and Leasehold Improvements
  
 
12,524
 
  
 
12,165
 
Machinery and Equipment
  
 
23,167
 
  
 
22,810
 
Computer Equipment and Software
  
 
11,388
 
  
 
9,385
 
 
  
 
 
 
  
 
 
 
Gross Property, Plant and Equipment
  
 
48,046
 
  
 
45,327
 
Accumulated Depreciation
  
 
(36,778
  
 
(34,947
 
  
 
 
 
  
 
 
 
Net Property Plant and Equipment
  
$
11,268
 
  
$
10,380
 
 
  
 
 
 
  
 
 
 
Depreciation expense on property, plant and equipment was $2.0 million for both of the years ended January 31, 2020 and 2019 and $1.8 million for the year ended January 31, 2018.
 
v3.20.1
Accrued Expenses
12 Months Ended
Jan. 31, 2020
Payables and Accruals [Abstract]  
Accrued Expenses
Note 6—Accrued Expenses
Accrued expenses consisted of the following:
 
 
  
January 31
 
 
  
2020
 
  
2019
 
(In thousands)
  
 
 
  
 
 
Warranty
  
$
850
 
  
$
832
 
Professional Fees
  
 
697
 
  
 
403
 
Lease Liability
  
 
416
 
  
 
—  
 
Dealer Commissions
  
 
236
 
  
 
320
 
Stockholder Relation Fees
  
 
194
 
  
 
40
 
Accrued Payroll & Sales Tax
  
 
193
 
  
 
97
 
Other Accrued Expenses
  
 
2,125
 
  
 
1,219
 
  
 
 
   
 
 
 
  
$
4,711
 
  
$
2,911
 
  
 
 
   
 
 
 
v3.20.1
Long- Term Debt and Other Financing Arrangements
12 Months Ended
Jan. 31, 2020
Debt Disclosure [Abstract]  
Long- Term Debt and Other Financing Arrangements
Note 7—Long- Term Debt and Other Financing Arrangements
Long-term debt in the accompanying condensed consolidated balance sheets is as follows:
 
 
  
January 31
 
(In thousands)
  
2020
 
  
2019
 
USD Term Loan (3.03% and 4.02% as of January 31, 2020 and 2019, respectively); maturity date November 30, 2022
  
$
8,250
 
  
$
11,250
 
USD Term Loan (3.03% and 4.02% as of January 31, 2020 and 2019, respectively); maturity date of January 31, 2022
  
 
4,784
 
  
 
6,992
 
 
  
 
 
 
  
 
 
 
 
  
 
13,034
 
  
 
18,242
 
Debt Issuance Costs, net of accumulated amortization
  
 
(111
  
 
(164
Current Portion of Term Loan
  
 
(5,208
  
 
(5,208
 
  
 
 
 
  
 
 
 
Long-Term Debt
  
$
7,715
 
  
$
12,870
 
 
  
 
 
 
  
 
 
 
The schedule of required principal payments remaining during the next five years on long-term debt outstanding as of January 31, 2020 is as follows:
 
(In thousands)
  
 
 
Fiscal 2021
  
$
5,208
 
Fiscal 2022
  
 
5,576
 
Fiscal 2023
  
 
2,250
 
Fiscal 2024
  
 
—  
 
Fiscal 2025
  
 
—  
 
  
 
 
 
  
$
13,034
 
  
 
 
 
