5.	Fair Value of Financial Instruments

As prescribed by FASB Accounting Standards Codification 820 (“ASC 820”), Fair Value Measurements and Disclosures, 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 observable inputs and minimize the use of unobservable inputs. These inputs consist of (1) observable inputs—market data obtained from independent sources, or (2) unobservable inputs—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 significant financial instruments as of April 30, 2012 and October 31, 2011:

 

				April 30, 2012								October 31, 2011
		Fair Value		Carrying				Fair				Carrying				Fair
(in thousands)		Hierarchy		Amount				Value				Amount				Value
Assets
Cash and cash equivalents		1		$	25,411			$	25,411			$	26,467			$	26,467
Trade accounts receivable, net		2			564,055				564,055				552,098				552,098
Notes receivable		2			6,027				6,027				5,210				5,210
Assets held in funded deferred compensation plan		1			4,945				4,945				4,717				4,717
Investments in auction rate securities		3			17,994				17,994				15,670				15,670
Total				$	618,432			$	618,432			$	604,162			$	604,162
Liabilities
Trade accounts payable		2		$	128,619			$	128,619			$	130,464			$	130,464
Interest rate swap		2			242				242				253				253
Line of credit		2			266,000				266,000				300,000				300,000
Total				$	394,861			$	394,861			$	430,717			$	430,717

The following methods and assumptions were used to estimate the fair value of the Company’s classes of financial instruments for which it is practicable to estimate that value:

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

The carrying value of the Company’s trade accounts receivable and payable, notes receivable, current assets of discontinued operations, prepaid expenses, and accrued liabilities approximates fair value due to their nature and short-term maturities of these instruments. Currently, there is no indication that a decrease in the value of the Company’s notes receivable is probable. Therefore, the allowances on credit losses of notes receivable are immaterial.

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.

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 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.

During the six months ended April 30, 2012, the Company had no transfers of assets or liabilities between any of the above hierarchy levels.