Derivative Instruments

6 Months Ended

Jan. 31, 2013

Derivative Instruments

4. Derivative Instruments

Certain revenues and/or expenses of our foreign operations are 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 our 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 January 31, 2013, we had forward contracts outstanding with notional amounts totaling $16,829 in the Canadian Dollar. These contracts have been designated as cash flow hedges, and the unrealized gains of $25, net of tax, 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 three and six months ended January 31, 2013, we recorded approximately $27 and $140, respectively, of realized gains included in cost of revenues and operating expenses in our unaudited condensed consolidated statements of operations. We expect all contracts currently outstanding to settle as of January 31, 2014 and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to operating expenses.