Revolving Line of Credit
The Company has a $17.5 million revolving line of credit under its existing Credit Agreement with Bank of America. Revolving credit loans may be borrowed, at the Company’s option, in U.S. Dollars or, subject to certain conditions, Euros, British Pounds, Canadian Dollars or Danish Kroner. Amounts borrowed under the revolving credit facility bear interest at a rate
per annum
equal to, at the Company’s option, either (a) the LIBOR rate (or in the case of revolving credit loans denominated in a currency other than U.S. Dollars, the applicable quoted rate), plus a margin that varies within a range of 1.0% to 1.5% based on the Company’s consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal funds’ rate plus 0.50%, (ii) Bank of America’s publicly announced prime rate or (iii) the LIBOR rate plus 1.00%, plus a margin that varies within a range of 0.0% to 0.5% based on the Company’s consolidated leverage ratio.
At January 31, 2020, the Company had an outstanding balance of $6.5 million on the revolving credit line. As of January 31, 2020. the outstanding balance bore interest at a weighted average annual rate of 3.68% and $0.1 million of interest was incurred on this obligation and included in other expense in the accompanying consolidated income statement for the period ended January 31, 2020. As of January 31, 2020, there is $11.0 million available for borrowing under the revolving credit facility.
The Company is required to pay a commitment fee on the undrawn portion of the revolving credit facility at the rate of 0.25%
per annum
.
Credit Agreement
The Company and the Company’s wholly owned Danish subsidiaries, ANI ApS and TrojanLabel ApS (collectively the “Parties”), are parties to a credit agreement (the “Credit Agreement”) with Bank of America, N.A. The Credit Agreement and its subsequent amendments through fiscal 2019 provided for a secured credit facility consisting of a term loan to ANI ApS in the principal amount of $9.2 million, a term loan to the Company in the principal amount of $15.0 million and a revolving credit facility for the Company.
The term loans bear interest at a rate
per annum
equal to the LIBOR rate plus a margin that varies within a range of 1.0% to 1.5% based on the Company’s consolidated leverage ratio. In connection with the Credit Agreement, AstroNova and ANI ApS entered into certain hedging arrangements with the Lender to manage the variable interest rate risk and currency risk associated with its payments in respect of the $9.2 million term loan. In connection with the Second Amendment to the Credit Agreement, AstroNova entered into certain hedging arrangements with the Lender to manage the variable interest rate risk and currency exchange risk associated with its payments in respect of the $15.0 million term loan. Refer to Note 8, “Derivative Financial Instruments and Risk Management” for further information about these arrangements.
The Parties must comply with various customary financial and
non-financial
covenants under the Credit Agreement. The Credit Agreement contains limitations, in each case subject to various exceptions and thresholds, on the Company’s and its subsidiaries’ ability to incur future indebtedness, to place liens on assets, to conduct mergers or acquisitions, to sell assets, to alter their capital structure, to make investments and loans, to change the nature of their business, and to prepay subordinated indebtedness. The Credit Agreement permits the Company to pay cash dividends on and repurchase shares of its common stock, subject to certain limitations.
The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the Credit Agreement upon the occurrence of any of various customary events of default, which include, among other events, the following: failure to pay when due any principal, interest or other amounts in respect of the loans, breach of any of the Company’s covenants or representations under the loan documents, default under any other of the Company’s or its subsidiaries’ significant indebtedness agreements, a bankruptcy, insolvency or similar event with respect to the Company or any of its subsidiaries, a significant unsatisfied judgment against the Company or any of its subsidiaries, or a change of control of the Company.
The obligations of ANI ApS in respect of the $9.2 million term loan are guaranteed by the Company and TrojanLabel ApS. The Company’s obligations in respect of the $15.0 million term loan, revolving credit facility and its guarantee in respect of the ANI ApS term loan are secured by substantially all of the assets of the Company (including a pledge of a portion of the equity interests held by the Company in ANI ApS and the Company’s wholly-owned German subsidiary AstroNova GmbH), subject to certain exceptions.
On December 9, 2019, the Parties entered into a Fourth Amendment (the “Fourth Amendment”) to the Credit Agreement. The Fourth Amendment amended the Credit Agreement to, among other things, (i) increase the aggregate amount available for borrowings under the revolving line of credit from $10.0 million to $17.5 million through the second quarter of fiscal 2021 and (ii) modify the financial covenants with which the Company must comply thereunder by excluding certain capital expenditures from the calculation of the Company’s consolidated fixed charge coverage ratio, providing that the minimum consolidated fixed charge coverage ratio covenant will be suspended through the second quarter of fiscal 2021, and adding a minimum consolidated EBITDA covenant commencing with the fourth quarter of fiscal 2020 and continuing through the second quarter of fiscal 2021. As of January 31, 2020, the Company believes it is in compliance with all of the covenants in the Credit Agreement.
 
