Fair Value

9 Months Ended

Oct. 27, 2018

(17) Fair Value

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Fair value is applied to our financial assets and liabilities including money market funds, available for sale securities, derivative instruments and a contingent consideration liability relating to an earnout payment on future TrojanLabel operating results.

The following tables provide a summary of the financial assets and liabilities that are measured at fair value as of October 27, 2018 and January 31, 2018:

Assets measured at fair value:	Fair value measurement at October 27, 2018								Fair value measurement at January 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Money Market Funds (included in Cash and Cash Equivalents)	$	—	$	—	$	—	$	—	$	1,798	$	—	$	—	$	1,798
State and Municipal Obligations (included in Securities Available for Sale)		—		—		—		—		—		1,511		—		1,511
Swap Contracts (included in Other Assets)		—		220				220		—		101		—		101
Total assets	$	—	$	220	$	—	$	220	$	1,798	$	1,612	$	—	$	3,410

Liabilities measured at fair value:	Fair value measurement at October 27, 2018								Fair value measurement at January 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Swap Contracts (included in Other Liabilities)	$	—	$	549	$	—	$	549	$	—	$	1,513	$	—	$	1,513
Earnout liability (included in Other Liabilities)		—		—		15		15		—		—		15		15
Total liabilities	$	—	$	549	$	15	$	564	$	—	$	1,513	$	15	$	1,528

For our money market funds and municipal obligations, we utilize the market approach to measure fair value. The market approach is based on using quoted prices for identical or similar assets.

We also use the market approach to measure fair value of our derivative instruments. Derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates and foreign exchange rates, and is classified as Level 2 because they are an over-the-counter contract with a bank counterparty that is not traded in an active market.

The fair value of the earnout liability incurred in connection with the Company’s acquisition of TrojanLabel was determined using the option approach methodology which includes using significant inputs that are not observable in the market and therefore classified as Level 3. Key assumptions in estimating the fair value of the contingent consideration liability included (1) the estimated earnout targets over the next seven years of $0.5 million-$1.4 million, (2) the probability of success (achievement of the various contingent events) from 0.0%-0.9% and (3) a risk-adjusted discount rate of approximately 2.68%-4.9% used to adjust the probability-weighted earnout payments to their present value. At each reporting period, the contingent consideration liability is recorded at its fair value with changes reflected in general and administrative expense in the condensed consolidated statements of operations. There was no change in the fair value of the earnout liability for the nine months ended October 27, 2018.

Assets and Liabilities Not Recorded at Fair Value

As of October 27, 2018 and January 31, 2018, the Company’s long-term debt, including the current portion of long-term debt not reflected in the financial statements at fair value, is reflected in the table below:

Fair Value Measurement at

October 27, 2018

(In thousands)

Level 1

Level 2

Level 3

Total

Carrying

Value

Long-Term Debt and related Current Maturities

—

19,961

19,360

Fair Value Measurement at

January 31, 2018

(In thousands)

Level 1

Level 2

Level 3

Total

Carrying

Value

Long-Term Debt and related Current Maturities

—

24,873

23,372

The fair value of the Company’s long-term debt, including the current portion, is estimated by discounting the future cash flows using current interest rates at which similar borrowings with the same maturities would be made to borrowers with similar credit ratings and is classified as Level 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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