UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended January 31, 2019

OR

For the transition period from                  to                 

Commission file number 0-13200

AstroNova, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (401) 828-4000

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

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 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 checkmark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

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.  ☐

The aggregate market value of the registrant’s voting common equity held by non-affiliates at July 27, 2018 was approximately $112,325,000 based on the closing price on the Nasdaq Global Market on that date.

As of April 5, 2019 there were 6,987,823 shares of Common Stock (par value $0.05 per share) of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement for the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

ASTRONOVA, INC.

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

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ASTRONOVA, INC.

Forward-Looking Statements

Information included in this Annual Report on Form 10-K 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. These risks, uncertainties and factors include, but are not limited to, those factors set forth in this Annual Report on Form 10-K under “Item 1A. Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The reader is cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Annual Report on Form 10-K.

PART I

Item 1. Business

General

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

AstroNova designs, develops, manufactures and distributes a broad range of specialty printers and data acquisition and analysis systems, including both hardware and software, which incorporate advanced technologies to acquire, store, analyze, and present data in multiple formats. Target markets for hardware and software products of the Company include aerospace, apparel, automotive, avionics, chemicals, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging and transportation.

The Company’s products are distributed around the world through its own sales force, authorized dealers and through independent dealers and representatives.

Our business consists of two segments, Product Identification (“PI”) and Test & Measurement (“T&M”). The PI segment includes specialty printing systems sold under the brand names QuickLabel^®, TrojanLabel^® and GetLabels™. The Company’s T&M segment includes test and measurement systems sold under the AstroNova^® brand name and includes the Company’s line of aerospace flight deck printers. Refer to Note 16, “Nature of Operations, Segment Reporting and Geographical Information,” in our audited consolidated financial statements elsewhere in this report for financial information regarding the Company’s segments.

On September 28, 2017, AstroNova, Inc. entered into an Asset Purchase and License Agreement with Honeywell International, Inc. pursuant to which it acquired an exclusive perpetual world-wide license to manufacture Honeywell’s narrow-format flight deck printers for the Boeing 737 and Airbus 320 aircraft. Revenue related to that transaction has been included as part of the aerospace printer product line of the Company’s Test & Measurement segment since the acquisition date. On February 1, 2017, AstroNova completed its acquisition of TrojanLabel ApS (“TrojanLabel”), a European manufacturer of digital color label presses and specialty printing systems for label professionals and commercial printers. TrojanLabel is reported as part of our PI segment beginning with the first quarter of fiscal year 2018. Refer to Note 3, “Acquisitions,” in our audited consolidated financial statements included elsewhere in this report.

The following description of our business should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on pages 19 through 30 of this Annual Report on Form 10-K.

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Description of Business

Product Overview

AstroNova leverages its expertise in data visualization technologies to design, manufacture and market specialty printing systems, test and measurement systems and related services for select growing markets on a global basis.

Products sold under the QuickLabel, TrojanLabel and GetLabels brands 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 PI 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. 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.

Product Identification

QuickLabel brand products include tabletop and work cell-ready digital color label printers and specialty OEM printing systems. QuickLabel products are sold to manufacturers, processors, and retailers who label products on a short-run basis. QuickLabel customers benefit from the efficiency, flexibility and cost-savings of digitally printing their labels in-house and on demand. Industry segments that commonly benefit from short-run digital label printing include chemicals, cosmetics, food and beverage, medical products, and pharmaceuticals, among many others.

Current QuickLabel models include a family of high-end monochrome printers, the QL-300, a high performance color toner based printer, the QL-800 wide format inkjet color label printer, and the Kiaro!^® family of high-speed inkjet color label printers which includes the QL-120, a professional table top digital label printer.

TrojanLabel brand products include professional digital color label presses and specialty printing systems, as well as overprinting solutions. This highly innovative line of presses expands the Company’s customer base by offering commercial printers (label converters) and packaging manufacturers the ability to execute smaller runs with an affordable digital solution. It is commonly sold to larger brand owners, label converters, commercial printers and packaging manufacturers.

Our current TrojanLabel portfolio includes the T2-C, a compact, digital mini press designed for 24/7 label production; the parent of the T2-C, the T2, a label press with a full-size PC display that supports mini jumbo label rolls for commercial production; the T4, a professional label press and finishing system which enables print, die cut and lamination all in one machine with a much smaller footprint than others in the market; and the T3, a modular over-printer offered in multiple OEM integration versions.

GetLabels brand products include a full line of supplies including labels, tags, inks, toners, and thermal transfer ribbons. Quality label materials and substrates are designed and constructed for an extensive variety of labeling applications. Every one of the label materials and substrates are qualified and tested in our Materials Research Laboratory to ensure durability and compatibility for the QuickLabel brand, TrojanLabel brand and also a variety of competitor printers to meet the specific labeling needs for a wide diversity of markets.

The Product Identification segment additionally licenses various specialized software used to operate the printers and presses, design labels and manage printing on an automated basis and also provides worldwide training and support.

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T&M

Products sold under the AstroNova T&M brand acquire and record visual 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. The Company supplies a range of products and services that include hardware, software and supplies to customers in a variety of industries.

Our T&M products include; the Daxus^® DXS-100 distributed data acquisition system, the TMX^® high-speed data acquisition system, the SmartCorder^® DDX-100 portable data acquisition system, the EV-5000 digital strip chart recording system, the ToughWriter^®, Miltope-brand and RITEC-brand airborne printers, the PTA-45B cockpit printer that is subject to the Asset Purchase and Licenses Agreement with Honeywell and ToughSwitch^® ruggedized Ethernet switches.

AstroNova airborne printers are used in the flight deck and in the cabin of military, commercial and business aircraft to print hard copies of data required for the safe and efficient operation of aircraft, including navigation maps, arrival and departure procedures, flight itineraries, weather maps, performance data, passenger data, and various air traffic control data. ToughSwitch Ethernet switches are used primarily in military aircraft and military vehicles to connect multiple computers or Ethernet devices. The airborne printers and Ethernet switches are ruggedized to comply with rigorous military and commercial flight worthiness standards for operation under extreme environmental conditions. The Company is currently furnishing ToughWriter airborne printers for many aircraft made by Airbus, Boeing, Embraer, Bombardier, Lockheed, Gulfstream, and others.

The Company’s portable data acquisition systems are used in research and development (R&D), field testing, production and maintenance applications in a wide range of industries including aerospace and defense, energy, industrial and transportation. The TMX data acquisition system is an all-in-one solution for applications in which the ability to monitor high channel counts and view a wide variety of input signals, including time-stamped and synchronized video capture data and audio notation is essential. The SmartCorder DDX-100 is an ultra-portable all-in-one solution for facilities maintenance and field testing. The Daxus DXS-100 is a distributed data acquisition platform that can be connected to the SmartCorder DDX-100 to increase channel count or networked as part of a distributed measurement system spanning vast distances.

Technology

Our core technologies are data visualization technologies that relate to (1) acquiring data, (2) conditioning the data, (3) displaying the data on hard copy, monitor or electronic storage media, and (4) analyzing the data.

Patents and Copyrights

We hold a number of product patents in the United States and in foreign countries. We rely on a combination of copyright, patent, trademark and trade secret laws in the United States and other jurisdictions to protect our technology and brand name. While we consider our intellectual property to be important to the operation of our business, we do not believe that any existing patent, license, trademark or other intellectual property right is of such importance that its loss or termination would have a material adverse effect on the Company’s business taken as a whole.

Manufacturing and Supplies

We manufacture many of the products that we design and sell. Raw materials and supplies are typically available from a wide variety of sources. We manufacture many of the sub-assemblies and parts in-house including printed circuit board assemblies, harnesses, machined parts and general final assembly. Many parts not manufactured in-house are standard electronic items available from multiple sources. Other parts are designed by us and manufactured by outside vendors. We purchase certain components, assembled products and supplies used in the manufacture of our products from a single source or limited supplier source. While we believe these components, products and supplies could be sourced elsewhere with appropriate changes in the design of our products, such design might not be feasible on a timely basis and any interruption in these components, products or supplies could adversely affect our business.

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Marketing and Competition

The Company competes worldwide in multiple markets. In the specialty printing field, we believe we are a market leader in tabletop digital color label printing technology and in aerospace printers. In the data acquisition area, we are one of the leaders in portable, reliable, high-speed data acquisition systems.

We retain a leadership position by virtue of proprietary technology, product reputation, delivery, technical assistance, and service to customers. The number of competitors varies by product line. Our management believes that we have a market leadership position in many of the markets we serve. Key competitive factors vary among our product lines, but include technology, quality, service and support, distribution network, and breadth of product and service offerings.

Our products are sold by direct field salespersons as well as independent dealers and representatives. In the United States, the Company has factory-trained direct field salespeople located in major cities from coast to coast specializing in either Product Identification or AstroNova T&M products. 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.

No single customer accounted for 10% or more of our net revenue in any of the last three fiscal years.

