Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v2.4.0.6
Fair Value of Financial Instruments
 6 Months Ended
May 31, 2012
Fair Value of Financial Instruments [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
6. Fair Value of Financial Instruments

Various inputs are used in determining the fair value of the Company’s assets and liabilities. These inputs are summarized in the three broad levels listed below:

 

  •  

Level 1 — quoted prices in active markets for identical investments.

 

  •  

Level 2 — other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.).

 

  •  

Level 3 — significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments.

Valuation Techniques

In general, and where applicable, the Company uses readily available market quotations based upon the last updated sales price from the principal market to determine fair value. This pricing methodology applies to the Company’s Level 1 trading securities.

The Company’s other equity securities, which represent security interests in private companies, are classified as Level 3 assets. Valuation of these investments is determined by weighting various valuation metrics for each security. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. Decreases in the valuation multiples and increases in the discount rates used would result in decreased fair values of these investments.

 

         

Security Investment

  

Valuation Technique

  

Valuation Metric and Weighting Used
High Sierra Energy, LP   Weighting of various valuation metrics   Expected merger transaction (95.0%)
     
        Previous valuation using public company comparable multiples (5.0%)
     
Lightfoot Capital Partners LP   Weighting of various valuation metrics   Public company comparable historical EBITDA multiples (15.0%)
     
        Public company comparable projected EBITDA multiples (15.0%)
     
        Historical EBITDA multiples for recent comparable industry transactions (15.0%)
     
        Discounted cash flow analysis of EBITDA (15.0%)
     
        Distributable cash flows yield analysis (15.0%)
     
        Historical investment cost (25.0%)
     
VantaCore Partners LP   Weighting of various valuation metrics   Public company comparable historical EBITDA multiples (16.7%)
     
        Public company comparable projected EBITDA multiples (16.7%)
     
        Historical EBITDA multiples for recent comparable industry transactions (16.7%)
     
        Recent capital transactions of the company (50.0%)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables provide the fair value measurements of applicable Company assets and liabilities by level within the fair value hierarchy as of May 31, 2012 and November 30, 2011. These assets and liabilities are measured on a recurring basis.

 

                                 

May 31, 2012

                                
     
          Fair Value  

Description

   May 31, 2012     Level 1     Level 2     Level 3  

Assets:

                                

Trading securities

   $ 25,505,035     $ 25,505,035     $ —       $ —    

Other equity securities

     53,314,589       —         —         53,314,589  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Assets

   $ 78,819,624     $ 25,505,035     $ —       $ 53,314,589  
   

 

 

    

 

 

    

 

 

    

 

 

  
         

November 30, 2011

                                
     
          Fair Value  

Description

   November 30, 2011     Level 1     Level 2     Level 3  

Assets:

                                

Trading securities

   $ 27,037,642     $ 27,037,642     $ —       $ —    

Other equity securities

     41,856,730       —         —         41,856,730  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total Assets

   $ 68,894,372     $ 27,037,642     $ —       $ 41,856,730  
   

 

 

    

 

 

    

 

 

    

 

 

  

The changes for all Level 3 assets measured at fair value on a recurring basis using significant unobservable inputs for the six months ended May 31, 2012 and May 31, 2011, are as follows:

 

                 
    For the six months ended  

Description

   May 31, 2012     May 31, 2011  

Fair value beginning balance

   $ 41,856,730     $ 72,929,409  

Total realized and unrealized gains (losses) included in net income

     12,906,601       (744,584 ) 

Purchases

     —         400,000  

Sales

     —         (400,000 ) 

Return of capital adjustments impacting cost basis of securities

     (1,448,742 )      (84,009 ) 
   

 

 

    

 

 

  

Fair value ending balance

   $ 53,314,589     $ 72,100,816  
   

 

 

    

 

 

  
   

 

 

    

 

 

  

The amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date which are included in net realized and unrealized gain on other equity securities within the statement of income

   $ 12,906,601     $ (744,584 ) 
   

 

 

    

 

 

  

The Company utilizes the beginning of reporting period method for determining transfers between levels. There were no transfers between levels for the six months ended May 31, 2012 and May 31, 2011, respectively.

Certain condensed financial information of the unconsolidated affiliates follows. The information is the most recently available financial information for these companies, which is the six months ending March 31, 2012 as reported by the portfolio companies for High Sierra Energy, LP (7.1 percent equity interest), VantaCore Partners LP (20.1 percent equity interest), and Lightfoot Capital Partners LP (6.7 percent equity interest).

 

                     
Revenues   $ 1,629,194,834     Current assets   $ 434,382,000  
Operating expenses   $ 1,596,791,623     Noncurrent assets   $ 497,369,000  
Net income   $ 19,153,754     Current liabilities   $ 351,468,000  
            Noncurrent liabilities   $ 179,638,000  
            Partner’s equity   $ 400,645,000  

The following section describes the valuation methodologies used by the Company for estimating fair value for financial instruments not recorded at fair value as required under disclosure guidance related to the fair value of financial instruments.

 

Cash and Cash Equivalents — The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements approximates fair value.

Escrow Receivable — The escrow receivable due the Company, which relates to the sale of International Resource Partners, LP, will be released upon satisfaction of certain post-closing obligations and/or the expiration of certain time periods (the shortest of which is 14 months from the April 2011 closing date of the sale). The fair value of the escrow receivable reflects a discount for the potential that the full amount due to the Company will not be realized.

Long-term Debt — The fair value of the Company’s long-term debt is calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the Company’s current expected rate for an equivalent transaction.

Line of Credit — The carrying value of the line of credit approximates the fair value due to its short term nature.

 

                                     
   

Level within

the Fair

   May 31, 2012     November 30, 2011  

Description

   Value
Hierarchy 		  Carrying
Amount 		    Fair Value     Carrying
Amount 		    Fair Value  

Financial Assets

                                    

Cash and cash equivalents

   Level 1   $ 3,078,640     $ 3,078,640     $ 2,793,326     $ 2,793,326  

Escrow receivable

   Level 2     1,677,052       1,677,052       1,677,052       1,677,052  

Financial Liabilities

                                    

Long-term debt

   Level 2     928,453       946,754       2,279,883       2,320,851  

Line of credit

   Level 1     840,000       840,000       —         —