Royalty Obligation

9 Months Ended

Nov. 02, 2019

Royalty Obligation Disclosure [Abstract]

Note 10 – Royalty Obligation

In fiscal 2018, AstroNova, Inc. entered into an Asset Purchase and License Agreement

(the “Honeywell Agreement”)

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

. Royalty payments are

based on gross revenues from the sales of the printers, paper and repair services of the licensed products. The royalty rates vary based on the year in which they are paid or earned and product sold or service provided, and range from single-digit to mid double-digit percentages of gross revenue.

The guaranteed minimum royalty payment obligation was recorded at the present value of the minimum annual royalty payments using a present value factor of 2.8%, which is based on the estimated

after-tax

cost of debt for similar companies. As of November 2, 2019, the Company had paid an aggregate of $3.0 million of the guaranteed minimum royalty obligation. At November 2, 2019, the current portion of the outstanding guaranteed minimum royalty obligation of $2.0 million is to be paid over the next twelve months and is reported as a current liability and the remainder of $8.5 million is reported as a long-term liability on the Company’s condensed consolidated balance sheet. In addition to the guaranteed minimum royalty payments, the Company also incurred excess royalty expense of $0.1 million and $0.8 million, respectively, for the three and nine month periods ended November 2, 2019 and $0.7

million

and $2.0 million, respectively, for the three and nine month periods ended October 27, 2018 which is included in cost of revenue in the Company’s

condensed

consolidated statements of income. A total of $0.4 million of excess royalty is payable and reported as a current liability on the Company’s condensed consolidated balance sheet at November 2, 2019.