Order Backlog

Our backlog varies regularly. It consists of a blend of orders for end-user customers as well as original equipment manufacturer customers. Manufacturing production is designed to meet forecasted demands and customer requirements. Accordingly, the amount of order backlog may not indicate future sales trends. Backlog at January 31, 2019, 2018 and 2017 was $25.6 million, $21.4 million and $17.6 million, respectively.

Employees

As of January 31, 2019, we employed 374 people. We are generally able to satisfy our employment requirements. No employees are represented by a union. We believe that employee relations are good.

Other Information

The Company’s business is not seasonal in nature. However, our revenue is impacted by the size of certain individual transactions, which can cause fluctuations in revenue from quarter to quarter.

Available Information

We make available on our website (www.astronovainc.com) the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (SEC). These filings are also accessible on the SEC’s website at http://www.sec.gov.

Item 1A. Risk Factors

The following risk factors should be carefully considered in evaluating AstroNova, because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business operations.

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AstroNova’s operating results and financial condition could be harmed if the markets into which we sell our products decline or do not grow as anticipated.

Any decline in our customers’ markets or in their general economic conditions would likely result in a reduction in demand for our products. Although we have continued to experience measured progress, as sales have increased steadily from prior years, we are still affected by the continued global economic uncertainty. Some of our customers may be reluctant to make capital equipment purchases or may defer certain of these purchases to future quarters. Some of our customers may also limit consumable product purchases to quantities necessary to satisfy immediate needs with no provisions to stock supplies for future use. Also, if our customers’ markets decline, we may not be able to collect on outstanding amounts due to us. Such declines could harm our results of operations, financial position and cash flows and could limit our ability to continue to remain profitable.

AstroNova’s future revenue growth depends on our ability to develop and introduce new products and services on a timely basis and achieve market acceptance of these new products and services.

The markets for our products are characterized by rapidly changing technologies and accelerating product introduction cycles. Our future success depends largely upon our ability to address the rapidly changing needs of our customers by developing and supplying high-quality, cost-effective products, product enhancements and services on a timely basis and by keeping pace with technological developments and emerging industry standards. The success of our new products will also depend on our ability to differentiate our offerings from our competitors’ offerings, price our products competitively, anticipate our competitors’ development of new products, and maintain high levels of product quality and reliability. AstroNova spends a significant amount of time and effort related to the development of our airborne and color printer products as well as our Test and Measurement data recorder products. Failure to further develop any of our new products and their related markets as anticipated could adversely affect our future revenue growth and operating results.

As we introduce new or enhanced products, we must also successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. The introduction of new or enhanced products may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of even a successful product introduction and may cause customers to defer purchasing existing products in anticipation of the new products. Additionally, when we introduce new or enhanced products, we face numerous risks relating to product transitions, including the inability to accurately forecast demand, manage excess and obsolete inventories, address new or higher product cost structures, and manage different sales and support requirements due to the type or complexity of the new products. Any customer uncertainty regarding the timeline for rolling out new products or AstroNova’s plans for future support of existing products may cause customers to delay purchase decisions or purchase competing products which would adversely affect our business and operating results.

AstroNova is dependent upon contract manufacturers for some of our products. If these manufacturers do not meet our requirements, either in volume or quality, then we could be materially harmed.

We subcontract the manufacturing and assembly of certain of our products to independent third parties at facilities located in various countries. Relying on subcontractors involves a number of significant risks, including:

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If one of our significant subcontractors becomes unable or unwilling to continue to manufacture these products in required volumes or fails to meet our quality standards, we will have to identify qualified alternate subcontractors or we will have to take over the manufacturing ourselves. Additional qualified subcontractors may not be available, or may not be available on a timely or cost competitive basis. Any interruption in the supply or increase in the cost of the products manufactured by third party subcontractors or failure of a subcontractor to meet quality standards could have a material adverse effect on our business, operating results and financial condition.

For certain components, assembled products and supplies, AstroNova is dependent upon single or limited source suppliers. If these suppliers do not meet demand, either in volume or quality, then we could be materially harmed.

Although we use standard parts and components for our products where possible, we purchase certain components, assembled products and supplies used in the manufacture of our products from a single source or limited supplier sources. If the supply of a key component, assembled products or certain supplies were to be delayed or curtailed or, in the event a key manufacturing or sole supplier delays shipment of such components or assembled products, our ability to ship products in desired quantities and in a timely manner would be adversely affected. Our business, results of operations and financial position could also be adversely affected, depending on the time required to obtain sufficient quantities from the original source or, if possible, to identify and obtain sufficient quantities from an alternative source. Additionally, if any single or limited source supplier becomes unable or unwilling to continue to supply these components, assembled products or supplies in required volumes, we will have to identify and qualify acceptable replacements or redesign our products with different components. Alternative sources may not be available, or product redesign may not be feasible on a timely basis. Any interruption in the supply of or increase in the cost of the components, assembled products and supplies provided by single or limited source suppliers could have a material adverse effect on our business, operating results and financial condition.

AstroNova faces significant competition, and our failure to compete successfully could adversely affect our results of operations and financial condition.

We operate in an environment of significant competition, driven by rapid technological advances, evolving industry standards, frequent new product introductions and the demands of customers to become more efficient. Our competitors range from large international companies to relatively small firms. We compete on the basis of technology, performance, price, quality, reliability, brand, distribution and customer service and support. Our success in future performance is largely dependent upon our ability to compete successfully in the markets we currently serve and to expand into additional market segments. Additionally, current competitors or new market entrants may develop new products with features that could adversely affect the competitive position of our products. To remain competitive, we must develop new products, services and applications and periodically enhance our existing offerings. If we are unable to compete successfully, we could lose market share and important customers to our competitors which could materially and adversely affect our business, results of operations and financial position.

AstroNova’s profitability is dependent upon our ability to obtain adequate pricing for our products and to control our cost structure.

Our success depends on our ability to obtain adequate pricing for our products and services which provides a reasonable return to our shareholders. Depending on competitive market factors, future prices we obtain for our products and services may decline from previous levels. In addition, pricing actions to offset the effect of currency devaluations may not prove sufficient to offset further devaluations or may not hold in the face of customer resistance and/or competition. If we are unable to obtain adequate pricing for our products and services, our results of operations and financial position could be materially adversely affected.

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We are continually reviewing our operations with a view towards reducing our cost structure, including but not limited to downsizing our employee base, improving process and system efficiencies and outsourcing some internal functions. From time to time we also engage in restructuring actions to reduce our cost structure. If we are unable to maintain process and systems changes resulting from cost reduction and prior restructuring actions, our results of operations and financial position could be materially adversely affected.

AstroNova has significant inventories on hand.

We maintain a significant amount of inventory. Although we have provided an allowance for slow-moving and obsolete inventory, any significant unanticipated changes in future product demand or market conditions, including obsolescence or the uncertainty in the global market, could have an impact on the value of inventory and adversely impact our business, operating results and financial condition.

Economic, political and other risks associated with international sales and operations could adversely affect AstroNova’s results of operations and financial position.

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. Revenue from international operations, which includes both direct and indirect sales to customers outside the U.S., accounted for 39% of our total revenue for fiscal year 2019, and we anticipate that international sales will continue to account for a significant portion of our revenue. In addition, we have employees, suppliers, job functions and facilities located outside the U.S. Accordingly, our business, operating results and financial condition could be harmed by a variety of factors, including:

AstroNova could incur liabilities as a result of installed product failures due to design or manufacturing defects.

AstroNova has incurred and could incur additional liabilities as a result of installed product failures due to design or manufacturing defects. Our products may have defects despite our internal testing or testing by current or potential customers. These defects could result in among other things, a delay in recognition of sales, loss of sales, loss of market share, failure to achieve market acceptance or substantial damage to our reputation. We could be subject to material claims by customers, and may incur substantial expenses to correct any product defects.

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In addition, through our acquisitions, we have assumed, and may in the future assume, liabilities related to products previously developed by an acquired company that have not been subjected to the same level of product development, testing and quality control processes used by us, and may have known or undetected errors. Some types of errors may not be detected until the product is installed in a user environment. This may cause AstroNova to incur significant warranty and repair or re-engineering costs, may divert the attention of engineering personnel from product development efforts, and may cause significant customer relations problems such as reputational problems with customers resulting in increased costs and lower profitability.

Certain of our products require certifications by regulators or standards organizations, and our failure to obtain or maintain such certifications could negatively impact our business.

In certain industries and for certain products, such as those used in aircraft, we must obtain certifications for our products by regulators or standards organizations. If we fail to obtain required certifications for our products, or if we fail to maintain such certifications on our products after they have been certified, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Changes in our tax rates or exposure to additional income tax liabilities or assessments could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA” or “Tax Act”) was signed into law. The Tax Act significantly revises the U.S. federal corporate income tax law and includes a broad range of tax reform measures affecting business including among other things, the reduction of the corporate income tax rate from 35% to 21%, the loss of certain business deductions, the acceleration of first-year expensing of certain capital expenditures and a one-time tax imposed on unremitted cumulative non-U.S. earnings of foreign subsidiaries. The Tax Act is complex and far-reaching, and we continue to evaluate the actual impact of its enactment on the Company. Any material adverse impact resulting from the Tax Act that has not yet been identified could have an adverse affect on our business, results of operations, financial condition and cash flow.