v3.20.1
Derivative Financial Instruments and Risk Management
12 Months Ended
Jan. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Risk Management
Note 8—Derivative Financial Instruments and Risk Management
The Company has entered into a cross-currency interest rate swap to manage the interest rate risk and foreign currency exchange risk associated with the floating-rate foreign currency-denominated term loan borrowing by our Danish Subsidiary and an interest rate swap to manage the interest rate risk associated with the variable rate term loan borrowing by the Company. Both swaps have been designated as cash flow hedges of floating-rate borrowings and are recorded at fair value.
The cross-currency interest rate swap agreement utilized by the Company effectively modifies the Company’s exposure to interest rate risk and foreign currency exchange rate risk by converting the Company’s floating-rate debt denominated in U.S. Dollars on our Danish subsidiary’s books to a fixed-rate debt denominated in Danish Kroner for the term of the loan, thus reducing the impact of interest-rate and foreign currency exchange rate changes on future interest expense and principal repayments. This swap involves the receipt of floating rate amounts in U.S. Dollars in exchange for fixed-rate interest payments in Danish Kroner, as well as exchanges of principal at the inception spot rate, over the life of the term loan.
The interest rate swap agreement utilized by the Company on the term loan effectively modifies the Company’s exposure to interest rate risk by converting the Company’s floating-rate debt to fixed-rate debt for the next five years, thus reducing the impact of interest-rate changes on future interest expense. This swap involves the receipt of floating rate amounts in U.S. dollars in exchange for fixed rate payments in U.S. dollars over the life of the term loan.
The following table summarizes the notional amount and fair value of the Company’s derivative instrument:
 
Cash Flow Hedges
(In thousands)
  
January 31, 2020
 
  
January 31, 2019
 
  
 
 
  
Fair Value Derivatives
 
  
 
 
  
Fair Value Derivatives
 
 
  
Notional Amount
 
  
Asset
 
  
Liability
 
  
Notional Amount
 
  
Asset
 
  
Liability
 
Cross-currency Interest Rate Swap
  
$
4,489
 
  
$
—  
  
$
250
 
  
$
6,329
 
  
$
—  
  
$
600
 
Interest Rate Swap
  
$
8,250
 
  
$
—  
  
$
96
 
  
$
11,250
 
  
$
85
 
  
$
—  
The following tables present the impact of the derivative instruments in our consolidated financial statements for the years ended January 31, 2020 and 2019:
 
 
  
Years Ended
 
 
 
  
Amount of Gain
Recognized in OCI
on
Derivative
 
  
Location of Gain
Reclassified from
Accumulated OCI  into
Income
 
  
Amount of Gain
Reclassified from
Accumulated OCI into
Income
 
Cash Flow Hedge
(In thousands)
  
January 31,
2020
 
  
January 31,
2019
 
  
January 31,
2020
 
  
January 31,
2019
 
Swap contracts
  
$
159
 
  
$
797
 
  
 
Other Income
 
  
$
338
 
  
$
769
 
 
  
 
 
 
  
 
 
 
  
   
  
 
 
 
  
 
 
 
At January 31, 2020, the Company expects to reclassify approximately $0.1 million of net gains on the swap contracts from accumulated other comprehensive loss to earnings during the next 12 months due to changes in foreign exchange rates and the payment of variable interest associated with the floating-rate debt.
v3.20.1
Royalty Obligation
12 Months Ended
Jan. 31, 2020
Royalty Obligation Disclosure [Abstract]  
Royalty Obligation
Note 9—Royalty Obligation
In fiscal 2018, AstroNova, Inc. entered into an Asset Purchase and License Agreement with Honeywell International, Inc. to acquire an exclusive, perpetual, world-wide license to manufacture Honeywell’s narrow-format flight deck printers for two aircraft families along with certain inventory used in the manufacturing of the licensed printers. The purchase price included a guaranteed minimum royalty payment of $15.0 million, to be paid in quarterly installments over a ten year period. Royalty payments are based on gross revenues from the sales of the printers, paper and repair services of the licensed products. The royalty rates vary based on the year in which they are paid or earned and product sold or service provided, and range from single-digit to mid double-digit percentages of gross revenue.
The guaranteed minimum royalty payment obligation was recorded at the present value of the minimum annual royalty payments using a present value factor of 2.8%, which is based on the estimated
after-tax
cost of debt for similar companies. As of January 31, 2020, the Company had paid an aggregate of $3.5 million of the guaranteed minimum royalty obligation. At January 31, 2020, the current portion of the outstanding guaranteed minimum royalty obligation of $2.0 million is to be paid over the next twelve months and is reported as a current liability and the remainder of $8.0 million is reported as a long-term liability on the Company’s consolidated balance sheet. In addition to the guaranteed minimum royalty payments, for the periods ended January 31, 2020 and January 31, 2019, the Company also incurred excess royalty expense of $1.2 million and $2.8 million, respectively, which is included in cost of revenue in the Company’s consolidated statements of income. A total of $0.8 million of excess royalty is payable and reported as a current liability on the Company’s condensed consolidated balance sheet at January 31, 2020.
v3.20.1
Leases
12 Months Ended
Jan. 31, 2020
Leases [Abstract]  
Leases
Note 10—Leases
The Company enters into lease contracts for certain of its facilities at various locations worldwide. Our leases have remaining lease terms of one to eight years, some of which include options to extend the lease term for periods of up to five years when it is reasonably certain the Company will exercise such options.
The company leases office space from an affiliate. This lease is classified as an operating lease with annual rental payments of approximately $63,000 and $61,000 as of January 31, 2020 and 2019, respectively.
Balance sheet and other information related to our leases is as follows:
 
