AstroNova, Inc. - Quarter Report: 2019 August (Form 10-Q)

 

 

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 August 3, 2019

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 September 3, 2019 was 7,049,735.

 

 

 

ASTRONOVA, INC.

INDEX

 

				Page No.
Part I.		Financial Information
Item 1.		Financial Statements
		Unaudited Condensed Consolidated Balance Sheets – August  3, 2019 and January 31, 2019			3
		Unaudited Condensed Consolidated Statements of Income — Three and Six Months Ended August 3, 2019 and July 28, 2018			4
		Unaudited Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended August 3, 2019 and July 28, 2018			5
		Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity — Three and Six Months Ended August 3, 2019 and July 28, 2018			6
		Unaudited Condensed Consolidated Statements of Cash Flows — Six Months Ended August 3, 2019 and July 28, 2018			7
		Notes to the Condensed Consolidated Financial Statements (unaudited)			8-21
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21-27
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			27
Item 4.		Controls and Procedures			27
Part II.		Other Information
Item 1.		Legal Proceedings			28
Item 1A.		Risk Factors			28
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 6.		Exhibits			28
Signatures					28-29

 

2

Part I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

ASTRONOVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Except Share Data)

 

		August 3, 2019				January 31, 2019
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents		$	4,523			$	7,534
Accounts Receivable, net			20,605				23,486
Inventories, net			36,854				30,161
Prepaid Expenses and Other Current Assets			3,059				1,427
Total Current Assets			65,041				62,608
Property, Plant and Equipment, net			10,910				10,380
Intangible Assets, net			27,493				29,674
Goodwill			12,075				12,329
Deferred Tax Assets, net			3,480				2,928
Right of Use Assets			1,760				—
Other Assets			921				1,064
TOTAL ASSETS		$	121,680			$	118,983
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts Payable		$	9,403			$	5,956
Accrued Compensation			2,700				5,023
Other Liabilities and Accrued Expenses			3,285				2,911
Current Portion of Long-Term Debt			5,024				5,208
Revolving Credit Facility			3,500				1,500
Current Liability – Royalty Obligation			2,000				1,875
Current Liability – Excess Royalty Payment Due			647				1,265
Deferred Revenue			321				373
Income Taxes Payable			—				554
Total Current Liabilities			26,880				24,665
Long-Term Debt, net of current portion			10,295				12,870
Royalty Obligation, net of current portion			8,964				9,916
Lease Liabilities, net of current portion			1,364				—
Deferred Tax Liabilities			504				40
Other Long-Term Liabilities			1,585				1,717
TOTAL LIABILITIES			49,592				49,208
SHAREHOLDERS’ EQUITY
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 10,315,550 shares and 10,218,559 shares at August 3, 2019 and January 31, 2019, respectively			516				511
Additional Paid-in Capital			55,121				53,568
Retained Earnings			51,180				49,511
Treasury Stock, at Cost, 3,279,831 and 3,261,672 shares at August 3, 2019 and January 31, 2019, respectively			(33,454	)			(32,997	)
Accumulated Other Comprehensive Loss, net of tax			(1,275	)			(818	)
TOTAL SHAREHOLDERS’ EQUITY			72,088				69,775
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	121,680			$	118,983

See Notes to condensed consolidated financial statements (unaudited).

 

3

ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, Except Per Share Data)

(Unaudited)

 

		Three Months Ended								Six Months Ended
		August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018
Revenue		$	33,468			$	33,807			$	69,649			$	65,294
Cost of Revenue			21,491				20,408				43,433				39,784
Gross Profit			11,977				13,399				26,216				25,510
Operating Expenses:
Selling and Marketing			6,413				6,397				13,178				12,898
Research and Development			1,785				2,029				3,792				3,721
General and Administrative			2,616				2,808				5,615				5,462
Operating Expenses			10,814				11,234				22,585				22,081
Operating Income			1,163				2,165				3,631				3,429
Other Expense, net			(183	)			(512	)			(550	)			(782	)
Income before Income Taxes			980				1,653				3,081				2,647
Income Tax Provision			29				459				429				639
Net Income		$	951			$	1,194			$	2,652			$	2,008
Net Income per Common Share—Basic:		$	0.14			$	0.17			$	0.38			$	0.29
Net Income per Common Share—Diluted:		$	0.13			$	0.17			$	0.36			$	0.29
Weighted Average Number of Common Shares Outstanding:
Basic			7,021				6,860				6,996				6,825
Diluted			7,371				7,083				7,310				6,999

See Notes to condensed consolidated financial statements (unaudited).

