UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM
10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 2,October 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

Commission file number
0-13200

AstroNova, Inc.

(Exact name of registrant as specified in its charter)

Rhode Island
 
05-0318215

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

600 East Greenwich Avenue, West Warwick, Rhode Island
 
02893
(Address of principal executive offices)
 
(Zip Code)

(401)
828-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol

 

Name of each exchange

on which registered

Common Stock, $.05 Par Value
 
ALOT
 
NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.

Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
   Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act)    Yes  ☐    No  ☒.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the registrant’s common stock, $.05 par value per share, outstanding as of June 23,December
7
, 2020 was 7,163,293.

7,170,486.


EXPLANATORY NOTE

As previously disclosed in our Current Report on Form8-K filed with the SEC on June 11, 2020, the filingTable of this Quarterly Report on Form10-Q for the period ended May 2, 2020 (the “Quarterly Report”) was delayed due to the significant disruptions to our business and operations as a result of theCOVID-19 pandemic. In particular, many of our key finance and accounting personnel, as well as our accounting advisors, are working remotely as a result of social distancing measures put in place in response to COVID-19, and this caused significant inefficiencies in the processes relating to the preparation of this Quarterly Report. The impact ofCOVID-19 on our business also necessitated additional analysis in connection with the preparation and review of the Quarterly Report, including with regard to our available liquidity and capital resources and the impact of theCOVID-19 crisis on goodwill and intangible asset impairment. We relied on the Securities and Exchange Commission’s order issued on March 4, 2020 and revised on March 25, 2020 (ReleaseNo. 34-88465) pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, to delay the filing of this Quarterly Report.

Contents


ASTRONOVA, INC.

INDEX

     
Page No.
 

Part I.

   

Item 1.

   
 3
   4 
    5 
 Unaudited Condensed Consolidated Statements of Comprehensive Income — Three Months Ended May 2, 2020 and May 4, 20196
6
   7 
 Unaudited Condensed Consolidated Statements of Cash Flows — Three Months Ended May 2, 2020 and May 4, 20198
   9-218-21 

Item 2.

    22-2921-31 

Item 3.

 29

Item 4.

Controls and Procedures30

Part II.

Other Information

Item 1.

Legal Proceedings30

Item 1A.

Risk Factors   31 

Item 2.

4.
 31
Part II.
Item 1.
32
Item 1A.
32-33
Item 2.
32

Item 5.

Other Information   33 

Item 6.

5.
 33
Item 6.
   34 

   35 

2

Part I. FINANCIAL INFORMATION

Item 1.

Financial Statements

ASTRONOVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands,thousands, Except Share Data)

   May 2,
2020
  January 31,
2020
 
   (Unaudited)    
ASSETS   

CURRENT ASSETS

   

Cash and Cash Equivalents

  $11,091  $4,249 

Accounts Receivable, net

   18,473   19,784 

Inventories, net

   32,557   33,925 

Prepaid Expenses and Other Current Assets

   2,489   2,193 
  

 

 

  

 

 

 

Total Current Assets

   64,610   60,151 

Property, Plant and Equipment, net

   11,377   11,268 

Intangible Assets, net

   24,328   25,383 

Goodwill

   11,988   12,034 

Deferred Tax Assets, net

   5,073   5,079 

Right of Use Assets

   1,553   1,661 

Other Assets

   1,071   1,088 
  

 

 

  

 

 

 

TOTAL ASSETS

  $120,000  $116,664 
  

 

 

  

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY   

CURRENT LIABILITIES

   

Accounts Payable

  $4,282  $4,409 

Accrued Compensation

   2,893   2,700 

Other Accrued Expenses

   3,697   4,711 

Revolving Credit Facility

   11,500   6,500 

Current Portion of Long-Term Debt

   6,602   5,208 

Current Liability – Royalty Obligation

   2,000   2,000 

Current Liability – Excess Royalty Payment Due

   586   773 

Deferred Revenue

   375   466 
  

 

 

  

 

 

 

Total Current Liabilities

   31,935   26,767 

Long-Term Debt, net of current portion

   6,334   7,715 

Royalty Obligation, net of current portion

   7,550   8,012 

Lease Liabilities, net of current portion

   1,199   1,279 

Deferred Tax Liabilities

   378   435 

Other Long-Term Liabilities

   1,042   1,081 
  

 

 

  

 

 

 

TOTAL LIABILITIES

   48,438   45,289 

SHAREHOLDERS’ EQUITY

   

Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 10,371,704 shares and 10,343,610 shares at May 2, 2020 and January 31, 2020, respectively

   518   517 

AdditionalPaid-in Capital

   56,656   56,130 

Retained Earnings

   49,233   49,298 

Treasury Stock, at Cost, 3,287,271 and 3,281,701 shares at May 2, 2020 and January 31, 2020, respectively

   (33,531  (33,477

Accumulated Other Comprehensive Loss, net of tax

   (1,314  (1,093
  

 

 

  

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

   71,562   71,375 
  

 

 

  

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $120,000  $116,664 
  

 

 

  

 

 

 

   
October 31,
2020
  
January 31,
2020
 
   
(Unaudited)
    
ASSETS
   
CURRENT ASSETS
   
Cash and Cash Equivalents
  $9,603  $4,249 
Accounts Receivable, net
   15,662   19,784 
Inventories, net
   30,868   33,925 
Prepaid Expenses and Other Current Assets
   2,769   2,193 
  
 
 
  
 
 
 
Total Current Assets
   58,902   60,151 
Property, Plant and Equipment, net
   11,944   11,268 
Intangible Assets, net
   22,413   25,383 
Goodwill
   12,466   12,034 
Deferred Tax Assets
   5,099   5,079 
Right of Use Assets
   1,436   1,661 
Other Assets
   1,049   1,088 
  
 
 
  
 
 
 
TOTAL ASSETS
  $113,309  $116,664 
  
 
 
  
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
   
CURRENT LIABILITIES
   
Accounts Payable
  $4,825  $4,409 
Accrued Compensation
   2,749   2,700 
Other Liabilities and Accrued Expenses
   3,481   4,711 
Current Portion of Long-Term Debt
   4,984   5,208 
Revolving Credit Facility
   —     6,500 
Current Liability – Royalty Obligation
   2,000   2,000 
Current Liability – Excess Royalty Payment Due
   147   773 
Deferred Revenue
   313   466 
  
 
 
  
 
 
 
Total Current Liabilities
   18,499   26,767 
Long-Term Debt, net of current portion
   8,488   7,715 
Royalty Obligation, net of current portion
   6,624   8,012 
Long-Term Debt – PPP Loan
   4,422   —   
Lease Liabilities, net of current portion
   1,105   1,279 
Other Long-Term Liabilities
   657   1,081 
Deferred Tax Liabilities
   476   435 
  
 
 
  
 
 
 
TOTAL LIABILITIES
   40,271   45,289 
SHAREHOLDERS’ EQUITY
   
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 10,416,724 shares and 10,343,610 shares at October 31, 2020 and January 31, 2020, respectively
   521   517 
Additional
Paid-in
Capital
   57,894   56,130 
Retained Earnings
   49,248   49,298 
Treasury Stock, at Cost, 3,295,188 and 3,281,701 shares at October 31, 2020 and January 31, 2020, respectively
   (33,568  (33,477
Accumulated Other Comprehensive Loss, net of tax
   (1,057  (1,093
  
 
 
  
 
 
 
TOTAL SHAREHOLDERS’ EQUITY
   73,038   71,375 
  
 
 
  
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $113,309  $116,664 
  
 
 
  
 
 
 
See Notes to condensed consolidated financial statements (unaudited).

3

Table of Contents
ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands,thousands, Except Per Share Data)

(Unaudited)

   Three Months Ended 
   May 2,
2020
  May 4,
2019
 

Revenue

  $30,919  $36,181 

Cost of Revenue

   20,064   21,942 
  

 

 

  

 

 

 

Gross Profit

   10,855   14,239 

Operating Expenses:

   

Selling and Marketing

   5,925   6,765 

Research and Development

   1,940   2,007 

General and Administrative

   2,327   2,999 
  

 

 

  

 

 

 

Operating Expenses

   10,192   11,771 
  

 

 

  

 

 

 

Operating Income

   663   2,468 

Other Expense, net

   (349  (368
  

 

 

  

 

 

 

Income Before Income Taxes

   314   2,100 

Income Tax (Benefit) Provision

   (118  400 
  

 

 

  

 

 

 

Net Income

  $432  $1,700 
  

 

 

  

 

 

 

Net Income Per Common Share—Basic:

  $0.06  $0.24 
  

 

 

  

 

 

 

Net Income Per Common Share—Diluted:

  $0.06  $0.23 
  

 

 

  

 

 

 

Weighted Average Number of Common Shares Outstanding:

   

Basic

   7,073   6,971 

Diluted

   7,105   7,248 

   
Three Months Ended
  
Nine Months Ended
 
   
October 31,
2020
  
November 2,
2019
  
October 31,
2020
  
November 2,
2019
 
Revenue
  $28,017  $33,318  $86,595  $102,967 
Cost of Revenue
   18,282   21,021   56,218   64,454 
  
 
 
  
 
 
  
 
 
  
 
 
 
Gross Profit
   9,735   12,297   30,377   38,513 
Operating Expenses:
     
Selling and Marketing
   5,553   6,944   17,033   20,122 
Research and Development
   1,412   2,076   4,845   5,868 
General and Administrative
   2,353   2,830   7,214   8,445 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating Expenses
   9,318   11,850   29,092   34,435 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating Income
   417   447   1,285   4,078 
Other Expense, net
   (437  (238  (459  (788
  
 
 
  
 
 
  
 
 
  
 
 
 
Income (Loss) Before Income Taxes
   (20  209   826   3,290 
Income Tax (Benefit) Provision
   (32  (247  379   182 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net Income
  $12  $456  $447  $3,108 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net Income per Common Share - Basic:
  $0.00  $0.06  $0.06  $0.44 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net Income per Common Share - Diluted:
  $0.00  $0.06  $0.06  $0.43 
  
 
 
  
 
 
  
 
 
  
 
 
 
Weighted Average Number of Common Shares Outstanding:
     
Basic
   7,120   7,047   7,100   7,013 
Diluted
   7,185   7,199   7,137   7,272 
See Notes to condensed consolidated financial statements (unaudited).

4

Table of Contents
ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 (LOSS)
(In Thousands)

(Unaudited)

   Three Months
Ended
 
   May 2,
2020
  May 4,
2019
 

Net Income

  $432  $1,700 

Other Comprehensive Loss, Net of Taxes

   

Foreign Currency Translation Adjustments

   (142  (172

Change in Value of Derivatives Designated as Cash Flow Hedge

   (46  116 

(Gains) Losses from Cash Flow Hedges Reclassified to Income Statement

   (33  (144
  

 

 

  

 

 

 

Other Comprehensive Loss

   (221  (200
  

 

 

  

 

 

 

Comprehensive Income

  $211  $1,500 
  

 

 

  

 

 

 

   
Three Months Ended
   
Nine Months Ended
 
   
October 31,
2020
  
November 2,
2019
   
October 31,
2020
  
November 2,
2019
 
Net Income
  $12  $456   $447  $3,108 
Other Comprehensive Income (Loss), Net of Taxes:
      
Foreign Currency Translation Adjustments
   (157  87    53   (166
Change in Value of Derivatives Designated as Cash Flow Hedge
   15   62    (255  62
Losses (Gains) from Cash Flow Hedges Reclassified to Income Statement
   —     3    193   (201
Cross-Currency Interest Rate Swap Termination
   —     —      45   —   
  
 
 
  
 
 
   
 
 
  
 
 
 
Other Comprehensive Income (Loss)
   (142  152    36   (305
  
 
 
  
 
 
   
 
 
  
 
 
 
Comprehensive Income
 (Loss)
  $(130 $608   $483  $2,803 
  
 
 
  
 
 
   
 
 
  
 
 
 
See Notes to condensed consolidated financial statements (unaudited).

5

Table of Contents
ASTRONOVA, INC.

CONDENSED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ In Thousands, Except per Share Data)

(Unaudited)

   Common Stock   Additional
Paid-in
Capital
  Retained
Earnings
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income (Loss)
  Total
Shareholders’
Equity
 
   Shares   Amount 

Balance February 1, 2019

   10,218,559   $511   $53,568  $49,511  $(32,997 $(818 $69,775 

Share-Based Compensation

   —      —      601   —     —     —     601 

Employee Option Exercises

   27,990    1    306   —     (11  —     296 

Restricted Stock Awards Vested, net

   9,522    1    (1  —     (69  —     (69

Cash Dividend—$0.07 per share

   —      —      —     (489  —     —     (489

Net Income

   —      —      —     1,700   —     —     1,700 

Other Comprehensive Loss

   —      —      —     —     —     (200  (200
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance May 4, 2019

   10,256,071   $513   $54,474  $50,722  $(33,077 $(1,018 $71,614 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   Common Stock   Additional
Paid-in
Capital
  Retained
Earnings
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income (Loss)
  Total
Shareholders’
Equity
 
   Shares   Amount 

Balance February 1, 2020

   10,343,610   $517   $56,130  $49,298  $(33,477 $(1,093 $71,375 

Share-Based Compensation

   —      —      495   —     —     —     495 

Employee Option Exercises

   4,456    —      32   —     —     —     32 

Restricted Stock Awards Vested, net

   23,638    1    (1  —     (54  —     (54

Cash Dividend—$0.07 per share

   —      —      —     (497  —     —     (497

Net Income

   —      —      —     432   —     —     432 

Other Comprehensive Loss

   —      —      —     —     —     (221  (221
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance May 2, 2020

   10,371,704   $518   $56,656  $49,233  $(33,531 $(1,314 $71,562 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   
Common Stock
   
Additional
Paid-in

Capital
  
Retained
Earnings
  
Treasury
Stock
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
Shareholders’
Equity
 
   
Shares
   
Amount
 
Balance February 1, 2020
   10,343,610   $517   $56,130  $49,298  $(33,477 $(1,093 $71,375 
Share-Based Compensation
   —      —      495   —     —     —     495 
Employee Option Exercises
   4,456    —      32   —     —     —     32 
Restricted Stock Awards Vested, net
   23,638    1    (1  —     (54  —     (54
Common Stock – Cash Dividend - 
$0.07 per share
   —      —      —     (497  —     —     (497
Net Income
   —      —      —     432   —     —     432 
Other Comprehensive Loss
   —      —      —     —     —     (221  (221
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance May 2, 2020
   10,371,704   $518   $56,656  $49,233  $(33,531 $(1,314 $71,562 
Share-Based Compensation
   —      —      601   —     —     —     601 
Employee Option Exercises
   4,874    —      29   —     —     —     29 
Restricted Stock Awards Vested, net
   35,676    2    (2  —     (37  —     (37
Net Income
   —      —      —     3   —     —     3 
Other Comprehensive Income
   —      —      —     —     —     399   399 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance August 1, 2020
   10,412,254   $520   $57,284  $49,236  $(33,568 $(915 $72,557 
Share-Based Compensation
   —      —      591   —     —     —     591 
Employee Option Exercises
   4,037    1      19   —     —     —     20 
Restricted Stock Awards Vested, net
   433    —      —     —     —     —     —   
Net Income
   —      —      —     12   —     —     12 
Other Comprehensive 
(Loss)
   —      —      —     —     —     (142  (142
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance October 31, 2020
   10,416,724   $521   $57,894  $49,248  $(33,568 $(1,057 $73,038 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
   
Common Stock
   
Additional
Paid-in

Capital
  
Retained
Earnings
  
Treasury
Stock
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
Shareholders’
Equity
 
   
Shares
   
Amount
 
Balance February 1, 2019
   10,218,559   $511   $53,568  $49,511  $(32,997 $(818 $69,775 
Share-Based Compensation
   —      —      601   —     —     —     601 
Employee Option Exercises
   27,990    1    306   —     (11  —     296 
Restricted Stock Awards Vested, net
   9,522    1    (1  —     (69  —     (69
Common Stock – Cash Dividend - $
0.07 per share
   —      —      —     (489  —     —     (489
Net Income
   —      —      —     1,700   —     —     1,700 
Other Comprehensive Loss
   —      —      —     —     —     (200  (200
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance May 4, 2019
   10,256,071   $513   $54,474  $50,722  $(33,077 $(1,018 $71,614 
Share-Based Compensation
   —      —      451   —     —     —     451 
Employee Option Exercises
   13,821    1    198   —     0     —     199 
Restricted Stock Awards Vested, net
   45,658    2    (2  —     (377  —     (377
Common Stock – Cash Dividend - 
$0.07 per share
   —      —      —     (493  —     —     (493
Net Income
   —      —      —     951   —     —     951 
Other Comprehensive Loss
   —      —      —     —     —     (257  (257
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance August 3, 2019
   10,315,550   $516   $55,121  $51,180  $(33,454 $(1,275 $72,088 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Share-Based Compensation
   —      —      525   —     —     —     525 
Employee Option Exercises
   18,365    2    224   —     —     —     226 
Cash Dividend—$0.07
per share
   —      —      —     (494  —     —     (494
Net Income
   —      —      —     456   —     —     456 
Other Comprehensive Income
   —      —      —     —     —     152   152 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance November 2, 2019
   10,333,915   $518   $55,870  $51,142  $(33,454 $(1,123 $72,953 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
6

Table of Contents
ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

   Three Months Ended 
   May 2,
2020
  May 4,
2019
 

Cash Flows from Operating Activities:

   

Net Income

  $432  $1,700 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

   

Depreciation and Amortization

   1,568   1,584 

Amortization of Debt Issuance Costs

   12   13 

Share-Based Compensation

   495   601 

Changes in Assets and Liabilities:

   

Accounts Receivable

   1,220   1,439 

Inventories

   1,237   (2,001

Income Taxes

   (90  263 

Accounts Payable and Accrued Expenses

   (1,140  (2,796

Other

   (314  184 
  

 

 

  

 

 

 

Net Cash Provided by Operating Activities

   3,420   987 

Cash Flows from Investing Activities:

   

Additions to Property, Plant and Equipment

   (626  (586
  

 

 

  

 

 

 

Net Cash Used by Investing Activities

   (626  (586

Cash Flows from Financing Activities:

