Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 3 Months Ended
Nov. 30, 2014
Fair Value Measurements  
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 one of these instruments as of November 30, 2014 and none of these instruments as of August 31, 2014.

 

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 as of November 30, 2014 or August 31, 2014.

 

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 as of November 30, 2014 and August 31, 2014, 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, 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   $ 1,731,800     $ 1,731,800     $ -     $ -     $ 1,731,800     $ -  
                                                 

 

Although not required, the Company deems the following table, which presents the changes in the TPF for the three months ended November 30, 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, 2014   $ 12,038,300     $ 7,935,300     $ 4,103,000  
Total gains and losses (realized and unrealized):     -       -       -  
Imputed interest recorded as "Other Expense"     -       23,800       (23,800 )
Purchases, sales, issuances, payments, and reductions resulting from foreclosures     (10,013,900 )     (6,227,300 )     (3,786,600 )
Transfers in and/or out of Level 3     -       -       -  
Balance at November 30, 2014   $ 2,024,400     $ 1,731,800     $ 292,600