 

4

ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

 

		Three Months Ended								Six Months Ended
		August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018
Net Income		$	951			$	1,194			$	2,652			$	2,008
Other Comprehensive Income (Loss), Net of Taxes and Reclassification Adjustments:
Foreign Currency Translation Adjustments			(81	)			(349	)			(253	)			(618	)
Change in Value of Derivatives Designated as Cash Flow Hedge			(116	)			245				—				545
Losses (Gains) from Cash Flow Hedges Reclassified to Income Statement			(60	)			(255	)			(204	)			(455	)
Realized (Gain) Loss on Securities Available for Sale reclassified to income statement			—				(3	)			—				3
Other Comprehensive Income (Loss)			(257	)			(362	)			(457	)			(525	)
Comprehensive Income		$	694			$	832			$	2,195			$	1,483

See Notes to condensed consolidated financial statements (unaudited).

 

5

ASTRONOVA, INC.

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)
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				—				—				—				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
		Common Stock								Additional Paid-in Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
		Shares				Amount
Balance February 1, 2018			9,996,120			$	500			$	50,016			$	45,700			$	(32,397)			$	(172)			$	63,647
Share-Based Compensation			—				—				363				—				—				—				363
Employee Option Exercises			53,010				3				574				—				(88)				—				489
Restricted Stock Awards Vested, net			16,981				1				(1)				—				(40)				—				(40)
Common Stock – Cash Dividend—$0.07 per share			—				—				—				(480)				—				—				(480)
Net Income			—				—				—				814				—				—				814
Other Comprehensive Loss			—				—				—				—				—				(163)				(163)
Balance April 28, 2018			10,066,111			$	504			$	50,952			$	46,034			$	(32,525)			$	(335)			$	64,630
Share-Based Compensation			—				—				466				—				—				—				466
Employee Option Exercises			40,302				—				461				—				(278)				—				183
Restricted Stock Awards Vested, net			30,084				3				(2)				—				(157)				—				(156)
Common Stock – Cash Dividend—$0.07 per share			—				—				—				(481)				—				—				(481)
Net Income			—				—				—				1,194				—				—				1,194
Reclassification of Certain Income Tax Effects from Accumulated Other Comprehensive Loss			—				—				—				14				—				—				14
Other Comprehensive Loss			—				—				—				—				—				(362)				(362)
Balance July 28, 2018			10,136,497			$	507			$	51,877			$	46,761			$	(32,960)			$	(697)			$	65,488

 

6

ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

		Six Months Ended
		August 3, 2019				July 28, 2018
Cash Flows from Operating Activities:
Net Income		$	2,652			$	2,008
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization			3,142				3,088
Amortization of Debt Issuance Costs			25				26
Share-Based Compensation			1,052				829
Deferred Income Tax Provision			—				(67	)
Changes in Assets and Liabilities:
Accounts Receivable			2,754				(2,002	)
Inventories			(6,872	)			(1,080	)
Income Taxes			(2,037	)			(650	)
Accounts Payable and Accrued Expenses			533				(3,679	)
Other			(237	)			(221	)
Net Cash Provided (Used) by Operating Activities			1,012				(1,748	)
Cash Flows from Investing Activities:
Proceeds from Sales/Maturities of Securities Available for Sale			—				1,511
Honeywell Asset Purchase and License Agreement—TSA Agreement Payment			—				(400	)
Additions to Property, Plant and Equipment			(1,538	)			(848	)
Net Cash Provided (Used) by Investing Activities			(1,538	)			263
Cash Flows from Financing Activities:
Net Cash Proceeds from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans, Net of Payment of Minimum Tax Withholdings			50				477
Borrowings under Revolving Credit Facility			2,000				3,000
Repayment under Revolving Credit Facility			—				(1,500	)
Payment of Minimum Guarantee Royalty Obligation			(875	)			(875	)
Principal Payments of Long-Term Debt			(2,788	)			(2,908	)
Dividends Paid			(982	)			(961	)
Net Cash Provided (Used) by Financing Activities			(2,595	)			(2,767	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents			110				24
Net Decrease in Cash and Cash Equivalents			(3,011	)			(4,228	)
Cash and Cash Equivalents, Beginning of Period			7,534				10,177
Cash and Cash Equivalents, End of Period		$	4,523			$	5,949
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for Interest		$	352			$	329
Cash Paid During the Period for Income Taxes, Net of Refunds		$	2,469			$	1,639
Schedule of Non-Cash Financing Activities:
Value of Shares Received in Satisfaction of Option Exercise Price		$	11			$	366

See Notes to condensed consolidated financial statements (unaudited).

