Derivative Instruments

3 Months Ended

Oct. 31, 2012

Derivative Instruments

4. Derivative Instruments

Certain of our foreign operations have revenues and/or expenses transacted in currencies other than the U.S. dollar. In order to mitigate foreign currency exchange risk, we use forward contracts to lock in exchange rates associated with a portion of its forecasted international expenses. We assess, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of the hedged items. We also assess hedge ineffectiveness on a quarterly basis and record the gain or loss related to the ineffective portion to current earnings. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in current earnings.

At October 31, 2012, we had forward contracts outstanding with notional amounts totaling $12,250 in the Canadian Dollar. These contracts have been designated as cash flow hedges, and the unrealized loss of $4, net of tax, as of October 31, 2012 on these contracts are reported in accumulated other comprehensive income (loss). Realized gains and losses on the cash flow hedges are recognized in income in the period when the payment of expenses is recognized. During the first quarter of fiscal year 2013, we recorded approximately $113 of realized gains included in other income (expense), net in our condensed Consolidated Statements of Operations. We expect all contracts currently outstanding to settle in the fiscal year ending July 31, 2013, which we refer to as fiscal year 2013, and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to operating expenses.