Fair Value of Financial Instruments

9 Months Ended

Jul. 31, 2012

Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

As prescribed by FASB Accounting Standards Codification 820 (“ASC 820”), Fair Value Measurement, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value should maximize the use of relevant observable inputs, which consist of market data obtained from independent sources and minimize the use of unobservable inputs, which include market data determined using the Company’s own assumptions about valuation. ASC 820 establishes a hierarchy to prioritize the inputs to valuation techniques, with the highest priority being given to Level 1 inputs and the lowest priority to Level 3 inputs, as described below:

Level 1 – Quoted prices for identical assets or liabilities in active markets;

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets; and

Level 3 – Unobservable inputs for the asset or liability.

The following table presents the fair value hierarchy, carrying amounts, and fair values of the Company’s financial instruments measured on a recurring basis and other select significant financial instruments as of July 31, 2012 and October 31, 2011:  

		July 31, 2012				October 31, 2011
	Fair Value	Carrying		Fair		Carrying		Fair
(in thousands)	Hierarchy	Amount		Value		Amount		Value
Financial assets measured at fair value on a recurring basis
Assets held in funded deferred compensation plan	1	$	4,930	$	4,930	$	4,717	$	4,717
Investments in auction rate securities	3		16,704		16,704		15,670		15,670
			21,634		21,634		20,387		20,387
Other select financial asset
Cash and cash equivalents	1		21,650		21,650		26,467		26,467
Total		$	43,284	$	43,284	$	46,854	$	46,854
Financial liability measured at fair value on a recurring basis
Interest rate swap	2	$	249	$	249	$	253	$	253
Other select financial liability
Line of credit	2		252,000		252,000		300,000		300,000
Total		$	252,249	$	252,249	$	300,253	$	300,253

The following methods and assumptions were used to estimate the fair value of the Company’s classes of financial instruments measured on a recurring basis and other select financial instruments:

The fair value of the assets held in the funded deferred compensation plan is based on quoted market prices. The assets are included in “Other assets” on the accompanying consolidated balance sheets.

For investments in auction rate securities, fair value is based on discounted cash flow valuation models, primarily utilizing unobservable inputs. See Note 6, “Auction Rate Securities,” for the roll-forwards of assets measured at fair value using significant unobservable Level 3 inputs and the sensitivity analysis of significant inputs.

Cash and cash equivalents are stated at nominal value which equals fair value.

The fair value of the interest rate swap is estimated based on the present value of the difference between expected cash flows calculated at the contracted interest rates and the expected cash flows at current market interest rates using observable benchmarks for London Interbank Offered Rate (“LIBOR”) forward rates at the end of the period. The fair value is then compared to a valuation received from an independent third-party. See Note 8, “Line of Credit Facility.”

Due to variable interest rates, the carrying value of outstanding borrowings under the Company’s line of credit approximates its fair value. See Note 8, “Line of Credit Facility.”

The Company’s non-financial assets and liabilities, which include goodwill and long lived assets held and used, are not required to be measured at fair value on a recurring basis. However, if certain trigger events occur, or if an annual impairment test is required, the Company would evaluate the non-financial assets and liabilities for impairment. If an impairment was to occur, the asset or liability would be recorded at the estimated fair value.

During the nine months ended July 31, 2012, the Company had no transfers of assets or liabilities between any of the above hierarchy levels.