 

7

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, the Company has factory-trained direct field salespeople located in major cities from coast to coast. We also have direct field sales or service centers in Canada, China, Denmark, France, Germany, India, Malaysia, Mexico, Singapore, Spain and the United Kingdom staffed by our own employees and dedicated third-party contractors. Additionally, we utilize over 150 independent dealers and representatives selling and marketing our products in over 50 countries.

The business consists of two segments, Product Identification (PI) and Test & Measurement (T&M). The Product Identification segment offers a variety of hardware and software products and associated supplies that allow customers to mark, track and enhance the appearance of their products. PI includes specialty printing systems and supplies sold under the QuickLabel^®, TrojanLabel^® and GetLabels^™ brand names. PI products are used in industrial and commercial product packaging, branding and labeling applications to print custom labels, packaging materials and corresponding visual content in-house digitally. The Test & Measurement segment includes systems sold under the AstroNova^® brand name as well as the Company’s line of aerospace flight deck printers. Products sold under the AstroNova brand enable our customers to acquire and record visual and electronic signal data from local and networked data streams and sensors. The recorded data is processed and analyzed and then stored and presented in various visual output formats. In the aerospace market, the Company has a long history of using its data visualization technologies to provide networking systems and high-resolution light-weight flight deck and cabin printers.

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

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 the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2019.

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

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.

Principles of Consolidation

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

 

8

Note 2 – Summary of Significant Accounting Policies Update

The accounting polices used in preparing the condensed consolidated financial statements in this Form 10-Q are the same as those used in preparing the Consolidated Financial Statements for the year ended January 31, 2019, except for the change resulting from the adoption of Accounting Standard Codification Topic 842 (“ASC 842”), Leases. See Note 11 for further details related to the new lease accounting policy as a result of this adoption.

Recently Adopted Accounting Pronouncements

Leases

In February 2019, the Company adopted the guidance issued by the Financial Accounting Standards Board (“FASB”) related to leases. See Note 11 for further details related to this adoption, including policy and expanded disclosure requirements.

Recent Accounting Standards Not Yet Adopted

Internal-Use Software

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

Fair Value Measurement

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

No other new accounting pronouncements, issued or effective during the six months of the current 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 sale of (i) hardware, including digital color label printers and specialty OEM printing systems, portable data acquisition systems and airborne printers used in the flight deck and 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.

 

9

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

Primary geographical markets:

 

		Three Months Ended								Six Months Ended
(In thousands)		August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018
United States		$	20,648			$	19,977			$	42,640			$	39,210
Europe			7,473				7,885				15,349				15,719
Asia			2,218				2,537				5,667				3,976
Canada			1,389				1,648				2,905				3,094
Central and South America			1,325				1,102				2,213				2,156
Other			415				658				875				1,139
Total Revenue		$	33,468			$	33,807			$	69,649			$	65,294

Major product types:

 

		Three Months Ended								Six Months Ended
(In thousands)		August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018
Hardware		$	12,437			$	12,914			$	25,355			$	24,891
Supplies			18,080				17,883				37,808				34,584
Service and Other			2,951				3,010				6,486				5,819
Total Revenue		$	33,468			$	33,807			$	69,649			$	65,294

Contract Assets and Liabilities

We normally do not have contract assets, which are primarily unbilled accounts receivable that are conditional on something other than the passage of time. Our contract liabilities, which represent billings in excess of revenue recognized, are related to advanced billings for purchased service agreements and extended warranties and were $321,000 and $373,000 at August 3, 2019 and January 31, 2019, respectively, and are recorded as deferred revenue in the condensed consolidated balance sheet. The decrease in the deferred revenue balance during the six months ended August 3, 2019 is primarily due to approximately $412,000 of revenue recognized during the period that was included in the deferred revenue balance at January 31, 2019, 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 estimated benefit term, which was estimated to be approximately 10 years. The balance of these contract assets at January 31, 2019 was $903,000. During the six month ended August 3, 2019, amortization of these incremental direct costs were $54,000 and the balance of deferred incremental direct costs net of accumulated amortization at August 3, 2019 was $848,000, of which $109,000 is reported in other current assets and $739,000 is reported in other assets in the accompanying condensed consolidated balance sheet. The remaining contract costs are expected to be amortized over the estimated remaining period of benefit, which we currently estimate to be approximately 7 years.