   

Net Cash Proceeds from Employee Stock Option Plans

   6   270 

Net Cash Proceeds from Share Purchases under Employee Stock Purchase Plan

   26   26 

Net Cash Used for Payment of Taxes Related to Vested Restricted Stock

   (54  (69

Borrowings under Revolving Credit Facility

   5,000   —   

Payment of Minimum Guarantee Royalty Obligation

   (500  (375

Principal Payments of Long-Term Debt

   —     (1,578

Dividends Paid

   (497  (489
  

 

 

  

 

 

 

Net Cash Provided (Used) by Financing Activities

   3,981   (2,215
  

 

 

  

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

   67   49 
  

 

 

  

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

   6,842   (1,765

Cash and Cash Equivalents, Beginning of Period

   4,249   7,534 
  

 

 

  

 

 

 

Cash and Cash Equivalents, End of Period

  $11,091  $5,769 
  

 

 

  

 

 

 

Supplemental Disclosures of Cash Flow Information:

   

Cash Paid During the Period for Interest

  $124  $110 

Cash Paid During the Period for Income Taxes, Net of Refunds

  $128  $142 

Schedule ofNon-Cash Financing Activities:

   

Value of Shares Received in Satisfaction of Option Exercise Price

  $—    $11 

   
Nine Months Ended
 
   
October 31,
2020
  
November 2,
2019
 
Cash Flows from Operating Activities:
   
Net Income
  $447  $3,108 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
   
Depreciation and Amortization
   4,571   4,692 
Amortization of Debt Issuance Costs
   48   37 
Share-Based Compensation
   1,687   1,576 
Changes in Assets and Liabilities:
   
Accounts Receivable
   4,248   1,296 
Inventories
   3,252   (5,412
Income Taxes
   115   (2,639
Accounts Payable and Accrued Expenses
   (1,488  (1,586
Other
   (1,213  (84
  
 
 
  
 
 
 
Net Cash Provided by Operating Activities
   11,667   988 
Cash Flows from Investing Activities:
   
Additions to Property, Plant and Equipment
   (2,102  (2,422
  
 
 
  
 
 
 
Net Cash Used for Investing Activities
   (2,102  (2,422
Cash Flows from Financing Activities:
   
Net Cash Proceeds from Employee Stock Option Plans
   6   633 
Net Cash Proceeds from Share Purchases under Employee Stock Purchase Plan
   75   88 
Net Cash Used for Payment of Taxes Related to Vested Restricted Stock
   (91  (445
Borrowings under Revolving Credit Facility
   5,000   5,000 
Repayment under Revolving Credit Facility
   (11,500  —   
Payment of Minimum Guarantee Royalty Obligation
   (1,500  (1,375
Proceeds from Long-Term Debt – PPP Loan
   4,422   —   
Proceeds from Long-Term Debt Borrowings
   15,232   —   
Payoff of Long-Term Debt
   (11,732  —   
Principal Payments of Long-Term Debt
   (2,906  (3,998
Payment of Debt Issuance Costs
   (89  —   
Dividends Paid
   (497  (1,477
  
 
 
  
 
 
 
Net Cash Used for Financing Activities
   (3,580  (1,574
  
 
 
  
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
   (631  (58
  
 
 
  
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
   5,354   (3,066
Cash and Cash Equivalents, Beginning of Period
   4,249   7,534 
  
 
 
  
 
 
 
Cash and Cash Equivalents, End of Period
  $9,603  $4,468 
  
 
 
  
 
 
 
Supplemental Disclosures of Cash Flow Information:
   
Cash Paid During the Period for Interest
  $517  $350 
Cash Paid During the Period for Income Taxes, Net of Refunds
  $250  $2,746 
Schedule of
Non-Cash
Financing Activities:
   
Value of Shares Received in Satisfaction of Option Exercise Price
  $—    $11 
See Notes to condensed consolidated financial statements (unaudited).

7

Table of Contents
ASTRONOVA, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Business and Basis of Presentation

Overview

Headquartered in West Warwick, Rhode Island, AstroNova, Inc. leverages its expertise in data visualization technologies to
design
, develop, manufacture and distribute a broad range of specialty printers and data acquisition and analysis systems. Our products are employed around the world in a wide range of applications in the aerospace, apparel, automotive, avionics, chemical, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging and transportation industries. In the United States, we have factory-trained direct field salespeople located in major cities from coast to coast. We also have directdirec
t
 field sales or service centers in Canada, China, Denmark, France, Germany, Malaysia, Mexico, Singapore, and the United Kingdom staffed by our own employees and dedicated third-party contractors. Additionally, we utilize over 225 independent dealers and representatives selling and marketing our products in over 60 countries.

Our business consists of two2 segments, Product Identification (“PI”) and Test & Measurement (“T&M”). The PI segment includes specialty printing systems and related supplies sold under the brand names QuickLabel
®
, TrojanLabel
®
and GetLabels
. The T&M segment includes our line of aerospace flight deck printers and test and measurement data acquisition systems sold under the AstroNova
®
brand name.

PI products sold under the QuickLabel, TrojanLabel and GetLabels brands are used in brand owner and commercial applications to provide product packaging, marketing, tracking, branding and labeling solutions to a wide array of industries. The PI segment offers a variety of digital color label tabletop printers, high-volume presses and specialty original equipment manufacturer (“OEM”) printing systems, as well as a wide range of label, tag and flexible packaging material substrates and other supplies, including ink and toner, that allow customers to mark, track, protect and enhance the appearance of their products. In the T&M segment, we have a long history of using our technologies to provide networking systems and high-resolution light-weight flight deck and cabin printers for the aerospace market. In addition, the T&M segment includes data acquisition recorders, sold under the AstroNova brand, to enable our customers to acquire and record visual and electronic signal data from local and networked data streams and sensors. The recorded data is processed and analyzed and then stored and presented in various visual output formats.

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods included herein. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with our Annual Report on Form
10-K
for the fiscal year ended January 31, 2020.

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes, , including those that require consideration of forecasted financial information, in context of the unknown future impacts of
COVID-19
using information that is reasonably available to us at this time. Some of the more significant estimates relate to revenue recognition, the allowances for doubtful accounts, inventory valuation, income taxes, impairment of long-lived assets and goodwill, share-based compensation, accrued expenses, self-insurance liability accrual and warranty reserves. Management’s estimates are based on the facts and circumstances available at the time estimates are made, historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcome of these matters, including our expectations at the time regarding the duration, scope and severity of the
COVID-19
pandemic. Consequently, actual results could differ from those estimates.

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

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

8

Principles of Consolidation

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

Note 2 – Summary of Significant Accounting Policies Update

The accounting policespolicies used in preparing the condensed consolidated financial statements in this Form
10-Q
are the same as those used in preparing our consolidated financial statements as of and for the year ended January 31, 2020 and included in our Annual Report on Form
10-K
for the fiscal year ended January 31, 2020.

Recently Adopted Accounting Pronouncements

Fair Value Measurement

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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. 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. We adopted the provisions of this guidance effective February 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

Recent Accounting Standards Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU
2020-04, “Reference
“Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU
2020-04
provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently in the process of evaluating the impact of the transition from LIBOR to an alternative reference rate, but we do not expect that to have a material impact on our consolidated financial statements.

No other new accounting pronouncements, issued or effective during the first three
nine
months of the current fiscal year, have had or are expected to have a material impact on our consolidated financial statements.

Note 3 – Revenue Recognition

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

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

Primary geographical markets:

   Three Months Ended 
(In thousands)  May 2,
2020
   May 4,
2019
 

United States

  $ 19,789   $ 21,992 

Europe

   7,450    7,875 

Canada

   1,428    1,516 

Asia

   1,009    3,450 

Central and South America

   954    888 

Other

   289    460 
  

 

 

   

 

 

 

Total Revenue

  $30,919   $36,181 
  

 

 

   

 

 

 

   
Three Months Ended
   
Nine Months Ended
 
(In thousands)  
October 31,

2020
   
November 2,

2019
   
October 31,

2020
   
November 2,

2019
 
United States
  $16,788   $21,831   $54,442   $64,471 
Europe
   7,081    7,059    20,845    22,408 
Canada
   1,273    1,441    4,154    4,346 
Central and South America
   1,233    1,019    3,101    3,232 
Asia
   1,209    1,396    3,050    7,063 
Other
   433    572    1,003    1,447 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total Revenue
  $28,017   $33,318   $86,595   $102,967 
  
 
 
   
 
 
   
 
 
   
 
 
 
9

Major product types:

   Three Months Ended 
(In thousands)  May 2,
2020
   May 4,
2019
 

Hardware

  $8,914   $ 12,918 

Supplies

   19,118    19,727 

Service and Other

   2,887    3,536 
  

 

 

   

 

 

 

Total Revenue

  $ 30,919   $36,181 
  

 

 

   

 

 

 

   
Three Months Ended
   
Nine Months Ended
 
(In thousands)  
October 31,

2020
   
November 2,

2019
   
October 31,

2020
   
November 2,

2019
 
Hardware
  $7,667   $12,160   $25,021   $37,514 
Supplies
   17,996    17,655    54,254    55,463 
Service and Other
   2,354    3,503    7,320    9,990 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total Revenue
  $28,017   $33,318   $86,595   $102,967 
  
 
 
   
 
 
   
 
 
   
 
 
 
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 $375,000$313,000 and $466,000 at May 2,October 31, 2020 and January 31, 2020, respectively, and are recorded as deferred revenue in the accompanying condensed consolidated balance sheet. We recognized $225,000The decrease in the deferred revenue balance during the nine months ended October 31, 2020 is primarily due t
o
 $466,000 of revenue recognized during the three-month period ended May 2, 2020, related tothat was included in the deferred revenue balance at January 31, 2020.

2020 and

current period
deferred revenue recognized
in income
during the period
,
offset by cash payments received in advance of satisfying performance obligations.
Contract Costs

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain costs related to obtaining sales contracts for our aerospace printer products meet the requirement to be capitalized. These costs are deferred and amortized based on the forecasted number of units sold over the remaining benefit term, which we currently estimate to be approximately 6 years. The balance of these contract assets at January 31, 2020 was $944,000. We amortized $15,000$44,000 of direct costs for the threenine months ended May 2,October 31, 2020 and the balance of deferred incremental direct costs net of accumulated amortization at May 2,October 31, 2020 was $929,000,$900,000, of which $59,000 is reported in other current assets and $870,000$841,000 is reported in other assets in the accompanying condensed consolidated balance sheet.

Note 4 – Net Income Per Common Share

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

   Three Months Ended 
   May 2,
2020
   May 4,
2019
 

Weighted Average Common Shares Outstanding – Basic

   7,073,278    6,970,914 

Effect of Dilutive Options, Restricted Stock Awards and Restricted Stock Units

   31,365    277,412 
  

 

 

   

 

 

 

Weighted Average Common Shares Outstanding – Diluted

   7,104,643    7,248,326 
  

 

 

   

 

 

 

   
Three Months Ended
   
Nine Months Ended
 
   
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
 
Weighted Average Common Shares Outstanding – Basic
   7,120,286    7,046,803    7,099,505    7,012,595 
Effect of Dilutive Options, Restricted Stock Awards and Restricted Stock Units
   65,199    151,795    37,973    259,840 
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted Average Common Shares Outstanding – Diluted
   7,185,485    7,198,598    7,137,478    7,272,435 
  
 
 
   
 
 
   
 
 
   
 
 
 
For the three and nine months ended MayOctober 31, 2020, the diluted per share amounts do not reflect common equivalent shares outstanding of 689,157 and 892,868
,
respectively. For the three and nine months ended November 2, 2020 and May 4, 2019, the diluted per share amounts do not reflect common equivalent shares outstanding of 865,157238,477 and 260,422206,592
, respectively, because
respectively. These outstanding common equivalent shares were not included due to their effect would have been anti-dilutive.

anti-dilutive effect.
10

Note 5 – Intangible Assets

Intangible assets are as follows:

   May 2, 2020   January 31, 2020 
(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   $ (2,098 $ —    $1,002   $3,100   $(2,021 $ —    $1,079 

RITEC:

              

Customer Contract Relationships

   2,830    (1,156  —      1,674    2,830    (1,076  —      1,754 

Non-Competition Agreement

   950    (918  —      32    950    (871  —      79 

TrojanLabel:

              

Existing Technology

   2,327    (1,136  68    1,259    2,327    (1,053  78    1,352 

Distributor Relations

   937    (320  22    639    937    (297  27    667 

Honeywell:

              

Customer Contract Relationships

   27,243    (7,521  —      19,722    27,243    (6,791  —      20,452 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Intangible Assets, net

  $ 37,387   $ (13,149 $ 90   $ 24,328   $ 37,387   $ (12,109 $ 105   $ 25,383 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

   
October 31, 2020
   
January 31, 2020
 
(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   $(2,253 $—     $847   $3,100   $(2,021 $—     $1,079 
RITEC:
              
Customer Contract Relationships
   2,830    (1,316  —      1,514    2,830    (1,076  —      1,754 
Non-Competition
Agreement
   950    (950  —      —      950    (871  —      79 
TrojanLabel:
              
Existing Technology
   2,327    (1,313  147    1,161    2,327    (1,053  78    1,352 
Distributor Relations
   937    (370  63    630    937    (297  27    667 
Honeywell:
              
Customer Contract Relationships
   27,243    (8,982  —      18,261    27,243    (6,791  —      20,452 
  
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
Intangible Assets, net
  $37,387   $(15,184 $210   $22,413   $37,387   $(12,109 $105   $25,383 
  
 
 
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
There were no0 impairments to intangible assets during the periods ended May 2,October 31, 2020 and May 4, 2019. November 2, 2019
.
With respect to the acquired intangibles included in the table above, amortization expense of $1.0 million and $1.1 million has been included in the condensed consolidated statements of income for the three months ended May 2,October 31, 2020 and May 4,November 2, 2019, respectively.

Amortization expense of $3.1 million and $3.2 million related to the above acquired intangibles has been included in the accompanying condensed consolidated statement of income for the nine months ended October 31, 2020 and November 2, 2019, respectively.

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

(In thousands)  Remaining
2021
   2022   2023   2024   2025 

Estimated amortization expense

  $ 3,018   $ 3,964   $ 3,957   $ 3,960   $ 3,392 

(In thousands)
  
Remaining
2021
   
2022
   
2023
   
2024
   
2025
 
Estimated amortization expense
  $999   $3,979   $3,972   $3,975   $3,395 
Note 6 – Inventories

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

(In thousands)  May 2, 2020   January 31, 2020 

Materials and Supplies

  $ 20,793   $ 20,151 

Work-In-Process

   1,684    1,408 

Finished Goods

   16,781    17,992 
  

 

 

   

 

 

 
   39,258    39,551 

Inventory Reserve

   (6,701   (5,626
  

 

 

   

 

 

 
  $32,557   $33,925 
  

 

 

   

 

 

 

(In thousands)
  
October 31, 2020
   
January 31, 2020
 
Materials and Supplies
  $21,058   $20,151 
Work-In-Process
   1,631    1,408 
Finished Goods
   16,464    17,992 
  
 
 
   
 
 
 
   39,153    39,551 
Inventory Reserve
   (8,285   (5,626
  
 
 
   
 
 
 
  $30,868   $33,925 
  
 
 
   
 
 
 
11

Table of Contents
Note 7 – Revolving Line of Credit

At May 2, Agreement and Debt

Credit Agreement
On July 30, 2020, we have a revolving line of credit under our existing credit agreemententered into an Amended and Restat
ed
 Credit Agreement (the “A&R Credit Agreement”) with Bank of America, N.A., as lender (the “Credit“Lender”), our wholly owned subsidiary, ANI ApS, a Danish private limited liability company and TrojanLabel ApS, a Danish private limited liability company and wholly-owned subsidiary of ANI ApS(“TrojanLabel”). The A&R Credit Agreement amended and restated the Credit Agreement dated as of February 28, 2017 (the “Existing Credit Agreement”). by and among us, ANI ApS, TrojanLabel and the Lender. In connection with the A&R Credit Agreement, we entered into an Amended and Restated Security and Pledge Agreement and a mortgage in favor of the Lender with respect to our owned real property in West Warwick, Rhode Island. Under the A&R Credit Agreement, AstroNova, Inc. is the sole borrower, and its obligations are guaranteed by ANI ApS and TrojanLabel.
Immediately prior to the closing of the A&R Credit Agreement, we repaid $1.5 million in principal amount of term loans outstanding under the Existing Credit Agreement.
The A&R Credit Agreement provides for (i) a term loan in the principal amount of $15.2 million, which we used to refinance the outstanding term loans borrowed by us and ANI ApS under the Existing Credit Agreement and a portion of the outstanding revolving loans borrowed by us under the Existing Credit Agreement, and (ii) a $10.0 million revolving credit facility available to us for general corporate purposes. Revolving credit loans may be borrowed, at our option, in U.S. Dollars or, subject to certain conditions, Euros, British Pounds, Canadian Dollars or Danish Kroner. Amounts borrowed
During the three months ended October 31, 2020, we repaid the entire outstanding balance under the revolving line of credit. Balances outstanding under the revolving line of credit during the nine months ended October 31, 2020 bore interest at a weighted average annual rate of 
3.41
%,
and $35,000 and $188,000
of interest was incurred and is included in other expense in the accompanying condensed consolidated income statement for the three and nine month periods ended October 31, 2020, respectively. At October 31, 2020, there was no balance outstanding under the revolving line of credit and 
$10.0 million
was
available for borrowing under the revolving credit facility.
The A&R Credit Agreement was accounted for as a debt modification in a
non-troubled
debt restructuring. We incurred $0.2 million of new debt issuance costs related to the term loan, of which $0.1 million of new lender fees were recorded against the debt as debt issuance costs and will be amortized over the term of the loan and $0.1 million of third party fees that were expensed as incurred. Additionally, $0.1 million of unamortized debt issuance costs related to the prior term debt will be amortized over the remaining life of the new term loan. We also incurred $0.1 million of new debt issuance fees in connection with the revolving line of credit which are included as a component of prepaid expenses and other current assets and will be amortized over the remaining life of the A&R Credit Agreement.
Under the A&R Credit Agreement, the principal amount of each quarterly installment required to be paid on the last day of each of our fiscal quarters ending July 31, 2020 and October 31, 2020 is $0.8 million; the principal amount of the quarterly installment required to be paid on the last day of our fiscal quarter ending January 31, 2021 is $1.1 million; the principal amount of the quarterly installment required to be paid on the last day of the our fiscal quarter ending April 30, 2021 is $1.1 million; the principal amount of each quarterly installment required to be paid on the last day of each of the our fiscal quarters ending July 31, 2021, October 31, 2021, January 31, 2022 and April 30, 2022 is $1.4 million, and the entire remaining principal balance of the term loan is required to be paid on June 15, 2022. We may voluntarily prepay the term loan, in whole or in part, from time to time without premium or penalty (other than customary breakage costs, if applicable). We may repay borrowings under the revolving credit facility at any time without premium or penalty (other than customary breakage costs, if applicable), but in any event no later than June 15, 2022, and any outstanding revolving loans thereunder will be due and payable in full, and the revolving credit facility will terminate, on such date. We may reduce or terminate the revolving line of credit at any time, subject to certain thresholds and conditions, without premium or penalty.
Under the A&R Credit Agreement the term loan and revolving credit loans bear interest at a rate per annum equal to, at the our option, either (a) the LIBOR rateRate (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%2.15% to 1.5%3.65% based on our consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal funds’fund rate plus 0.50%, (ii) Bank of America’s publicly announced prime rate, or (iii) the LIBOR rateRate plus 1.00% or (iv) 1.00%, plus a margin that varies within a range of 0.0%1.15% to 0.5%2.65% based on our consolidated leverage ratio.