Changes to tax laws and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to the Tax Act), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, uncertainties regarding the geographic mix of earnings in any particular period, and other factors, could have a material impact on our estimates of our effective tax rate and our deferred tax assets and liabilities. The impact of these factors may be substantially different from period-to-period.

In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities. If audits result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities and our financial statements could be adversely affected. Any further significant changes to the tax system in the United States or in other jurisdictions (including changes in the taxation of international income as further described below) could adversely affect our financial statements.

The agreements governing our indebtedness subject us to various restrictions that may limit our ability to pursue business opportunities.

The agreement governing our current credit facility contains, and any future debt agreements may include, a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries. Such restrictive covenants may significantly limit our ability to:

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Such agreements also require us to satisfy other requirements, including maintaining certain financial ratios and condition tests. Our ability to meet these requirements can be affected by events beyond our control, and we may be unable to meet them. To the extent we fail to meet any such requirements and are in default under our debt obligations, our financial condition may be materially adversely affected. These restrictions may limit our ability to engage in activities that could otherwise benefit us. To the extent that we are unable to engage in activities that support the growth, profitability and competitiveness of our business, our business, results of operations and financial condition could be adversely affected.

AstroNova may not realize the anticipated benefits of past or future acquisitions, divestitures and strategic partnerships, and integration of acquired companies or divestiture of businesses may negatively impact AstroNova’s overall business.

We have made strategic investments in other companies, products and technologies, including our September 2017 Asset Purchase and License Agreement with Honeywell International, Inc. and our February 2017 acquisition of the digital color label press and specialty printing systems business of the Danish company, TrojanLabel. We may continue to identify and pursue acquisitions of complementary companies and strategic assets, such as customer bases, products and technology. However, there can be no assurance that we will be able to identify suitable acquisition opportunities. In any acquisition that we complete we cannot be certain that:

In certain instances as permitted by applicable law and NASDAQ rules, acquisitions may be consummated without seeking and obtaining shareholder approval, in which case shareholders will not have an opportunity to consider and vote upon the merits of such an acquisition. Although we will endeavor to evaluate the risks inherent in a particular acquisition, there can be no assurance that we will properly ascertain or assess such risks.

We may also divest certain businesses from time to time. Divestitures will likely involve risks, such as difficulty splitting up businesses, distracting employees, potential loss of revenue and negatively impacting margins, and potentially disrupting customer relationships. A successful divestiture depends on various factors, including our ability to:

All of these efforts require varying levels of management resources, which may divert our attention from other business operations. Further, if market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions.

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If we are not able to successfully integrate or divest businesses, products, technologies or personnel that we acquire or divest, or able to realize expected benefits of our acquisitions, divestitures or strategic partnerships, AstroNova’s business, results of operations and financial condition could be adversely affected.

Adverse conditions in the global banking industry and credit markets could impair our liquidity or interrupt our access to capital markets, borrowings or financial transactions to hedge certain risks.

At the end of fiscal 2019, we had approximately $7.5 million of cash and cash equivalents. Our cash and cash equivalents are held in a mix of money market funds, bank demand deposit accounts and foreign bank accounts. Disruptions in the financial markets may, in some cases, result in an inability to access assets such as money market funds that traditionally have been viewed as highly liquid. Any failure of our counterparty financial institutions or funds in which we have invested may adversely impact our cash and cash equivalent positions and, in turn, our financial position.

To date, we have been able to access financing that has allowed us to make investments in growth opportunities and fund working capital requirements as needed. In addition, we occasionally enter into financial transactions to hedge certain foreign exchange and interest rate risks. Our continued access to capital markets, the stability of our lenders and their willingness to support our needs, and the stability of the counter parties to our financial transactions that hedge risks are essential for us to meet our current and long-term obligations, fund operations, and fund our future strategic initiatives. An interruption in our access to external financing or financial transactions to hedge risk could materially and adversely affect our business and financial condition.

AstroNova could experience a significant disruption in, or breach in security of our information technology system which could harm our business and adversely affect our results of operations.

We employ information technology systems to support our business. Any security breaches or other disruptions to our information technology infrastructure could interfere with operations, compromise our information and that of our customers and suppliers, and expose us to liability which could adversely impact our business and reputation. In the ordinary course of business, we rely on information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. While we continually work to safeguard our systems and mitigate potential risks, there is no assurance that such actions will be sufficient to prevent cyber attacks or security breaches. As a result, our information technology networks and infrastructure may still be vulnerable to damage, disruptions or shutdowns due to attack by hackers or breaches, employee error, power outages, computer viruses, telecommunication or utility failures, systems failures, natural disasters, catastrophic events or other unforeseen events and in any such circumstance our system redundancy and other disaster recovery planning may be ineffective or inadequate. While we have experienced, and expect to continue to experience, these types of threats to our information technology networks and infrastructure, none of them to date has had a material impact. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to the Company’s brand and reputation, which could adversely affect our business, operating results and financial condition.

AstroNova could experience risks related to the implementation of our new global enterprise resource planning system.

We are currently engaged in a multi-year process of conforming all of our operations to one global enterprise resource planning system (“ERP”). The ERP is designed to improve the efficiency of our supply chain and financial transaction processes, accurately maintain our books and records, and provide information important to the operation of the business to our management team. The implementation of the ERP will continue to require significant investment of human and financial resources, and we may experience significant delays, increased costs and other difficulties as a result. Any significant disruption or deficiency in the design, implementation and transition to the new ERP could negatively impact our ability to:

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any of which could have a material adverse effect on our business, consolidated financial condition or results of operations.

We also face the challenge of supporting our older systems while we implement the new ERP system. While we have invested significant resources in planning and project management, significant implementation issues may arise that impact our normal business operations and could have a material adverse impact on our operating results and cash flow.

AstroNova depends on our key employees and other highly qualified personnel and our ability to attract and develop new, talented professionals. Our inability to attract and retain key employees could compromise our future success and our business could be harmed.

Our future success depends upon our ability to attract and retain professional and executive employees, including sales, operating, marketing, and financial management personnel. There is substantial competition for skilled personnel, and the failure to attract, develop, retain and motivate qualified personnel could negatively impact our business, financial condition, results of operations and future prospects. In order to hire new personnel or retain or replace our key personnel, we may be required to increase compensation, which would decrease net income. Additionally, a number of key employees have special knowledge of customers, supplier relationships, business processes, manufacturing operations, and financial management issues and the loss of any of these employees could harm the company’s ability to perform efficiently and effectively until their knowledge and skills are replaced, which might be difficult to do quickly, and as a result could have a material adverse effect on our business, financial condition, and results of operations.

AstroNova is subject to laws and regulations; failure to address or comply with these laws and regulations could harm our business and adversely affect our results of operations.

Our operations are subject to laws, rules, regulations, including environmental regulations, government policies and other requirements in each of the jurisdictions in which we conduct business. Changes in laws, rules, regulations, policies or requirements could result in the need to modify our products and could affect the demand for our products, which may have an adverse impact on our future operating results. In addition, we must comply with regulations restricting our ability to include lead and certain other substances in our products. If we do not comply with applicable laws, rules and regulations we could be subject to costs and liabilities and our business may be adversely impacted.

Certain of our operations and products are subject to environmental, health and safety laws and regulations, which may result in substantial compliance costs or otherwise adversely affect our business.

Our operations are subject to numerous federal, state, local and foreign laws and regulations relating to protection of the environment, including those that impose limitations on the discharge of pollutants into the air and water, establish standards for the use, treatment, storage and disposal of solid and hazardous materials and wastes, and govern the cleanup of contaminated sites. We have used and continue to use various substances in our products and manufacturing operations, and have generated and continue to generate wastes, which have been or may be deemed to be hazardous or dangerous. As such, our business is subject to and may be materially and adversely affected by compliance obligations and other liabilities under environmental, health and safety laws and regulations. These laws and regulations affect ongoing operations and require capital costs and operating expenditures in order to achieve and maintain compliance.

Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, and any determination that the Company or any of its subsidiaries has violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

The U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government

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officials and others for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws. We operate in parts of the world that have experienced governmental corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. Despite our training and compliance programs, there can be no assurance that our internal control policies and procedures will protect us from reckless or criminal acts committed by those of our employees or agents who violate our policies.

Unauthorized access to personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights and compliance with laws designed to prevent unauthorized access of personal data could be costly.