 

10

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								Six Months Ended
		August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018
Weighted Average Common Shares Outstanding – Basic			7,020,890				6,859,532				6,995,679				6,824,532
Effect of Dilutive Options, Restricted Stock Awards and Restricted Stock Units			350,312				222,976				313,862				174,946
Weighted Average Common Shares Outstanding – Diluted			7,371,202				7,082,508				7,309,541				6,999,478

For the three and six months ended August 3, 2019, the diluted per share amounts do not reflect common equivalent shares outstanding of 11,560 and 218,466, respectively. For the three and six months ended July 28, 2018, the diluted per share amounts do not reflect common equivalent shares outstanding of 273,275 and 340,575, respectively. These outstanding common equivalent shares were not included due to their anti-dilutive effect.

Note 5 – Intangible Assets

Intangible assets are as follows:

 

		August 3, 2019																January 31, 2019
(In thousands)		Gross Carrying Amount				Accumulated Amortization				Currency Translation Adjustment				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Currency Translation Adjustment				Net Carrying Amount
Miltope:
Customer Contract Relationships		$	3,100			$	(1,872	)		$	—			$	1,228			$	3,100			$	(1,723	)		$	—			$	1,377
RITEC:
Customer Contract Relationships			2,830				(900	)			—				1,930				2,830				(725	)			—				2,105
Non-Competition Agreement			950				(776	)			—				174				950				(681	)			—				269
TrojanLabel:
Existing Technology			2,327				(883	)			86				1,530				2,327				(711	)			140				1,756
Distributor Relations			937				(249	)			30				718				937				(200	)			56				793
Honeywell:
Customer Contract Relationships			27,243				(5,330	)			—				21,913				27,243				(3,869	)			—				23,374
Intangible Assets, net		$	37,387			$	(10,010	)		$	116			$	27,493			$	37,387			$	(7,909	)		$	196			$	29,674

There were no impairments to intangible assets during the periods ended August 3, 2019 and July 28, 2018. With respect to the acquired intangibles included in the table above, amortization expense of $1.1 million and $1.0 million has been included in the condensed consolidated statements of income for the three months ended August 3, 2019 and July 28, 2018, respectively. Amortization expense of $2.1 million and $2.0 million related to the above acquired intangibles has been included in the condensed consolidated statement of income for the six months ended August 3, 2019 and July 28, 2018, respectively.

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

 

(In thousands)		Remaining 2020				2021				2022				2023				2024
Estimated amortization expense		$	2,101			$	4,073			$	3,985			$	3,981			$	3,977

 

11

Note 6 – Inventories

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

 

(In thousands)		August 3, 2019				January 31, 2019
Materials and Supplies		$	21,763			$	17,517
Work-In-Process			1,581				1,633
Finished Goods			18,563				15,688
			41,907				34,838
Inventory Reserve			(5,053	)			(4,677	)
		$	36,854			$	30,161

Note 7 – Revolving Line of Credit

The Company has a $10.0 million revolving line of credit under its existing Credit Agreement with Bank of America. Revolving credit loans may be borrowed, at the Company’s option, in U.S. Dollars or, subject to certain conditions, Euros, British Pounds, Canadian Dollars or Danish Kroner. Amounts borrowed under the revolving credit facility bear interest at a rate per annum equal to, at the Company’s option, either (a) the LIBOR rate (or, in the case of revolving credit loans denominated in a currency other than U.S. Dollars, the applicable quoted rate), plus a margin that varies within a range of 1.0% to 1.5% based on the Company’s consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal funds’ rate plus 0.50%, (ii) Bank of America’s publicly announced prime rate or (iii) the LIBOR rate plus 1.00%, plus a margin that varies within a range of 0.0% to 0.5% based on the Company’s consolidated leverage ratio.

During the second quarter of fiscal 2020, $2.0 million was drawn on the revolving credit facility. During fiscal 2019, $3.0 million was drawn on the revolving credit facility, of which $1.5 million was repaid. At August 3, 2019, $3.5 million remains outstanding on the revolving line of credit. The outstanding balance bears interest at a weighted average annual rate of 5.71% and $24,000 and $43,000 of interest has been incurred on this obligation and included in other expense in the accompanying condensed consolidated income statement for the three and six month periods ended August 3, 2019, respectively. As of August 3, 2019, there is $6.5 million available for borrowing under the revolving credit facility.

The Company is required to pay a commitment fee on the undrawn portion of the revolving credit facility at the rate of 0.25% per annum.

