Annual report pursuant to Section 13 and 15(d)

Note 5 - Fair Value Measurement

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Note 5 - Fair Value Measurement
12 Months Ended
Oct. 31, 2019
Notes to Financial Statements  
Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]
Note
5.
Fair Value Measurement
 
The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable and current accrued liabilities approximate their fair value as recorded due to the short-term maturity of these instruments, which approximates fair value. The Company’s outstanding obligations on its ABL credit facility are deemed to be at fair value as the interest rates on these debt obligations are variable and consistent with prevailing rates. The Company believes the carrying values of its capital lease obligations represent fair value.
 
The Company's long-term debt instruments are recorded at their carrying values in the consolidated balance sheet, which
may
differ from their respective fair values. The fair values of the long-term debt instruments are derived from Level
2
inputs.  The fair value amount of the Long-term debt instruments at
October 31, 2019
for the Successor and at
October 31, 2018
for the Predecessor is presented in the table below based on the prevailing interest rates and trading activity of the Notes.
 
   
Successor
   
Predecessor
 
   
October 31,
   
October 31,
 
   
2019
   
2018
 
(in thousands)
 
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
 
Senior secured notes
  $
-
    $
-
    $
167,553
    $
178,025
 
Seller notes
   
-
     
-
     
8,292
     
8,292
 
Term loans
   
402,094
     
394,052
     
-
     
-
 
Capital lease obligations
   
568
     
568
     
653
     
653
 
 
In connection with the acquisition of Camfaud in
November 2016,
former Camfaud shareholders were eligible to receive earnout payments (“deferred consideration”) of up to
$3.1
million if certain Earnings before interest, taxes, depreciation, and amortization ("EBITDA") targets were met. In accordance with ASC
805,
the Company reviewed the deferred consideration on a quarterly basis in order to determine its fair value. Changes in the fair value of the liability are recorded within general and administrative expenses in the consolidated statement of income in the period in which the change was made. The Company estimated the fair value of the deferred consideration based on its probability assessment of Camfaud’s EBITDA achievements during the
3
-year earnout period. In developing these estimates, the Company considered its revenue and EBITDA projections, its historical results, and general macro-economic environment and industry trends. This fair value measurement was based on significant revenue and EBITDA inputs
not
observed in the market, which represents a Level
3
measurement.
The
3
-year earnout period concluded
October 31, 2019
and was paid during the fiscal
2020
first
quarter. As such, the liability as of
October 31, 2019
was
no
longer a Level
3
measurement.
 
The table below represents a reconciliation of the change in the fair value measurement of the contingent earn-out liability at
October 31, 2019
for the Successor and at
October 31, 2018
for the Predecessor:
 
   
Successor
   
Predecessor
 
(in thousands)
 
December 6, 2018 through October 31, 2019
   
November 1, 2018 through December 5, 2018
   
Year Ended October 31, 2018
 
Beginning balance   $
1,475
    $
1,458
    $
969
 
Change in fair value of contingent earnout liability included in operating expenses    
207
     
-
     
527
 
Change in fair value due to foreign currency    
26
     
17
     
(38
)
Ending balance   $
1,708
    $
1,475
    $
1,458
 
 
The Company's non-financial assets, which primarily consist of property and equipment, goodwill and other intangible assets, are
not
required to be carried at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value
may
not
be fully recoverable (and at least annually for goodwill and indefinite lived intangibles), non-financial instruments are assessed for impairment and, if applicable, written down to and recorded at fair value.