ASTRONOVA, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

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The following discussion and analysis are meant to provide material information
relevant to an assessment of the financial condition and results of operations
of our company, including an evaluation of the amounts of cash flows from
operations and outside resources, liquidity and certain other factors that may
affect future results so as to allow investors to better view our company from
management's perspective. The following discussion and analysis of our financial
condition and results of operations should be read together with our financial
statements and the related notes and other financial information included
elsewhere in this annual report on Form
10-K.
Some of the information contained in this discussion and analysis or set forth
elsewhere in this annual report on Form
10-K,
including information with respect to our plans and strategy for our business
and financing, includes forward-looking statements that involve risks and
uncertainties. Carefully review the "Forward-Looking Statements" and "Risk
Factors" sections of this annual report on Form
10-K
for a discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.

Insight

We are 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. We organize our structure around a core set of
competencies, including research and development, manufacturing, service,
marketing and distribution. We market and sell our products and services through
the following two segments:

• Product Identification (“PI”): Offers color and monochromatic digital images

label printers, overprinters and custom OEM printers. PI also provides

         software to design, manage and print labeling and packaging



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       images locally and across networked printing systems, as well as all
       related printing supplies such as pressure sensitive labels, tags, inks,
       toners and thermal transfer ribbons used by digital printers. PI also
       provides
       on-site
       and remote service, spare parts and various service contracts.


• Test and Measurement (“T&M”) – offers a suite of products and services

that acquire data from local and networked data streams and sensors

as well as wired and wireless networks. The T&M segment includes a range of

aerospace printers used to print hard copies of data required for the vault

and efficient operation of aircraft, including navigational charts,

authorizations, arrival and departure procedures, flight routes, weather

maps, performance data, passenger data and various air traffic controls

The data. Aerospace products also include aircraft networking systems for

high-speed on-board data transfer. T&M also provides repairs, services and

spare parts.


We market and sell our products and services globally through a diverse
distribution structure of direct sales personnel, manufacturers' representatives
and authorized dealers that deliver a full complement of branded products and
services to customers in our respective markets. Our growth strategy centers on
organic growth through product innovation made possible by research and
development initiatives, as well as strategic acquisitions that fit into or
complement existing core businesses. In fiscal 2022, 2021 and 2020, revenue from
customers in various geographic areas outside the United States, primarily in
Western Europe, Canada and Asia, amounted to $49.3 million, $45.1 million and
$49.8 million, respectively.

We maintain an active program of product research and development. During fiscal
2022, 2021 and 2020, we spent $6.8 million, $6.2 million and $8.1 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 2022 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.

COVID-19
Update

All of our global operations have been materially adversely affected by the
worldwide
COVID-19
pandemic during the past two years. We expect this adverse impact to continue to
a degree that we cannot predict.

We made significant modifications to our global
pre-pandemic
operations because of the
COVID-19
pandemic. We initially required most
non-production
related team members to work remotely. Although this is no longer required for
health and safety reasons, for many of our team members, remote work has become
a preference and we believe we have to a large degree successfully adapted to it
through the use of technology and changed management practices, but further
adaptations, unknown at this time, may be required. We expect that our
operations and modalities of
on-site
and remote work will be impacted permanently, as will our increased safety
protocols and the other adaptations undertaken during the pandemic, but our
practices and plans are still developing and we cannot predict the results yet.

Since the
COVID-19
pandemic began we have experienced difficulties in obtaining raw materials and
components for our products. Some of the structural dislocations in the global
economy caused by the pandemic are deepening and prolonging these difficulties.
We have had to incur additional costs, such as expedited and express shipping
fees (i.e., air rather than ocean freight). These difficulties have also
negatively impacted our efficiency, delayed shipments and caused product
shortages
.
We are currently monitoring the world-wide delays in transit time, as freight
carriers continue to experience significant delays in overseas shipments. We are
addressing these issues through long range planning and procuring higher
inventory on severely allocated items to help mitigate potential shortages
whenever practicable. We are also monitoring and reacting to extended lead times
on electronic components and utilizing a variety of strategies, including
blanket orders, vendor-bonded inventories, extended commitments to our supply
base, and seeking alternative suppliers. Additionally, we have

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taken actions to increase regular contact with our essential vendors and
increased our forecasting horizon for our products to help us better manage our
supply chain. In some cases, we are working with our vendors to help them
procure components. Our strategies to counteract the impact of the pandemic and
the related supply chain dislocations have increased the amount of inventory we
maintain to support our product sales. We have also experienced several
situations where component shortages and scarcity have required us to pay
significantly higher costs to obtain those components. We will continue to
monitor our supply chain going forward and update our mitigation strategies as
we determine appropriate. We are not able to predict how current supply chain
difficulties will develop in the future, and if the steps we are taking are not
effective, it could have a material adverse impact on our results of operations.