AstroNova collects and stores certain data, including proprietary business information, and may have access to confidential or personal information that is subject to privacy and security laws, regulations and customer-imposed controls. Security breaches or other unauthorized access to, or the use or transmission of, personal user information could result in a variety of claims against us, including privacy-related claims. There are numerous laws in the countries in which we operate regarding privacy and the storage, sharing, use, processing, disclosure and protection of this kind of information, the scope of which are changing, inconsistent and conflicting and subject to differing interpretations, and new laws of this nature are adopted from time to time. For example, in 2016 the European Commission adopted the General Data Protection Regulation (GDPR), a comprehensive privacy and data protection reform that became effective in May 2018. The GDPR, which is applicable to all companies processing data of European Union residents, imposes significant fines and sanctions for violations. Additionally, certain developing countries in which we do business are also considering adopting privacy and data protection laws and regulations and legislative proposals concerning privacy and the protection of user information are often pending before the U.S. Congress and various U.S. state legislatures.

While we believe that we comply with industry standards and applicable laws and industry codes of conduct relating to privacy and data protection in all material respects, there is no assurance that we will not be subject to claims that we have violated applicable laws or codes of conduct, that we will be able to successfully defend against such claims or that we will not be subject to significant fines and penalties in the event of non-compliance.

Any failure or perceived failure by us (or any third parties with whom we have contracted to store such information) to comply with applicable privacy and security laws, policies or related contractual obligations or any compromise of security that results in unauthorized access to personal information may result in governmental enforcement actions, significant fines, litigation, claims of breach of contract and indemnity by third parties and adverse publicity. In the case of such an event, our reputation may be harmed, we could lose current and potential users and the competitive positions of our various brands could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.

We may record future impairment charges, which could materially adversely impact our results of operations.

We test our goodwill balances annually, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. We assess goodwill for impairment at the reporting unit level and, in evaluating the potential for impairment of goodwill, we make assumptions regarding estimated revenue projections, growth rates, cash flows and discount rates. We monitor the key drivers of fair value to detect events or other changes that would warrant an interim impairment test of our goodwill and intangible assets. Relatively small declines in the future performance and cash flows of a reporting unit or asset group, changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses, or small changes in other key assumptions, may result in the recognition of significant asset impairment charges, which could have a material adverse impact on our results of operations.

We also review our long-lived assets including property, plant and equipment, and other intangibles assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider include significant under-performance relative to expected historical or projected future

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operating results, significant negative industry or economic trends and our market capitalization relative to net book value. We may be required in the future to record a significant charge to earnings in our financial statements during the period in which any impairment of our long-lived assets is determined. Such charges could have a significant adverse impact on our results of operations and our financial condition.

Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines, and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment and fair value determinations, inventories, business combinations and intangible asset valuations, leases, and litigation, are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported or expected financial performance or financial condition.

Compliance with rules governing “conflict minerals” could adversely affect the availability of certain product components and our costs and results of operations could be materially harmed.

SEC rules require disclosures regarding the use of “conflict minerals” mined from the Democratic Republic of the Congo and adjoining countries necessary to the functionality or production of products manufactured or contracted to be manufactured. We have determined that we use gold, tin and tantalum, each of which is considered a “conflict mineral” under the SEC rules, as they occur in electronic components supplied to us in the manufacture of our products. Because of this finding, we are required to conduct inquiries designed to determine whether any of the conflict minerals contained in our products originated or may have originated in the conflict region or come from recycled or scrap sources. There are costs associated with complying with these disclosure requirements, including performing due diligence in regards to the source of any conflict minerals used in our products, in addition to the cost of remediation or other changes to products, processes or services of supplies that may be necessary as a consequence of such verification activities. As we use contract manufacturers for some of our products, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement. We may also encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so. As a result, our business, operating results and financial condition could be harmed.

Due to the fact that we have operations located within the United Kingdom (UK), our business and financial results may be negatively impacted as a result of the UK’s planned exit from the European Union (EU). These risks would be heightened in the event that the UK and the EU are unable to reach a mutually satisfactory exit agreement.

On June 23, 2016, the UK held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.” On March 29, 2017, the UK Government invoked Article 50 of the Treaty on the European Union, which is expected to result in the UK exiting the EU. The UK Government continues to negotiate the terms of the UK’s future relationship with the EU, although there is still considerable uncertainty as to the outcome. It is possible that following agreement, the new relationship will result in greater restrictions on imports and exports between the UK and EU countries, as well as the US. and increased regulatory complexity. There is also the potential for disruption to the movement of raw materials and finished goods in the event that no agreement is reached by the planned exit date. These changes may adversely affect our operations and financial results.

Additionally, following the referendum on Brexit, the value of the British pound (GBP) incurred significant fluctuations. If the value of the British Pound Sterling continues to incur similar fluctuations, unfavorable exchange rate changes may negatively affect the value of our operations located in the UK, as translated to our

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reporting currency, the USD, in accordance with US GAAP, which may impact the revenue and earnings we report. Continued fluctuations in the GBP may also result in the imposition of price adjustments by EU-based suppliers to our UK operations, as those suppliers seek to compensate for the changes in value of the GBP as compared to the Euro. In addition, a so-called “Hard Brexit,” where no formal agreement is made between the EU and the UK prior to the UK’s exit, could result in a continued deflation of the British Pound Sterling; additional increases in prices, fees, taxes or tariffs applicable to goods that are bought and sold between the UK and EU, and a negative impact on end markets in the UK as a result of declines in consumer sentiment or decreased immigration rates into the UK. Any of these results could have a material adverse effect on our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table sets forth information regarding the Company’s principal owned properties, all of which are included in the consolidated balance sheet appearing elsewhere in this annual report.

AstroNova also leases facilities in various other locations. The following information pertains to each location:

We believe our facilities are well maintained, in good operating condition and generally adequate to meet our needs for the foreseeable future.

Item 3. Legal Proceedings

There are no pending or threatened legal proceedings against the Company believed to be material to the financial position or results of operations of the Company.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

AstroNova common stock trades on the NASDAQ Global Market under the symbol “ALOT.”

AstroNova had approximately 256 shareholders of record as of April 5, 2019, which does not reflect shareholders with beneficial ownership in shares held in nominee name.

Dividend Policy

AstroNova began a program of paying quarterly cash dividends in fiscal 1992 and has paid a dividend for 110 consecutive quarters. During fiscal 2019, 2018 and 2017, we paid a dividend of $0.07 per share in each quarter and anticipate that we will continue to pay comparable cash dividends on a quarterly basis.

Stock Repurchases

Pursuant to an authorization approved by AstroNova’s Board of Directors in August 2011, the Company is currently authorized to repurchase up to 390,000 shares of common stock, subject to any increase or decrease by the Board of Directors at any time. This is an ongoing authorization without any expiration date.

During the fourth quarter of fiscal 2019, the Company made the following repurchases of its common stock:

(a) An executive of the company delivered 1,899 shares of the Company’s common stock toward the satisfaction of taxes due in connection with the vesting of restricted shares. The shares delivered were valued at a market value of $19.55 per share and are included with treasury stock in the consolidated balance sheet. This transaction did not impact the number of shares authorized for repurchase under the Company’s current repurchase program.

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Item 6. Selected Financial Data

Historical Financial Summary

Income Statement Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

AstroNova is a multi-national 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. The Company organizes its structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. It markets and sells its products and services through the following two segments:

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The Company markets and sells its 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 2019, 2018, and 21017, revenue from customers in various geographic areas outside the United States, primarily in Western Europe, Canada and Asia, amounted to $53.0 million, $43.6 million and $28.6 million, respectively.

We maintain an active program of product research and development. During fiscal 2019, 2018 and 2017, we spent $7.8 million, $7.5 million and $6.3 million, respectively, on Company-sponsored product development. We are committed to continuous product development as essential to our organic growth and expect to continue our focus on research and development efforts in fiscal 2020 and beyond.

We also continue to invest in sales and marketing initiatives by expanding the existing sales force and using various marketing campaigns to achieve our goals of sales growth and increased profitability notwithstanding the challenging economic environment.

On September 28, 2017, AstroNova entered into an Asset Purchase and License Agreement with Honeywell International, Inc. pursuant to which it acquired the exclusive perpetual world-wide license to manufacture Honeywell’s narrow format flight deck printers for the Boeing 737 and Airbus 320 aircraft. Revenue from the sales of these printers is reported as part of our Test & Measurement segment beginning in the third quarter of fiscal year 2018. Refer to Note 3, “Acquisitions,” in the audited consolidated financial statements included elsewhere in this report.

On February 1, 2017, AstroNova completed its acquisition of TrojanLabel ApS (TrojanLabel), a European manufacturer of digital color label presses and specialty printing systems for the commercial label printing and packaging markets. TrojanLabel is reported as part of our Product Identification segment beginning with the first quarter of fiscal year 2018. Refer to Note 3, “Acquisitions,” in the audited consolidated financial statements included elsewhere in this report.

Results of Operations

Fiscal 2019 compared to Fiscal 2018

The following table presents the revenue of each of the Company’s segments, as well as the percentage of total revenue and change from prior year.