At May 2, 2020, $11.5 million was drawn on the revolving line of credit. The outstanding balance bears interest at a weighted average annual rate of 2.52% and $73,000 and $19,000 of interest has been incurred on this obligation and included in other expense in the accompanying condensed consolidated income statement for the three-month periods ended May 2, 2020 and May 4, 2019, respectively. At May 2, 2020, there was $6.0 million available for borrowing under the revolving credit facility. Pursuant to the terms of the Fourth Amendment to our Credit Agreement, which we and Bank of America entered into in December 2019, the aggregate amount available for borrowings under the revolving line of credit will decrease to $10.0 million at the end of the third quarter of fiscal year 2021.

We are also required to pay a commitment fee on the undrawn portion of the revolving credit facility atthat varies within a range of 0.25% and 0.675% based on our consolidated leverage ratio.

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The loans under the rateA&R Credit Agreement are subject to certain mandatory prepayments, subject to various exceptions, from (a) net cash proceeds from certain dispositions of 0.25% per annum.

See Note 17–Subsequent Events–Letter Agreementproperty, (b) net cash proceeds from certain issuances of equity, (c) net cash proceeds from certain issuances of additional debt and (d) net cash proceeds from certain extraordinary receipts.

Amounts repaid under the revolving credit facility may be reborrowed, subject to continued compliance with Bank of America for a discussionthe A&R Credit Agreement. No amount of the letter agreementterm loan that is repaid may be reborrowed.
Under the A&R Credit Agreement , we entered

intomust comply with Bankvarious customary financial and

non-financial
covenants including a maximum consolidated leverage ratio, a minimum consolidated fixed charge coverage ratio, a minimum level of AmericaEBITDA, a consolidated asset coverage ratio and a minimum level of liquidity. The primary
non-financial
covenants limit our and our subsidiaries’ ability to incur future indebtedness, to place liens on June 22, 2020,assets, to pay dividends or distributions on capital stock, to repurchase or acquire capital stock, to conduct mergers or acquisitions, to sell assets, to alter the capital structure, to make investments and loans, to change the nature of their business, and to prepay subordinated indebtedness, in each case subject to certain exceptions and thresholds as set forth in the A&R Credit Agreement.
The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the A&R Credit Agreement upon the occurrence of any of various customary events of default, which include, among other things, suspendsevents, the following (which are subject, in some cases, to certain grace periods): failure to pay when due any principal, interest or other amounts in respect of the loans, breach of any of our accesscovenants or representations under the loan documents, default under any other of our or our subsidiaries’ significant indebtedness agreements, a bankruptcy, insolvency or similar event with respect to us or any of our subsidiaries, a significant unsatisfied judgment against us or any of our subsidiaries, or our undergoing a change of control.
In addition to the revolving line of creditguarantees by ANI ApS and TrojanLabel, our obligations under the A&R Credit Agreement are also secured by substantially all of AstroNova, Inc.’s personal property assets (including a pledge of the equity interests it holds in ANI ApS, in our wholly-owned German subsidiary AstroNova GmbH, and in our wholly-owned French subsidiary AstroNova SAS), subject to certain exceptions, and by a mortgage on the terms described therein.

Note 8 –our owned real property in West Warwick, Rhode Isla

nd
.
Long-Term Debt

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

(In thousands)  May 2, 2020   January 31, 2020 

USD Term Loan (2.24% as of May 2, 2020 and 3.03% as of January 31, 2020); maturity date of November 30, 2022

  $8,250   $8,250 

USD Term Loan (2.24% as of May 2, 2020 and 3.03% as of January 31, 2020); maturity date of January 31, 2022

   4,784    4,784 
  

 

 

   

 

 

 
  $ 13,034   $ 13,034 

Debt Issuance Costs, net of accumulated amortization

   (98   (111

Current Portion of Term Loans

   (6,602   (5,208
  

 

 

   

 

 

 

Long-Term Debt

  $6,334   $7,715 
  

 

 

   

 

 

 

(In thousands)
  
October 31, 2020
   
January 31, 2020
 
USD Term Loan (3.80% as of October 31, 2020); maturity date of June 15, 2022)
  $13,628   $—   
USD Term Loan (3.03% as of January 31, 2020)
   —      8,250 
USD Term Loan (3.03% as of January 31, 2020)
   —      4,784 
  
 
 
   
 
 
 
  $13,628   $13,034 
Debt Issuance Costs, net of accumulated amortization
   (156   (111
Current Portion of Term Loans
   (4,984   (5,208
  
 
 
   
 
 
 
Long-Term Debt
  $8,488   $7,715 
  
 
 
   
 
 
 
During the three and nine months ended October 31, 2020, we recognized $159,000 and $312,000 of interest expense, respectively, which was included in other income (expense) in the accompanying condensed consolidated income statement. During the three and nine months ended November 2, 2019, we recognized
$
101,000 and $285,000 of interest expense, respectively, which was included in other expense in the accompanying condensed consolidated income statement.
The schedule of required principal payments remaining during the next five years on long-term debt outstanding as of May 2,October 31, 2020 is as follows:

(In thousands)

Fiscal 2021, remainder

$ 5,208

Fiscal 2022

5,576

Fiscal 2023

2,250

$ 13,034

(In thousands)
    
Fiscal 2021, remainder
  $1,052 
Fiscal 2022
   5,326 
Fiscal 2023
   7,250 
  
 
 
 
  $13,628 
  
 
 
 
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Note 8 – Paycheck Protection Program Loan
On May 6, 2020, we entered into a loan agreement with, and executed a promissory note in favor of Greenwood Credit Union (“Greenwood”) pursuant to which we borrowed $4.4 million (the “PPP Loan”) from Greenwood pursuant to the Paycheck Protection Program (“PPP”) administered by the United States Small Business Administration (the “SBA”) and authorized by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020. The terms of the PPP Loan were subsequently revised in accordance with the provisions of the Paycheck Protection Flexibility Act of 2020 (the “PPP Flexibility Act”) which was enacted on June 5, 2020.
The PPP Loan, which will mature on May 6, 2022, is unsecured and bears interest at a rate of 1.0% per annum, accruing from the loan date, and is payable monthly. NaN payments are due on the PPP Loan until the date on which the
SBA
determines the amount of the PPP Loan that is eligible for forgiveness, so long as we apply for forgiveness within the ten months from the end of the twenty-four week period following the date of loan disbursement, but interest will continue to accrue during the deferral period. We accrued interest for the PPP Loan in the amount of $22,000, which is included in other
expense
in the accompanying condensed consolidated statements of income for the nine month period ended October 31, 2020.
The PPP Loan may be prepaid at any time without penalty. The loan agreement and promissory note include customary provisions for a loan of this type, including prohibitions on our payment of dividends or repurchase of shares of our stock while the PPP Loan remains outstanding. The loan agreement and promissory note also include events of default relating to, among other things, payment defaults, breaches of the provisions of the loan agreement or the promissory note, and cross-defaults on other loans.
Subject to the limitations and conditions set forth in the CARES Act, the PPP Flexibility Act, and the regulations and guidance provided by the SBA with respect to the PPP, a portion of the PPP Loan may be forgiven in an amount up to the amount of the PPP Loan proceeds that we spent on payroll, rent, utilities and interest on certain debt during the twenty-four-week period following incurrence of the PPP Loan. Interest accrued on the forgiven portion of the principal amount of the PPP Loan is also forgiven. The amount of the PPP Loan to be forgiven in respect of rent, utilities and interest on certain debt will be capped at 
40%
of the forgiven amount, with the remaining forgiven amount allocated to payroll costs. We have fully utilized the PPP Loan proceeds for qualifying expenses and during the fourth quarter of this current year we expect to apply for forgiveness of the PPP Loan (including all associated accrued interest) in accordance with the terms of the CARES Act, as amended by the PPP Flexibility Act. Whether our application for forgiveness will be granted and in what amount is subject to approval by the SBA and may also be subject to further requirements in any regulations and guidelines the SBA may adopt. The PPP Loan is classified as long-term debt in the condensed consolidated balance sheet until the forgiveness determination has been made by the SBA. 

Note 9 – Derivative Financial Instruments and Risk Management

We

In February 28, 2017, as part of the Existing Credit Agreement, we 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 SubsidiaryANI ApS and an interest rate swap to manage the interest rate risk associated with our variable rate term loan borrowing.borrowing (the “Swaps”). Both swaps have beenSwaps were designated as cash flow hedges of floating-rate borrowings.

Our cross-currency interest rate swap agreement effectively modifiesmodified our exposure to interest rate risk and foreign currency exchange rate risk by converting our floating-rate debt denominated in U.S. Dollars on our Danish subsidiary’sANI ApS’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 involvesinvolved the receipt of floating interest 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

Subsequently, concurrent with our borrowings to fund the payments for the Asset Purchase and License Agreement with Honeywell International, we entered into an interest rate swap agreement we utilize on our term loan effectively modifiesto modify our exposure to interest rate risk by effectively converting our floating-rate debtborrowings to fixed-rate debt forover the next five years,term of the loan, thus reducing the impact of interest-rate changes on future interest expense. This swap involvesinvolved the receipt of floating interest rate amounts in U.S. Dollars in exchange for fixed interest rate payments in U.S. dollars over the life of the term loan.

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As a direct result of the terms of the Lender’s conditions for entry into the A&R Credit Agreement, on July 30, 2020, we terminated the two Swaps that we used to manage the interest rate and foreign currency exchange risks associated with our prior borrowings under the Existing Credit Agreement. The terms of the A&R Credit Agreement caused those swaps to cease to be effective hedges of the underlying exposures. The termination of the Swaps
was
contracted immediately prior to the end of the second quarter of fiscal 2021 at a cash cost of approximately $0.7 million
which
was settled in the third quarter. Upon termination, the remaining balance of $58,000 in accumulated other comprehensive loss related to the cross-currency interest rate swap was reclassified into earnings as the forecasted foreign currency interest payments will not occur and
such balance
is included in other expense in the accompanying condensed consolidated statements of income for the nine month period ended October 31, 2020. The balance in accumulated other comprehensive loss related to the interest rate swap of $
0.2 million is being amortized into earnings through the original term of the hedge relationship as the underlying floating interest rate debt still exists.
The following table summarizes the notional amount and fair value of our derivative instruments:

   May 2, 2020   January 31, 2020 
Cash Flow Hedges      Fair Value Derivatives       Fair Value Derivatives 

(In thousands)

  Notional Amount   Asset   Liability   Notional Amount   Asset   Liability 

Cross-currency Interest Rate Swap

  $ 4,489   $ —    $ 192   $ 4,489   $ —    $ 250 

Interest Rate Swap

  $8,250   $ —    $202   $8,250   $—     $96

   
October 31, 2020
   
January 31, 2020
 
Cash Flow Hedges
(In thousands)
      
Fair Value Derivatives
       
Fair Value Derivatives
 
  
  Notional Amount  
   
Asset
   
Liability
   
Notional Amount
   
Asset
   
Liability
 
Cross-currency Interest Rate Swap
  $—     $
—  
   $—     $4,489   $—     $250 
Interest Rate Swap
  $—     $—     $—     $8,250   $—     $96 
The fair value of both the Cross-currency Interest Rate Swap and the Interest Rate swap are included in other long-term liabilities on the condensed consolidated balance sheets for the periodsperiod ended May 2, 2020 and January 31, 2020.

The following table presents the impact of our derivative instruments in our condensed consolidated financial statements for the three and nine months ended May 2,October 31, 2020 and May 4,November 2, 2019:

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

Cash Flow Hedge

(In thousands)

  May 2,
2020
  May 4,
2019
  May 2,
2020
   May 4,
2019
 

Swap Contracts

  $ (58 $ 149    Other Income (Expense $ 43   $ 185 
  

 

 

  

 

 

    

 

 

   

 

 

 

   
Three Months Ended
 
   
Amount of Gain (Loss)
Recognized in OCI
on Derivative
   
Location of
Gain (Loss)
Reclassified
from Accumulated
OCI into
Income
   
Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income
 
Cash Flow Hedge
(In thousands)
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
 
Swap contracts
  $20   $80    Other expense   $—     $(3) 
  
 
 
   
 
 
     
 
 
   
 
 
 
   
Nine Months Ended
 
   
Amount of Gain (Loss)
Recognized in OCI
on Derivative
   
Location of
Gain (Loss)
Reclassified
from Accumulated
OCI into Income
   
Amount of Gain (Loss)
Reclassified from
Accumulated OCI
into Income
 
Cash Flow Hedge
(In thousands)
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
 
Swap contracts
  $(320)   $82    Other expense   $(248)   $259 
  
 
 
   
 
 
     
 
 
   
 
 
 
At May 2,October 31, 2020, we expect to reclassify approximately $30 thousand$0.1 million of net gainslosses on the frozen OCI balance associated with the terminated interest rate 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-ratefloating interest rate debt.

Note 10 – Royalty Obligation

In fiscal 2018, we entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc. (“Honeywell”) to acquire an exclusive, perpetual, world-wide license to manufacture Honeywell’s narrow-format flight deck printers for two aircraft families along with certain inventory used in the manufacturing of the licensed printers. The purchase price included a guaranteed minimum royalty payment of $15.0 million, to be paid over ten years. Royalty payments areyears, 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.

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The guaranteed
g
uaranteed 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 May 2,October 31, 2020, we had paid an aggregate of $4.0$5.0 million of the guaranteed minimum royalty obligation. At May 2,October 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 $7.5$6.6 million is reported as a long-term liability on our condensed consolidated balance sheet. In addition to the guaranteed minimum royalty payments, we also incur excess royalty expense in connection with the Honeywell Agreement. We did not0t incur any excess royalty expense for the three-month periodthree and nine month periods ended May 2,October 31, 2020. We did incur $0.6 million of excess royalty expense of $0.1 million and $0.8 million, respectively, for the three-month periodthree and nine month periods ended May 4,November 2, 2019, which is included in cost of revenue in our condensed consolidated statements of income for that period.income. A total of $0.6$0.1 million of excess royalty is payable and reported as a current liability on our condensed consolidated balance sheet at May 2,October 31, 2020.

Note 11 – Leases

We enter into lease contracts for certain of our facilities at various locations worldwide. Our leases have remaining lease terms of 1 to 8 years, some of which include options to extend the lease term for periods of up to five years when it is reasonably certain that we will exercise such options.

Balance sheet and other information related to our leasesleas
es
 is as follows:

Operating Leases

(In thousands)

  Balance Sheet Classification  May 2,
2020
   January 31,
2020
 

Lease Assets

  Right of Use Assets  $1,553   $1,661 

Lease Liabilities – Current

  Other Accrued Expenses   391    416 

Lease Liabilities – Long Term

  Lease Liabilities   1,199    1,279 

Operating Leases
(In thousands)
  
Balance Sheet Classification
   
October 31,
2020
   
January 31,
2020
 
Lease Assets
  
 
Right of Use Assets
 
  $1,436   $1,661 
Lease Liabilities – Current
  
 
Other Liabilities and Accrued Expenses
 
   376    416 
Lease Liabilities – Long Term
  
 
Lease Liabilities
 
   1,105    1,279 
Lease cost information is as follows:

                              
      Three Months Ended 

Operating Leases

(In thousands)

  

Statement of Income Classification

  May 2,
2020
   May 4,
2019
 

Operating Lease Costs

  General and Administrative Expense  $120   $92 

      
Three Months Ended
   
Nine Months Ended
 
Operating Leases
(In thousands)
  
Statement of Income Classification
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
 
Operating Lease Costs
  General and Administrative Expense  $120   $119   $362   $329 
Maturities of operating lease liabilities are as follows:

(In thousands)

  May 2,
2020
 

2021

  $305 

2022

   348 

2023

   298 

2024

   272 

2025

   168 

Thereafter

   391 
  

 

 

 

Total Lease Payments

   1,782 

Less: Imputed Interest

   (192
  

 

 

 

Total Lease Liabilities

  $ 1,590 
  

 

 

 

(In thousands)
  
October 31,
2020
 
2021
, remaining
  $106 
2022
   361 
2023
   310 
2024
   283 
2025
   177 
Thereafter
   415 
  
 
 
 
Total Lease Payments
   1,652 
Less: Imputed Interest
   (171) 
  
 
 
 
Total Lease Liabilities
  $1,481 
  
 
 
 
As of May 2,October 31, 2020, the weighted-average remaining lease term and weighted-average discount rate for our operating leases are 5.65.3 years and 3.99%4.0%, 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.