Product ID Update

Our Product Identification business has been negatively impacted by the
COVID-19
pandemic because our ability to meet with customers to demonstrate our products
at trade shows and
on-site
in their facilities has been curtailed. We have partially countered this through
a variety of virtual,
on-line
selling and digital marketing strategies, but the degree to which this will be
successful to mitigate the lack of
face-to-face
selling is unclear.

Test & Measurement Update

The aerospace industry, which we serve through our aerospace product line, has
also been significantly disrupted by the
COVID-19
pandemic, both inside and outside of the United States because of the severe
decline in the demand for air travel and aircraft, and a general curtailment of
aircraft production rates. This has had a material adverse impact on our
financial results. While air travel demand and aircraft production demand has
recovered to some extent, it remains unclear whether these demand factors will
continue to recover and to what extent. The secondary impacts of the demand
decline and resulting financial losses on the economic structure of the airline
industry could become a negative factor for demand for aircraft due to industry
consolidation. Individually or in combination, these factors may continue to
have a material adverse impact on our business operations and financial results.

PPP loan forgiveness

On May 6, 2020, we entered into a loan agreement with, and executed a promissory
note in favor of Greenwood Credit Union ("Greenwood") pursuant to which we
borrowed $4.4 million (the "PPP Loan") from Greenwood pursuant to the Paycheck
Protection Program ("PPP") administered by the United States Small Business
Administration (the "SBA") and authorized by the Coronavirus Aid, Relief, and
Economic Security Act (the "CARES Act"), enacted on March 27, 2020. The terms of
the PPP Loan were subsequently revised in accordance with the provisions of the
Paycheck Protection Flexibility Act of 2020 (the "PPP Flexibility Act") which
was enacted on June 5, 2020.

On June 15, 2021, the SBA approved our application for forgiveness of the entire
$4.4 million principal balance of our PPP Loan and all accrued interest thereon.
As a result, we recorded a $4.5 million gain on extinguishment of debt, which is
included in the accompanying consolidated income statement for the period ended
January 31, 2022.

Employee Retention Credits

The CARES Act provides an employee retention credit ("ERC") that is a refundable
tax credit against certain employer taxes. On December 27, 2020, Congress
enacted the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which
amended and extended ERC availability under Section 2301 of the CARES Act.
Before the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of
2020, we were ineligible for the ERC because we received the PPP Loan. Following
enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, we and
other businesses that received loans under that program became retroactively
eligible for the ERC.

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In the second quarter of fiscal 2022, we determined that we qualified for an
employee retention credit of $3.1 million for wages paid in calendar year 2020
and the first calendar quarter of 2021. We recorded a receivable in the second
quarter of fiscal 2022 within prepaid expenses and other current assets in the
condensed consolidated balance sheet. Such amount remains outstanding as of
January 31, 2022 and was received subsequent to year end on March 22, 2022.

The $3.1 million of ERCs was recognized as a reduction in employer payroll taxes
and allocated to the financial statement captions from which the employer's
payroll taxes were originally incurred. As a result, we recorded a reduction in
expenses of $1.7 million in cost of revenue, $0.8 million in selling and
marketing, $0.3 million in research and development and $0.3 million in general
and administrative which is included in the accompanying condensed consolidated
income statement for the period ended January 31, 2022.

Operating results

Fiscal 2022 vs. Fiscal 2021

The following table presents the revenue of each of our segments, as well as the percentage of total revenue and the variation compared to the previous year.

($ in thousands)                                          2022                                               2021
                                                   As a % of               % Change                                As a % of
                                 Revenue         Total Revenue          Over Prior Year          Revenue         Total Revenue
Product Identification          $  90,915                  77.4 %          
         0.7 %      $  90,268                  77.8 %
T&M                                26,565                  22.6 %                    3.1 %         25,765                  22.2 %

Total                           $ 117,480                 100.0 %                    1.2 %      $ 116,033                 100.0 %



Net revenue in fiscal 2022 was $117.5 million, a 1.2% increase compared to net
revenue of $116.0 million for fiscal 2021. Current year revenue through domestic
channels was $68.2 million, a decline of 3.8% from prior year domestic revenue
of $70.9 million. International revenue of $49.3 million for fiscal 2022
increased 9.2% compared to prior year international revenue of $45.1 million.
Fiscal 2022 international revenue reflects a favorable foreign exchange rate
impact of $1.1 million, compared to a favorable impact of $0.8 million in fiscal
2021.

Hardware revenue in fiscal 2022 was $31.5 million, a $2.6 million or 7.7%
decrease compared to fiscal 2021 hardware revenue of $34.1 million. The current
year decrease in hardware revenue is due to the decline in hardware revenue in
both the PI and T&M segments. The decrease in hardware revenue is primarily due
to a 10.1% decline in hardware sales in the T&M segment resulting from overall
lower aerospace printer product line sales in the T&M segment as a result of the
continuing effects of the Boeing 737 MAX grounding and the impact of the sharp
decline in air travel due to
COVID-19.
T&M hardware revenue for the current year was also negatively impacted by a
decline in sales of data recorders. Also contributing to the overall decline in
hardware revenue for the current year was a more modest decline in sales in the
PI segment of QuickLabel model printers which was partially offset by sales
related to printers in the TrojanLabel product group.