Net revenue in fiscal 2019 was $136.7 million, a 20.5% increase compared to prior year revenue of $113.4 million. Revenue through domestic channels of $83.7 million was up 19.9% from $69.8 million in the prior year due to sales increases in both segments. International revenue of $53.0 million increased 21.5% over prior year international revenue of $43.6 million primarily due to the impact on revenue from the Honeywell product line and despite lower than expected revenue from European Product Identification sales. Current year international revenue includes a modest favorable foreign exchange rate impact of $0.5 million.

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Hardware revenue in fiscal 2019 was $53.2 million, a $15.7 million, or 41.9%, increase compared to prior year revenue of $37.5 million. The largest contribution to this increase was in the T&M segment where the full year impact of the Honeywell acquisition (which was completed on September 28, 2017) caused T&M segment hardware revenue to increase 61.2%. The increase was also aided, to a much lesser degree, by growth in T&M’s data acquisition product lines. Hardware revenue in the Product Identification segment increased 9.5% compared to prior year primarily due to increases in the TrojanLabel product lines.

Revenue from supplies in fiscal 2019 was $71.2 million, representing a $ 5.9 million, or 9.0%, increase compared to prior year revenue of $65.3 million. The dollar increase is primarily attributable to growth from Product Identification inkjet printer inks and labels, with the largest share of that increase related to the QuickLabel product line. Also contributing to the revenue increase was the impact in the T&M segment of significantly higher sales of the specialized paper used in aerospace printers due to the large inherited installed base of the acquired Honeywell product line.

Service and other revenue in fiscal 2019 was $12.3 million, a 16.0% increase compared to prior year revenue of $10.6 million. All of this increase related to the aerospace printer product lines as a result of the acquired Honeywell product line.

The Company achieved gross profit of $54.0 million for fiscal 2019, reflecting a 22.7% improvement compared to the prior year’s gross profit of $44.0 million. The Company’s gross profit margin of 39.5% in the current year reflects an increase from the prior year’s gross profit margin of 38.8%. The higher gross profit for the current year compared to the prior year is primarily attributable to increased revenue; the current year’s increase in gross margin is primarily due to an increase in the mix of higher gross margins in the acquired Honeywell product lines.

Operating expenses for the current year were $45.3 million, representing a 17.3% increase from the prior year’s operating expenses of $38.6 million, a growth rate 3.2% lower than the growth rate of revenues. Specifically, selling and marketing expenses of $ 26.3 million in fiscal 2019 increased 18.5% from the prior year amount of $22.2 million. The increase in selling and marketing expenses for the current year primarily relates to full year amortization of customer related intangibles acquired in the Honeywell transaction, as well an increase in wages and benefits for fiscal 2019. Selling and marketing expenses represent 19.3% and 19.6% of net revenue for fiscal 2019 and 2018, respectively. Current year general and administrative (“G&A”) expenses increased by 24.9% from prior year to $11.1 million, primarily as a result of an increase in wages, bonuses and share-based compensation expenses. The current year increase in G&A is also a result of the fact that fiscal 2018 G&A included $1.4 million of income attributable to the change in the fair value of the Company’s contingent earn out liability related to the TrojanLabel acquisition. The current year increase in G&A is partly offset by lower professional service costs and the favorable impact of a $1.0 million of income recorded in the first quarter of fiscal 2019 as a result of a change in the accounting estimate for product costs and operating expenses pursuant to a transition service agreement we entered into with Honeywell. Research & development (“R&D”) costs in fiscal 2019 of $7.8 million increased 4.8% from $7.5 million in fiscal 2018. While R&D spending increased, primarily due to increased benefit and incentive costs, the R&D spending level for fiscal 2019 represents 5.7% of net revenue, a decrease compared to the prior year level of 6.6%.

Other expense in fiscal 2019 was $1.4 million compared to other expense of $0.3 million in fiscal 2018. Current year other expense includes interest expense on debt of $0.9 million and foreign exchange loss of $0.7 million, offset by investment income of $0.1 million. Other income in fiscal 2018 included interest expense on debt of $0.4 million and a foreign exchange loss of $0.2 million, offset by investment income of $0.2 million.

Net income for fiscal 2019 was $5.7 million, or $0.81 per diluted share, an increase compared to $3.3 million, or $0.47 per diluted share in fiscal 2018. Current year results were impacted by $0.1 million, or $0.01 per diluted share, in taxes as a result of the finalization of the accounting for the 2017 Tax Act. The prior year included a $1.1 million increase in the tax provision consisting of $1.0 million related to revaluation of our deferred tax assets at the new lower corporate tax rate and $0.1 million related to the transition tax on the un-repatriated earnings of our foreign subsidiaries also included in the Tax Act. During fiscal 2019 the Company

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recognized a $1.6 million income tax expense and had an effective tax rate of 21.6% compared to income tax expense of $1.8 million, or a 36.2% effective tax rate in fiscal 2018.

Fiscal 2018 compared to Fiscal 2017

The following table presents the revenue of each of the Company’s segments, as well as the percentage of total revenue and change from prior year.

Net revenue in fiscal 2018 was $113.4 million, a 15.2% increase compared to the prior year revenue of $98.4 million. Revenue through domestic channels of $69.8 million was consistent with prior year domestic revenue of $69.8 million. International revenue of $43.6 million increased 52.4% over the prior year international revenue of $28.6 million primarily due to the impact on revenue from the Honeywell and TrojanLabel acquisitions. The international revenue for fiscal 2018 includes a favorable foreign exchange rate impact of $0.6 million.

Hardware revenue in fiscal 2018 was $37.5 million, a 10.9% increase compared to the prior year’s revenue of $33.8 million. Hardware revenue in the Product Identification segment increased 23.5% in fiscal 2018 compared to the prior year due to the integration of TrojanLabel, but was tempered by lower OEM bar code printer sales. Hardware revenue in the T&M segment increased 4.6% in fiscal 2018 primarily due to the Honeywell acquisition and the introduction of the EV-5000 data recorder. These revenue increases were partially offset by lower sales from the Aerospace ToughWriter 4 product line.

Revenue from supplies in fiscal 2018 was $65.3 million, representing a 16.2% increase compared to the prior year revenue of $56.2 million. This increase is primarily attributable to double-digit growth from Product Identification inkjet printer inks and labels. Also contributing to the revenue increase in fiscal 2018 was the impact of Honeywell and TrojanLabel paper and ink sales.

Service and other revenue in fiscal 2018 was $10.6 million, a 26.2% increase compared to the prior year revenue of $8.4 million. Product Identification and Test & Measurement segments both generated double-digit growth in service and other revenue as a result of the TrojanLabel and Honeywell acquisitions.

The Company achieved gross profit of $44.0 million for fiscal 2018, reflecting an 11.4% improvement compared to the prior year’s gross profit of $39.5 million. The Company’s gross profit margin of 38.8% in fiscal 2018 reflects a decrease from the prior year’s gross profit margin of 40.1%. The higher gross profit for fiscal 2018 compared to the prior year is primarily attributable to increased revenue; fiscal 2018’s decrease in gross margin was due to product mix and higher manufacturing and period costs.

Operating expenses for fiscal 2018 were $38.6 million, representing a 16.2% increase from the prior year’s operating expenses of $33.2 million. Specifically, selling and marketing expenses of $22.2 million in fiscal 2018 increased 17.3% from the prior year’s amount of $19.0 million. The increase in selling and marketing expenses primarily relates to increases in wages and amortization related to the TrojanLabel and Honeywell acquisitions. Selling and marketing expenses represent 19.6% and 19.3% of net revenue for fiscal 2018 and 2017, respectively. Fiscal 2018 G&A expenses increased by 12.1% from the prior year to $8.9 million primarily as a result of an increase in share-based compensation expenses, as well as outside and professional service costs, including non-recurring costs related to expenses incurred pursuant to a transition service agreement we entered into with Honeywell. The increase in G&A was offset by income of $1.4 million due to the change in the fair

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value of the Company’s contingent earn out liability related to the TrojanLabel acquisition. R&D costs in fiscal 2018 of $7.5 million increased 18.0% from $6.3 million in fiscal 2017, primarily due to the increase related to the absorption of the TrojanLabel R&D team, as well as an increase in wages. This increase was slightly tempered by a decrease in outside service costs and prototype expenses. The R&D spending level for fiscal 2018 represents 6.6% of net revenue, an increase compared to the prior year’s level of 6.4%.

Other expense in fiscal 2018 was $0.3 million compared to other income of $0.3 million in fiscal 2017. Other expense for fiscal 2018 includes interest expense on debt of $0.4 million and foreign exchange loss of $0.2 million, offset by investment income of $0.2 and income related to a settlement of a trademark infringement litigation. Other income in fiscal 2017 includes a gain on sale of a property we owned in England of $0.4 million and $0.1 million related to an amount retained from the RITEC escrow partially offset by foreign exchange loss of $0.2 million.