Note 8 – Debt

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

 

(In thousands)		August 3, 2019				January 31, 2019
USD Term Loan (3.75% as of August 3, 2019 and 4.02% as of January 31, 2019); maturity date of November 30, 2022		$	9,750			$	11,250
USD Term Loan (3.75% as of August 3, 2019 and 4.02% as of January 31, 2019); maturity date of January 31, 2022			5,704				6,992
		$	15,454			$	18,242
Debt Issuance Costs, net of accumulated amortization			(135	)			(164	)
Current Portion of Term Loans			(5,024	)			(5,208	)
Long-Term Debt		$	10,295			$	12,870

The schedule of required principal payments remaining during the next five years on long-term debt outstanding as of August 3, 2019 is as follows:

 

(In thousands)
Fiscal 2020		$	2,420
Fiscal 2021			5,208
Fiscal 2022			5,576
Fiscal 2023			2,250
Fiscal 2024			—
		$	15,454

 

12

Note 9 – Derivative Financial Instruments and Risk Management

The Company has entered into a cross-currency interest rate swap to manage the interest rate risk and foreign currency exchange risk associated with the floating-rate foreign currency-denominated term loan borrowing by our Danish Subsidiary and an interest rate swap to manage the interest rate risk associated with the variable rate term loan borrowing by the Company. Both swaps have been designated as cash flow hedges of floating-rate borrowings.

The cross-currency interest rate swap agreement utilized by the Company effectively modifies the Company’s exposure to interest rate risk and foreign currency exchange rate risk by converting the Company’s floating-rate debt denominated in U.S. Dollars on our Danish subsidiary’s books to a fixed-rate debt denominated in Danish Kroner for the term of the loan, thus reducing the impact of interest-rate and foreign currency exchange rate changes on future interest expense and principal repayments. This swap involves the receipt of floating rate amounts in U.S. Dollars in exchange for fixed-rate interest payments in Danish Kroner, as well as exchanges of principal at the inception spot rate, over the life of the term loan.

The interest rate swap agreement utilized by the Company on its term loan effectively modifies the Company’s exposure to interest rate risk by converting the Company’s floating-rate debt to fixed-rate debt for the next five years, thus reducing the impact of interest-rate changes on future interest expense. This swap involves the receipt of floating rate amounts in U.S. Dollars in exchange for fixed rate payments in U.S. dollars over the life of the term loan.

The following table summarizes the notional amount and fair value of the Company’s derivative instrument:

 

				August 3, 2019								January 31, 2019
Cash Flow Hedges (In thousands)		Balance Sheet Classification		Outstanding Notional Amount				Fair Value of Liability				Outstanding Notional Amount				Fair Value of Liability
Cross-currency interest rate swap		Other Long- Term Liabilities		$	5,400			$	388			$	6,329			$	600
Interest rate swap		Other Long- Term Liabilities/ Other Assets		$	9,750			$	(107	)		$	11,250			$	85

The following table presents the impact of the Company’s derivative instruments in our condensed consolidated financial statements for the three and six months ended August 3, 2019 and July 28, 2018:

 

		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)		August 3, 2019				July 28, 2018						August 3, 2019				July 28, 2018
Swap contracts		$	(147	)		$	315			Other Income (Expense)		$	77			$	327

 

13

		Six Months Ended
		Amount of Gain (Loss) Recognized in OCI on Derivative								Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Cash Flow Hedge (In thousands)		August 3, 2019				July 28, 2018						August 3, 2019				July 28, 2018
Swap contracts		$	2			$	698			Other Income (Expense)		$	262			$	583

At August 3, 2019, the Company expects to reclassify approximately $0.2 million of net gains on the swap contracts from accumulated other comprehensive loss to earnings during the next 12 months due to changes in foreign exchange rates and the payment of variable interest associated with the floating-rate debt.

Note 10 – Royalty Obligation

In fiscal 2018, AstroNova, Inc. entered into an Asset Purchase and License 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, based on gross revenues from the sales of the printers, paper and repair services of the licensed products. The royalty rates vary based on the year in which they are paid or earned and product sold or service provided, and range from single-digit to mid double-digit percentages of gross revenue.

The guaranteed minimum royalty payment obligation was recorded at the present value of the minimum annual royalty payments using a present value factor of 2.8%, which is based on the estimated after-tax cost of debt for similar companies. As of August 3, 2019, the Company had paid an aggregate of $2.5 million of the guaranteed minimum royalty obligation. At August 3, 2019, 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 $9.0 million is reported as a long-term liability on the Company’s condensed consolidated balance sheet. In addition to the guaranteed minimum royalty payments, the Company also incurred excess royalty expense of $0.1 million and $0.7 million, respectively, for the three and six month periods ended August 3, 2019 and $0.9 and $1.3 million, respectively, for the three and six month periods ended July 28, 2018 which is included in cost of revenue in the Company’s consolidated statements of income. A total of $0.6 million of excess royalty is payable and reported as a current liability on the Company’s condensed consolidated balance sheet at August 3, 2019.