Revenue from supplies in fiscal 2022 was $73.2 million, a 2.1% increase compared
to fiscal 2021 supplies revenue of $71.8 million. Supplies revenue increased in
both the PI and T&M segment in the current year, with the increase primarily due
to increased demand for Trojan Label product supplies due to increased market
penetration of these printers. Also contributing to the current year increase in
supplies revenue was the increase in sales of supplies in both our aerospace
printer and data recorder product lines, and a slight increase in ink jet supply
sales in the QuickLabel product group. The current year increase was offset to a
large extent by a decline in sales of EP and Thermal film supplies in the
QuickLabel product group due to a shift from legacy thermal transfer and
electrophotographic products to newer ink jet products.

Service and other revenue in fiscal 2022 was $12.7 million, a 25.6% increase
compared to fiscal 2021 service and other revenue of $10.2 million. The increase
is due primarily to overall increased repair and parts revenue in both the T&M
and PI segments.

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Gross profit was $43.7 million for fiscal 2022, reflecting a 5.8% increase
compared to fiscal 2021 gross profit of $41.4 million. Our gross profit margin
of 37.2% in fiscal 2022 reflects a 2.4 percentage point increase compared to
fiscal 2021 gross profit margin of 35.6%. The higher profit and related margin
for the current year compared to the prior year is primarily attributable to
increased revenue and the impact of the ERC, which reduced manufacturing payroll
taxes in the amount of $1.7 million in the second quarter of the current year.

Operating expenses for the current year were $39.5 million, representing a 1.4%
increase from the prior year's operating expenses of $38.9 million.
Specifically, selling and marketing expenses of $23.2 million in fiscal 2022
decreased 0.5% from the prior year amount of $23.3 million. The decrease in
selling and marketing expenses for the current year is primarily due to a
decrease in payroll taxes in the second quarter of the current year related to
the ERC, as well as a decrease in amortization expense related to the second
quarter's change in the remaining useful lives and amortization methods for
certain of our customer relationship intangibles. The current year decline in
selling and marketing expenses was partially offset by an increase in employee
wages and bonuses as well as increased travel and entertainment, commissions,
and advertising expenses. General and administrative expenses increased 1.4% to
$9.6 million in the current year compared to $9.4 million in the prior year,
primarily due to an increase in outside service fees, employee wages, bonuses
and fees, partially offset by a decrease in payroll taxes related to the ERC.
Research & development ("R&D") costs in fiscal 2022 of $6.8 million increased
8.8% from $6.2 million in fiscal 2021, primarily due to an increase in employee
wages and bonus and outside consulting fees. The current year increase in R&D
costs was partially offset by a decline in payroll taxes related to the ERC. The
R&D spending level for fiscal 2022 represents 5.7% of net revenue, compared to
the prior year level of 5.3%.

Other income in fiscal 2022 was $2.8 million compared to other expense of
$0.3 million in fiscal 2021. Current year other income includes $4.5 million
related to the forgiveness of our PPP Loan, partially offset by $0.7 million
related to the
write-off
of our Oracle EnterpriseOne ERP system and related prepaid service and
maintenance contracts as a result of the full implementation of a new ERP system
in our US based operations in the fourth quarter of fiscal 2022, interest
expense on debt of $0.7 million, and net foreign exchange loss of $0.3 million.
Prior year other expense includes $1.0 million of interest expense on debt and
revolving line of credit, offset by a net foreign exchange gain of $0.6 million
and other income of $0.1 million.

We recognized $0.6 million of income tax expense for the current fiscal year,
resulting in an effective tax rate of 8.6%. The decrease in the effective tax
rate in 2022 from 2021 is primarily related to the PPP loan forgiveness
tax-exempt
income. Specific items decreasing the effective tax rate include PPP loan
forgiveness
tax-exempt
income, R&D tax credits, foreign derived intangible income ("FDII") deductions,
and a change in reserves related to ASC 740 liabilities. This decrease was
offset by state taxes, return to provision adjustments, and taxes on foreign
earnings. The PPP Loan forgiveness is excluded from taxable income under
Section 1106(i) of the CARES Act. During fiscal 2021 we recognized a
$0.9 million income tax expense, or a 41.1% effective tax rate. The effective
tax rate in this period was directly impacted by the change in mix of income
between relevant jurisdictions in which we are subject to income taxes. Specific
items increasing the fiscal 2021 effective tax rate include foreign rate
differential, Denmark statutory audit adjustments, stock-based compensation, and
Canada withholding taxes. This increase was offset by the foreign derived
intangible income deduction, the release of a valuation allowance in China, and
R&D tax credits expected to be utilized.