Net income for fiscal 2018 was $3.3 million, or $0.47 per diluted share, a decrease from $4.2 million, or $0.56 per diluted share in fiscal 2017. The results for fiscal 2018 were impacted by income of $1.4 million ($1.1 million net of tax or $0.16 per diluted share) related to change in the fair value of the Company’s contingent earn out liability and $1.1 million, or $0.16 per diluted share, in taxes as a result of the enactment of the Tax Act. The $1.1 million increase in tax provision includes $1.0 million related to revaluation of our deferred tax assets at the new lower corporate tax rate and $0.1 million related to the transition tax on the un-repatriated earnings of our foreign subsidiaries also included in the Tax Act. During fiscal 2017 the Company recognized a $2.4 million income tax expense and had an effective tax rate of 36.0%. Fiscal 2017 income tax expense included a $0.2 million tax expense related to non-deductible transaction costs for the TrojanLabel acquisition and a $0.2 million tax expense related to the increase for unrecognized tax benefits.

Segment Analysis

We report two segments consistent with our product revenue groups: Product Identification and Test & Measurement (T&M). Segment performance is evaluated based on the operating segment’s profit before corporate and financial administration expenses.

The following table summarizes selected financial information by segment.

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Product Identification

Revenue from the Product Identification segment increased 6.2% in fiscal 2019 with revenue of $86.8 million compared to revenue of $81.7 million in the prior year. Hardware product lines grew 9.5% and supplies product lines grew 6.0%. The increase in hardware revenue for the current year was primarily due to the contribution from the TrojanLabel line of presses. The supplies revenue increase in the current year was a result of growth in ink, print head, and label and tag supplies revenue across all product lines. Product Identification current year segment operating profit was $7.9 million, reflecting a profit margin of 9.1%, compared to prior year segment profit of $10.6 million and related profit margin of 12.9%. The decrease in Product Identification current year segment operating profit margin is due to significant investment in fiscal 2019 in new product development, sales and marketing capabilities, and product introduction costs.

Revenue from the Product Identification segment increased 16.9% in fiscal 2018 with revenue of $81.7 million compared to revenue of $69.9 million in the prior year. Both the hardware and supplies product lines saw strong growth in fiscal 2018, with increases of 23.5% and 15.2%, respectively, as compared to the prior year. The increase in hardware revenue for fiscal 2018 was primarily due to the contribution from the TrojanLabel line of presses. The supplies revenue increase in fiscal 2018 was a result of supplies revenue from the newly acquired TrojanLabel business and continued strong demand for digital color printer ink as well as label and tag products supplies. Fiscal 2018 Product Identification segment operating profit was $10.6 million, reflecting a profit margin of 12.9%, compared to the prior year segment profit of $9.8 million and related profit margin of 14.1%. The decrease in Product Identification segment operating profit margin in fiscal 2018 was due to unfavorable product mix and increased operating costs.

Test & Measurement

Revenue from the T&M product group was $49.9 million for fiscal 2019, a 57.2% increase compared to revenue of $31.7 million in the prior year. The Honeywell product line revenue began in September of 2017, and fiscal year 2019 was the first full year of revenue for this acquisition: it was the primary reason for the significant growth in both the hardware and supplies product lines. T&M’s segment operating profit for the current fiscal year was $11.9 million, which resulted in a 23.9% profit margin compared to the prior year’s segment operating profit of $3.8 million and related operating margin of 11.8%. Again, the higher margins were due to the acquisition, which was integrated into the existing facilities without adding significant ongoing facilities expense, and the generally favorable margins on the acquired products, despite the incremental costs incurred in supporting the integration, certain fees payable to Honeywell in connection with the transition of the product line, and the payment of licensing royalties.

Revenue from the T&M product group was $31.7 million for fiscal 2018, an 11.0% increase compared to revenue of $28.6 million in the prior year. Both the hardware and supplies product lines saw sustained growth in fiscal 2018, with the overall increase primarily attributable to the contribution of revenue from the entry into the arrangement with Honeywell in September 2017. T&M’s segment operating profit for fiscal 2018 was $3.8 million which resulted in an 11.8% profit margin compared to the prior year’s segment operating profit of $4.4 million and related operating margin of 15.4%. The lower segment operating profit and related margin in fiscal 2018 were due to product mix and higher operating costs.

Liquidity and Capital Resources

Overview

Generally, our primary source of liquidity is cash generated from operating activities. We may also utilize amounts available under our revolving credit facility, as described below, to supplement funding for our operating activities and to fund a portion of our capital expenditures, contractual contingent consideration obligations, and future acquisitions. We believe that our current level of cash and short-term financing capabilities along with future cash flows from operations will be sufficient to meet our operating and capital needs for at least the next 12 months.

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During fiscal 2019, we converted our securities available for sale to cash. In the second quarter of fiscal 2019, we drew $3.0 million on our revolving credit facility, of which $1.5 million was repaid and $1.5 million remains outstanding as of January 31, 2019. Our cash and cash equivalents at January 31, 2019, were $7.5 million and we have $8.5 million remaining available for borrowing under our revolving credit facility.

Indebtedness

On February 28, 2017, the Company and the Company’s wholly owned Danish subsidiary, ANI ApS (together, the “Parties”) entered into a credit agreement with Bank of America, N.A., which provided for a secured credit facility consisting of a $9.2 million term loan to our wholly owned Danish subsidiary, “ANI ApS,” and a $10.0 million revolving credit facility for the Company. On September 28, 2017, the Parties entered into the First Amendment to the Credit Agreement to permit the Honeywell Asset Purchase and License Agreement and temporarily increase the amount available for borrowing under the revolving credit line from $10.0 million to $15.0 million. The Company used $14.6 million of the revolving credit line to complete the Honeywell Asset Purchase and License Agreement.

On November 30, 2017, the Parties entered into the Second Amendment to the Credit Agreement which, in addition to the revolving credit facility and the term loan previously borrowed by ANI ApS under the original Credit Agreement, provided for a term loan to the Company in the principal amount of $15.0 million. Upon the closing of the Second Amendment, the Company used the proceeds from the $15.0 million term loan to repay the entire $14.6 million principal balance of the revolving loan outstanding under the revolving credit facility as of October 28, 2017, with the remaining proceeds retained by the Company to be used for general corporate purposes. The principal amount of the revolving credit facility under the Credit Agreement, which had been temporarily increased to $15.0 million pursuant to the First Amendment, was reduced to $10.0 million effective upon the closing of the Second Amendment, and the revolving credit facility termination and maturity date was extended from January 31, 2022 to November 22, 2022.

On April 17, 2018, the Parties entered into a Third Amendment to the Credit Agreement with the Lender. The Third Amendment provides that no “Immaterial Subsidiary” will be required to become a guarantor or securing party under (unless requested by the Lender during default) or have its equity pledged pursuant to the Credit Agreement. The Third Amendment defines “Immaterial Subsidiary” as any subsidiary of the Company with (a) consolidated total assets that do not exceed 5.0% of the consolidated total assets of the Company and its subsidiaries as a whole and (b) revenues that do not exceed 5.0% of the consolidated revenues of the Company and its subsidiaries as a whole, as of the last day of the most recent fiscal quarter. Immaterial Subsidiaries may not account for, in the aggregate, more than 10% the of consolidated total assets or consolidated revenues of the Company and its subsidiaries.

Revolving credit loans may be borrowed, at the Company’s option, in U.S. Dollars or, subject to certain conditions, Euros, British Pounds, Canadian Dollars or Danish Krone. Amounts borrowed under the revolving credit facility bear interest at a rate per annum equal to, at the Company’s option, either (a) the LIBOR rate (or in the case of revolving credit loans denominated in a currency other than U.S. Dollars, the applicable quoted rate), plus a margin that varies within a range of 1.0% to 1.5% based on the Company’s consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal funds’ rate plus 0.50%, (ii) Bank of America’s publicly announced prime rate or (iii) the LIBOR rate plus 1.00%, plus a margin that varies within a range of 0.0% to 0.5% based on the Company’s consolidated leverage ratio. 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. Outstanding borrowings under the revolving credit line during fiscal 2019 bear interest at an annual rate of 5.6% and the Company has paid $61 thousand of interest expense for revolving credit line borrowings for the year ended January 31, 2019.

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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 the Company’s consolidated leverage ratio. In connection with our entry into the original 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 loan will be made in Danish Krone, and interest on such principal amount will be payable at a fixed rate of 0.67% per annum for the entire term, subject only to potential changes based on the Company’s consolidated leverage ratio. In connection with our entry into the Second Amendment of the Credit Agreement, effective November 30, 2017, the Company entered into a hedging agreement to manage the variable interest rate risk associated with its payments in 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 the Company’s consolidated leverage ratio.

In connection with the Credit Agreement, AstroNova and ANI ApS entered into certain hedging arrangements with the Lender to manage the variable interest rate risk and currency risk associated with its payments in respect of the term loans.

