Fair Value Measurements and Derivative Instruments

6 Months Ended

May 31, 2011

Fair Value Measurements and Derivative Instruments

Fair Value Measurements and Derivative Instruments

5. FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS

Fair Value Measurements

FASB guidance for fair value measurements clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, we measure certain financial assets and liabilities at fair value, including our marketable securities and foreign currency contracts.

Our cash equivalents and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, sovereign government obligations, and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The types of instruments valued based on other observable inputs include investment-grade corporate bonds, mortgage-backed and asset-backed products and state, municipal and provincial obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.

We execute our foreign currency contracts primarily in the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large multi-national and regional banks. Our foreign currency contracts valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

Fair value hierarchy of our cash equivalents, marketable securities and foreign currency contracts at fair value is as follows (in thousands):

			Fair Value Measurements at Reporting Date using
Description	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)
As of May 31, 2011:
Assets:
Money market fund	$	10,998	$	10,998	$	—
Term deposits		8,203		—		8,203
Mortgage-backed securities		247		—		247
Foreign currency forward contracts		14		—		14
Liabilities:
Foreign currency forward contracts	$	494	$	—	$	494
As of November 30, 2010:
Assets:
Money market fund	$	37,016	$	37,016	$	—
Term deposits		8,707		—		8,707
Mortgage-backed securities		191		—		191
Foreign currency forward contracts		991		—		991
Liabilities:
Foreign currency forward contracts	$	53	$	—	$	53

During the six months ended May 31, 2011, there were no transfers to or from Levels 1 or 2.

Derivative Instruments

We transact business in approximately 20 foreign currencies worldwide. Therefore, we enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies, and these forward contracts are generally settled monthly. Our forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. We do not enter into derivative financial instruments for trading purposes. Gains and losses on forward contracts are included in Other Income (Expense) in our Condensed Consolidated Statements of Operations.

We had five outstanding forward contracts with a total notional amount of $30.1 million and six outstanding forward contracts with a total notional amount of €8.8 million as of May 31, 2011, which are summarized as follows (in thousands):

	Notional Value Local Currency		Notional Value USD		Fair Value Gain  (Loss) USD
Forward contracts sold:
EURO		16,700	$	23,817	$	(330	)
Australian dollar		1,500		1,599		(27	)
Brazilian real		1,700		1,055		(21	)
South African rand		18,000		2,593		(40	)
New Taiwan dollar		30,000		1,041		(18	)
			$	30,105	$	(436	)

	Notional Value Local  Currency		Notional Value EURO		Fair Value Gain  (Loss) USD
Forward contracts sold:
Australian dollar		4,000	€	2,990	$	(24	)
British pound		6,300		7,269		12
Japanese yen		144,000		1,248		1
Swiss franc		2,300		1,889		(25	)
South African rand		9,000		909		(9	)
Forward contracts bought:
Swedish krona		49,000		5,503		1
			€	8,802	$	(44	)

	Derivatives not Designated as Hedging Instruments
	May 31, 2011		November 30, 2010
Foreign currency forward contracts, fair value included in:
Other Current Assets	$	14	$	991
Accrued Liabilities		494		53

		Amount of Gain or (Loss) Recognized In Income on Derivative
Derivatives not Designated as Hedging Instruments	Location	Three Months Ended May 31,					Six Months Ended May 31,
		2011			2010		2011			2010
Foreign Currency Contracts	Other income/(exp.)	$	(3,135	)	$	6,245	$	(7,569	)	$	14,803

Currently, we do not have master netting agreements with our counterparties for our forward contracts. We mitigate the credit risk of these derivatives by transacting with highly rated counterparties. As of May 31, 2011, we have evaluated the credit and non-performance risks associated with our derivative counterparties, and we believe that the impact of the credit risk associated with our outstanding derivatives was insignificant.