Net income for fiscal 2022 was $6.4 million, or $0.88 per diluted share. The
results for the current period were impacted by income of $4.5 million
($4.4 million net of tax or $0.60 per diluted share) related to the forgiveness
of our PPP Loan, income of $2.1 million ($1.6 million net of tax or $0.22 per
diluted share) related to the net ERC and expense of $0.7 million ($0.5 million
net of tax or $0.07 per diluted share) related to the
write-off
of our Oracle EnterpriseOne ERP system and related prepaid service and
maintenance contracts. Net income for the prior year was $1.3 million or $0.18
per diluted share. Return on revenue was 5.5% for fiscal 2022 compared to 1.1%
for fiscal 2021.

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Fiscal 2021 vs. Fiscal 2020

For a comparison of our results of operations for the fiscal years ended
January 31, 2021, and January 31, 2020, see "Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of our
annual report on Form
10-K
for the fiscal year ended January 31, 2021, filed with the SEC on April 13,
2021.

Sector analysis

We report two segments consistent with our product revenue groups: PI and T&M.
Segment performance is evaluated based on the operating segment's profit (loss)
before corporate and financial administration expenses. The following table
summarizes selected financial information by segment.

                                                                                                                             Segment Operating Profit
($ in thousands)                                Revenue                        Segment Operating Profit (Loss)               (Loss) as a % of Revenue
                                   2022          2021          2020           2022             2021          2020          2022         2021         2020
PI                               $  90,915     $  90,268     $  88,116     $    10,411       $ 12,885      $  7,509          11.5 %      14.3 %        8.5 %
T&M                                 26,565        25,765        45,330           3,398         (1,032 )       6,281          12.8 %      (4.0 )%      13.9 %

Total                            $ 117,480     $ 116,033     $ 133,446          13,809         11,853        13,790          11.8 %      10.2 %       10.3 %

Corporate Expenses                                                               9,553          9,420        11,357

Operating Income                                                                 4,256          2,433         2,433
Other Expense, Net                                                               2,778           (254 )      (1,063 )

Income Before Income Taxes                                                       7,034          2,179         1,370
Income Tax Provision (Benefit)                                                     605            895          (389 )

Net Income                                                                 $     6,429       $  1,284      $  1,759



Product Identification

Revenue from the PI segment increased 0.7% in fiscal 2022, with revenue of
$90.9 million compared to revenue of $90.3 million in the prior year. The
current year increase is primarily attributable to growth in demand for ink jet
and media supplies for the Trojan Label product line, the increase in current
year sales of QuickLabel's ink jet printer supplies and an increase in parts and
repairs revenue in both the QuickLabel and Trojan Label product groups. Also
contributing to the increase in revenue for the current year was an increase in
hardware sales in the Trojan Label product group for certain new products such
as the Trojan Two Compact printer and the
T3-OPX
label press. PI current year segment operating profit was $10.4 million with a
profit margin of 11.5%, compared to the prior year segment operating profit of
$12.9 million and related profit margin of 14.3%. The decrease in current year
segment operating profit and margin is primarily due to increased operating
expenses.

Test & Measurement

Revenue from the T&M product group was $26.6 million for fiscal 2022, a 3.1%
increase compared to revenue of $25.8 million in the prior year. The increase in
revenue for the current year is primarily attributable to the increase in
repairs and parts sales for the aerospace printer product lines. To a lesser
degree, the increase in the current year revenue was also impacted by the
increase in supplies revenue in the aerospace product lines. T&M current year
segment operating profit was $3.4 million resulting in a 12.8% profit margin
compared to the prior year segment operating loss of $1.0 million and related
negative operating margin of 4.0%. The increased profit and margins are a result
of increased sales and lower manufacturing and operating costs.

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Cash and capital resources

Insight

Historically, our primary sources of short-term liquidity have been cash
generated from operating activities and borrowings under our revolving credit
facility. These sources have also funded a portion of our capital expenditures
and contractual contingent consideration obligations. We have typically funded
acquisitions by borrowing under bank term loan facilities.

On July 30, 2020, we entered into an Amended and Restated Credit Agreement (the
"A&R Credit Agreement") with Bank of America, N.A. (the "Lender"), our wholly
owned subsidiary ANI ApS, a Danish private limited liability company and ANI
ApS's wholly-owned subsidiary TrojanLabel ApS, a Danish private limited
liability company ("TrojanLabel"). The A&R Credit Agreement amended and restated
the Credit Agreement dated as of February 28, 2017, by and among us, ANI ApS,
TrojanLabel and the Lender. In connection with our entry into the A&R Credit
Agreement, we entered into an Amended and Restated Security and Pledge Agreement
and a mortgage in favor of the Lender with respect to our owned real property in
West Warwick, Rhode Island. Under the A&R Credit Agreement, AstroNova, Inc. is
the sole borrower, and, prior to the effectiveness of the Amendment (as defined
below), its obligations were guaranteed by ANI ApS and TrojanLabel.

