Fair Value

6 Months Ended

Jul. 31, 2011

Fair Value Disclosures [Text Block]

Note 5. Fair Value

          The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”) which provides a framework for measuring fair value under GAAP. This accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

          The Company determines the fair market values of its financial instruments based on the fair value hierarchy established by ASC 820. ASC 820 requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values which are provided below. The Company carries cash equivalents, restricted investments and derivative liabilities at fair value.

          Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.

          Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally or corroborated by observable market data.

          Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methods, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Unobservable inputs shall be developed based on the best information available, which may include the Company’s own data.

          The fair values of interest rate swaps are determined by using quantitative models that discount future cash flows using the LIBOR forward interest rate curve. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case interest rate, price or index scenarios are extrapolated in order to determine the fair value. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality, the Company’s own credit standing and other specific factors, where appropriate. To ensure the prudent application of estimates and management judgment in determining the fair value of derivative assets and liabilities, various processes and controls have been adopted, which include: model validation that requires a review and approval for pricing, financial statement fair value determination and risk quantification; periodic review and substantiation of profit and loss reporting for all derivative instruments.

          Financial assets and liabilities measured at fair value on a recurring basis at July 31, 2011 are summarized below (amounts in thousands):

	Level 1		Level 2		Level 3		Fair Value
Cash equivalents	$	2	$	—	$	—	$	2
Restricted investments		857		—		—		857
Total assets	$	859	$	—	$	—	$	859
Derivative liabilities and total liabilities	$	—	$	4,915	$	—	$	4,915

          Assets measured at fair value on a non-recurring basis over various dates through July 31, 2011 are summarized below (amounts in thousands):

	Level 1		Level 2		Level 3		Total Losses
Property and equipment, net	$	—	$	—	$	5,985	$	1,153

          Financial assets and liabilities measured at fair value on a recurring basis at January 31, 2011 are summarized below (amounts in thousands):

	Level 1		Level 2		Level 3		Fair Value
Cash equivalents	$	2	$	—	$	—	$	2
Restricted investments		857		—		—		857
Total assets	$	859	$	—	$	—	$	859
Derivative liabilities and total liabilities	$	—	$	5,523	$	—	$	5,523

          Assets measured at fair value on a non-recurring basis over various dates through January 31, 2011 are summarized below (amounts in thousands):

	Level 1		Level 2		Level 3		Total Losses
Property and equipment, net	$	—	$	—	$	4,568	$	424

          The fair value of the Company’s debt is approximately $75.9 million and $81.2 million at July 31, 2011 and January 31, 2011, respectively.

          A contingent consideration liability with an initial fair value of $4,750,000 was recorded at July 1, 2010, the date of the NuGen acquisition (see Note 12). The balance of this liability was $3,578,000 and $2,265,000 at January 31, 2011 and July 31, 2011, respectively. The reductions in the carrying value of the liability primarily result from distributions paid to the seller.