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Table of Contents
Supplemental cash flow information related to leases is as follows:

                    
   Three Months Ended 

(In thousands)

  May 2,
2020
   May 4,
2019
 

Cash paid for amounts included in the measurement of lease liabilities:

  $106 �� $100 
   
Three Months Ended
   
Nine Months Ended
 
(In thousands)
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
        
Operating cash flows for operating leases
  $102   $108   $333   $306 

Note 12 – Accumulated Other Comprehensive Loss

The changes in the balance of accumulated other comprehensive loss (“AOCL”) by component are as follows:

(In thousands)

  Foreign Currency
Translation
Adjustments
   Cash
Flow
Hedges
   Total 

Balance at January 31, 2020

  $(985  $ (108  $ (1,093

Other Comprehensive Loss before reclassification

   (142   (46   (188

Amounts reclassified from AOCL to Earnings

   —      (33   (33
  

 

 

   

 

 

   

 

 

 

Other Comprehensive Loss

   (142   (79   (221
  

 

 

   

 

 

   

 

 

 

Balance at May 2, 2020

  $ (1,127  $ (187  $ (1,314
  

 

 

   

 

 

   

 

 

 

(In thousands)
  
Foreign Currency
Translation
Adjustments
   
Cash
Flow
Hedges
   
Total
 
Balance at January 31, 2020
  $(985)   $(108)   $(1,093) 
Other Comprehensive Loss before reclassification
   53    (255)    (202) 
Amounts reclassified from AOCL to Earnings
   —      193    193 
Cross-Currency Interest Rate Swap Termination
   —      45    45 
  
 
 
   
 
 
   
 
 
 
Other Comprehensive Income (Loss)
   53    (17)    36 
  
 
 
   
 
 
   
 
 
 
Balance at October 31, 2020
  (932)   (125)   $(1,057) 
  
 
 
   
 
 
   
 
 
 
The amounts presented above in other comprehensive loss are net of taxes except for translation adjustments associated with our German and Danish subsidiaries.

Note 13 – Share-Based Compensation

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”), or performance-based restricted stock units (“PSUs”) and restricted stock awards (RSAs). The 2018 Plan authorizes the issuance of up to 950,000 shares of common stock, plus an additional number of shares equal to the number of shares subject to awards granted under previous equity incentive plans 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, that are reacquired by us 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 our common stock on the date of grant and expire after ten years. Under the 2018 Plan, 293,014 of301,438 unvested shares of restricted stock and options to purchase an aggregate of 135,500 shares were outstanding as of May 2,October 31, 2020.

In addition to the 2018 Plan, we previously granted equity awards under our 2015 Equity Incentive Plan (the “2015 Plan”) and our 2007 Equity Incentive Plan (the “2007 Plan”). No new awards may be issued under either the 2007 or 2015 plans, but outstanding awards will continue to be governed by those plans. As of May 2,October 31, 2020, options to purchase an aggregate of 344,245338,458 shares were outstanding under the 2007 Plan and 15,11314,583 unvested shares of restricted stock and options to purchase an aggregate of 148,725148,625 shares were outstanding under the 2015 Plan.

We also have a
Non-Employee
Director Annual Compensation Program (the “Program”), under which each of our
non-employee
directors automatically receives a grant of restricted stock on the date of their
re-election
to our board of directors. The number of whole shares granted is equal to 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 2021 is $60,000. Shares of restricted stock granted under the Program become vested on the first anniversary of the date of grant, conditioned upon the recipient’s continued service on our board of directors through that date.

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Table of Contents
Share-based compensation expense was recognized as follows:

   Three Months Ended 
(In thousands)  May 2,
2020
   May 4,
2019
 

Stock Options

  $133   $212 

Restricted Stock Awards and Restricted Stock Units

   357    384 

Employee Stock Purchase Plan

   5    5 
  

 

 

   

 

 

 

Total

  $495   $601 
  

 

 

   

 

 

 

   
Three Months Ended
   
Nine Months Ended
 
(In thousands)
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
 
Stock Options
  $126   $148   $390   $487 
Restricted Stock Awards and Restricted Stock Units
   462    371    1,284    1,074 
Employee Stock Purchase Plan
   3    6    13    15 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $591   $525   $1,687   $1,576 
  
 
 
   
 
 
   
 
 
   
 
 
 
Stock Options

There were no0 stock options granted during the three-month periodsnine months ended May 2,October 31, 2020 and May 4,November 2, 2019.

Aggregated information regarding stock option activity for the threenine months ended May 2,October 31, 2020 is summarized below:

   Number of
Options
   Weighted Average
Exercise Price
 

Outstanding at January 31, 2020

   679,044   $14.46 

Granted

   —      —   

Exercised

   (800   7.36 

Forfeited

   (48,374   12.83 

Canceled

   (1,400   7.36 
  

 

 

   

 

 

 

Outstanding at May 2, 2020

   628,470   $14.61 
  

 

 

   

 

 

 

   
Number of
Options
   
Weighted Average
Exercise Price
 
Outstanding at January 31, 2020
   679,044   $14.46 
Granted
   —      —   
Exercised
   (800)    7.36 
Forfeited
   (54,261)    12.89 
Canceled
   (1,400)    7.36 
  
 
 
   
 
 
 
Outstanding at October 31, 2020
   622,583   $14.62 
  
 
 
   
 
 
 
Set forth below is a summary of options outstanding at May 2,October 31, 2020:

   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

   42,281   $7.98    2.0    42,281   $7.98    2.0 

$10.01-15.00

   364,464   $13.63    5.5    319,166   $13.65    5.3 

$15.01-20.00

   221,725   $17.48    7.5    128,871   $16.92    7.1 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   628,470   $14.61    6.0    490,318   $14.02    5.5 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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
   41,444   $7.97    1.6    41,444   $7.97    1.6 
$10.01-15.00
   359,414   $13.63    5.1    314,241   $13.65    4.9 
$15.01-20.00
   221,725   $17.48    7.1    167,367   $17.22    7.0 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   622,583   $14.62    5.6    523,052   $14.34    5.3 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
As of May 2,October 31, 2020, there was approximately $0.6$0.4 million of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted average period of approximately 1.30.9 years.

Restricted Stock Units Performance Based Restricted Stock Units(RSUs) and Restricted Stock Awards

(RSAs)

Aggregated information regarding RSU PSU and RSA activity for the threenine months ended May 2,October 31, 2020 is summarized below:

   RSUs, PSUs &
RSAs
   Weighted Average
Grant Date Fair Value
 

Outstanding at January 31, 2020

   134,634   $16.79 

Granted

   197,131    7.94 

Vested

   (23,638   13.00 
  

 

 

   

 

 

 

Outstanding at May 2, 2020

   308,127   $11.42 
  

 

 

   

 

 

 

   
RSAs & RSUs
   
Weighted Average
Grant Date Fair Value
 
Outstanding at January 31, 2020
   134,634   $16.79 
Granted
   245,131    7.61 
Vested
   (59,747)    17.58 
Forfeited
   (3,997)    16.40 
  
 
 
   
 
 
 
Outstanding at October 31, 2020
   316,021   $9.53 
  
 
 
   
 
 
 
As of May 2,October 31, 2020, there was approximately $2.7$2.0 million of unrecognized compensation expense related to RSUs and RSAs which is expected to be recognized over a weighted average period of 1.10.9 years.

18

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan allowing eligible employees to purchase shares of common stock at a 15% discount from fair value on the first or last day of an offering period, whichever is less. A total of 247,500 shares were reserved for issuance under this plan. During the three
nine
 months ended May 2,October 31, 2020 and May 4,November 2, 2019, there were 3,75512,098 and 1,5715,441 shares, respectively, purchased under this plan. As of May 2,October 31, 2020, 21,21912,877 shares remain available for purchase under our Employee Stock Purchase Plan.

Note 14 – Income Taxes

Our effective tax rates for the period are as follows:

Three Months
Ended

Fiscal 2021

(37.6)% 

Fiscal 2020

19.0

   
Three Months
Ended
  
Nine Months
Ended
 
Fiscal 2021
   160.0  45.9
Fiscal 2020
   (118.2)%   5.5
We determine our estimated annual effective tax rate at the end of each interim period based on full-year forecasted
pre-tax
income and facts known at that time. The estimated annual effective tax rate is applied to the
year-to-date
pre-tax
income at the end of each interim period with the cumulative effect of any changes in the estimated annual effective tax rate being recorded in the fiscal quarter in which the change is determined. The tax effect of significant unusual items is reflected in the period in which theyt
he
y occur.

During the three months ended May 2,October 31, 2020, we recognized an income tax benefit of approximately $118,000.$32,000. The effective tax rate in this period was directly impacted by a reductionsignificant decrease in our forecasted operating results for our fiscal 2021 as compared to operating results forecasted at the end of our second quarter of fiscal 2021. During the three months ended November 2, 2019,
we
 recognized an income tax benefit of approximately $247,000. The effective tax rate in this period was directly impacted by 1) a reduction in forecasted operating results for our fiscal 2020 as compared to operating results forecasted at the end of our second quarter of fiscal 2020, 2) a $306,000 tax benefit related to the reversal of previously uncertain tax positions due to the finalization of an IRS audit and 3) an $18,000 tax benefit arising from windfall tax benefits related to
our
stock
.
During the nine months ended October 31, 2020, we recognized an income tax expense of approximately $379,000. The effective tax rate in this period was directly impacted by 1) a significant decrease in forecasted operating results for our fiscal 2021 as compared to operating results forecasted at the end of our second quarter of fiscal 2021, 2) a $118,000 expense arising from shortfall tax expense related to our stock, 3) a $79,000 expense related to return to provision adjustments from foreign tax returns filed in the year and 4) a $78,000 tax benefit related to the expiration of the statute of limitations on previously uncertain tax positions. During the threenine months ended May 4,November 2, 2019,
we
 recognized an income tax expense of approximately $400,000.$182,000. The effective tax rate in this period was directly impacted by 1) a $53,000$359,000 tax benefit related to the reversal of previously uncertain tax positions due to the finalization of an IRS audit and the expiration of the statute of limitations on a previously uncertain tax positionpositions and 2) a $97,000$251,000 tax benefit arising from windfall tax benefitbenefits related to
our
 stock.

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

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial reporting purposes. As of May 2,October 31, 2020, our cumulative unrecognized tax benefits totaled $319,000 compared to $362,000 as of January 31, 2020. Besides the expiration of the statute of limitations on a previously uncertain tax position, there were no0 other developments affecting our unrecognized tax benefits during the quarter ended May 2,October 31, 2020.

19

Table of Contents

Note 15 – Segment Information

We report two segments: Product Identification (“PI”) and Test & Measurement (“T&M”). We evaluate segment performance based on the segment profit (loss) before corporate expenses.

Summarized below are the Revenue and Segment Operating Profit (Loss) for each reporting segment:

   Three Months Ended 
   Revenue   Segment Operating Profit (Loss) 

(In thousands)

  May 2,
2020
   May 4,
2019
   May 2,
2020
  May 4,
2019
 

PI

  $22,380   $23,591   $3,146  $2,886 

T&M

   8,539    12,590    (156  2,581 
  

 

 

   

 

 

   

 

 

  

 

 

 

Total

  $30,919   $36,181    2,990   5,467 
  

 

 

   

 

 

    

Corporate Expenses

       2,327   2,999 
      

 

 

  

 

 

 

Operating Income

       663   2,468 

Other Expense, Net

       (349  (368
      

 

 

  

 

 

 

Income Before Income Taxes

       314   2,100 

Income Tax (Benefit) Provision

       (118  400 
      

 

 

  

 

 

 

Net Income

      $432  $1,700 
      

 

 

  

 

 

 

   
Three Months Ended
   
Nine Months Ended
 
   
Revenue
   
Segment Operating Profit
(Loss)
   
Revenue
   
Segment Operating Profit
(Loss)
 
(In thousands)
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
   
October 31,
2020
   
November 2,
2019
 
Product Identification
  $22,898   $21,749   $3,521  $1,880  $66,907   $67,484   $9,813  $6,990 
T&M
   5,119    11,569    (751)   1,397   19,688    35,483    (1,314)   5,533 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Total
  $28,017   $33,318    2,770   3,277  $86,595   $102,967    8,499   12,523 
  
 
 
   
 
 
     
 
 
   
 
 
    
Corporate Expenses
       2,353   2,830       7,214   8,445 
    
 
 
  
 
 
      
 
 
  
 
 
 
Operating Income
       417   447       1,285   4,078 
Other Expense, Net
       (437)   (238)       (459)   (788) 
      
 
 
  
 
 
      
 
 
  
 
 
 
Income (Loss) Before Income Taxes
       (20)   209       826   3,290 
Income Tax (Benefit) Provision
       (32)   (247)       379   182 
      
 
 
  
 
 
      
 
 
  
 
 
 
Net Income
      $12  $456      $447  $3,108 
      
 
 
  
 
 
      
 
 
  
 
 
 
Note 16 – Fair Value

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables provide a summary of the financial liabilities that are measured at fair value as of May 2,October 31, 2020 and January 31, 2020:

Liabilities measured at fair value:

  Fair value measurement at
May 2, 2020
   Fair value measurement at
January 31, 2020
 
(In thousands)  Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 

Cross-Currency Interest Rate Swap Contract (included in Other Long-Term Liabilities)

  $—    $192   $—    $192   $—    $250   $—    $250 

Interest Rate Swap Contract (included in Other Long-Term Liabilities)

   —      202    —      202    —      96   —      96

Earnout Liability (included in Other Long-Term Liabilities)

   —      —      —      —      —      —      14    14 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

  $—    $394   $—     $394   $—    $346   $14   $360 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities measured at fair value:
  
Fair value measurement at
October 31, 2020
   
Fair value measurement at
January 31, 2020
 
(In thousands)
  
Level 1
   
Level 2
   
Level 3
   
Total
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Cross-Currency Interest Rate Swap Contract (included in Other Long-Term Liabilities)
  $—     $—     $—     $—     $—     $250   $—     $250 
Interest Rate Swap Contract (included in Other Long-Term Liabilities)
   —      —      —      —      —      96    —      96 
Earnout Liability (included in Other Long-Term Liabilities)
   —      —      —      —      —      —      14    14 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Liabilities
  $—     $—     $—     $
 
—     $—     $346   $14   $360 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
We use
d
the market approach to measure fair value of our derivative instruments. Derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates and foreign exchange rates, and are
were
 classified as Level 2 because they are
were
over-the-counter
contracts with a bank counterparty that are
were
 not traded in an active market.

20

Table of Contents
Assets and Liabilities Not Recorded at Fair Value

Our long-term debt, including the current portion of long-term debt not reflected in the financial statements at fair value, is reflected in the table below:

   May 2, 2020 
   Fair Value Measurement   Carrying
Value
 

(In thousands)

  Level 1   Level 2   Level 3   Total 

Long-Term Debt and related current maturities

  $—    $—    $13,227   $13,227   $13,034 
   January 31, 2020 
   Fair Value Measurement   Carrying
Value
 

(In thousands)

  Level 1   Level 2   Level 3   Total 

Long-Term Debt and related current maturities

  $—    $—    $13,258   $13,258   $13,034 

   
October 31, 2020
 
   
Fair Value Measurement
     
(In thousands)
  
  Level 1  
   
  Level 2  
   
  Level 3  
   
    Total    
   
    Carrying    
Value
 
Long-Term debt and related current maturities
  $—     $—     $13,637   $13,637   $13,628 
   
January 31, 2019
 
   
Fair Value Measurement
     
(In thousands)
  
  Level 1  
   
  Level 2  
   
  Level 3  
   
    Total    
   
    Carrying    
Value
 
Long-Term debt and related current maturities
  $—     $—     $13,258   $13,258   $13,034 
The fair value of our long-term debt, including the current portion, is estimated by discounting the future cash flows using current interest rates at which similar loans with the same maturities would be made to borrowers with similar credit ratings and is classified as Level 3.

Note 17 – Subsequent Events

Payroll Protection Program Loan

On May 6, 2020, we entered into a loan agreement with, and executed a promissory note in favor of Greenwood Credit Union (“Greenwood”) pursuant to which we borrowed $4.4 million (the “ PPP Loan”) from Greenwood pursuant to the Paycheck Protection Program (“PPP”) administered by the United States Small Business Administration (the “SBA”) and authorized by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020.

The terms of the PPP Loan were subsequently revised in accordance with the provisions of the Paycheck Protection Flexibility Act of 2020 (the “PPP Flexibility Act”) which was enacted on June 5, 2020.

The PPP Loan, which will mature on the fifth anniversary of the date on which we submit our request for forgiveness with respect to the PPP Loan, is unsecured and bears interest at a rate of 1.0% per annum. The PPP Loan may be prepaid at any time without penalty. The Loan Agreement and Promissory Note include customary provisions for a loan of this type, including prohibitions on our payment of dividends or repurchase of shares of our stock while the PPP Loan remains outstanding. The Loan Agreement and Promissory Note also include events of default relating to, among other things, payment defaults, breaches of the provisions of the Loan Agreement or the Promissory Note, and cross-defaults on other loans.

Subject to the limitations and conditions set forth in the CARES Act, the PPP Flexibility Act, and the regulations and guidance provided by the SBA with respect to the PPP, a portion of the PPP Loan in an amount up to the amount of the PPP Loan proceeds that we spend on payroll, rent, utilities and interest on certain debt during the twenty-four-week period following incurrence of the PPP Loan, may be forgiven under the PPP. The amount of the PPP Loan to be forgiven in respect of rent, utilities and interest on certain debt will be capped at 40% of the forgiven amount, with the remaining forgiven amount allocated to payroll costs. We intend to utilize the proceeds of the PPP Loan in a manner which will enable us to qualify for forgiveness of the PPP Loan. However, no assurance can be provided that all or any portion of the PPP Loan will be forgiven.