On March 24, 2021, we entered into a First Amendment to Credit Agreement (the
"Amendment") to our A&R Credit Agreement (the "A&R Credit Agreement amended by
the Amendment, the "Amended Credit Agreement") with the Lender, ANI ApS and
TrojanLabel. Immediately prior to the closing of the Amendment, we repaid
$2.6 million in principal amount of the term loan outstanding under the A&R
Credit Agreement, resulting in an outstanding balance of the term loan of
$10.0 million and no amount drawn and outstanding under the revolving credit
facility under the Amended Credit Agreement.

The Amended Credit Agreement expires on September 30, 2025, a significant
extension of tenor. It also eliminated a minimum adjusted EBITDA covenant, an
asset coverage covenant and a minimum liquidity covenant, and, subject to
ongoing covenant compliance, significantly reduced limitations on restricted
payments such as dividends, eliminated restrictions on capital expenditures and
increased operating flexibility with respect to funding our global operations.

The Amended Credit Agreement provides for (i) a term loan in the principal
amount of $10.0 million, and (ii) a $22.5 million revolving credit facility
available for general corporate purposes. At the closing of the Amended Credit
Agreement, we borrowed the entire $10.0 million term loan which was used to
refinance in full the outstanding term loan under the A&R Credit Agreement.
Under the Amended Credit Agreement, revolving credit loans may continue to be
borrowed, at our option, in U.S. Dollars or, subject to certain conditions,
Euros, British Pounds, Canadian Dollars or Danish Kroner.

While we expected that as a result of the impact of the
COVID-19
pandemic, some of our customers would experience liquidity pressure and be
unable to pay us for products on a timely basis, in general our recent
receivables collection experience has been consistent with our historical
experience and a significant deterioration in receivables collection has not
occurred.

In response to the
COVID-19
pandemic and related economic dislocation, we have implemented and will continue
to implement a variety of expense reduction and cash preservation initiatives.
On April 27, 2020, our board of directors suspended our quarterly cash dividend
beginning with the second quarter of our fiscal year 2021.

At January 31, 2022, our cash and cash equivalents were $5.3 million. There was
no outstanding balance on our revolving line of credit at January 31, 2022 and
we have $22.5 million available for borrowing under that facility. We believe
that our available cash and credit facilities combined with our cash generated
from operations will be sufficient to support our operating requirements
including our capital expenditure commitments.

                                                                            

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Indebtedness

Term Loan

The Amended Credit Agreement requires that the term loan be paid as follows: the
principal amount of each quarterly installment required to be paid on the last
day of each of our fiscal quarters ending on or about April 30, 2021 through
January 31, 2022 is $187,500; the principal amount of each quarterly installment
required to be paid on the last day of each of our fiscal quarters ending on or
about April 30, 2022 through January 31, 2023 is $250,000; the principal amount
of each quarterly installment required to be paid on the last day of each of our
fiscal quarters ending on or about April 30, 2023 through January 31, 2025 is
$312,500; the principal amount of each quarterly installment required to be paid
on the last day of each of our fiscal quarters ending on or about April 30, 2025
and July 31, 2025 is $500,000; and the entire remaining principal balance of the
term loan is required to be paid on September 30, 2025. We may voluntarily
prepay the term loan, in whole or in part, from time to time without premium or
penalty (other than customary breakage costs, if applicable). We may repay
borrowings under the revolving credit facility at any time without premium or
penalty (other than customary breakage costs, if applicable), but in any event
no later than September 30, 2025, at which time any outstanding revolving loans
will be due and payable in full, and the revolving credit facility will
terminate. We may reduce or terminate the revolving line of credit at any time,
subject to certain thresholds and conditions, without premium or penalty.

The Amended Credit Agreement includes an uncommitted accordion provision under
which the term loan and/or revolving credit facility commitments may be
increased in an aggregate principal amount not exceeding $10.0 million, subject
to obtaining the agreement of the Lender and the satisfaction of certain other
conditions.

As under the A&R Credit Agreement, the loans under the Amended Credit Agreement
are subject to certain mandatory prepayments, subject to various exceptions,
from (a) net cash proceeds from certain dispositions of property, (b) net cash
proceeds from certain issuances of equity, (c) net cash proceeds from certain
issuances of additional debt and (d) net cash proceeds from certain
extraordinary receipts.

Amounts repaid under the revolving credit facility may be reborrowed, subject to
continued compliance with the Amended Credit Agreement. No amount of the term
loan that is repaid may be reborrowed.

