AUCTION RATE SECURITIES

12 Months Ended

Oct. 31, 2011

AUCTION RATE SECURITIES

5. AUCTION RATE SECURITIES

As of October 31, 2011, the Company holds investments in auction rate securities from four different issuers having an original principal amount of $5.0 million each (aggregating $20.0 million). These auction rate securities are debt instruments with stated maturities ranging from 2025 to 2050, for which the interest rate is designed to be reset through Dutch auctions approximately every 30 days. Auctions for these securities have not occurred since August 2007. At October 31, 2011 and 2010, the estimated fair value of these securities, in total, was approximately $15.7 million and $20.2 million, respectively. On February 11, 2011, one of the Company’s auction rate securities was redeemed by the issuer at its par value of $5.0 million. No gain or loss was recognized upon its redemption.

For securities that had no market activity indicative of fair market value, the Company estimates the fair values utilizing a discounted cash flow model, which considers, among other factors, assumptions about: (1) the underlying collateral; (2) credit risks associated with the issuer; (3) contractual maturity; (4) credit enhancements associated with financial insurance guarantees, if any; and (5) assumptions about when, if ever, the security might be re-financed by the issuer or have a successful auction. Since there can be no assurance that auctions for these securities will be successful in the near future, the Company has classified its auction rate securities as long-term investments.

The following table presents the significant assumptions used to determine the fair value of the Company’s auction rate securities at October 31, 2011 and October 31, 2010:

Assumption	October 31, 2011	October 31, 2010
Discount rates	L + 3.21% - L + 17.50%	L + 2.50% - L + 18.59%
Yields	L + 2.0% - L + 3.5%	L + 2.0% - L + 3.5%
Average expected lives	4 - 10 years	4 - 10 years

L—London Interbank Offered Rate (One Month)

The Company’s determination of whether its auction rate securities are other-than-temporarily impaired is based on an evaluation of several factors, circumstances, and known or reasonably supportable trends including, but not limited to: (1) the Company’s intent not to sell the securities; (2) the Company’s assessment that it is not more likely than not that the Company will be required to sell the securities before recovering its cost basis; (3) expected defaults; (4) available ratings for the securities or the underlying collateral; (5) the rating of the associated guarantor (where applicable); (6) the nature and value of the underlying collateral expected to service the investment; (7) actual historical performance of the security in servicing its obligations; and (8) actuarial experience of the underlying re-insurance arrangement (where applicable), which in certain circumstances may have preferential rights to the underlying collateral.

The Company’s determination of whether an other-than-temporary impairment represents a credit loss is based upon the difference between the present value of the expected cash flows to be collected and the amortized cost basis of the security. Significant assumptions used in estimating the credit loss include: (1) default rates for the security and the mono-line insurer, if any (which are based on published historical default rates of similar securities and consideration of current market trends); and (2) the expected life of the security (which represents the Company’s view of when market efficiencies for securities may be restored). Adverse changes in any of these factors could result in additional declines in fair value and further other-than-temporary impairments in the future. There were no other-than-temporary impairments identified during 2011.

The following tables present the changes in the cost basis and fair value of the Company’s auction rate securities for the years ended October 31, 2011 and 2010:

		September 30,			September 30,
(in thousands)	Cost Basis			Fair Value (Level 3)
Balance at beginning of year	$	23,307		$	20,171
Unrealized gains		—			537
Unrealized losses		—			(38	)
Redemption of security by issuer		(5,000	)		(5,000	)
Balance at October 31, 2011	$	18,307		$	15,670

		September 30,			September 30,
(in thousands)	Cost Basis			Fair Value (Level 3)
Balance at beginning of year	$	23,434		$	19,531
Unrealized gains		—			1,075
Unrealized losses		—			(435	)
Other-than-temporary credit loss recognized in earnings		(127	)		—
Balance at October 31, 2010	$	23,307		$	20,171

At October 31, 2011 and 2010, unrealized losses of $2.6 million ($1.6 million net of tax) and $3.1 million ($1.9 million net of tax) were recorded in accumulated other comprehensive loss, respectively.