Fair Value of Financial Instruments, Derivative Instruments and Hedging Activities

9 Months Ended

Jul. 31, 2011

Fair Value of Financial Instruments, Derivative Instruments and Hedging Activities [Abstract]

Fair Value of Financial Instruments, Derivative Instruments and Hedging Activities

8. Fair Value of Financial Instruments, Derivative Instruments and Hedging Activities

The Company manages exposure to changes in market interest rates. The Company's use of derivative instruments is limited to highly effective fixed and floating interest rate swap agreements used to manage well-defined interest rate risk exposures. The Company monitors its positions and the credit ratings of its counterparties and does not anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes.

At September 28, 2007, the Company was party to an interest rate swap agreement which terminated on October 29, 2010.  The swap agreement was with a major financial institution and aggregated $25 million in notional principal amount representing approximately $19.8 million of outstanding notional principal at July 31, 2010. This swap agreement effectively converted $25 million of variable interest rate debt to fixed rate debt. The swap agreement required the Company to make fixed interest payments based on an average effective rate of 4.78% and receive variable interest payments from its counterparties based on one-month LIBOR (actual rate of 0.32% at July 31, 2010). Therefore, in the three months ended January 31, 2010 the Company recorded as a component of other income $284,000, related to its hedging arrangement, or $170,000 net of income tax. Effective with the Second Amendment, the Company's eligibility for LIBOR borrowings was reinstated. Therefore, for the six months ended July 31, 2010, the Company recorded a net change in the fair value of the fixed interest rate swap agreement in the amount of $273,000, net of income tax, as other comprehensive income. Due to the termination of LIBOR borrowing eligibility from the Administrative Agent, the Company recorded a loss in 2009 from ineffectiveness in its hedging arrangement. 

There is a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:

           Level 1 - Quoted market prices in active markets for identical assets or liabilities

           Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and

           Level 3 - Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that

                           market participant would use.

Our interest bearing debt is primarily composed of a revolving line of credit and term loan facility with a syndicate of banks. The Company believes the carrying amount of these facilities approximates fair value due to these facilities carrying a variable interest rate based on recent market conditions.

Cash and cash equivalents consist principally of cash on deposit with banks. All highly liquid investments with an original maturity of three months or less. The Company's cash deposits in excess of federally insured amounts are primarily maintained at a large well-known financial institution.

The carrying amounts of the Company's accounts receivable, accounts payable, accrued payrolls and commissions, taxes accrued and withheld and accrued expenses approximates fair value due to their short-term nature.

The Company's interest rate swap derivative liability is based on third party valuation models, and is therefore classified as having level 2 inputs as of July 31, 2010. The interest rate swap agreement expired on October 29, 2010; and therefore there is no balance at July 31, 2011. 

	Fair Value Measurements as of July 31, 2011 and 2010
Liabilities:	Level 1		Level 2		Level 3		Total
Interest rate swap at (2011)	$	-	$	-	$	-	$	-
Interest rate swap at (2010)	$	-	$	223,000	$	-	$	223,000