On December 14, 2021, we and Bank of America, N.A. entered into a LIBOR
Transition Amendment (the "LIBOR Amendment") with regard to the Amended Credit
Agreement. The LIBOR Amendment, among other things, (i) changes the rate under
the Amended Credit Agreement for borrowings denominated in U.S. Dollars from a
LIBOR-based rate to a BSBY (Bloomberg Short-Term Bank Yield Index)-based rate,
subject to certain adjustments, (ii) changes the rate under the Amended Credit
Agreement for borrowings denominated in British Pounds Sterling from a
LIBOR-based rate to a SONIA (Sterling Overnight Index Average)-based rate,
subject to certain adjustments, (iii) changes the rate under the Amended Credit
Agreement for borrowings denominated in Euros from a LIBOR-based rate to a
EURIBOR (Euro Interbank Offered Rate)-based rate, subject to certain
adjustments, and (iv) updates certain other provisions of the Amended Credit
Agreement regarding successor interest rates to LIBOR.

Prior to giving effect to the LIBOR Amendment, the interest rates under Amended
Credit Agreement were as follows: the term loan and revolving credit loans bore
interest at a rate per annum equal to, at our option, either (a) the LIBOR Rate
as defined in the A&R Credit Agreement (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 varied within a range of 1.60% to 2.30% based on our
consolidated leverage ratio, or (b) a fluctuating reference rate equal to the
highest of (i) the federal fund rate plus 0.50%, (ii) Bank of America's publicly
announced prime rate, (iii) the LIBOR Rate plus 1.00% or (iv) 0.50%, plus a
margin that varied within a range of 0.60% to 1.30% based on our consolidated
leverage ratio. In addition to certain other fees and expenses that we are
required to pay to the Lender, we are required to pay a commitment fee on the
undrawn portion of the revolving credit facility that varies within a range of
0.15% and 0.30% based on our consolidated leverage ratio.

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The interest rates under the Amended Credit Agreement, giving effect to the
LIBOR Amendment, are as follows: the term loan and revolving credit loans bear
interest at a rate per annum equal to, at our option, either (a) the BSBY Rate
as defined in the LIBOR Amendment (or in the case of revolving credit loans
denominated in a Pounds Sterling, Euros or another currency other than U.S.
Dollars, the SONIA Rate as defined in the LIBOR Amendment, EURIOBOR Rate as
defined in the LIBOR Amendment, or the applicable quoted rate, respectively),
plus a margin that varies within a range of 1.60% to 2.30% based on our
consolidated leverage ratio, or (b) a fluctuating reference rate equal to the
highest of (i) the federal fund rate plus 0.50%, (ii) Bank of America's publicly
announced prime rate, (iii) the BSBY Rate, SONIA Rate, EURIBOR Rate or other
applicable quoted rate plus 1.00% or (iv) 0.50%, plus a margin that varies
within a range of 0.60% to 1.30% based on our consolidated leverage ratio. In
addition to certain other fees and expenses that we are required to pay to the
Lender, we are required to pay a commitment fee on the undrawn portion of the
revolving credit facility that varies within a range of 0.15% and 0.30% based on
our consolidated leverage ratio.

We must comply with various customary financial and
non-financial
covenants under the Amended Credit Agreement. The financial covenants under the
Amended Credit Agreement consist of a maximum consolidated leverage ratio and a
minimum consolidated fixed charge coverage ratio. The minimum EBITDA, minimum
consolidated asset coverage ratio, minimum liquidity and maximum capital
expenditures covenants with which we were required to comply under the A&R
Credit Agreement were eliminated by the Amendment. The primary
non-financial
covenants limit our and our subsidiaries' ability to incur future indebtedness,
to place liens on assets, to pay dividends or distributions on their capital
stock, to repurchase or acquire their capital stock, to conduct mergers or
acquisitions, to sell assets, to alter their capital structure, to make
investments and loans, to change the nature of their business, and to prepay
subordinated indebtedness, in each case subject to certain exceptions and
thresholds as set forth in the Amended Credit Agreement, certain of which
provisions were modified by the Amendment.

The Lender is entitled to accelerate repayment of the loans and to terminate its
revolving credit commitment under the Amended Credit Agreement upon the
occurrence of any of various customary events of default, which include, among
other events, the following (which are subject, in some cases, to certain grace
periods): failure to pay when due any principal, interest or other amounts in
respect of the loans, breach of any of our covenants or representations under
the loan documents, default under any other of our or our subsidiaries'
significant indebtedness agreements, a bankruptcy, insolvency or similar event
with respect to us or any of our subsidiaries, a significant unsatisfied
judgment against us or any of our subsidiaries, or a change of control.

Our obligations under the Amended Credit Agreement continue to be secured by
substantially all of our personal property assets (including a pledge of the
equity interests held by us in ANI ApS, in our wholly-owned German subsidiary
AstroNova GmbH, and in our wholly-owned French subsidiary AstroNova SAS),
subject to certain exceptions, and by a mortgage on our owned real property in
West Warwick, Rhode Island. Pursuant to the Amendment, the guarantees of our
obligations under the A&R Credit Agreement that were previously provided by ANI
ApS and TrojanLabel were released.