Operating Leases
(In thousands)
  
Balance Sheet Classification
  
January 31,
2020
 
Lease Assets
  
Right of Use Assets
  
$
1,661
 
Lease Liabilities
Current
  
Other Liabilities and Accrued Expenses
  
 
416
 
Lease Liabilities
Long Term
  
Lease Liabilities
  
$
1,279
 
Lease cost information is as follows:
 
 
 
  
 
 
  
 
 
  
Year Ended
 
Operating Leases
(In thousands)
  
Statement of Income Classification
 
  
 
 
  
January 31,
2020
 
Operating Lease Costs
  
 
General and Administrative Expense
 
  
 
                
 
  
$
449
 
Maturities of operating lease liabilities are as follows:
 
(In thousands)
  
January 31,
2020
 
2021
  
$
416
 
2022
  
 
358
 
2023
  
 
300
 
2024
  
 
273
 
2025
  
 
169
 
Thereafter
  
 
389
 
  
 
 
 
Total Lease Payments
  
 
1,905
 
Less: Imputed Interest
  
 
(210
  
 
 
 
Total Lease Liabilities
  
$
1,695
 
  
 
 
 
As of January 31, 2020, the weighted-average remaining lease term and weighted-average discount rate for our operating leases are 5.6 years and 3.96%, respectively. We calculated the weighted-average discount rate using incremental borrowing rates, which equal the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.
 
Supplemental cash flow information related to leases is as follows:
 
 
 
 
 
 
 
  
Year Ended
 
(In thousands)
 
 
 
  
January 31,
2020
 
Cash paid for operating lease liabilities
 
 
                
 
  
$
406
 
v3.20.1
Accumulated Other Comprehensive Loss
12 Months Ended
Jan. 31, 2020
Equity [Abstract]  
Accumulated Other Comprehensive Loss
Note 11—Accumulated Other Comprehensive Loss
The changes in the balance of accumulated other comprehensive loss by component are as follows:
 
(In thousands)
  
Foreign Currency
Translation
Adjustments
 
 
Unrealized Holding
Gain (Loss)
on Available for
Sale Securities
 
 
Net
Unrealized
Gain (Losses)
on Cash Flow
Hedges
 
 
Total
 
Balance at January 31, 2017
  
$
(1,048
 
$
(8
 
$
—  
 
 
$
(1,056
Other Comprehensive Loss Income (Loss) before reclassification
  
 
867
 
 
 
5
 
 
 
(1,036
 
 
(164
Amounts Reclassified to Net Income
  
 
—  
 
 
 
—  
 
 
 
1,048
 
 
 
1,048
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Other Comprehensive Income
  
 
867
 
 
 
5
 
 
 
12
 
 
 
884
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 31, 2018
  
$
(181
 
$
(3
 
$
12
 
 
$
(172
Other Comprehensive Income (Loss) before reclassification
  
 
(671
 
 
—  
 
 
 
622
 
 
 
(49
Amounts reclassified from AOCI to Earnings
  
 
—  
 
 
 
3
 
 
 
(600
 
 
(597
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss)
  
 
(671
 
 
3
 
 
 
22
 
 
 
(646
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 31, 2019
  
$
(852
 
$
—  
 
 
$
34
 
 
$
(818
Other Comprehensive Income (Loss) before reclassification
  
 
(133
 
 
—  
 
 
 
122
 
 
 
