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FAIR VALUE OF FINANCIAL INSTRUMENTS
 9 Months Ended
Jan. 31, 2013
FAIR VALUE OF FINANCIAL INSTRUMENTS
9. FAIR VALUE OF FINANCIAL INSTRUMENTS

We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. These tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, and Level 3, defined as unobservable inputs that are not corroborated by market data.

We use valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable inputs. In measuring the fair value of our financial assets and liabilities, we rely on market data or assumptions which we believe market participants would use in pricing an asset or a liability.

Our financial instruments include cash and cash equivalents, trade receivables, restricted trust and escrow accounts, commodity and interest rate derivatives, trade payables and long-term debt. The carrying values of cash and cash equivalents, trade receivables and trade payables approximate their respective fair values. At January 31, 2013, the fair value of our fixed rate debt, including the 2019 Notes and the Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 due January 1, 2025 (the “Converted Bonds”) was approximately $342,349 and the carrying value was $344,608. The fair value of the 2019 Notes is considered to be Level 1 within the fair value hierarchy as the fair value is based off of a quoted market price in an active market. The fair value of the Converted Bonds is considered to be Level 2 within the fair value hierarchy as the fair value is determined using market approach pricing that utilizes pricing models and pricing systems, mathematical tools and judgment to determine the evaluated price for the security based on the market information of the Converted Bonds or securities with similar characteristics. As of January 31, 2013, the fair value of the 2011 Revolver approximated its carrying value of $141,700 based on current borrowing rates for similar types of borrowing arrangements.

 

As of January 31, 2013 our assets and liabilities that are measured at fair value on a recurring basis included the following:

 

     Fair Value Measurement at January 31, 2013 Using:  
     Quoted Prices in                
     Active Markets for      Significant Other      Significant  
     Identical Assets      Observable Inputs      Unobservable Inputs  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

         

Restricted assets

    $ 523       $ —         $ —     
  

 

 

     

 

 

     

 

 

  

Liabilities:

         

Interest rate derivatives

    $ —         $ 3,871       $ —     
  

 

 

     

 

 

     

 

 

  

As of April 30, 2012 our assets and liabilities that are measured at fair value on a recurring basis included the following:

 

     Fair Value Measurement at April 30, 2012 Using:  
     Quoted Prices in                
     Active Markets for      Significant Other      Significant  
     Identical Assets      Observable Inputs      Unobservable Inputs  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

         

Restricted assets

    $ 424       $ —         $ —     
  

 

 

     

 

 

     

 

 

  

Liabilities:

         

Interest rate derivatives

    $ —         $ 2,369       $ —     
  

 

 

     

 

 

     

 

 

  

Our strategy to hedge against fluctuations in variable interest rates involves entering into interest rate derivative agreements to hedge against adverse movements in interest rates. In fiscal year 2012, we entered into two forward starting interest rate derivative agreements to hedge the interest rate risk associated with the forecasted financing transaction to redeem our Second Lien Notes effective January 15, 2013. The total notional amount of these agreements is $150,000 and require us to receive interest based on changes in the London Interbank Offered Rate index and pay interest at a rate of approximately 1.40%. The agreements mature on March 15, 2016.

For interest rate derivatives deemed to be effective cash flow hedges, the change in fair value is recorded in our stockholders’ equity as a component of accumulated other comprehensive loss and included in interest expense at the same time as interest expense is affected by the hedged transaction. Differences paid or received over the life of the agreements are recorded as additions to or reductions of interest expense of the underlying debt. For interest rate derivatives deemed to be ineffective cash flow hedges, the change in fair value is recorded through earnings and included in (gain) loss on derivative instruments.

We dedesignated both of the $75,000 forward starting interest rate derivative agreements and discontinued hedge accounting in accordance with ASC 815-30 in the second quarter of fiscal year 2013 because the interest payments associated with the forecasted financing transaction were no longer deemed probable due to the redemption of our Second Lien Notes as discussed in Note 5. We recognized a $3,626 loss, reclassified from accumulated other comprehensive loss, as a loss on derivative instruments in the second quarter of fiscal year 2013.

The fair values of the interest rate derivatives are obtained from third-party counter-parties and adjusted based on the credit risk of our counter-parties and us. We recognize all derivatives on the balance sheet at fair value.