Note 21—Fair Value Measurements

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:


Assets measured at fair value:	Fair value measurement at January 31, 2019								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 Contract (include in Other Assets)		—		85		—		85		—		101		—		101

Total assets	$	—	$	85	$	—	$	85	$	1,798	$	1,612	$	—	$	3,410


Liabilities measured at fair value:	Fair value measurement at January 31, 2019								Fair value measurement at January 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Swap Contract (included in Other Liabilities)	$	—	$	600	$	—	$	600	$	—	$	1,513	$	—	$	1,513
Earnout Liability (included in Other Liabilities)		—		—		14		14		—		—		15		15

Total liabilities	$	—	$	600	$	14	$	614	$	—	$	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. Our derivative asset is comprised of an interest rate swap and our derivative liability is comprised of a cross-currency interest rate swap. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates and foreign exchange rates, and are classified as Level 2 because they are over-the-counter contracts with a bank counterparty that are not traded in an active market.

The following table presents the changes in fair value of our Level 3 financial liability for the years ended January 31, 2019 and 2018:


	Contingent Earnout Liability
(In thousands)
Balance at January 31, 2017	$	—
Fair value of contingent consideration acquired		1,314
Change in fair value of contingent earn out liability included in earnings		(1,438	)
Currency translation adjustment		139

Balance at January 31, 2018	$	15
Change in fair value of contingent earn out liability included in earnings		—
Currency translation adjustment		(1	)

Balance at January 31, 2019	$	14

The fair value of the earn out 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.

Subsequent to the acquisition of Trojan Label business, the Company restructured the operating model such that most of the sales and some of the expenses of the business would be transferred to other legal entities of the Company. This caused the expected earnings targets in the Danish entity, which were the basis upon which the contingent consideration was structured, to become unlikely to be met. As a result, during fiscal 2018, the value of the contingent consideration was reduced resulting in the Company recognizing an additional $1.4 million of income for the year which is offset in general and administrative expense on the Company’s consolidated income statement for the period ended January 31, 2018.

Assets and Liabilities Not Recorded at Fair Value on the Consolidated Balance Sheet

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 January 31, 2019
(In thousands)	Level 1		Level 2		Level 3		Total		Carrying Value
Long-Term Debt and Related Current Maturities	$	—	$	—	$	18,857	$	18,857	$	18,242

	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	$	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.