PPP loan

On May 6, 2020, we entered into a Loan Agreement with and executed a promissory
note in favor of Greenwood Credit Union pursuant to which we borrowed
$4.4 million from Greenwood pursuant to the Paycheck Protection Program
administered by the United States Small Business Administration (the "SBA") and
authorized by the CARES Act enacted on March 27, 2020. The terms of the PPP Loan
were subsequently revised in accordance with the provisions of the Paycheck
Protection Flexibility Act of 2020, which was enacted on June 5, 2020. We
believe that our obtaining the PPP Loan and suspending the payment of dividends
on our common stock were instrumental in our ability to successfully negotiate
the A&R Credit Agreement.

The PPP Loan, which would have matured on May 6, 2022, was unsecured and bore
interest at a rate of 1.0% per annum, accruing from the loan date. No payments
would have been due on the PPP Loan until the date on which the lender
determined the amount of the PPP Loan that was eligible for forgiveness.

                                                                            

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On June 15, 2021, Greenwood notified us that the SBA approved our application
for forgiveness of the entire $4.4 million principal balance of our PPP Loan and
all accrued interest thereon. As a result, we recorded a $4.5 million gain on
extinguishment of debt in other income (expense) which is included in our
consolidated income statement for the period ended January 31, 2022.

Cash flow

The statements of cash flows for the years ended January 31, 2022, 2021 and 2020
are included on page 50 of this Form
10-K.
Net cash provided by operating activities was $1.4 million in fiscal 2022
compared to net cash provided by operating activities of $15.5 million in the
previous year. The decrease in net cash provided by operations for the current
year is primarily due to a decrease in cash provided by working capital of
$11.3 million from fiscal 2021. The changes in accounts receivable, inventory,
income taxes, accounts payable and accrued expenses for the current year
decreased cash by $3.9 million in fiscal 2022 compared to an increase to cash of
$7.4 million in the prior year. The decrease in cash from operations for fiscal
2022 was also impacted by the $3.1 million ERC receivable and the $4.5 million
gain on the forgiveness of the PPP Loan.

The accounts receivable balance decreased to $17.1 million at January 31, 2022,
compared to $17.4 at January 31, 2021. The slight decrease in the accounts
receivable balance is related to sales product mix in fiscal 2022 compared to
the prior year. The days sales outstanding dropped to 45 days at year end
compared to 51 days at the end of fiscal 2021 contributing to the lower
receivables balance at January 31, 2022. The days sales outstanding decrease in
the current year is due to customer mix, as aerospace receivables typically take
longer to collect, and these revenues continued to represent a lesser percentage
of total sales in fiscal 2022.

the

end of the year

inventory balance increased to $34.6 million at January 31, 2022 versus
$30.1 million at January 31, 2021, and the days inventory on hand increased to
156 days at the end of fiscal 2022 as compared to 147 days at the end of the
fiscal 2021. The current period increase in inventory is due to increased
production demand.

Net cash used by investing activities for fiscal 2022 was $1.8 million for
capital expenditures, of which $1.6 million related to the capitalization of our
new ERP system and the related hardware, and the remaining $0.2 million was for
machinery and tools.

Net cash used by financing activities for fiscal 2022 was $5.6 million. Cash
outflows for financing activities for fiscal 2022 included the refinancing of
debt, which resulted in a net outflow of cash of $2.6 million, and principal
payments on the new long-term debt and the guaranteed royalty obligation of
$0.8 million and $2.0 million, respectively.

Fiscal 2021 vs. Fiscal 2020

For a comparison of our cash flow for the fiscal years ended January 31, 2021
and January 31, 2020, see "Part II, Item 7. Management's Discussion and Analysis
of Liquidity and Capital Resources" in our annual report on Form
10-K
for the fiscal year ended January 31, 2021, filed with the SEC on April 13,
2021.

Contractual obligations, commitments and contingencies

From January 31, 2022we had contractual obligations related to leases, debt and royalty obligation agreements and purchase commitments.

The lease arrangements are for certain of our facilities at various locations
worldwide. As of January 31, 2022, we had fixed lease payment obligations of
$1.1 million, with $0.3 million due within 12 months. Refer to Note 12,
"Leases," in our audited consolidated financial statements included in this
Annual Report on Form
10-K
for further details.

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Debt arrangements under our Amended Credit Agreement with Bank of America, N.A.,
consist of the balance due of $9.3 million at January 31, 2022. For additional
details regarding our long-term debt obligations, see Note 7, "Debt," in our
audited consolidated financial statements included in this Annual Report on Form
10-K.

We are subject to a guaranteed minimum royalty payment obligation over the next
six years pursuant to the Honeywell Agreement, which, at January 31, 2022,
included a balance due of $6.4 million, with $2.0 million due within 12 months.
Refer to Note 11, "Royalty Obligation," in our audited consolidated financial
statements included in this Annual Report on Form
10-K
for further details.

