Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

v2.4.0.8
FAIR VALUE MEASUREMENTS
 6 Months Ended
Feb. 28, 2014
Fair Value Measurements  
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 February 28, 2014 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 February 28, 2014 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 February 28, 2014 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 February 28, 2014:

 

                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   $ 24,632,100     $ 24,632,100     $ —     $ —     $ 24,632,100     $ —  

 

Although not required, the Company deems the following table, which presents the changes in the TPF for the six months ended February 28, 2014, 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”     —       1,060,200       (1,060,200 )
Purchases, sales, issuances, payments, and settlements     (63,233,700 )     (36,235,400 )     (26,998,300 )
Transfers in and/or out of Level 3     —       —       —  
Balance at February 28, 2014   $ 39,448,200     $ 24,632,100     $ 14,816,100