Note 11 – Leases

Policy

On February 1, 2019 the Company adopted ASC 842, Leases. This new guidance requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the recognition of a right of use (ROU) asset and a lease liability. The lease liability is equal to the present value of the minimum lease payments for the term of the lease, including any optional renewal periods determined to be reasonably certain to be exercised, using a discount rate determined at lease commencement. This discount rate is the rate implicit in the lease, if known; otherwise, the incremental borrowing rate for the expected lease term is used. The Company’s incremental borrowing rate approximates the rate the Company would have to pay to borrow on a collateralized basis over a similar term at lease inception. The value of the ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement date and any unamortized initial direct costs incurred by the lessee, less any unamortized lease incentives received.

There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. All of the Company’s leases are classified as operating leases. Operating lease expense is recognized on a straight-line basis over the lease term and included in general and administrative expense on the condensed consolidated statement of income. For operating leases, ROU assets are classified in other long-term assets, short-term lease liabilities are classified in other current liabilities, and long-term lease liabilities are classified in other long-term liabilities on the condensed consolidated balance sheet. On the cash flow statement, payments for operating leases are classified as operating activities.

The Company enters into lease contracts for certain of its facilities at various locations worldwide. At inception of a contract, the Company determines whether the contract is or contains a lease. If the Company has a right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the asset, then the contract contains a lease. Several of the Company’s lease contracts include options to extend the lease term and Company includes the renewal options for these leases in the determination of the ROU asset and lease liability when the likelihood of renewal is determined to be reasonably certain.

 

14

In addition, several of our lease agreements include non-lease components for items such as common area maintenance and utilities which are accounted for separately from the lease component.

Adoption Method and Impact

The Company applied ASC 842 to all leases in effect at February 1, 2019 and adopted the accounting standard using the non-comparative transition option, which does not require the restatement of prior years. Comparative information has not been adjusted and continues to be reported under the previous accounting guidance. The Company has elected the package of practical expedients, which allows entities to not reassess (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company has made an accounting policy election to apply the short-term exception, which does not require the capitalization of leases with terms of 12 months or less. On February 1, 2019, the Company recognized $2.0 million of ROU assets and lease liabilities on its consolidated balance sheet. The adoption did not have a material impact on the Company’s results of operations or cash flows.

Disclosure

Our leases have remaining lease terms of 1 to 12 years, some of which include options to extend the lease term for periods up to 5 years when it is reasonably certain the Company will exercise such options.

The company leases office space from an affiliate. This lease is classified as an operating lease with annual rental payments of approximately $64,000 and $66,000 in fiscal 2020 and 2021, respectively.

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

 

Operating Leases (In thousands)		Balance Sheet Classification		August 3, 2019
Lease Assets		Right of Use Assets		$	1,760
Lease Liabilities – Current		Other Liabilities and Accrued Expenses			405
Lease Liabilities – Long Term		Lease Liabilities			1,364

Lease cost information is as follows:

 

				Three Months Ended				Six Months Ended
Operating Leases (In thousands)		Statement of Income Classification		August 3, 2019				August 3, 2019
Operating Lease Costs		General and Administrative Expense		$	118			$	210

 

15

Maturities of operating lease liabilities are as follows:

 

(In thousands)		August 3, 2019
2020		$	189
2021			393
2022			327
2023			277
2024			262

 

(In thousands)		August 3, 2019
Thereafter			561
Total Lease Payments			2,009
Less: Imputed Interest			(240	)
Total Lease Liabilities		$	1,769

As of August 3, 2019, the weighted-average remaining lease term and weighted-average discount rate for our operating leases are 6.1 years and 4.02%, respectively. We calculated the weighted-average discount rate using incremental borrowing rates, which equal the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.

Supplemental cash flow information related to leases is as follows:

 

		Three Months Ended				Six Months Ended
(In thousands)		August 3, 2019				August 3, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	98			$	198

As previously disclosed in our fiscal year 2019 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum operating lease commitments that had initial or remaining non-cancelable lease terms in excess of one year at January 31, 2019 were as follows:

 

(In thousands)
2020		$	574
2021			520
2022			387
2023			294
2024			273
Thereafter			568
		$	2,616

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, 2019		$	(852	)		$	34			$	(818	)
Other Comprehensive Loss before reclassification			(253	)			—				(253	)
Amounts reclassified from AOCL to Earnings			—				(204	)			(204	)
Other Comprehensive Loss			(253	)			(204	)			(457	)
Balance at August 3, 2019		$	(1,105	)		$	(170	)		$	(1,275	)

 