In order to meet our manufacturing demands and, in some cases, lock in
particular pricing structures for specific goods used in manufacturing, we enter
into purchase commitments with our suppliers. At January 31, 2022 our purchase
commitments totaled $37.5 million, with $35.4 million due within 12 months, most
of which are
non-cancelable.

We are 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 effect on our consolidated financial position
or results of operations. It is possible, however, that results of operations
for any future period could be materially affected by changes in our assumptions
or strategies related to these contingencies or changes out of our control.

Significant Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are
based upon our 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 our
historical experience, current trends and information available from other
sources, as appropriate. We do not believe there is a great likelihood that
materially different amounts would be reported using different assumptions
pertaining to the accounting policies described below, however, if actual
conditions differ from the assumptions used in our judgments, our financial
results could be materially different from our estimates.

We believe that the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements:

Revenue Recognition
: We recognize revenue in accordance with Accounting Standards Update
(ASU) 2014-9, Revenue
from Contracts with Customers (also referred to as Topic 606). Under Topic 606,
based on the nature of our contracts and consistent with prior practice, we
recognize most of our revenue upon shipment, which is when the performance
obligation has been satisfied.

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

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for those services, could result in inappropriate recognition of revenue, or
incorrect timing of revenue recognition, which could have a material effect 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, we receive 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) we do not have the ability to use the product or direct it to
another customer.

Allowance for Doubtful Accounts:
Accounts receivable consists primarily of receivables from our customers arising
from the sale of our products. We actively monitor our exposure to credit risk
through the use of credit approvals and credit limits. Accounts receivable is
presented net of reserves for doubtful accounts.

We estimate the collectability of our receivables and establish allowances for
accounts receivable that we estimate to be uncollectible. We base these
allowances on our historical collection experience, the length of time our
accounts receivable are outstanding and the financial condition of individual
customers. In situations where we are aware of a specific customer's inability
to meet its financial obligation, such as in the case of a bankruptcy filing, we
assess the need for a specific reserve for bad debts. We believe that our
procedure for estimating such amounts is reasonable and historically have not
resulted in material adjustments in subsequent periods. Bad debt expense was
less than 1% of net sales in each of fiscal 2022 and 2021.

Warranty Claims:
We offer warranties on some of our products. We establish a reserve for
estimated costs of warranties at the time the product revenue is recognized.
This reserve requires us to make estimates regarding the amounts necessary to
settle future and existing claims using historical data on products sold as of
the balance sheet date. The length of the warranty period, the product's failure
rates, and the customer's usage affect estimated warranty cost. If actual
warranty costs differ from our estimated amounts, future results of operations
could be affected adversely. Warranty cost is recorded as cost of revenue, and
the reserve balance recorded as an accrued expense. While we maintain product
quality programs and processes, our warranty obligation is affected by product
failure rates and the related corrective costs. If actual product failure rates
and/or corrective costs differ from the estimates, we revise our estimated
warranty liability accordingly.

Inventories:

Inventories are stated at the lower of cost 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.

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, 2022, we had
provided valuation allowances for future tax benefits resulting from certain
domestic R&D tax credits and foreign tax credit carryforwards, both of which
could expire unused.

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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 March 27, 2020, the CARES Act was signed into law. The legislation had
sweeping effects including various types of economic relief for impacted
businesses and industries. One such relief provision was the Paycheck Protection
Program ("PPP"), which provided short-term cash flow assistance to finance
employee payroll and qualified expenses. On May 6, 2020, we entered into a loan
agreement with, and executed a promissory note in favor of Greenwood pursuant to
which we borrowed $4.4 million. On December 27, 2020, the Consolidated
Appropriations Act, 2021, H.R. 133 was signed into law. The legislation permits
the deductibility of expenses to the extent that the payment of such expenses
results (or is expected to result) in the forgiveness of a loan (covered loan)
guaranteed under the PPP. We have fully utilized the PPP Loan proceeds for
qualifying expenses and subsequent to year end have applied for forgiveness of
the PPP Loan (including all associated accrued interest) in accordance with the
terms of the CARES Act, as amended by the PPP Flexibility Act. Consistent with
the legislation, we deducted the full $4.4 million of qualified expenses on our
2020 federal tax return. On June 15, 2021, Greenwood notified us that the SBA
approved our application for forgiveness of the entire $4.4 million principal
balance of our PPP Loan and all accrued interest thereon. As a result, in the
second quarter of fiscal 2022, we recorded a $4.5 million gain on extinguishment
of debt. The PPP loan forgiveness recognized in the second quarter of fiscal
2022 is excluded from taxable income under Section 1106(i) of the CARES Act.

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.

Good will:

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. If a quantitative
assessment is required, 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 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

                                                                            

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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 several complex and subjective assumptions including our stock price
volatility, employee exercise patterns (expected life of the options), the
risk-free interest rate and our 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, we have 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 ("RSAs") and
restricted stock units ("RSUs") is also based on the fair value method. The fair
value of the RSUs and RSAs is based on the closing market price of our 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.

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