Letter Agreement with Bank of America

On June 22, 2020, we entered into a Letter Agreement with Bank of America, N.A. Pursuant to that agreement, Bank of

America agreed to waive compliance with certain financial covenants in our Credit Agreement related to our consolidated leverage ratio and consolidated EBITDA (as defined in the Credit Agreement) for the measurement period ending May 2, 2020. The Letter Agreement imposes an additional financial covenant that requires us to have, as of June 30, 2020, consolidated EBITDA of not less than $9.5 million on a trailing twelve-months basis, and to report our compliance with such covenant on or before August 15, 2020. The Letter Agreement provides that such covenant will not be tested until August 15, 2020 and we do not expect to be in compliance with the covenants at the time, hence constituting an immediate event of default under the Credit Agreement. However, we and Bank of America are actively negotiating the terms of an amendment to restructure the Credit Agreement that would provide for mutually acceptable revised financial and operational covenants and other mutually acceptable revised terms and we both fully expect that amendment to be executed prior to August 15, 2020. The effect of the Letter Agreement therefore is to give both parties sufficient time to complete the relevant documentation and also enable us to execute the amendment by that deadline.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

This section should be read in conjunction with our condensed consolidated financial statements included elsewhere herein and our Annual Report on Form
10-K
for the fiscal year ended January 31, 2020.

AstroNova is a multi-nationalmultinational enterprise that leverages its proprietary data visualization technologies to design, develop, manufacture, distribute and service a broad range of products that acquire, store, analyze and present data in multiple formats. We organize our structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. We market and sell our products and services through the following two segments:

Product Identification (“PI”) – offers color and monochromatic digital label printers, over-printers and custom OEM printers. PI also offers software to design, manage and print labeling and packaging images locally and across networked printing systems, as well as all related printing supplies such as pressure sensitive labels, tags, inks, toners and thermal transfer ribbons used by digital printers. PI also provides
on-site
and remote service, spare parts and various service contracts.

Test and Measurement (“T&M”) – offers a suite of products and services that acquire data from local and networked data streams and sensors as well as wired and wireless networks. The T&M segment includes a line of aerospace printers that are used to print hard copies of data required for the safe and efficient operation of aircraft including navigation maps, clearances, arrival and departure procedures, flight itineraries, weather maps, performance data, passenger data, and various air traffic control data. Aerospace products also include aircraft networking systems for high-speed onboard data transfer.

T&M also provides repairs, service and spare parts.

We market and sell our products and services globally through a diverse distribution structure of direct sales personnel, manufacturers’ representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets. Our growth strategy centers on organic growth through product innovation made possible by research and development initiatives, as well as strategic acquisitions that fit into or complement existing core businesses.

In fiscal 2018, we entered into an Asset Purchase and License Agreement (“Honeywell Agreement”) with Honeywell International, Inc. (“Honeywell”) pursuant to which, we acquired the exclusive perpetual world-wide license to manufacture Honeywell’s narrow format flight deck printers for the Boeing 737 and Airbus 320 aircraft. This added the two highest volume commercial aircraft programs in regular production to our product portfolio.

In March 2019, all major civil aviation authorities worldwide grounded the Boeing 737 MAX aircraft for safety reasons. In April 2019, Boeing reduced the number

21

Table of 737 MAX aircraft produced per month from 52Contents
COVID-19
Update - Overview
Our business has been and will likely continue to 42, and in January 2020, Boeing ceased production of the 737 MAX completely. Although, at this time it is not known when the Boeing 737 MAX will be certified to return to servicematerially adversely affected by the various civil aviation authorities, on May 27, 2020, in anticipation of this certification, Boeing announced that it wouldre-start production at low initial rates and gradually increase production in the future. Once Boeing’s manufacturing dates and delivery schedules for their aircraft customers are established, we expect that Boeing and Boeing’s customers will begin to order printers from us for those aircraft. However, we expect that the adverse impact on our revenue and profitability by the production decline to date will continue until customer demand returns and that the impact will abate as demand begins to grow again.

On March 11, 2020, the World Health Organization declaredglobal

COVID-19 a respiratory illness caused by a novel coronavirus, to be a
pandemic.
COVID-19
has spread throughout the United States and the rest of the world and has impacted all major markets in which we, our customers, our suppliers and our other business partners conduct business. Governments in affected regions have implemented, and we expect that they will continue to implement and periodically change policies in relation to safety precautions including quarantines, travel restrictions, business closures, cancellations of public gatherings and any other measures as they deem necessary. Many organizations and individuals, including us and our employees have taken and are taking additional steps to avoid or reduce infection, including limiting travel and working from home when possible. These measures are disrupting normal business operations including both inside our operations and outside of affected areasin our customer base, and as a result have had significant negative impacts on businesses and financial markets worldwide.

Due to theCOVID-19 pandemic, global air travel demand has precipitously declined, and the number of flights scheduled by airlines has been sharply curtailed. As a result, demand for aircraft by airlines has declined and is expected to remain lower for an unknown period, and thus manufacturers who make the airplanes that use our aerospace products have reduced their projected production rates across most or all of their product lines. Demand for spare products, paper, and parts and repairs has also been significantly impacted by the decline in air travel demand. While the major aircraft manufacturers have given some general statements to the public about their projected production rate changes that can be used to help align our overall production capacity, in general, we produce products according to customer forecasts and order rates and at this time, the actual rates and timing of production requirements that will materialize is uncertain. The degree and duration of the decline in future demand for aircraft and when and over what period any recovery will occur is still unknown. The decline in demand has had, and will continue to have a material adverse impact on our revenues and results of operations until demand recovers. Our strategy and operational plans are to maintain sufficient capabilities to satisfy demand as and when it occurs, while prudently adjusting costs as appropriate in the interim.

TheCOVID-19 pandemic has also had an adverse impact on the sales of our Product Identification hardware products due to travel restrictions, because, in most, cases customers preferin-person demonstrations of these printers at their production sites prior to placing orders with us and those visits have been severely limited. Additionally, the widespread cancellation of trade shows, which traditionally provided an effective forum for customers to consider our products, has also had an adverse impact. A greater reliance on remote video demonstrations, sample deliveries and digital marketing has proven effective in obtaining sales, but at a lower level than traditional methods. We expect that, while our customers’ acceptance of remote methods in their buying processes may have changed permanently, the degree to which that will prove to be the case once the currentCOVID-19 crisis has abated is unknown. Despite favorable market reception to our recently refreshed and expanded product lines, we expect that the level of hardware sales will remain lower until it is possible for our direct sales force and distributors to travel to visit customers and attend and present products at trade shows. The same dynamic has also affected our Test and Measurement product lines.

Shortly after theCOVID-19 crisis began, we experienced a somewhat greater demand for ink, toner, media and parts supplies that are used in our digital label printers. In addition to the strong demand from our food & beverage customers, we have also seen increased demand coming from customers selling products that have experienced higher demand as a result of the COVID-19 crisis, such as, certain medical, janitorial and sanitation related products. We do not know how long this trend will continue. However, although we have had to occasionally extend our lead times because of some temporary labor shortages, we have been able to adjust production and satisfy our customer demands successfully, and being a reliable supplier is one of the characteristics on which we compete.

Since the

COVID-19
pandemic began to impact us in early March 2020, we have closely monitored the government and health authority recommendations applicable to us and have made modifications to our operations including requiringbased on that guidance and on our growing experience. As the
COVID-19
related economic impact has continued and since various governmental economic support programs have ended, we have reduced our staffing levels and implemented furloughs and work-share programs. As time progresses and the near and longer-term business outlook becomes clearer, we may make additional adjustments to employment levels.
Since March and through the most recent fiscal quarter, a large majority of our
non-production
related team members have worked remotely. When and to what degree our team members will return to on premises work remotely. While someis still unknown. Some inefficiencies related to remote work have occurred, but we believe overall effectiveness and productivity hashave been satisfactorily maintained. At the same time
During this period we have maintained sufficient capacity and employment levels in our manufacturing facilities located in West Warwick, Rhode Island, as well as in our manufacturing facilities in Canada and Germany to satisfy customer demand and related contractual commitments, despite a higher than normal level of absenteeism due to the ancillary impacts of the pandemic. We believe that as a result of a variety ofcommitments. The heightened cleaning and sanitization standards, as well as several new health and safety protocols, procedures and workplace modifications we implemented to safeguard our team members will be maintained as long as necessary. We believe that these health and safety protocols, the incidencescheduling innovations we implemented in our production facilities, the relative effectiveness ofCOVID-19 disease among our employees has thus far been limited. We know of only one case ofCOVID-19 among our teammates, and that individual returned public policies to work, after completingcontrol the required quarantine period. Though the government mandatedCOVID-19 restrictions have begun to lessenpandemic in Rhode Island, Germany and Canada where our main production facilities are located, and office is located , if theCOVID-19 crisis were efforts of our employees to worsen it could have further material adverse impacts onadapt to altered schedules, contributed to our ability to maintain workforce levels, productivity and output. As a result, we are maintaining current precautions for the near-term.

In responsenormal order fulfillment lead times after some initial periods of extended lead times because of temporary labor shortages.

However, subsequent to the fiscal third quarter end, the rate of
COVID-19 pandemic
infections in the areas where our manufacturing facilities are located, has increased. The incidence of infection in our manufacturing workforce also has increased, causing additional short-term absences and related economic dislocation, we are pursuing a variety of expense reduction and cash preservation initiatives. In connection with that effort, on April 27, 2020, our board of directors decided to suspend our quarterly cash dividend beginningtogether with the second quarterimpact of quarantine and isolation protocols, has resulted in loss of some productive capacity, leading to longer order fulfillment times and reduced revenue. We believe this to be temporary and that we will be able to counteract this with higher-cost overtime work, and we do not believe that we have yet lost any orders as a result. However, we cannot predict the timing or extent of future infections, or when they may abate, so the ultimate impact of these developments on our fiscal year 2021. We have also reduced our direct labor staffing levels modestly in response to theCOVID-19 crisis, while maintaining levels sufficient to compensate for inefficiencies and disruptions resulting from the implementation ofCOVID-19-related health and safety protocols and, in our Product Identification supplies business to satisfy customer demand. Many of the expenses related to our aerospace product lines cannot be easily reduced because of the continued need to support our existing customers and to provide the required sales, engineering, quality, and regulatory compliance and audit activities (among others) necessary to support the demanding regulatory requirements for these product lines. We continue to monitor and examine our overall and product line-specific cost structures and customer demand patterns, and as time progresses and the near and longer-term business outlook becomes clearer, we may make additional adjustments to employment levels.

is unknown at this time.

In addition to the reductions in demand for many of our products and the workforce impacts caused by the
COVID-19
pandemic, we have also experienced some limited and temporary difficulties in obtaining raw materials and components for our products. These difficulties have had no meaningful negative impact on our production efficiency or our ability to satisfy customer requirements. However, more extensive and disruptive impacts may be experienced in the future, depending on how the
COVID-19
pandemic and its impacts on the economy evolve.

Disruptions

Product Identification Update
The global
COVID-19
pandemic has also had an adverse impact on the sales of our Product Identification hardware products primarily due to travel restrictions, as most customers have preferred
in-person
demonstrations of these printers at their production sites prior to placing orders with us and those visits have been severely limited. Additionally, the widespread cancellation of trade shows, which traditionally provided an effective forum for customers to consider our products, has also had an adverse impact on traditional methods of sales lead generation. However, we have been able to offset these negative impacts by placing a greater reliance on various forms of digital advertising and internet-based marketing techniques, including remote video demonstrations and support, which has proven effective in obtaining sales. Despite favorable market reception to our recently refreshed and expanded product lines, the degree to which the level of hardware sales will be mitigated by altering our
go-to-market
strategies until it is possible for our direct sales force and distributors to travel to visit customers and attend and present products at trade shows is unknown.
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Immediately after the
COVID-19
crisis began, we experienced a greater demand for ink, toner, media and parts supplies that are used in the capitaldigital label printers we sell to our customers. While those initial increases have abated modestly in certain markets in the most recent two quarters, underlying overall demand remained strong through this period. Increased demand for supplies from our food & beverage and other consumer goods product customers, and from customers selling products that have experienced higher demand as a result of the
COVID-19 outbreak
crisis, such as certain medical, janitorial and sanitation related products, have also adversely affected us, primarily becausecontributed favorably to our overall operating results.
In general, we believe that the bank lending diversified nature of our end markets and the relative concentration of business in consumer
non-durable
market related applications impart a greater degree of near- and longer-term stability to our Product Identification segment.
Test & Measurement Update
Our sales of flight deck printers for narrow-body Boeing 737 aircraft has been severely impacted by the chain of events that occurred after two 737 MAX aircraft crashed. In March 2019, all major civil aviation authorities worldwide grounded the Boeing 737 MAX aircraft for safety reasons. In April 2019, Boeing reduced the number of 737 MAX aircraft produced per month from 52 to 42, and in January 2020, Boeing ceased production of the 737 MAX completely. On May 27, 2020, in anticipation of an eventual certification, Boeing announced that it would
re-start
production at low initial rates and gradually increase production in the future.
On August 3, 2020 the United States Federal Aviation Administration (the “FAA”) issued a notice of proposed rulemaking for a Boeing 737 MAX airworthiness directive, and on whichNovember 18, 2020 the FAA certified the model for return to service in the United States. The exact timing of
re-certification
by other worldwide civil aviation authorities is unknown but we expect that most will permit a return to service in early 2021. Before any individual 737 MAX aircraft can return to commercial service all agency certification requirements must be met. As these requirements vary by agency, and can be quite extensive, the exact timing of the recertification and return to service of the 737 MAX fleet is unclear at this time and will depend on the ability of Boeing and each airline to complete the required steps.
We have experienced very low levels of 737 MAX new printer orders and shipments since the production halt, as Boeing is now producing a small number of new aircraft per month. The majority of our future 737 MAX printer sales volume will be tied to the pace of Boeing’s manufacturing dates and delivery schedules, and the recovery is expected to be prolonged.
Further, due to the
COVID-19
pandemic, global air travel demand has precipitously declined, and the number of flights scheduled by airlines has declined sharply. As a result, order demand from airlines for new deliveries of most aircraft models has declined and is expected to remain lower for an unknown period due to the unpredictable course of the pandemic and the perceived infection risk of air travel. Aircraft manufacturers have reduced their projected production rates across most or all of their product lines. As the
COVID-19
pandemic impact on the air travel industry continues, the financial health of the airlines and airframe manufacturers is likely to become more risk averse, leading to reduced availabilityfurther stressed, and the ultimate impact on the structure of capital, higher loan pricingthe industry and less favorable terms. Whilethe individual companies that comprise it is unknown. Because we are currently negotiating the termsprimary source for aircraft cabin printers to the airframe manufacturers for a majority of an amendment to restructureaircraft models produced in the world, the longer term demand for our current credit facility with Bankproducts is defined less by the impact of America, there can be no assurance that
COVID-19
on particular airlines within the industry than the health of the industry as a whole, which in turn is driven by the demand for air travel. Although we do not know what the timing and rate of recovery will be, successful in that negotiation orwe do expect that the termsindustry, and hence the demand for our products, will begin to recover when effective vaccines and treatments for
COVID-19
become both widely available and accepted, and demand for air travel recovers.
Demand for aerospace spare products, paper, parts and repairs has also been significantly impacted by the decline in air travel, as requirements for these products and services are based primarily upon aircraft usage. Although we have experienced modest increases in demand for spare products, paper, parts and repairs as flight hours have increased slightly during the second and third quarters of any such restructured credit facilityfiscal 2021, it is unknown whether this will be acceptable. If the negative impacts of theCOVID-19 pandemic continue or increase, or at what pace.
The decline in demand for a prolonged period, or become worse, and we need additional liquidity, it could haveour aerospace products has had a material adverse impact on our accessrevenues and results of operations, which we expect will continue until demand recovers. The timing and pace of industry recovery remains uncertain.
While we have and plan to capitalcontinue to reduce our costs as much as we can, our strategy and financial position.

operational plans are to maintain sufficient capabilities and staffing to fully support our customers and to be able to rapidly increase production as demand returns.

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Results of Operations

Three Months Ended May 2,October 31, 2020 vs. Three Months Ended May 4,November 2, 2019

Revenue by segment and current quarter percentage change over the prior year for the three months ended May 2,October 31, 2020 and May 4,November 2, 2019 were:

(Dollars in thousands)

  May 2,
2020
   As a
% of
Revenue
  May 4,
2019
   As a
% of
Revenue
  % Change
Over
Prior Year
 

Product Identification

  $22,380    72.4 $23,591    65.2  (5.1)% 

T&M

   8,539    27.6  12,590    34.8  (32.2)% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total

  $30,919    100.0 $36,181    100.0  (14.5)% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

(Dollars in thousands)
  
October 31,
2020
   
As a
% of
Revenue
  
November 2,
2019
   
As a
% of
Revenue
  
% Change
Compared
to
Prior Year
��
Product Identification
  $22,898   
 
81.7
 $21,749   
 
65.3
 
 
5.3
T&M
   5,119   
 
18.3
  11,569   
 
34.7
 
 
(55.8
)% 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total
  $28,017   
 
100.0 
 $33,318   
 
100.0 
 
 
(15.9
)% 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Revenue for the firstthird quarter of the current year was $30.9$28.0 million, representing a 14.5%15.9% decrease compared to the previous year firstthird quarter revenue of $36.2$33.3 million. Revenue through domestic channels for the firstthird quarter of the current year was $19.8$16.8 million, a decrease of 9.7%23.1% from the prior year’s firstthird quarter. International revenue for the firstthird quarter of the current year was $11.1$11.2 million, representing 36.0%40.1% of our firstthird quarter revenue and reflectsreflecting a 21.6%2.2% decrease from the previous year first quarter, primarily as a result of lower demand by a few customers in Asia in both the Product Identification and T&M segments.third quarter. Current year firstthird quarter international revenue includes an unfavorablea favorable foreign exchange rate impact of $0.2$0.4 million.

Hardware revenue in the current quarter was $8.9$7.6 million, a 31.0%36.9% decrease compared to the prior year firstyear’s third quarter revenue of $12.9$12.2 million. The current quarter decrease can be attributedis primarily attributable to both segments,the T&M segment, as hardware revenue for that segment decreased 33.6% in the T&M segment and 24.3% in the PI segment56.2% compared to the third quarter of the prior year. The current quarter decrease in T&M segment hardware revenuesales primarily resulted from decreased aerospace printer product line sales, as well as a decline in sales of certain data recorders in the T&M segment is primarily due to theproduct group. The decline in aerospace printercurrent quarter hardware sales related to the Honeywell product lines. Also contributing to the current year first quarter revenue declinewas slightly offset by an overall 4.8% increase in the T&M segment, was the decrease in sales of other aerospace products, as well as a decrease in sales of data acquisition recorders. These declines are a result of the continued grounding of the Boeing 737 MAX, as well as the dramatic drop in air travel related to theCOVID-19 pandemic. Decreases in both QuickLabel and Trojan Label printerhardware sales in the PI segment, which were impactedled by travel and trade show restrictions, also contributedthe increase in current quarter sales related to the overall decline product launch of the new
T3-OPX
in hardware as sales from our new Trojan Three OPX printer were more than offset by declines in sales of QuickLabel’sQL-120,QL-300 andQL-800 and Trojan Label’sT2-Compact family of printers.

the TrojanLabel product group.

