Fair Value Disclosures

9 Months Ended

Jul. 31, 2011

12. Fair Value Disclosures

A summary of assets and (liabilities) at July 31, 2011 and October 31, 2010 related to the Company’s financial instruments, measured at fair value on a recurring basis, is set forth below (amounts in thousands).


		Fair value
	Fair value	July 31,			October 31,
Financial Instrument	hierarchy	2011			2010
U.S. Treasury Securities	Level 1	$	15,020		$	175,370
U.S. Agency Securities	Level 1	$	24,216		$	22,497
Corporate Securities	Level 1	$	237,813
Pre-refunded Municipal Securities	Level 1	$	17,237
Residential Mortgage Loans Held for Sale	Level 2	$	45,320		$	93,644
Forward Loan Commitments — Residential Mortgage Loans Held for Sale	Level 2	$	(107	)	$	(459	)
Interest Rate Lock Commitments (“IRLCs”)	Level 2	$	119		$	130
Forward Loan Commitments — IRLCs	Level 2	$	(119	)	$	(130	)

At July 31, 2011 and October 31, 2010, the carrying value of cash and cash equivalents and restricted cash approximated fair value. Gibraltar’s investment in the portfolio of non-performing loans was recorded at fair value at inception based on the acquisition price as determined by Level 3 inputs. Due to the relatively short period of time since the Company’s acquisition of the investment and the absence of any significant evidence to the contrary, the Company believes the fair value of these financial instruments approximate their carrying values at July 31, 2011.

At the end of the reporting period, the Company determines the fair value of its mortgage loans held for sale and the forward loan commitments it has entered into as a hedge against the interest rate risk of its mortgage loans using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and by applying such pricing to the mortgage loan portfolio. The Company recognizes the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, the Company recognizes the fair value of its forward loan commitments as a gain or loss. These gains and losses are included in interest and other income. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is included in “interest and other income”.

The table below provides, for the periods indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale as of the date indicated (amounts in thousands).


	Aggregate unpaid
	principal balance		Fair value		Excess
At July 31, 2011	$	44,742	$	45,320	$	578
At July 31, 2010	$	65,945	$	67,456	$	1,511

IRLCs represent individual borrower agreements that commit the Company to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract. These commitments have varying degrees of interest rate risk. The Company utilizes best-efforts forward loan commitments (“Forward Commitments”) to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale. Forward Commitments represent contracts with third-party investors for the future delivery of loans whereby the Company agrees to make delivery at a specified future date at a specified price. The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815, “Derivatives and Hedging”, which requires derivative financial instruments to be recorded at fair value. The Company estimates the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and, in the case of IRLCs, the probability that the mortgage loan will fund within the terms of the IRLC. To manage the risk of nonperformance of investors regarding the Forward Commitments, the Company assesses the credit worthiness of the investors on a periodic basis.

As of July 31, 2011 and October 31, 2010, the amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of marketable securities were as follows (in thousands):


	July 31,			October 31,
	2011			2010
Amortized cost	$	294,373		$	197,699
Gross unrealized holding gains		71			180
Gross unrealized holding losses		(158	)		(12	)

Fair value	$	294,286		$	197,867

The remaining contractual maturities of marketable securities as of July 31, 2011 ranged from less than 1 month to 15 months.

The Company recognizes inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. See Note 1, Significant Accounting Policies, “Inventory” for additional information regarding the Company’s methodology on determining fair value.

The table below provides, for the periods indicated, the fair value of inventory whose carrying value was adjusted and the amount of impairment charges recognized (amounts in thousands).


	Fair value of
	communities, net
	of impairment		Impairment
Three months ended:	charges		charges
Fiscal 2011:
January 31	$	56,105	$	5,475
April 30	$	40,765		10,725
July 31	$	4,769		16,175

			$	32,375


Fiscal 2010:
January 31	$	82,509	$	31,750
April 30	$	64,964		41,770
July 31	$	40,071		12,450

			$	85,970

The book value and estimated fair value of the Company’s debt at July 31, 2011 and October 31, 2010 was as follows (amounts in thousands):


	July 31, 2011				October 31, 2010
			Estimated				Estimated
	Book value		fair value		Book value		fair value
Loans payable (a)	$	104,512	$	96,519	$	94,491	$	87,751
Senior notes (b)		1,509,371		1,625,363		1,554,460		1,679,052
Mortgage company warehouse loan (c)		39,905		39,905		72,367		72,367

	$	1,653,788	$	1,761,787	$	1,721,318	$	1,839,170


(a)		The estimated fair value of loans payable was based upon their indicated market prices or the interest rates that the Company believed were available to it for loans with similar terms and remaining maturities as of the applicable valuation date.

(b)		The estimated fair value of the Company’s senior notes is based upon their indicated market prices.

(c)		The Company believes that the carrying value of its mortgage company loan borrowings approximates their fair value.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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