16

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 or performance-based restricted stock unit (PSUs), restricted stock units (RSUs) and restricted stock awards (RSAs). At the annual meeting of shareholders, on June 4, 2019, the 2018 Plan was amended to increase the number of shares of the Company’s common stock available for issuance by 300,000, bringing the total number of shares available for issuance under the 2018 Plan from 650,000 to 950,000, plus an additional number of shares equal to the number of shares subject to awards granted under 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, reacquired by the Company at not more than the grantee’s purchase price (other than by exercise). Under the 2018 Plan, all awards to employees generally have a minimum vesting period of one year. Options granted under the 2018 Plan must be issued at an exercise price of not less than the fair market value of the Company’s common stock on the date of grant and expire after ten years. As of August 3, 2019, 163,475 unvested shares of restricted stock and options to purchase an aggregate of 146,000 shares were outstanding under the 2018 Plan.

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”). Both the 2007 Plan and the 2015 Plan have expired and no new awards may be issued under either, but outstanding awards will continue to be governed by those plans. As of August 3, 2019, 1,007 unvested shares of restricted stock and options to purchase an aggregate of 382,845 shares were outstanding under the 2007 Plan and 27,527 unvested shares of restricted stock and options to purchase an aggregate of 194,650 shares were outstanding under the 2015 Plan.

On January 31, 2019, the compensation committee of the Company’s board of directors adopted an Amended and Restated Non-Employee Director Annual Compensation Program (the “New Program”), which became effective as of February 1, 2019 and supersedes the prior program. Pursuant to the New Program, beginning with fiscal 2020, each non-employee director will automatically receive a grant of restricted stock on the date of their re-election to the Company’s board of directors. The number of whole shares to be granted will be 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 2020 is $60,000. To account for the partial year beginning on February 1, 2019 and continuing through the 2019 annual meeting, and thereby provide for the alignment of the timing of annual grants of restricted stock under the New Program with the election of directors at the annual meeting, a total of 4,340 shares of restricted stock were granted to the non-employee directors on February 1, 2019. A total of 11,560 shares were awarded to the non-employee directors as compensation under the New Program in the second quarter of fiscal 2020. Other than the shares granted on February 1, 2019, which vested on June 1, 2019, shares of restricted stock granted under the New Program will become vested on the first anniversary of the date of grant, conditioned upon the recipient’s continued service on the Board through that date.

In March 2019, the Company granted 45,374 RSUs and 52,248 PSUs to certain key employees.

Share-based compensation expense was recognized as follows:

 

		Three Months Ended								Six Months Ended
(In thousands)		August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018
Stock Options		$	127			$	200			$	339			$	356
Restricted Stock Awards and Restricted Stock Units			320				263				704				467
Employee Stock Purchase Plan			4				3				9				6
Total		$	451			$	466			$	1,052			$	829

 

17

Stock Options

There were no stock options granted during the six months ended August 3, 2019. The fair value of stock options granted during the six months ended July 28, 2018 were estimated using the following assumptions:

 

		Six Months Ended
		July 28, 2018
Risk Free Interest Rate			2.6	%
Expected Volatility			39.4	%
Expected Life (in years)			9.0
Dividend Yield			1.5	%

The weighted average fair value per share for options granted was $7.42 and $7.41 during the three and six month periods ended July 28, 2018, respectively.

Aggregated information regarding stock option activity for the six months ended August 3, 2019 is summarized below:

 

		Number of Options				Weighted Average Exercise Price
Outstanding at January 31, 2019			771,145			$	14.30
Granted			—				—
Exercised			(38,975	)			11.65
Forfeited			(8,275	)			16.72
Canceled			(400	)			6.22
Outstanding at August 3, 2019			723,495			$	14.42

Set forth below is a summary of options outstanding at August 3, 2019:

 

Outstanding														Exercisable
Range of Exercise prices		Number of Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Life				Number of Shares				Weighted- Average Exercise Price				Weighted Average Remaining Contractual Life
$5.00-10.00			62,081			$	7.94				2.5				62,081			$	7.94				2.5
$10.01-15.00			424,814			$	13.63				6.3				336,794			$	13.66				5.9
$15.01-20.00			236,600			$	17.53				8.4				112,795			$	17.08				8.1
			723,495			$	14.42				6.7				511,670			$	13.72				6.0

As of August 3, 2019, there was approximately $1.1 million of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted average period of approximately 2.0 years.

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

Aggregated information regarding RSU and RSA activity for the six months ended August 3, 2019 is summarized below:

 

		RSAs & RSUs				Weighted Average Grant Date Fair Value
Outstanding at January 31, 2019			133,667			$	13.99
Granted			113,522				20.16
Vested			(55,180	)			16.62
Forfeited			—				—
Outstanding at August 3, 2019			192,009			$	16.88

 

18

As of August 3, 2019, there was approximately $2.9 million of unrecognized compensation expense related to RSUs and RSAs which is expected to be recognized over a weighted average period of 1.9 years.