Supplies revenue in the current quarter was $19.1$18.0 million, a 3.1% decrease from1.9% increase compared to the prior year’s firstthird quarter supplies revenue of $19.7$17.6 million. The decrease in the current quarter supplies revenue as compared to the first quarter of the prior yearincrease is primarily attributable to a decrease inink jet and electrophotographic supplies revenue underin both the Honeywell Agreement. Also contributing toQuickLabel and TrojanLabel product groups within the current quarter declinePI segment. The overall increase in supplies revenue was the decrease in ink jetpartially offset by a decline supplies revenue in the Product IdentificationT&M segment dueprimarily related to a declinedeclines in sales to a key Asian customer. The decreaseof printer supply products in supplies revenue for the current quarter was slightly offset by an increase in TrojanLabelaerospace product supplies revenue and certain categories of QuickLabel supplies within the Product Identification segment.

group.

Service and other revenue was $2.9revenues of $2.4 million in the current quarter an 18.4% decrease from the prior year firstdecreased 32.8% compared to third quarter revenue of $3.5 million.million in the prior year. The current quarter decrease is due primarily due to lower parts anddeclines in repair revenue related to the AstroNova aerospace printer product linesline in the T&M segment, as well as smaller declines in parts and partsrepair revenue in the QuickLabel product line in the PIProduct Identification segment.

Current year firstthird quarter gross profit was $10.9$9.7 million, a 23.8%20.8% decrease compared to the prior year firstyear’s third quarter gross profit of $14.2$12.3 million. Our current quarter gross profit margin of 35.1%34.7% reflects a430-basis 2.2 percentage point decline from the prior year’s firstthird quarter gross profit margin of 39.4%36.9%. The lower gross profit and related profit margin for the current quarter compared to the prior year’s firstthird quarter is primarily attributable to decreased revenue and unfavorableless favorable product mix, which were slightly offset by current quarter reductions in both the PImanufacturing and T&M segments.

period costs.

Operating expenses for the current quarter were $10.2$9.3 million, a 13.4%21.4% decrease compared to the prior year firstyear’s third quarter operating expenses of $11.8$11.9 million. Specifically, current quarter selling and marketing expenses were $5.9$5.6 million, a 12.4%20.0% decrease compared to $6.8 million in the firstthird quarter of the prior year. The decline for the current quarter was primarily due to decreases in the current yeara decrease in travel and entertainment expenses, employee wage and commission expenses, and advertising and trade show expenditures, as well as decreases in employee benefit expenditures. General and administrative expenses for the current quarter were $2.3 million, a 22.4% decrease as compared to $3.0 million in the prior year first quarter. The decline in currentCurrent quarter general and administrative expenses were $2.4 million, a 16.9% decrease compared to the third quarter of the prior year. The decline for the current year was primarily due to decreasesa decrease in professional fees, travel and entertainmentbad debt expenses and employee benefit expenditures, slightly offset by an increase in outside services and an allowance for doubtful accounts,expenses, which was partially drivenoffset by customer collection concerns stemming fromCOVID-19.increases in employee benefits. Research and development (“R&D”) expenses of $1.9were $1.4 million declined 3.3% fromin the firstcurrent quarter, a 32.0% decrease compared to $2.1 million in the third quarter of the prior year R&D expenses of $2.0 million.primarily due to decreases in employee wage and benefits, supplies expenditures and travel and entertainment expenses. The R&D spending as a percentage of revenue for the current quarter of 6.3% increased asis 5.0% compared to 5.5% of revenue in6.2% for the same period of the prior year.

Other expense in the firstthird quarter of fiscal 2021the current year was $0.3$0.4 million compared to other expense of $0.4$0.2 million forin the firstthird quarter of the prior year. Current quarter other expense includes interest expense on debt, the PPP loan and the revolving line of credit of $0.3 million and $0.1 million of net foreign exchange loss. Other expense for the third quarter of the prior year consisted primarily includesof interest expense on our debt and revolving line of credit of $0.2 million.
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Table of Contents
We recognized a federal, state and foreign income tax benefit for the third quarter of the current year of $32,000, resulting in an effective tax rate of 160.0%. This rate was impacted by a significant decrease in forecasted operating results for our fiscal 2021 as compared to operating results forecasted at the end of our second quarter of fiscal 2021. This compares to the prior year’s third quarter income tax benefit of approximately $247,000. The effective tax rate in this period was directly impacted by 1) a reduction in forecasted operating results for our fiscal 2020 as compared to operating results forecasted at the end of our second quarter of fiscal 2020, 2) a $306,000 tax benefit related to the reversal of previously uncertain tax positions due to the finalization of an IRS audit and 3) an $18,000 tax benefit arising from windfall tax benefits related to our stock.
We reported net income of $12,000 or $0.00 per diluted share for the third quarter of the current year. On a comparable basis, net income for the prior year’s third quarter was $0.5 million netor $0.06 per diluted share. Return on revenue was 0.0% for the third quarter of fiscal 2021 compared to 1.4% for the third quarter of fiscal 2020.
Nine Months Ended October 31, 2020 vs. Nine Months Ended November 2, 2019
Revenue by product group and current period percentage change over the prior year for the nine months ended October 31, 2020 and November 2, 2019 were:
(Dollars in thousands)
  
October 31,
2020
   
As a
% of
Revenue
  
November 2,
2019
   
As a
% of
Revenue
  
% Change
Compared
to
Prior Year
 
Product Identification
  $66,907   
 
77.3
 $67,484   
 
65.5
 
 
(0.9
)% 
T&M
   19,688   
 
22.7
  35,483   
 
34.5
 
 
(44.5
)% 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total
  $86,595   
 
100.0
 $102,967   
 
100.0
 
 
(15.9
)% 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Revenue for the first nine months of the current year was $86.6 million, representing a 15.9% decrease compared to the previous year’s first nine months revenue of $103.0 million. Revenue through domestic channels for the first nine months of the current year was $54.4 million, a decrease of 15.6% from prior year domestic revenue of $64.5 million. International revenue for the first nine months of the current year was $32.2 million, a 16.5% decrease from the previous year international revenue of $38.5 million. The current year’s first nine months international revenue reflected a favorable foreign exchange lossrate impact of $0.2$0.1 million.
Hardware revenue in the first nine months of the current year was $25.0 million, a 33.3% decrease compared to the prior year’s first nine months revenue of $37.5 million. The decrease in hardware revenue is primarily due to a 44.3% decline in the T&M segment resulting from lower aerospace printer product line sales. The PI segment also contributed to the overall decline in hardware sales for the first nine months of the current year, as hardware sales decreased 7.3% on declines in sales of most hardware products in the PI segment other than sales related to the TrojanLabel launch of the new
T3-OPX
which provided a significant contribution to revenue for the first nine months of fiscal 2021.
Supplies revenue in the first nine months of the current year was $54.3 million, representing a 2.2% decrease from the prior year’s first nine months revenue of $55.5 million. The decrease in the current year supplies revenue is primarily attributable to the decrease in sales of supplies in the aerospace product group in the T&M segment.
Service and other revenues were $7.3 million in the first nine months of the current year, a 26.7% decrease compared to the prior year’s first nine months service and other revenues of $10.0 million. The current year decrease is primarily due to a decline in repair and parts revenue related to the aerospace printer product line, as well as sales declines in parts and repair revenue in the Product Identification segment.
Current year first nine months gross profit was $30.4 million, a 21.1% decrease from prior year’s first nine months gross profit of $38.5 million. Our gross profit margin of 35.1% in the current year reflects a decrease from the prior year’s first nine months gross profit margin of 37.4%. The lower gross profit and related profit margin for the current quarter compared to the prior year’s third quarter is primarily attributable to decreased revenue and less favorable product mix, which were slightly offset by current year reductions in manufacturing and period costs.
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Table of Contents
Operating expenses for the first nine months of the current fiscal year were $29.1 million, a 15.5% decrease compared to prior year’s first nine months operating expenses of $34.4 million. Selling and marketing expenses for the current year of $17.0 million decreased by 15.4% compared to the previous year’s first nine months primarily due to decreases in travel and entertainment expenses, advertising and trade show expenditures and wages, employee benefits and commission expenditures. General and Administrative expenses decreased 14.6% to $7.2 million in the first nine months of the current year compared to $8.4 million in the first nine months of the prior year, primarily due to a decrease in outside service fees, as well as lower travel costs and professional service fees, partially offset by an increase in employee benefit expense. R&D spending in the first nine months of the current year was $4.8 million, a 17.4% decrease compared to the prior year’s first nine months spending of $5.9 million due primarily to lower wages, employee benefits and travel and entertainment expenses. Current year spending on R&D represents 5.6% of revenue compared to the prior year’s first nine months level of 5.7%.
Other expense during the first nine months of the current year was $0.5 million compared to $0.8 million in the first nine months of the previous year. Current year other expense includes $0.8 million of interest expense on our debt, PPP loan and revolving credit line, $0.1 million of loss related to the termination of the cross-currency interest rate swap and other expense of $0.1, offset by a $0.4 million gain on the translation of Eurodollar and Danish Kroner receivable balances at significantly higher exchange rates for those currencies as compared to the US Dollar and investment income of $0.1 million. Other expense forduring the first quarternine months of fiscal 2019 consisted2020 primarily ofincluded interest expense on our debt and revolving line of $0.2credit of $0.6 million and net foreign exchange loss of $0.2$0.3 million, which was partially offset by investment and other income of $0.1 million.

The benefit for federal, state and foreign

We recognized $379,000 of income taxestax expense for the first quarternine months of the current fiscal year, is $0.1 million, resultingwhich reflects 1) a significant decrease in an effective tax rate of negative 37.6%. This rate was impacted by a reduction in internally forecasted operating results for our fiscal 2021 as compared to operating results forecasted at the end of our second quarter of fiscal 2021, 2) a $118,000 expense arising from a shortfall tax expense related to our stock, 3) a $79,000 expense related to return to provision adjustments from several foreign tax returns filed in the current year and 4) a $78 thousand$78,000 tax benefit related to the expiration of the statute of limitations on previously uncertain tax positions. This comparespositions resulting in a 45.9% effective tax rate. During the nine months ended November 2, 2019, we recognized an income tax expense of approximately $182,000. The effective tax rate in this period was directly impacted by 1) a $359,000 tax benefit related to the prior year’s first quarterreversal of previously uncertain tax provisionpositions due to the finalization of $0.4 million, which reflected a $53 thousand benefit related toan IRS audit and the expiration of the statute of limitations on a previously uncertain tax position,positions and 2) a $97 thousand$251,000 tax benefit arising from windfall tax benefitbenefits related to our stock, represented and representing an effective tax rate of 19.0%.

The Companystock.

We reported net income of $0.4 million, or $0.06 per diluted share, for the first quarternine months of the current year. On a comparable basis, net income for the first nine months of the prior year’s first quarteryear was $1.7$3.1 million, or $0.23$0.43 per diluted share. Return on revenue was 1.4%0.5% for the first quarternine months of fiscal 2021 compared to 4.7%3.0% for the first quarternine months of fiscal 2020.

Segment Analysis

We report two segments: Product Identification and Test & Measurement and evaluate segment performance based on the segment profit before corporate and financial administration expenses. Summarized below are the Revenue and Segment Operating Profit (Loss) for each reporting segment:

   Three Months Ended 
   Revenue   Segment Operating Profit (Loss) 

(In thousands)

  May 2,
2020
   May 4,
2019
   May 2,
2020
  May 4,
2019
 

Product Identification

  $22,380   $23,591   $3,146  $2,886 

T&M

   8,539    12,590    (156  2,581 
  

 

 

   

 

 

   

 

 

  

 

 

 

Total

  $30,919   $36,181    2,990   5,467 
  

 

 

   

 

 

    

Corporate Expenses

       2,327   2,999 
      

 

 

  

 

 

 

Operating Income

       663   2,468 

Other Expense, Net

       (349  (368
      

 

 

  

 

 

 

Income Before Income Taxes

       314   2,100 

Income Tax (Benefit) Provision

       (118  400 
      

 

 

  

 

 

 

Net Income

      $432  $1,700 
      

 

 

  

 

 

 

   
Three Months Ended
  
Nine Months Ended
 
   
Revenue
   
Segment Operating Profit
(Loss)
  
Revenue
   
Segment Operating Profit
(Loss)
 
(In thousands)
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
  
November 2,
2019
  
October 31,
2020
   
November 2,
2019
   
October 31,
2020
  
November 2,
2019
 
Product Identification
  $22,898   $21,749   $3,521  $1,880  $66,907   $67,484   $9,813  $6,990 
T&M
   5,119    11,569    (751  1,397   19,688    35,483    (1,314  5,533 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Total
  $28,017   $33,318    2,770   3,277  $86,595   $102,967    8,499   12,523 
  
 
 
   
 
 
     
 
 
   
 
 
    
Corporate Expenses
     2,353   2,830     7,214   8,445 
    
 
 
  
 
 
    
 
 
  
 
 
 
Operating Income
     417   447     1,285   4,078 
Other Expense, Net
     (437  (238    (459  (788
    
 
 
  
 
 
    
 
 
  
 
 
 
Income Before Income Taxes
     (20  209     826   3,290 
Income Tax (Benefit) Provision
     (32  (247    379   182 
    
 
 
  
 
 
    
 
 
  
 
 
 
Net Income
    $12  $456    $447  $3,108 
    
 
 
  
 
 
    
 
 
  
 
 
 
26

Product Identification

Total current quarter revenue

Revenue from the Product Identification segment increased 5.3% in the third quarter of $22.4the current year, with revenue of $22.9 million decreased 5.1% compared to $21.7 million in the same period of the prior year. The current quarter declineincrease in revenue is primarily dueattributable to decreasesincreases in the supplies on both the TrojanLabel and QuickLabel product groups. An overall increase in hardware and supplies revenue within the QuickLabel product group as well as a decline in hardware revenue in the TrojanLabel product group. The decline in QuickLabel revenue forsales also contributed to the current quarter was primarily due togrowth boosted by a decline in ink jet supply sales for a key Asian customer, as well as lower hardware sales impacted by travel and tradeshow restrictions as a resultsignificant contribution from the new product launch of theCOVID-19 pandemic. The current quarter decline in revenue was partially offset by increased sales of TrojanLabel product supplies and QuickLabel media supplies.TrojanLabel’s
T3-OPX
product. Product Identification’s current quarter segment operating profit was $3.1$3.5 million, reflecting a profit margin of 14.1%15.4%. This compares to the prior year’s firstthird quarter segment profit of $2.9$1.9 million and related profit margin of 12.2%8.6%. Despite the decreaseThe increase in revenue, Product Identification current year firstthird quarter segment operating profit and margin is primarily due to increased sales and lower operating costs.
Revenues from the Product Identification segment decreased 0.9% to $66.9 million in the first nine months of the current year from $67.5 million in the same period of the prior year. The current period decrease in revenue is primarily attributable to the decline in revenue from QuickLabel product group ink jet and thermal paper supplies, hardware and parts and repairs. The overall revenue decrease in PI was slightly tempered by an increase in sales of supplies in the TrojanLabel product group, as well as the significant contribution to current year revenue as a result of the new product launch of TrojanLabel’s
T3-OPX
product. Product Identification current year segment operating profit was $9.8 million with a profit margin of 14.7%, compared to the prior year segment operating profit of $7.0 million and related profit margin of 10.4 %. The increase in current year segment operating profit and margin is primarily due to lower period and operating costs.

Test & Measurement—T&M

Revenue from the T&M segment was $8.5$5.1 million for the firstthird quarter of the current fiscal year, representing a 32.2%55.8% decrease compared to revenue of $12.6$11.6 million for the same period in the prior year. The decrease in revenue for the current quarter is primarily attributable to the decline in sales of our aerospace product lines as a result of the Boeing 737 MAX grounding and the dramatic drop in air travel due to the impact of
COVID-19.
To a lesser degree, the decrease in current quarter revenue was also impacted by a decline in certain T&M’s data acquisition hardware sales, as well as a decline in supplies and service and other revenue in the aerospace product lines. T&M’s third quarter segment operating loss was $0.8 million, reflecting a negative profit margin of 14.7%, a decrease compared to the prior year segment operating profit of $1.4 million and related operating margin of 12.1%. The decrease in segment operating profit and related margin were due to lower sales revenue in the current quarter.
Revenue from the T&M segment was $19.7 million for the first nine months of the current fiscal year, a 44.5% decrease compared to sales of $35.5 million for the same period in the prior year. The decrease in revenue for the current year is primarily attributable to the decline in sales of our aerospace product lines as a result of the Boeing 737 MAX grounding and the dramatic drop in air travel due to the impact of
COVID-19. Also contributing
The decrease in current period revenue was also driven to thea lesser degree by a decline in revenue for this segment were decreasedcertain data recorder hardware product sales, for T&M data recorders and AstroNova aerospace products for programs other than the 737 MAXas well as a result of the drop in air travel due to the impact of COVID-19. The T&M segment also experienced a decreasedecline in supplies and partsservice and other revenue in the aerospace product line in the current quarter. T&M’slines. The segment’s first quarter segmentnine months operating loss was $0.2of $1.3 million resultingresulted in a negative 1.8%6.7% profit margin compared to the prior year segment operating profit of $2.6$5.5 million and related operating margin of 20.5%15.6%. Although operating costs were reduced, the decrease in sales and related product mix resulted inThe lower segment operating profit and related margin for the current period.

year is due to lower sales revenue in the current year.