The obligations of ANI ApS in respect of the $9.2 million term loan are guaranteed by the Company and TrojanLabel ApS. The Company’s obligations in respect of the $15.0 million term loan, revolving credit facility and its guarantee in respect of the ANI ApS term loan are secured by substantially all of the assets of the Company (including a pledge of a portion of the equity interests held by the Company in ANI ApS and the Company’s wholly-owned German subsidiary AstroNova GmbH), subject to certain exceptions.

The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the Credit Agreement upon the occurrence of any of various customary events of default.

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

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

Cash Flow

The statements of cash flows for the years ended January 31, 2019, 2018 and 2017 are included on page 47 of this Form 10-K. Net cash provided by operating activities was $3.4 million in fiscal 2019 compared to net cash provided by operating activities of $3.7 million in the previous year. The decrease in net cash provided by operations for the current year is primarily due to payments of prior years’ accrued expenses to Honeywell under the TSA agreement and the increase in inventory to support the transition of the production of printers to the West Warwick facility in accordance with the Honeywell TSA. The combination of these factors on working capital, along with an increase in accounts receivable due to increased revenue for the current year resulted in a decrease in cash of $8.3 million for fiscal 2019, compared to a decrease of $5.0 million for the same period in fiscal 2018. The current year decrease in cash provided by operations was somewhat offset by increased net income and an increase in non-cash amortization related to the Honeywell acquisition. The accounts receivable balance was $23.5 million at the end of the current year compared to $22.4 million at the end of fiscal 2018, although the collection cycle decreased to 49 days compared to 55 days at year end. The inventory balance increased to $30.2 million at the end of fiscal 2019, compared to $27.6 million at fiscal 2018 year end with the inventory days on hand decreasing to 120 days at the end of the current year from 124 days at the prior year end.

Net cash provided by operating activities was $3.7 million in fiscal 2018 compared to net cash provided by operating activities of $7.0 million in fiscal 2017. The decrease in net cash from operations for fiscal 2018 was primarily due to the decrease in net income and the increase in working capital accounts, particularly inventory and accounts receivables. Excluding the impact of the TrojanLabel acquisition, inventory increased $6.8 million

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to $27.6 million in fiscal 2018 compared to $19.5 million in fiscal 2017, and accounts receivable increased $5.9 million to $22.4 million in fiscal 2018 from $15.7 million in fiscal 2017. The increase in inventory for fiscal 2018 was due to increased purchasing volume and decreased inventory turns, as inventory days on hand increased to 124 days at fiscal year end 2018 from 114 days at the prior year end. The increase in accounts receivable for fiscal 2018 was due to increased revenue and an increase in the accounts receivable collection cycle to 55 days at January 31, 2018 compared to 49 days at the prior year end.

Net cash provided by operating activities was $7.0 million in fiscal 2017 compared to net cash provided by operating activities of $7.7 million in fiscal 2016. The decrease in net cash from operations for fiscal 2017 is primarily due to increased net income and increased cash used for working capital. The combination of changes in accounts receivable, inventory, and accounts payable and accrued expenses decreased cash by $3.6 million in fiscal 2017, compared to a decrease of $0.5 million in fiscal 2016. The year-over-year decline was due to increased inventory and purchasing volume in fiscal 2017. The accounts receivable collection cycle decreased to 49 days of revenue at January 31, 2017 compared to 50 days of revenue at the prior year end. Inventory days on hand increased to 114 days at the end of the 2017 fiscal year from 92 days at the prior year end.

Net cash used by investing activities for fiscal 2019 was $1.5 million, which included $2.6 million for capital expenditures, consisting of $0.1 million for land and building improvements; $1.5 million for information technology; $0.7 million for machinery and equipment; $0.2 million for tools and dies; and $0.1 million for furniture, fixtures and other capital expenditures. Cash used for investments in fiscal 2019 was partially offset by $1.5 million of proceeds from sales and maturities of securities available for sale.

Net cash used by investing activities for fiscal 2018 was $20.8 million, which included $23.9 million of cash paid for the TrojanLabel acquisition and the Honeywell asset purchase and licenses agreement, partially offset by $5.5 million of proceeds from sales and maturities of securities available for sale. Cash used for investing activities for fiscal 2018 included capital expenditures of $2.2 million, consisting of $0.7 million for land and building improvements; $0.7 million for information technology; $0.5 million for machinery and equipment; $0.2 million for tools and dies; and $0.1 million for furniture, fixtures and other capital expenditures.

Net cash provided by investing activities for fiscal 2017 was $3.1 million, which included $4.0 million of proceeds from maturities of securities available for sale and proceeds of $0.5 million related to the sale of the UK property. Cash used for investing activities for fiscal 2017 included capital expenditures of $1.2 million, consisting of $0.4 million for land and building improvements; $0.3 million for information technology; $0.3 million for machinery and equipment; $0.1 million for tools and dies; and $0.1 million for furniture, fixtures and other capital expenditures.

Net cash used by financing activities for fiscal 2019 was $4.1 million, primarily as a result of principal payments of $4.8 million on long-term debt and $1.5 million on the Company’s revolving credit facility. Cash used for financing was partially offset by borrowings of $3.0 million on the Company’s revolving credit facility in fiscal 2019. The Company did not repurchase any shares of its common stock in fiscal 2019. At January 31, 2019, there is an ongoing authorization by the Company’s Board of Directors for the purchase of 390,000 shares of the Company’s common stock. Cash provided or used by financing activities also included cash used to pay dividends of $1.9 million in both fiscal 2019 and 2018 and $2.1 million in fiscal 2017.

Net cash provided by financing activities for fiscal 2018 was $9.1 million and includes $24.2 million of proceeds related to the issuance of debt under the Company’s credit facility with Bank of America. Offsetting the cash provided by financing activities in fiscal 2018 was $11.2 million of cash used to repurchase 826,305 shares of the Company’s common stock at a per share price of $13.60. The purchase of these shares was from a trust established by the former founder and chief executive officer of the Company and did not impact the shares authorized for future purchases as part of the Company’s stock buyback program.

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Contractual Obligations, Commitments and Contingencies

At January 31, 2019, the Company’s contractual obligations with initial remaining terms in excess of one year were as follows:

The Company is also subject to contingencies, including legal proceedings and claims arising out of its businesses that cover a wide range of matters, such as: contract and employment claims; workers compensation claims; product liability claims; warranty claims; and claims related to modification, adjustment or replacement of component parts of units sold. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, we believe that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse affect on our consolidated financial position or results of operations. It is possible, however, that results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the Company’s control.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements. These judgments and estimates are based on the Company’s historical experience, current trends and information available from other sources, as appropriate. If different conditions result from those assumptions used in our judgments, the results could be materially different from our estimates. We believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements:

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Revenue Recognition:

Effective February 1, 2018, we adopted Accounting Standards Update (ASU) 2014-9, Revenue from Contracts with Customers and the related amendments (also referred to as Topic 606) using the modified retrospective method. Topic 606 was applied to all contracts within the scope of Topic 606 as of the February 1, 2018 adoption date. Under ASC Topic 606, based on the nature of our contracts and consistent with prior practice, we recognize the large majority of our revenue upon shipment, which is when the performance obligation has been satisfied. Accordingly, the adoption of this standard did not have a material impact on our revenue recognition and there was no cumulative effective adjustment as of February 1, 2018 as a result of the adoption of ASC Topic 606.

Our accounting policies relating to the recognition of revenue under Topic 606 require management to make estimates, determinations and judgments based on historical experience and on various other assumptions, which include (i) the existence of a contract with the customer, (ii) the identification of the performance obligations in the contract, (iii) the value of any variable consideration in the contract, (iv) the stand alone selling price of multiple obligations in the contract, for the purpose of allocating the consideration in the contract, and (v) determining when a performance obligation has been met. Recognition of revenue based on incorrect judgments, including the identification of performance obligation arrangements as well as the pattern of delivery for those services, could result in inappropriate recognition of revenue, or incorrect timing of revenue recognition, which could have a material affect on our financial condition and results of operations.

We recognize revenue for non-recurring engineering (NRE) fees, as necessary, for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue.

Infrequently, the Company receives requests from customers to hold product being purchased from us for the customers’ convenience. We recognize revenue for such bill and hold arrangements in accordance with the guidance provided by Topic 606, which requires the transaction to meet the following criteria in order to determine that the customer has obtained control: (a) the reason for the bill and hold is substantive, (b) the product has separately been identified as belonging to the customer, (c) the product is currently ready for physical transfer to the customer, and (d) the Company does not have the ability to use the product or direct it to another customer.

Warranty Claims and Bad Debts: Provisions for the estimated costs for future product warranty claims and bad debts are recorded in cost of revenue and general and administrative expense, respectively. The amounts recorded are generally based upon historically derived percentages while also factoring in any new business conditions that might impact the historical analysis such as new product introduction for warranty and bankruptcies of particular customers for bad debts. We also periodically evaluate the adequacy of reserves for warranty and bad debts recorded in our consolidated balance sheet as a further test to ensure the adequacy of the recorded provisions. Warranty and bad debt analysis often involves subjective analysis of a particular customer’s ability to pay. As a result, significant judgment is required in determining the appropriate amounts to record, and such judgments may prove to be incorrect in the future. We believe that our procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to the actual amounts.