Employee Stock Purchase Plan

AstroNova has an Employee Stock Purchase Plan allowing eligible employees to purchase shares of common stock at a 15% discount from fair value on the first or last day of an offering period, whichever is less. A total of 247,500 shares were reserved for issuance under this plan. During the six months ended August 3, 2019 and July 28, 2018, there were 2,796 and 2,342 shares, respectively, purchased under this plan. As of August 3, 2019, 31,057 shares remain available.

Note 14 – Income Taxes

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

 

		Three Months Ended				Six Months Ended
Fiscal 2020			3.0	%			13.9	%
Fiscal 2019			27.8	%			24.1	%

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

During the three months ended August 3, 2019, the Company recognized an income tax expense of approximately $29,000. The effective tax rate in this period was directly impacted by 1) a significant reduction in forecasted operating results for our fiscal 2020 as compared to operating results forecasted at the end of our first quarter of fiscal 2020 and 2) a $135,000 tax benefit arising from windfall tax benefits related to the Company’s stock. During the three months ended July 28, 2018, the Company recognized an income tax expense of approximately $459,000. The effective tax rate in this period was directly impacted by an $82,000 benefit arising from windfall tax benefits related to the Company’s stock.

During the six months ended August 3, 2019, the Company recognized an income tax expense of approximately $429,000. The effective tax rate in this period was directly impacted by 1) a $53,000 tax benefit related to the expiration of the statute of limitations on a previously uncertain tax position and 2) a $232,000 tax benefit arising from windfall tax benefits related to the Company’s stock. During the six months ended July 28, 2018, the Company recognized an income tax expense of approximately $639,000. The effective tax rate in this period was directly impacted by a $112,000 tax benefit arising from windfall tax benefits related to the Company’s stock and a $78,000 tax benefit related to the expiration of the statute of limitations on a previously uncertain tax position.

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

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial reporting purposes. As of August 3, 2019, the Company’s cumulative unrecognized tax benefits totaled $592,000 compared to $618,000 as of January 31, 2019. Besides the expiration of the statute of limitations on a previously uncertain tax position, there were no other developments affecting unrecognized tax benefits during the quarter ended August 3, 2019.

Note 15 – Segment Information

AstroNova reports two segments: Product Identification and Test & Measurement (T&M). The Company evaluates segment performance based on the segment profit before corporate expenses.

 

19

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

 

		Three Months Ended																Six Months Ended
		Revenue								Segment Operating Profit								Revenue								Segment Operating Profit
(In thousands)		August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018				August 3, 2019				July 28, 2018
Product Identification		$	22,144			$	21,769			$	2,224			$	2,159			$	45,735			$	41,722			$	5,110			$	3,820
T&M			11,324				12,038				1,555				2,814				23,914				23,572				4,136				5,071
Total		$	33,468			$	33,807				3,779				4,973			$	69,649			$	65,294				9,246				8,891
Corporate Expenses											2,616				2,808												5,615				5,462
Operating Income											1,163				2,165												3,631				3,429
Other Expense, Net											(183	)			(512	)											(550	)			(782	)
Income Before Income Taxes											980				1,653												3,081				2,647
Income Tax Provision											29				459												429				639
Net Income										$	951			$	1,194											$	2,652			$	2,008

Note 16 – Fair Value

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables provide a summary of the financial assets and liabilities that are measured at fair value as of August 3, 2019 and January 31, 2019:

 

Assets measured at fair value:		Fair value measurement at August 3, 2019																Fair value measurement at January 31, 2019
(In thousands)		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Interest Rate Swap Contract (included in Other Assets)		$	—			$	—			$	—			$	—			$	—			$	85			$	—			$	85
Total Assets		$	—			$	—			$	—			$	—			$	—			$	85			$	—			$	85
Liabilities measured at fair value:		Fair value measurement at August 3, 2019																Fair value measurement at January 31, 2019
(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)		$	—			$	388			$	—			$	388			$	—			$	600			$	—			$	600
Interest Rate Swap Contract (included in Other Long-Term Liabilities)			—				107				—				107				—				—				—				—
Earnout Liability (included in Other Long-Term Liabilities)			—				—				14				14				—				—				14				14
Total Liabilities		$	—			$	495			$	14			$	509			$	—			$	600			$	14			$	614

We use 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 classified as Level 2 because they are over-the-counter contracts with a bank counterparty that are not traded in an active market.

 

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