Derivative Financial Instruments

12 Months Ended

Jun. 30, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 7 — Derivative Financial Instruments

We are exposed to market risk from changes in foreign currency exchange rates. To manage this exposure, we enter into various derivative transactions. These instruments have the effect of reducing our exposure to unfavorable changes in foreign currency rates. We do not enter into derivative transactions for trading purposes.

Derivative transactions are governed by our established set of policies and procedures covering areas such as authorization, counterparty exposure and hedging practices. We also evaluate new and existing transactions and agreements to determine if they require derivative accounting treatment. Positions are monitored using fair market value and sensitivity analyses.See Note 1 for further information on the accounting policy for derivatives.

Certain derivatives also give rise to credit risks from the possible non-performance by counterparties. The credit risk is generally limited to the fair value of those contracts that are favorable to us. We have established strict counterparty credit guidelines and enter into transactions only with financial institutions with securities of investment grade or better. We monitor counterparty exposures and review any downgrade in credit rating. To mitigate pre-settlement risk, minimum credit standards become more stringent as the duration of the derivative financial instrument increases. To minimize the concentration of credit risk, we enter into derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to be minimal.

Our reinsurance intermediary subsidiary in the United Kingdom receives revenues in currencies (primarily in U.S. dollars) that differ from its functional currency. As a result, the foreign subsidiary's functional currency revenue will fluctuate as the currency exchange rates change. To reduce this variability, we use foreign exchange forward contracts to hedge the foreign exchange risk of the forecasted collections. Previously, we also used over-the-counter options, however we have no current holdings of options and we currently have no intentions to use this type of derivative instrument in the near term. We have designated these derivatives as cash flow hedges of forecasted foreign currency denominated collections. We also use derivative financial contracts, principally foreign exchange forward contracts, to hedge non-functional currency obligations. Primarily, these exposures arise from intercompany lending between entities with different functional currencies. At June 30, 2012, the longest outstanding maturity was fivemonths. As of June 30, 2012, a net $0.4 million pretax gain has been deferred in accumulated other comprehensive income and is expected to be recognized in general and administrative expenses during the next twelve months when the hedged revenue is recognized. During the fiscal years ended June30, 2012 and 2011, we recognized no material gains or losses due to hedge ineffectiveness.

As of June 30, 2012, 2011 and 2010 we had cash flow hedges with a notional value of $66.4 million, $69.3million and $87.7 million, respectively, to hedge revenue cash flows. We determine the fair value of our foreign currency derivatives based on quoted prices received from the counterparty for each contract, which we evaluate using pricing models whose inputs are observable. The net fair value of all derivatives held as of June30, 2012and 2011 was anasset/(liability)of $0.4 million and $2.5 million, respectively. See Note 6, FairValue Measurements, for further information regarding the determination of fair value.

The fair value of our derivative instruments held as of June 30, 2012 and 2011 and their location in the consolidated balance sheet are as follows:

		Asset derivatives					Liability derivatives
		Balance sheet location	Fair value				Balance sheet location	Fair value
			June 30,					June 30,
			2012		2011			2012		2011
Derivatives designated as
	hedging instruments:
							Accounts payable, accrued
	Foreign exchange forwards	Other current assets	$	408	$	2,073	liabilities and deferred income	$	-	$	(114)
Derivatives not designated as
	hedging instruments:
							Accounts payable, accrued
	Foreign exchange forwards	Other current assets	$	305	$	592	liabilities and deferred income	$	(329)	$	(23)
Total derivative assets (liabilities)			$	713	$	2,665		$	(329)	$	(137)

The effect of derivative instruments that are designated as hedging instruments on the consolidated statement of operations and the consolidated statement of changes in stockholders' equity for the fiscal years ended June 30, 2012, 2011 and 2010 are as follows:

																Location of
																gain (loss)
																recognized in
									Location of							income
									gain (loss)							(ineffective
									reclassified							portion and
Derivatives									from OCI							amount	Gain (loss) recognized in
designated as									into income							excluded from	income (ineffective portion
hedging			Gain (loss) recognized in OCI						(effective	Gain (loss) reclassified from OCI						effectiveness	and amount excluded from
instruments:			(effective portion)						portion)	into income (effective portion)						testing)	effectiveness testing)
			2012		2011		2010			2012		2011		2010			2012		2011		2010
	Foreign								General and							General and
		exchange							administrative							administrative
		forwards	$	(732)	$	4,323	$	(3,335)	expenses	$	798	$	(683)	$	(266)	expenses	$	(2)	$	125	$	(65)
	Foreign exchange								General and							General and
		exchange							administrative							administrative
		options		-		-		(207)	expenses		-		(207)		-	expenses		-		-		(32)
Total			$	(732)	$	4,323	$	(3,542)		$	798	$	(890)	$	(266)		$	(2)	$	125	$	(97)

As of June 30, 2012, 2011 and 2010, we had $59.1million, $22.5million and $1.5 million, respectively, of notional value of derivatives held as economic hedges primarily to hedge intercompany loans denominated in currencies other than the functional currency. The effect of derivatives that have not been designated as hedging instruments on the consolidated statement of operations for the fiscal years ended June 30, 2012, 2011and 2010is as:

			Gain (loss) recognized in income
Derivatives not designated		Location of gain (loss)	Fiscal year ended June 30,
as hedging instruments:		recognized in income	2012		2011		2010
	Foreign exchange forwards	General and administrative expenses	$	1,399	$	2,976	$	1,869
	Foreign exchange options	General and administrative expenses		-		-		(350)
Total			$	1,399	$	2,976	$	1,519