Financial Condition and Liquidity

Overview

Historically, our primary sources of short-term liquidity have been cash generated from operating activities and borrowings under our revolving credit facility. These sources have also funded a portion of our capital expenditures and contractual contingent consideration obligations. We have funded acquisitions by borrowing under bank term loan facilities. However, as
At the resultend of the decline in demand for our products, especially with respect to the 737 MAX specifically and in the aerospace market more generally as the resultfirst quarter of theCOVID-19 pandemic, it is likely that we will have to rely more heavily on external financing sources to meet our operating and capital needs until market conditions allow for our earnings and cash flow generation capabilities to improve or we are able to reduce costs sufficiently to generate more earnings and cash flow.

Conditions have deteriorated in the credit markets generally and in the bank financing market specifically, and the availability of credit has been reduced as a result of lending institutions taking a more conservative posture in response to the risks introduced by theCOVID-19 pandemic. Because offiscal 2021, the deterioration of our financial condition and operating results due to the decline in 737

MAX-related
revenue and
COVID-19
impacts our first quarter operating results caused us to violate athe financial covenantcovenants in our Credit Agreement dated February 28, 2017 (the “Existing Credit Agreement”) with Bank of America. Specifically, under the terms of our current Credit Agreement we are obligated to maintain, as of the end of each fiscal quarter, a minimum EBITDA (as defined in the agreement) of $9.5 million on a trailing twelve-months basis and a maximum consolidated leverage ratio of 3.0 to 1.0. Our actual EBITDA was below the required level for the period ended May 2, 2020. However, onAmerica, N.A. (the “Lender”). On June 22, 2020, we entered into a letter agreement with Bank of America, N.A. (the “Letter Agreement”),the Lender wherein Bank of Americait agreed to waive compliance with both of those financial covenants for the measurement period ended May 2, 2020. The Letter Agreement requires us to have, as
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Table of JuneContents
On July 30, 2020, consolidated EBITDAwe entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”) with the Lender, our wholly owned subsidiary ANI ApS, a Danish private limited liability company and ANI ApS’s wholly-owned subsidiary TrojanLabel ApS, a Danish private limited liability company (“TrojanLabel”). The A&R Credit Agreement amended and restated the Existing Credit Agreement. In connection with our entry into the A&R Credit Agreement, we entered into an Amended and Restated Security and Pledge Agreement and a mortgage in favor of not less than $9.5the Lender with respect to our owned real property in West Warwick, Rhode Island. Under the A&R Credit Agreement, AstroNova, Inc. is the sole borrower, and its obligations are guaranteed by ANI ApS and TrojanLabel.
Immediately prior to the closing of the A&R Credit Agreement, we repaid $1.5 million on a trailing twelve-months basis, and to report our compliance with such covenant on or before August 15, 2020. in principal amount of term loans outstanding under the Existing Credit Agreement.
The LetterA&R Credit Agreement provides that such covenant will not be tested until August 15, 2020for (i) a term loan in the principal amount of $15.2 million, which we used to refinance the outstanding term loans borrowed by us and we do not expect to be in compliance with the covenants at the time, hence constituting an immediate event of defaultANI ApS under the Credit Agreement. However, we and Bank of America are actively negotiating the terms of an amendment to restructure the Credit Agreement that would provide for mutually acceptable revised financial and operational covenants and other mutually acceptable revised terms and we both fully expect that amendment to be executed prior to August 15, 2020. The effect of the Letter Agreement therefore is to give both parties sufficient time to complete the relevant documentation and also enable us to execute the amendment by that deadline.

If for any reason we are unable to reach agreement with Bank of America on the restructuring of the Credit Agreement or secure alternative financing on acceptable terms prior to August 15, 2020, and the Letter Agreement were not extended or otherwise modified to eliminate any failure by us to comply with its terms or the terms of the Credit Agreement, Bank of America would have the right to declare a default, accelerate all of our outstanding indebtedness under theExisting Credit Agreement and demand payment thereof, which demand we would be unable to satisfy. In addition, any defaulta portion of the outstanding revolving loans borrowed by us under the Existing Credit Agreement, that would permit Bank of America to accelerate the repayment of the indebtedness outstanding under that facility would also constituteand (ii) a default under the PPP Loan and cause the indebtedness outstanding thereunder to become immediately payable. If any of the foregoing were to occur, it would have a material adverse impact on us.

Under the terms of the Letter Agreement, we are also not permitted to request any additional borrowings under the revolving line of credit through August 15, 2020, and we will not be permitted to request any such additional borrowings thereafter unless we are in compliance with the Credit Agreement. The Letter Agreement also prohibits us from making any dividend or stock repurchase payments or other restricted payments through August 15, 2020, and we will be permitted to make restricted payments thereafter only in compliance with the Credit Agreement.

During the first quarter of the current year, we borrowed an additional $5.0$10.0 million on our revolving credit facility andavailable to us for general corporate purposes. Revolving credit loans may be borrowed, at May 2, 2020 we had $11.5 million of borrowings outstanding under that facility. On May 2, 2020, our cash and cash equivalents were $11.1 million and at that date we had $6.0 million remaining available for borrowing under our revolving credit facility. Pursuantoption, in U.S. Dollars or, subject to the terms of the Fourth Amendment to the Credit Agreement, which we and Bank of America entered into in December 2019, the aggregate amount available for borrowings under the revolving line of credit will decrease to $10.0 million at the end of the third quarter of fiscal 2021. Pursuant to the Letter Agreement, we are not permitted to request any additional borrowings under the revolving line of credit through August 15, 2020.

certain conditions, Euros, British Pounds, Canadian Dollars or Danish Kroner.

On May 6, 2020, we entered into a Loan Agreement with and executed a promissory note in favor of Greenwood Credit Union (“Greenwood”) pursuant to which we borrowed $4.4 million (the “PPP Loan”) from Greenwood pursuant to the Paycheck Protection Program (the “PPP”) administered by the United States Small Business Administration (the “SBA”) and authorized by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020.

The terms of the PPP Loan were subsequently revised in accordance with the provisions of the Paycheck Protection Flexibility Act of 2020 (the “PPP Flexibility Act”), which was enacted on June 5, 2020.

We believe that our obtaining the PPP Loan and suspending the payment of dividends on our common stock were instrumental in our ability to successfully negotiate the A&R Credit Agreement.

While we have expected that as a result of the impact of the
COVID-19
pandemic, some of our customers would experience liquidity pressure and be unable to pay us for products on a timely basis, in general our recent receivables collection experience has been consistent with our historical experience and a significant deterioration in receivables collection has not occurred. During the first quarter we experienced a limited number of cases in which certain of our aerospace customers failed to pay us on a timely basis and we increased our reserves for potential losses on those accounts. In the second quarter, two small airlines with whom we had small receivables balances for which we had previously fully reserved, entered bankruptcy, but in general, during both the second and third quarters, the aerospace customer problems abated such that we did not increase our reserves. If the impact of the
COVID-19
crisis continues for a prolonged period or worsens, we may experience further adverse impacts of delayed aerospace receivable collections.
In response to the
COVID-19
pandemic and related economic dislocation, we have implemented and will continue to implement a variety of expense reduction and cash preservation initiatives. On April 27, 2020, our board of directors suspended our quarterly cash dividend beginning with the second quarter of our fiscal year 2021.
At October 31, 2020, our cash and cash equivalents were $9.6 million. There was no outstanding balance on our revolving line of credit at October 31, 2020 and we have $10.0 million available for borrowing under that facility. Despite disruptions in the capital markets as a result of the impact of the
COVID-19
outbreak, we successfully renegotiated the terms of our credit facilities with Bank of America during the second quarter of fiscal 2021, and we believe that this, together with our internal cash generation from operations during the third quarter and the receipt of the PPP loan, have resulted in a significant improvement in our liquidity profile. We believe that our available cash and credit facilities combined with our cash generated from operations will be sufficient to support our operating requirements, so long as the impact of
COVID-19
does not worsen.
Indebtedness
Under the A&R Credit Agreement, the term loan repayments are as follows: the principal amount of each quarterly installment required to be paid on the last day of each of our fiscal quarters ending July 31, 2020 and October 31, 2020 is $0.8 million; the principal amount of the quarterly installment required to be paid on the last day of our fiscal quarter ending January 31, 2021 is $1.1 million; the principal amount of the quarterly installment required to be paid on the last day of our fiscal quarter ending April 30, 2021 is $1.1 million; the principal amount of each quarterly installment required to be paid on the last day of each of our fiscal quarters ending July 31, 2021, October 31, 2021, January 31, 2022 and April 30, 2022 is $1.4 million; the entire remaining principal balance of the term loan is required to be paid on June 15, 2022. We may voluntarily prepay the term loan, in whole or in part, from time to time without premium or penalty (other than customary breakage costs, if applicable). We may repay borrowings under the revolving credit facility at any time without premium or penalty (other than customary breakage costs, if applicable), but in any event no later than June 15, 2022, and any outstanding revolving loans thereunder will be due and payable in full, and the revolving credit facility will terminate, on such date. We may reduce or terminate the revolving line of credit at any time, subject to certain thresholds and conditions, without premium or penalty.
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Table of Contents
The loans under the A&R Credit Agreement are subject to certain mandatory prepayments, subject to various exceptions, from (a) net cash proceeds from certain dispositions of property, (b) net cash proceeds from certain issuances of equity, (c) net cash proceeds from certain issuances of additional debt and (d) net cash proceeds from certain extraordinary receipts.
Amounts repaid under the revolving credit facility may be reborrowed, subject to continued compliance with the A&R Credit Agreement. No amount of the term loan that is repaid may be reborrowed.
The interest rates under the A&R Credit Agreement are as follows: The term loan and revolving credit loans bear interest at a rate per annum equal to, at our option, either (a) the applicable 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 2.15% to 3.65% based on our consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal fund rate plus 0.50%, (ii) Bank of America’s publicly announced prime rate, (iii) the applicable LIBOR rate plus 1.00% or (iv) 1.00%, plus a margin that varies within a range of 1.15% to 2.65% based on our consolidated leverage ratio. We are also required to pay a commitment fee on the undrawn portion of the revolving credit facility that varies within a range of 0.25% and 0.675% based on our consolidated leverage ratio.
Under the A&R Credit Agreement, we must comply with various customary financial and
non-financial
covenants including a maximum consolidated leverage ratio, a minimum consolidated fixed charge coverage ratio, a minimum level of EBITDA, a consolidated asset coverage ratio and a minimum level of liquidity. The primary
non-financial
covenants limit our and our subsidiaries’ ability to incur future indebtedness, to place liens on assets, to pay dividends or distributions on capital stock, to repurchase or acquire capital stock, 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, in each case subject to certain exceptions and thresholds as set forth in the A&R Credit Agreement.
The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the A&R Credit Agreement upon the occurrence of any of various customary events of default, which include, among other events, the following (which are subject, in some cases, to certain grace periods): failure to pay when due any principal, interest or other amounts in respect of the loans, breach of any of our covenants or representations under the loan documents, default under any other of our or our subsidiaries’ significant indebtedness agreements, a bankruptcy, insolvency or similar event with respect to us or any of our subsidiaries, a significant unsatisfied judgment against us or any of our subsidiaries, or our undergoing a change of control.
In addition to the guarantees by ANI ApS and TrojanLabel, our obligations under the A&R Credit Agreement are also secured by substantially all of AstroNova, Inc.’s personal property assets (including a pledge of the equity interests it holds in ANI ApS, in our wholly-owned German subsidiary AstroNova GmbH, and in our wholly-owned French subsidiary AstroNova SAS), subject to certain exceptions, and by a mortgage on our owned real property in West Warwick, Rhode Island.
In connection with our entry into the A&R Credit Agreement, and as a condition of the Lender’s entry into the A&R Credit Agreement, we terminated our interest rate swap and cross-currency interest rate swap (the “Swaps”) that we previously used to manage the interest rate and foreign currency exchange risks associated with borrowings under the Existing Credit Agreement. We paid $0.7 million in connection with the termination of the Swaps.
The PPP Loan, which will mature on the fifth anniversary of the date on which we submit our request for forgiveness with respect to the PPP Loan,May 6, 2022, is unsecured and bears interest at a rate of 1.0% per annum. annum, accruing from the loan date and is payable monthly. No payments are due on the PPP Loan at this time, but interest accrues during the deferral period. Interest accrued in the amount of $22,000 is included in other expense for the nine month period ended October 31, 2020.
The PPP Loan may be prepaid at any time without penalty. The Loan Agreement and Promissory Note include customary provisions for a loan of this type, including prohibitions on our payment of dividends or repurchase of shares of our stock while the PPP Loan remains outstanding and events of default relating to, among other things, payment defaults, breaches of the provisions of the Loan Agreement or the Promissory Note and cross-defaults on other loans.

Subject to the limitations and conditions set forth in the CARES Act, the PPP Flexibility Act and the regulations and guidance provided by the SBA with respect to the PPP, a portion of the PPP Loan may be forgiven in an amount up to the amount of the PPP Loan proceeds we spendspent on payroll, rent, utilities and interest on certain debt during the twenty-four week period following incurrence of the PPP Loan; interest accrued on the forgiven portion of the principal amount of the PPP Loan may be forgiven under the PPP.is also forgiven. The amount of the PPP Loan to be forgiven in respect of rent, utilities and interest on certain debt will be capped at 40% of the forgiven amount, with the remaining forgiven amount allocated to payroll costs. We have fully utilized the PPP Loan proceeds for qualifying expenses and intend to apply for forgiveness of the PPP Loan. However, no assurance can be provided thatLoan (including all or any portion of the PPP Loan will be forgiven.

As a result of the impact of theCOVID-19 pandemic, our customers may also experience liquidity pressure and be unable to pay us for products on a timely basis. During the first quarter we experienced a limited number of cases in which certain of our aerospace customers failed to pay us on a timely basis and we increased our reserves for potential losses on those accounts. We also wrote off a small receivable from an airline that has declared bankruptcy. If the impact of theCOVID-19 crisis continues for a prolonged period of time or worsens, we may experience further similar, but more material adverse impacts on our results and financial condition.

Our backlog decreased 2.8% fromyear-end to $25.9 million at the end of the first quarter of fiscal 2021.

Indebtedness

We and our wholly owned Danish subsidiaries, ANI ApS and TrojanLabel ApS (collectively, the “Parties”), are parties to a credit agreement (“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 us in the principal amount of $15.0 million and a $10.0 million revolving credit facility. 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 to us for borrowings under the revolving line of credit from $10.0 million to $17.5 million through the third quarter of fiscal 2021 and (ii) modify the financial covenants with which we must comply thereunder by excluding certain capital expenditures from the calculation of our 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 withassociated accrued interest) during the fourth quarter of the current fiscal 2020 and continuing through the second quarter of fiscal 2021.

See Note 17 of the condensed consolidated financial statements included in this Quarterly Report on Form10-Qyear. Whether our application for a discussion of the letter agreement we entered into with Bank of America on June 22, 2020, which, among other things, suspends our access to the revolving line of credit under the Credit Agreement on the terms described therein.

Both 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 our consolidated leverage ratio.

In connection with our entry into the Credit Agreement, ANI ApS entered into a hedging agreement to manage the variable interest rate risk and currency risk associated with its payments in respect to the term loan. Under this combined arrangement, payments of principal and interest with respect to approximately $8.9 million of the principal of the term loanforgiveness will be madegranted and in Danish Kroner, and interest on such principalwhat amount will be payable at a fixed rate of 0.67% per annum for the entire term, subject only to potential changes based on our consolidated leverage ratio. Additionally, we entered into a hedging agreement to manage the variable interest rate risk associated with our payments with respect to the $15.0 million term loan. Under this combined arrangement, interest will be payable at a fixed rate of 2.04% per annum for the entire term, plus an incremental margin of 1.0% to 1.5%, based on our consolidated leverage ratio.

Revolving credit loans may be borrowed, at our option, in U.S. Dollars or,is subject to certain conditions, Euros, British Pounds, Canadian Dollars or Danish Kroner. Amounts borrowed underan application to, and approval by, the revolving credit facility bear interest at a rate per annum equal to, at our 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 our 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 our consolidated leverage ratio. We are required to pay a commitment fee on the undrawn portion of the revolving credit facility at the rate of 0.25% per annum. Outstanding borrowings under the revolving credit line during fiscal 2020 bear interest at a weighted average annual rate of 2.52%SBA and we paid $73,000 of interest expense for revolving credit line borrowings for the three months ended May 2, 2020.

The obligations of ANI ApS in respect of the $9.2 million term loan are guaranteed by us and TrojanLabel ApS. Our 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 our assets (including a pledge of a portion of the equity interests we hold in ANI ApS and our wholly owned German subsidiary, AstroNova GmbH),may also be subject to certain exceptions.

The Lender is entitled to accelerate repaymentfurther requirements in any regulations and guidelines the SBA may adopt.

29

Table 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.

The Parties must comply with various customary financial andnon-financial covenants under the Credit Agreement.

We would not comply with certain financial covenants in the amended Credit Agreement if Bank of America had not agreed to waive compliance with those covenants pursuant to the Letter Agreement we entered into with Bank of America on June 22, 2020. We and Bank of America are actively negotiating the terms of an amendment to restructure the Credit Agreement that would provide for mutually acceptable revised financial and operational covenants and other mutually acceptable revised terms; however, no assurance can be given that we will succeed in this effort. If we are successful in negotiating the terms of this amendment, we expect the amended Credit Agreement to provide for, among other things, substantial changes to the structure of the credit facility as it relates to the loans currently outstanding thereunder that were borrowed by AstroNova, Inc.’s subsidiary TrojanLabel ApS. We expect that all loans under the amended Credit Agreement would be direct obligations of AstroNova, Inc. We also expect that the amended Credit Agreement would prohibit our paying dividends on or repurchasing our capital stock and making certain other restricted payments.

Contents

Cash Flow

Our statements of cash flows for the threenine months ended May 2,October 31, 2020 and May 4,November 2, 2019 are included on page 87 of this report. Net cash provided by operating activities was $3.4$11.7 million for the first quarternine months of fiscal 2021 compared to $1.0 million for the same period of the previous year. The increase in net cash provided by operations for the first threenine months of the current year is primarily due to the decreaseincrease in cash used forprovided by working capital. The combination of changes in accounts receivable, inventory, income taxes payable, accounts payable and accrued expenses providedincreased cash of $1.2by $6.1 million for the first threenine months of fiscal 2021, compared to $3.1a decrease of $8.3 million of cash used for the same period in fiscal 2020.