(11
Amounts reclassified from AOCI to Earnings
  
 
—  
 
 
 
—  
 
 
 
(264
 
 
(264
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Comprehensive Loss
  
 
(133
 
 
—  
 
 
 
(142
 
 
(275
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 31, 2020
  
$
(985
 
$
—  
 
 
$
(108
 
$
(1,093
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The amounts presented above in other comprehensive income (loss) are net of taxes except for translation adjustments associated with our German and Danish subsidiaries.
v3.20.1
Shareholders' Equity
12 Months Ended
Jan. 31, 2020
Federal Home Loan Banks [Abstract]  
Shareholders' Equity
Note 12—Shareholders’ Equity
During fiscal 2020, 2019 and 2018, certain of the Company’s employees delivered a total of 20,329, 33,430 and 26,561 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 $0.5 million, $0.6 million and $0.4 million, respectively, and are included in treasury stock in the accompanying consolidated balance sheets at January 31, 2020, 2019 and 2018. These transactions did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.
 
v3.20.1
Share-Based Compensation
12 Months Ended
Jan. 31, 2020
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
Note 13—Share-Based Compensation
The Company maintains the following share-based compensation plans:
Stock Plans:
We have one equity incentive plan from which we are authorized to grant equity awards, the AstroNova, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for, among other things, the issuance of awards, including incentive stock options,
non-qualified
stock options, stock appreciation rights, time-based restricted stock units (RSUs), performance-based restricted stock units (PSUs)
 
and restricted stock awards (RSAs). At our annual meeting of shareholders held on June 4, 2019, the 2018 Plan was amended to increase the number of shares of the Company’s common stock available for issuance by 300,000, bringing the total number of shares available for issuance under the 2018 Plan from 650,000 to 950,000, plus an additional number of shares equal to the number of shares subject to awards granted under the 2018 Plan or our 2015 Equity Incentive Plan (the “2015 Plan”) that are forfeited,
cancelled
, satisfied without the issuance of stock, otherwise terminated (other than by exercise), or, for shares of stock issued pursuant to any
unvested
award, reacquired by the Company at not more than the grantee’s purchase price (other than by exercise). Under the 2018 Plan, all awards to employees generally have a minimum vesting period of one year. Options granted under the 2018 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 and expire after ten years. As of January 31, 2020, 110,909
unvested
shares of restricted stock and options to purchase an aggregate of 138,999 shares were outstanding under the 2018 Plan.    
In addition to the 2018 Plan, we previously granted equity awards under the 2015 Plan and our 2007 Equity Incentive Plan (the “2007 Plan”). No new awards may be issued under the 2015 Plan or the 2007 Plan, but outstanding awards will continue to be governed by those plans. As of January 31, 2020, 1,007 unvested shares of restricted stock and options to purchase an aggregate of 373,345 shares were outstanding under the 2007 Plan and 22,718 unvested shares of restricted stock and options to purchase an aggregate of 166,700 shares were outstanding under the 2015 Plan.
On January 31, 2019, the compensation committee of the Company’s board of directors adopted an Amended and Restated
Non-Employee
Director Annual Compensation Program (the “New Program”), which became effective as of February 1, 2019. Pursuant to the New Program, beginning with fiscal 2020, each
non-employee
director automatically receives a grant of restricted stock on the date of their
re-election
to the Company’s board of directors. The number of whole shares to be granted equals the number calculated by dividing the stock component of the director compensation amount determined by the compensation committee for that year by the fair market value of our stock on that day. The value of the restricted stock award for fiscal 2020 was $60,000. To account for the partial year beginning on February 1, 2019 and continuing through the 2019 annual meeting and thereby provide for the alignment of the timing of annual grants of restricted stock under the New Program with the election of directors at the annual meeting, on February 1, 2019, each
non-employee
director was granted shares of restricted stock with a fair market value of $18,000. Other than the shares granted on February 1, 2019, which vested on June 1, 2019, shares of restricted stock granted under the New Program will become vested on the first anniversary of the date of grant, conditioned upon the recipient’s continued service on the Board through that date.
Share-Based Compensation:
Share-based compensation expense has been recognized as follows:
 
 
 
Years Ended January 31
 
 
 
2020
 
  
2019
 
  
2018
 
(In thousands)
 
 
 
  
 
 
  
 
 
Stock Options
 
$
616
 
  
$
783
 
  
$
437