Inventories: Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. The process for evaluating and recording obsolete and excess inventory provisions consists of analyzing the inventory supply on hand and estimating the net realizable value of the inventory based on historical experience, current business conditions and anticipated future revenue. We believe that our procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to actual experience.

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Income Taxes: A valuation allowance is established when it is “more-likely-than-not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence must be considered, including our performance, the market environment in which we operate, length of carryforward periods, existing revenue backlog and future revenue projections. If actual factors and conditions differ materially from the estimates made by management, the actual realization of the net deferred tax assets or liabilities could vary materially from the amounts previously recorded. At January 31, 2019, the Company has provided valuation allowances for future state tax benefits resulting from certain R&D tax credits which could expire unused.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions. Although guidance on the accounting for uncertain income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what we have estimated, our income tax expense could be materially impacted.

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

Intangible and Long-Lived Assets: Long-lived assets, such as definite-lived intangible assets and property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be recorded for the excess of the carrying value over the fair value, which is determined by the discounting of future cash flows.

Goodwill: Goodwill is tested for impairment at the reporting unit. A reporting unit is an operating segment or a business unit one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. However, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in revenue, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is first qualitatively assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is required for the reporting unit. The quantitative assessment compares the fair value of the reporting unit with its carrying value. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow model. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. In addition, we use the market approach, which compares the reporting unit to publicly-traded companies and transactions involving similar business, to support the conclusions based upon the income approach. The income approach requires the use of many

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assumptions and estimates including future revenue, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates. If the fair value of the reporting unit exceeds the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then we record an impairment charge based on that difference.

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

Recent Accounting Pronouncements

Reference is made to Note 1 of our audited consolidated financial statements included elsewhere in this report.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We have exposure to financial market risks, including changes in foreign currency exchange rates and interest rates.

Financial Exchange Risk

The functional currencies of our foreign subsidiaries and branches are the local currencies – the British Pound in the UK, the Canadian Dollar in Canada, the Danish Krone in Denmark, the Chinese Yuan in China, and the Euro in France and Germany. We are exposed to foreign currency exchange risk as the functional currency financial statements of foreign subsidiaries are translated to U.S. dollars. The assets and liabilities of our foreign subsidiaries having a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate prevailing at the balance sheet date, and at an average exchange rate for the reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is recorded as a component of accumulated other comprehensive loss in shareholders’ equity. The reported results of our foreign subsidiaries will be influenced by their translation into U.S. dollars by currency movements against the U.S. dollar. Our primary currency translation exposure is related to our subsidiaries that have functional currencies denominated in Euro. A hypothetical 10% change in the rates used to translate the results of our foreign subsidiaries would result in an increase or decrease in our consolidated net income of less than $0.1 million for the year ended January 31, 2019.

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Transactional exposure arises where transactions occur in currencies other than the functional currency. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the balance sheet date and the resulting gains and losses are reported as foreign exchange gain (loss) in the consolidated statements of income. Realized and unrealized foreign exchange losses resulting from transactional exposure were $0.7 million for the year ended January 31, 2019.

Interest Rate Risk

The Company has exposure to interest rate risk from its variable rate long-term debt. We entered into interest rate swaps to hedge the interest rate exposure related to our variable rate debt. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. Giving effect to our interest rate swaps, if interest rates were to decrease by 50 basis points, the fair value of the Company’s debt would increase by approximately $0.2 million. If interest rates were to increase by 50 basis points, the fair value of the Company’s debt would decrease by approximately $0.2 million.

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Item 8. Financial Statements and Supplementary Data

The consolidated financial statements required under this item are submitted as a separate section of this report on the pages indicated at Item 15(a)(1).

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. 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 Annual Report on Form 10-K pursuant to Rules 13a-15(e) and 15d-15(e) 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 our disclosure controls and procedures were effective at January 31, 2019 to ensure that the 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.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or the degree of compliance may deteriorate.

Management conducted its evaluation of the effectiveness of its internal control over financial reporting as of January 31, 2019. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, the principal executive officer and principal financial officer believe that as of January 31, 2019, the Company’s internal control over financial reporting was effective based on criteria set forth by COSO in “Internal Control-Integrated Framework.”

The attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting appears in Part IV, Item 15 of this Form 10-K and is incorporated herein by reference.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated herein by reference to the Company’s definitive proxy statement for the 2019 Annual Meeting of Shareholders.

The following sets forth certain information with respect to all executive officers of the Company. All officers serve at the pleasure of the Board of Directors.

Mr. Woods has served as Chief Executive Officer of the Company since February 1, 2014. Mr. Woods joined the Company in September 2012 as Executive Vice President and Chief Operating Officer and was appointed President and Chief Operating Officer on August 29, 2013. Prior to joining the Company, Mr. Woods served from January 2010 to August 2012 as Managing Director of Medfield Advisors, LLC, an advisory firm located in Medfield, Massachusetts focused on providing corporate development and strategy guidance to technology driven manufacturing firms. From 2008 to 2010, Mr. Woods served as President of Performance Motion Devices, a specialty semiconductor and electronics manufacturer located in Lincoln, Massachusetts.

Mr. Smith was appointed Vice President, Chief Financial Officer and Treasurer of the Company effective January 22, 2018. Prior to joining the Company, Mr. Smith served as Managing Partner of S.C. Advisors LLC, a financial management consultancy firm from 2008 through January 2018. Mr. Smith has also held a variety of senior finance positions at semiconductor and manufacturing companies, including Senior Vice President and Chief Financial Officer of Standard Microsystems Corporation, a global semiconductor company, from 2005 to 2008 and Vice President, Finance and Chief Financial Officer of both Dover Corporation, a diversified global manufacturing company, from 2000 to 2002 and Crane Company, a diversified manufacturing company from 1994 to 2000.

Mr. Morawetz was appointed Vice President—EMEA in 2006. He was previously the General Manager of Branch Operations for the Company’s German subsidiary, having joined the Company in 1989.

Mr. Petrarca was appointed Vice President—Operations in 1998. He has previously held positions as General Manager of Manufacturing, Manager of Grass Operations and Manager of Grass Sales. He has been with the Company since 1980.

Mr. Natalizia was appointed Vice President and Chief Technology Officer of the Company on March 9, 2012. Prior to this appointment, Mr. Natalizia held the position of Director of Product Development of the Company since 2005.

Code of Ethics

The Company has adopted a Code of Conduct which applies to all directors, officers and employees of the Company, including the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and principal accounting officer which meets the requirements of a “code of ethics” as defined in Item 406 of Regulation S-K. A copy of the Code of Conduct will be provided to shareholders, without charge, upon request directed to Investor Relations or can be obtained on the Company’s website, (www.astronovainc.com), under the heading “Investors—Corporate Governance—Governance Documents.” The Company intends to disclose any amendment to, or waiver of, a provision of the Code of Conduct for the CEO, CFO, principal accounting officer, or persons performing similar functions by posting such information on its website.

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Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the Company’s definitive Proxy Statement for the 2019 Annual Meeting of Shareholders.

The information set forth under the heading “Compensation Committee Report” in the Company’s definitive Proxy Statement is furnished and shall not be deemed filed for purposes of Section 18 of the Exchange Act, nor be incorporated by reference in any filing under the Securities Act of 1933, as amended.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to the Company’s definitive Proxy Statement for the 2019 Annual Meeting of Shareholders.

Equity Compensation Plan Information

The following table sets forth information about the Company’s equity compensation plans as of January 31, 2019:

Additional information regarding these equity compensation plans is contained in Note 14, “Share-Based Compensation,” in the Company’s Consolidated Financial Statements included in Item 15 hereto.

Item 13. Certain Relationships, Related Transactions and Director Independence

The information required by this item is incorporated herein by reference to the Company’s definitive Proxy Statement for the 2019 Annual Meeting of Shareholders.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to the Company’s definitive Proxy Statement for the 2019 Annual Meeting of Shareholders.

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PART IV

Item 15. Exhibits and Financial Statement Schedule

(a)(1) Financial Statements:

The following documents are included as part of this Annual Report filed on Form 10-K:

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.

Item 16. Form 10-K Summary

Not Applicable.

(a)(3) Exhibits:

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

AstroNova, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of AstroNova, Inc. (the “Company”) as of January 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended January 31, 2019, and the related notes and the financial statement schedule listed in Item 15(a)(2)(collectively, the financial statements). We also have audited AstroNova, Inc.’s internal control over financial reporting as of January 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended January 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

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accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Wolf & Company, P.C.

We have served as the Company’s auditor since 2013.

Boston, Massachusetts

April 10, 2019

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ASTRONOVA, INC.

CONSOLIDATED BALANCE SHEETS

As of January 31

(In Thousands, Except Share Data)