Our accounts receivable balance decreased to $18.5$15.7 million at the end of the firstthird quarter compared to $19.8 million at year end. The $1.3$4.1 million decrease in the accounts receivable balance from year end is directly related to the decrease in sales for the first quarter of the current year. Days sales outstanding for the firstthird quarter of the current year as compared to fourth quarter sales in fiscal 2020 and a decline in days sales outstanding for the third quarter of the current year, which was 5447 compared to 55 days at prior year end.

Our The decline in days sales outstanding is largely due to the relative decline in sales of aerospace products, which tend to have longer collection cycles.

The inventory balance was $32.6$30.9 million at the end of the firstthird quarter of fiscal 2021, compared to $33.9 million at year end and inventory days on hand decreasedincreased to 146152 days at the end of the current quarter from 151 days at the prior year end. The current period decrease in inventory is directly relateddue to a reduction in our forecasted operating results for fiscal 2021 which resulted in lowersell through of supplies inventory purchases and lower inventory needed in the Product Identification segment due tosegment. Demand declines in the prior yearbuild-up related toaerospace product group resulted in unconsumed assembly and finished goods inventories, offsetting some of theQL-120 printer product.

Product Identification inventory decreases. Inventory days on hand increased by virtue of the lower aerospace sell through.

The net increased cash position at May 2,October 31, 2020 primarily resulted from the contribution from cash provided by operations, as discussed above, as well as $4.4 million received from PPP loan proceeds and an additional net $3.5 million of $3.4proceeds received in the second quarter of fiscal 2021 related to the refinance of long-term debt , which were partially offset by a $6.5 million along withnet cash decrease on the $5.0 million borrowing under our revolving line of credit. This increase was slightly offset bycredit, principal payments of long-term debt and the guaranteed royalty obligation under the Honeywell Agreement of $0.5$2.9 million and $1.5 million, respectively; cash used to acquire property, plant and equipment of $0.6$2.1 million and payment of our quarterly dividenddividends paid of $0.5 million.

Contractual Obligations, Commitments and Contingencies

There have been no material changes to our contractual obligations as disclosed in our Annual Report on
Form10-K
for the fiscal year ended January 31, 2020 other than those which occuroccurring in the ordinary course of business.

Critical Accounting Policies, Commitments and Certain Other Matters

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. We base these estimates and judgments on factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and appraisal techniques. We constantly
re-evaluate
these significant factors and make adjustments where facts and circumstances dictate.

While we believe that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the condensed consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results may differ from those estimates, and such differences may be material to our condensed consolidated financial statements. There have been no material changes to the application of critical accounting policies as disclosed in our Annual Report on Form
10-K
for the fiscal year ended January 31, 2020.

30

Forward-Looking Statements

This Quarterly Report on Form
10-Q
may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, but rather reflect our current expectations concerning future events and results. We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “continues,” “may,” “will,” and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors which could cause actual results to differ materially from those anticipated include, but are not limited to (a) the impact of the ongoing
COVID-19
pandemic on us, our customers, our suppliers and the global economy; (b) general economic, financial and business conditions; (c) declining demand in the test and measurement markets, especially defense and aerospace; (d) competition in the specialty printer industry; (e) our ability to develop and introduce new products and achieve market acceptance of these products; (f) competition in the data acquisition industry; (g) the impact of changes in foreign currency exchange rates on the results of operations; (h) the ability to successfully integrate acquisitions and realize benefits from divestitures; (i) our ability to restructure the terms of our current credit facility and to otherwise manage our indebtedness; (j) our ability to obtain financing for working capital and capital expenditures; (k) the business abilities and judgment of personnel and changes in business strategy; (l) the efficacy of research and development investments to develop new products; (m) the launching of significant new products which could result in unanticipated expenses; (n) bankruptcy or other financial problems at major suppliers or customers that could cause disruptions in our supply chain or difficulty in collecting amounts owed by such customers; (o) any technology disruption or delay in implementing new technology; (p) a material security breach or cybersecurity attack impacting our business and our relationship with customerscustomers; (q) difficulties encountered in connection with the certification of the 737 MAX for return to service; and (q)(r) other risks included under
“Item 1A-Risk
Factors” in our Annual Report on Form
10-K
for the fiscal year ended January 31, 2020. We assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

Item
3.

Quantitative and Qualitative Disclosures About Market Risk

During the threenine months ended May 2,October 31, 2020, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form
10-K
for the year ended January 31, 2020.

Item
4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to
Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to have materially affected, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our
non-production
employees are working remotely due to the
COVID-19
pandemic. We are continually monitoring and assessing the
COVID-19
situation with respect to our internal controls to minimize the potential impact on their design and operational effectiveness.

31

PART II. OTHER INFORMATION

Item
1.

Legal Proceedings

There are no pending or threatened legal proceedings against us that we believe to be material to our financial position or results of operations.

Item
1A.

Risk Factors

This section augments and updates certain risk factors disclosed in Item 1A of Part I of our Annual Report on Form
10-K
for the year ended January 31, 2020 (the “Annual Report”). We are providing the following information regarding changes that have occurred to the previously disclosed risk factors in our Annual Report on
Form 10-K.
In addition to the other information in this Quarterly Report on Form
10-Q,
all risk factors should be carefully considered in evaluating us and our common stock. Any of these risks, many of which are beyond our control, could materially and adversely affect our financial condition, results of operations or cash flows, or cause our actual results to differ materially from those projected in any forward-looking statements. We may also face other risks and uncertainties that are not presently known, are not currently believed to be material, or are not identified below because they are common to all businesses. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. For more information, see “Forward-Looking Statements” elsewhere in this Quarterly Report.

The ongoing
COVID-19
pandemic has adversely affected and will likely continue to adversely affect our revenues, results of operations and financial condition.

Our business has been and will likely continue to be materially adversely affected by the widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus known asCOVID-19.COVID-19 has been declared by the World Health Organization to be a “pandemic” and has spread to many of the countries in which we, our customers, our suppliers and our other business partners do business.global
COVID-19
pandemic. National, state and local governments in affected regions have implemented and may continue to implementhave periodically changed a variety of safety precautions, including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures. Othermeasures, often without coordination and in contradictory ways. Many other businesses and other organizations with which we do business directly or which otherwise impact us have taken and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work.work which has required us to adapt our interaction to those entities’ requirements. These measures are disrupting normal business operations both inside and outside of affected areas and have had significant negative impacts on our business, the businesses of our suppliers and customers, and on businesses and financial markets worldwide.

We continue

In response to the pandemic, we have established new procedures to monitor our operations and government recommendations and regulations and made good faith efforts to comply with both those regulations and the best practices recommendations issued by a variety of governmental health authorities and manufacturing industry organizations to which we belong. In addition, we have made significant modifications to our normal operations because of the
COVID-19
outbreak, including requiring most
non-production
related team members to work remotely.remotely, at least part-time. We havebelieve that as a result of these safety protocols, routine health checks and segregating work groups to reduce close contact to the degree possible, the incidence of
COVID-19
diagnoses among our employees was relatively low compared to the overall positivity rate of the general populations where our businesses are located. From the beginning of the pandemic and until recently we maintained a substantial portion of our manufacturing operational capacity at our manufacturing facilities located in West Warwick, Rhode Island, as well as our manufacturing facilities in Canada and Germany, at this time,Germany. However, beginning in November, Rhode Island and weits surrounding areas have instituted heightened cleaningexperienced a sharp rise in
COVID-19
infection and sanitization standardshospitalization cases and several healththe rate of infection among our employees has been in line with that of the general population. As a result of increased
COVID-19
cases, combined with the impact of quarantine and safety protocols andisolation procedures to safeguard our team members. However,for employees who may have been exposed, we have experienced a number of adverse impactsincreased absenteeism in our manufacturing staff, which is currently reducing our production capacity and causing us to experience longer fulfillment lead times and as a result, reduced revenues. Because of the recent increase in
COVID-19 outbreak, including
cases, the nature of
COVID-19’s
transmission, long isolation and quarantine periods and the unknown course of recovery from the pandemic in general, as well as the unknown timetable on when vaccines and therapeutics will become available, we do not know how long and to what degree of impact the current manufacturing production decline will continue or its ultimate impact. If it continues or worsens it will have an adverse impact on our results of operations.
In addition to the reductions in demand for many of our products delays and cancellations of orders for our products,the workforce impacts caused by the
COVID-19
pandemic, we have also experienced some limited and temporary difficulties in obtaining raw materials and components for our products, shortages of laborproducts. These difficulties have had no meaningful negative impact on our production efficiency or our ability to manufacture our products, inefficiencies caused by remote workers’ difficultiessatisfy customer requirements. However, more extensive and disruptive impacts may be experienced in performing their normal work outputs, closures of the facilities of some of our suppliersfuture, depending on how the
COVID-19
pandemic and customers, and delays in collecting accounts receivable.

its impacts on the economy evolve. While it is not possible at this time to estimate the full scope of the impact that

COVID-19
will have on our business, customers, suppliers or other business partners, we expect that the continued spread of
COVID-19,
the measures taken by the governments of affected countries,areas, actions taken to protect employees, and the impact of the pandemic on all business activities to furthercontinue to adversely impact our operational capacity and the efficiency of our team members and will continue to materially adverselynegatively affect our results of operations and financial condition.

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The adverse effect of
COVID-19
on our business has negatively impacted our ability to complyearnings and cash flow and this combined with the covenants governing our credit facility, and disruptions in the credit and capital markets as a result of
COVID-19, have
has affected and may continue to adversely affect the terms on which we are able to obtain any new financing.

financing should it be needed.

The aerospace industry, which we serve through our aerospace product line, has been significantly disrupted by the
COVID-19
outbreak, both inside and outside of the United States. The decline in air travel has had and will continue to have a material adverse impact on our financial results, the ultimate scope of which we cannot estimate at this time. Should one or more of our airplane OEM manufacturing customers or a significant number of airline customers fail to continue business as a going concern, declare bankruptcy, or otherwise reduce the demand for our products as a result of the impact of the
COVID-19
pandemic, it would have a material adverse impact on our business operations and financial results.

If we are unable to successfully negotiate an amendment tocomply with our credit agreement with Bank of America or secure alternative financing, our business and financial condition could be materially adversely affected.

Our credit agreement with Bank of America requires us, among other things, to satisfy certain financial ratios and conditions on an ongoing basis. Specifically, webasis, consisting of a maximum consolidated leverage ratio, a minimum consolidated fixed charge coverage ratio, a minimum level of EBITDA, a consolidated asset coverage ratio and a minimum level of liquidity. We are also required to maintain minimum EBITDA (as definedcomply with a number of other covenants and conditions, including limitations on our and our subsidiaries’ ability to incur future indebtedness, to place liens on assets, to pay dividends or distributions on their capital stock, to repurchase or acquire their capital stock, 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, in each case subject to certain exceptions and thresholds as set forth in the credit agreement)agreement. Although these arrangements were restructured after the onset of $9.5 million on a trailing twelve-months basisthe
COVID-19
crisis, and took into account the status of the economic environment and our consolidated leverage ratiobusiness at the time it was negotiated and executed, there is no assurance that the effects of the
COVID-19
pandemic on us, our customers and markets and the economic environment will not permittedbe worse than the parties anticipated, or that other unforeseen adverse impacts on our business may not occur such as to exceed 3.0cause us to 1.0, in each case asbe able to comply with the covenants and other terms of the endagreement. If we were thus to violate the terms of each fiscal quarter. Our actual EBITDA dropped below the required level for such period ended May 2, 2020, primarily as a result of the declines in our revenue attributable to the reduced demand for aircraft cockpit printers for the Boeing 737 MAX aircraft and the reduced demand for aircraft driven by the global reduction in air travel caused by theCOVID-19 outbreak. While we entered into a Letter Agreement with Bank of America on June 22, 2020 that, among other things, waived our noncompliance with the financial covenants in the credit agreement noted above for the measurement period ending May 2, 2020, the Letter Agreement requires usand we were unable to have, as of June 30, 2020, a consolidated EBITDA of not less than $9.5 million on a trailing twelve month basis, and to report our compliance with such additional covenant on or before August 15, 2020. While we and Bank of America have agreed in the Letter Agreementrenegotiate its terms at that this additional covenant will not be tested until August 15, 2020, we do not expect to comply with this additional covenant when it is tested. If an event of default occurs with respect to our obligations under the credit agreement, Bank of America is entitled to declare all of our outstanding borrowings under the credit agreement immediately due and payable. In addition, the loan agreement governing our PPP Loan includes a cross-default provision whereby a default under other debt facilities could result in a default and acceleration of our repayment obligations under the PPP Loan. While we are actively negotiating an amendment to restructure the terms of our credit agreement with Bank of America, there can be no assurance that we will be able to successfully complete such amendmenttime, or secure alternative financing on acceptable terms or at all. If we are unable to renegotiate the terms of our credit agreement or secure alternative financing and Bank of America declares our outstanding borrowings immediately due and payable, we would be unable to satisfy that demand. If that occurred it wouldcould have a material adverse impact on us.

Item
2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the firstthird quarter of fiscal 2021, we made the following repurchases of our common stock:

   Total Number
of Shares
Repurchased
  Average
Price paid
Per Share
  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or  Programs
   Maximum Number
of Shares That
May Be Purchased
Under the Plans
or  Programs
 

February 1 – February 29

   —     —     —      —   

March 1 – March 31

   5,570(a)(b)  6.92(a)(b)  —      —   

April 1 – April 30

   —     —     —      —   

(a)

An executive

Total Number

of Shares

Repurchased
Average

Price paid

Per Share
Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs
Maximum Number

of Shares That

May Be Purchased

Under the Company delivered 402 shares of the Company’s common stock toward the satisfaction of taxes due with respect to vesting of restricted shares. The shares delivered were valued at a weighted-average market value of $9.38 per share and are included with treasury stock in the consolidated balance sheet. These transactions were not part of a publicly announced purchase plan Plans

or program.

Programs
August 1—August 31
—  $—  —  —  
September 1—September 30
—  $—  —  —  
October 1—October 31
—  $—  —  —  
(b)
Item 5.

Executives of the Company delivered 5,168 shares of the Company’s common stock toward the satisfaction of taxes due with respect to vesting of restricted shares. The shares delivered were valued at a weighted-average market value of $6.73 per share and are included with treasury stock in the consolidated balance sheet. These transactions were not part of a publicly announced purchase plan or program.

Other Information

Item 5. Other Information

We are providing the following information underin this Item 5 in lieu of reportingdisclosing the information under Item 1.01 “Entry Into a Material Definitive Agreement,” of a Current Report on

Form8-K
with a due date on or after the date hereof:

hereof.

On June 22,December 3, 2020, we and the Lender entered into a Letter Agreement with Bank of America, N.A. relatingan amendment to the testing of certain financial covenants included inA&R Credit Agreement (the “Amendment”), pursuant to which we agreed (i) to extend the credit agreement dated as of February 28, 2017 between us, our wholly owned Danish subsidiaries, ANI ApS and TrojanLabel ApS and Bank of America, as amended to date. Pursuant to that agreement, Bank of America has agreed to waive the testing of the financial covenants set forth in the credit agreement related to our consolidated leverage ratio and consolidated EBITDA (as defined in the credit agreement)deadline for the measurement period ending May 2, 2020. The Letter Agreement requires usLender to have, ascomplete certain inspections of June 30, 2020, a consolidated EBITDAour properties and (ii) to increase the maximum amount of not less than $9.5 million on a trailing twelve-months basis, and to report our compliance with such requirement on or before August 15, 2020. The Letter Agreement providescapital expenditures that such covenant will not be tested until August 15, 2020. Under the terms of the Letter Agreement we are not permitted to request any additional borrowings under the revolving line of credit under the credit agreement through August 15, 2020, and we will not be permitted to request any such additional borrowings thereafter unless we are in compliance with the credit agreement. The Letter Agreement also prohibits us from making any dividend or stock repurchase payments or other restricted payments through August 15, 2020, and we will be permitted to make restricted payments thereafter only in compliance withduring the credit agreement.

Thesecond, third and fourth quarters of our fiscal year 2021.

This description of the Letter AgreementAmendment is qualified in its entirety by reference to the full text of the Letter Agreement,Amendment, a copy of which is attached hereto as Exhibit 10.310.2 and is incorporated herein by reference.

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Item
6.

Exhibits

3A  Restated Articles of Incorporation of the Company and all amendments thereto, filed as Exhibit 3A to the Company’s Quarterly Report on Form10-Q for the quarter ended April 30, 2016 and incorporated by reference herein.
3B  By-laws of the Company as amended to date, filed as Exhibit 3B to the Company’s Annual Report on Form10-K/A for the fiscal year ended January 31, 2008 (File no.000-13200) and incorporated by reference herein.
10.1  LoanChange in Control Agreement effective as of May 6,dated September 8, 2020 by and between Astronova,AstroNova, Inc. and Greenwood Credit Union.David S. Smith. filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2020 and incorporated by reference herein.*
10.2  Promissory Note dated May 6, 2020, by and between Astronova, Inc. and Greenwood Credit Union.
10.3Letter of Agreement dated June 22,December 3, 2020 between AstroNova, Inc. and Bank of America, , N.A.
31.1  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
31.2  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
32.1  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002
32.2  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002
101101.INS  The following materials from Registrant’s Quarterly Report onForm 10-Q for XBRL Instance Document—the period ended May 2, 2020, formattedinstance document does not appear in the Interactive Data File because its XBRL (eXtensible Business Reporting Language): (i)tags are embedded within the Condensed Consolidated Balance Sheets, (ii)Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Condensed Consolidated Financial Statements. Filed electronically herein.Inline XBRL document)

*
Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
ASTRONOVA, INC.INC
.
 
(Registrant)
Date: June 26,December 9, 2020 By 

/s/ Gregory A. Woods

  Gregory A. Woods,
  President and Chief Executive Officer
  (Principal Executive Officer)
 By 

/s/ David S. Smith

  David S. Smith,
  Vice President, Chief Financial Officer and Treasurer (Principal Accounting Officer and Principal Financial Officer)

35