Quarterly report pursuant to Section 13 or 15(d)

Note 11 - Fair Value Measurements

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Note 11 - Fair Value Measurements
 6 Months Ended
Jul. 31, 2024
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

(11)    Fair Value Measurements

 

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are information that reflect the assumptions that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are variables that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

 

The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:

 

 

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Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

 

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Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

 

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Level 3: Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

 

The following summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2024 and are categorized using the fair value hierarchy (in thousands):

 

   

Level 1

    

Level 2

    

Level 3

          

Description

  

Measurements

    

Measurements

    

Measurements

    

Total

  

Cash and cash equivalents

   $ 122,652     $ —     $ —     $ 122,652  

Restricted cash

     7,491       —       —       7,491  

Interest rate swaps - asset (liability)

     —       2,442       —       2,442  

Total assets and (liabilities) recorded at fair value

   $ 130,143     $ 2,442     $ —     $ 132,585  

 

Cash, Cash Equivalents and Restricted Cash

 

The cost of our cash, cash equivalents and restricted cash agreed to the estimated fair value as of July 31, 2024. Refer to Note 2 “Summary of Significant Accounting Policies - Cash, Cash Equivalents, and Restricted Cash” in our 2024 Form 10-K for additional detail.

 

Interest Rate Swaps

 

On June 17, 2022, the Company entered into two fixed-rate interest rate swap agreements to change the Secured Overnight Financing Rate (“SOFR”)-based component of the interest rate on a portion of the Company’s variable rate debt to a fixed rate (the “Interest Rate Swaps”). The Interest Rate Swaps have a combined notional value of $300.0 million and a maturity date of June 5, 2027. The objective of the Interest Rate Swaps is to eliminate the variability of cash flows in interest payments on $300.0 million of variable rate debt attributable to changes in benchmark one-month SOFR interest rates. The hedged risk is the exposure to changes in interest payments, attributable to fluctuations in benchmark SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to offset changes in cash flows of the variable rate debt. The Interest Rate Swaps are not designated as a cash flow hedge and changes in the fair value of the interest rate swaps are recorded in earnings each period. For the three and six months ended July 31, 2024, the Company recognized a non-cash loss of $6.5 million and a non-cash gain of $1.2 million attributable to the Interest Rate Swaps, respectively. For the three and six months ended July 31, 2023, the Company recognized a non-cash gain of $6.9 million and $7.2 million attributable to the Interest Rate Swaps, respectively.

 

The inputs for determining fair value of the Interest Rate Swaps are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. The counterparties to these derivative contracts are highly rated financial institutions which we believe carry only a minimal risk of nonperformance.

 

Depending on whether the Interest Rate Swaps are in an asset or liability position as of the end of a reporting period, they are included in either the captions “Other assets” or “Other long-term liabilities” on the Company's condensed consolidated balance sheets.

 

Other Fair Value Instruments

 

The Company currently invests excess cash balances primarily in money market funds invested in United States Treasury securities and United States Treasury securities repurchase agreements, as well as cash deposits held at major banks. The carrying amounts of cash and cash equivalents, trade receivables, trade payables and accrued liabilities, as reported on the condensed consolidated balance sheet as of  July 31, 2024, approximate their fair value because of the short maturity of those instruments. 

 

Our long-term debt is a financial instrument, and the fair value of the Company’s outstanding principal as of July 31, 2024 was $476.2 million. This fair value is determined based on inputs that are classified as Level 2 within the fair value hierarchy.