Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 3 Months Ended
Nov. 30, 2013
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 2 – FAIR VALUE MEASUREMENTS

  

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The Company uses a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value.

 

Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. The Company had none of these instruments at November 30, 2013 or August 31, 2013.

 

Level 2 — Valuations for assets and liabilities obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company had no Level 2 assets or liabilities at November 30, 2013 or August 31, 2013.

 

Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The Company had one Level 3 liability at November 30, 2013 and August 31, 2013, the TPF liability, which is described in greater detail in Note 4 – Long-Term Obligations and Operating Lease below.

 

The Company maintains policies and procedures to value instruments using the best and most relevant data available.

 

The Company’s non-financial assets measured at fair value on a non-recurring basis consist entirely of its investments in water and water systems and other long-lived assets. See Note 3 – Investment in Water, Water Systems, Land and Improvements below.

 

Level 3 Liability – Tap Participation Fee. The Company’s TPF liability is the Company’s only financial liability measured on a non-recurring basis. As further described in Note 4 – Long-Term Obligations and Operating Lease, the TPF liability is valued by projecting new home development in the Company’s targeted service area over an estimated development period.

 

The following table provides information on the assets and liabilities measured at fair value on a recurring basis as of November 30, 2013:

  

            Fair Value Measurement Using:    
        Cost / Other   Quoted Prices in Active Markets for Identical Assets   Significant Other Observable Inputs   Significant Unobservable Inputs   Total Unrealized
    Fair Value   Value   (Level 1)   (Level 2)   (Level 3)   Gain
Tap Participation Fee liability   $ 48,432,700     $ 48,432,700     $-   $ —       $ 48,432,700     $ —    

 

Although not required, the Company deems the following table, which presents the changes in the TPF for the three months ended November 30, 2013, to be helpful to the users of its consolidated financial statements:

 

   

Fair Value Measurement using Significant

Unobservable Inputs (Level 3)
    Gross Estimated Tap Participation Fee Liability   Tap Participation Fee Reported Liability   Discount - to be imputed as interest expense in future periods
Balance at August 31, 2013   $ 102,681,900     $ 59,807,300     $ 42,874,600  
Total gains and losses (realized and unrealized):     —         —         —    
Imputed interest recorded as "Other Expense"     —         657,200       (657,200 )
Purchases, sales, issuances, payments, and settlements     (21,672,200 )     (12,031,800 )     (9,640,400 )
Transfers in and/or out of Level 3     —         —         —    
Balance at November 30, 2013   $ 81,009,700     $ 48,432,700     $ 32,577,000