Derivatives and Hedging Activities (Notes)

6 Months Ended

Jan. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities Disclosure

Derivatives and Hedging Activities

The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate on a future date, with maturities of less than 18 months, which qualify as cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objective of the Company’s foreign currency exchange risk management program is to minimize the impact of currency movements due to transactions in other than the respective subsidiaries’ functional currency and to minimize the impact of currency movements on the Company’s net investment denominated in a currency other than the U.S. dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange currency contracts.

Main foreign currency exposures are related to transactions denominated in the British Pound, Euro, Canadian dollar, Australian dollar, Mexican Peso, Chinese Yuan, Malaysian Ringgit and Singapore dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions.

The U.S. dollar equivalent notional amounts of outstanding forward exchange contracts were as follows:

	January 31, 2023		July 31, 2022
Designated as cash flow hedges	$	12,651	$	25,276
Non-designated hedges	4,456		4,057
Total foreign exchange contracts	$	17,107	$	29,333

Cash Flow Hedges

The Company has designated a portion of its forward foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the condensed consolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income ("OCI") and reclassified into income in the same period or periods during which the hedged transaction affects income. As of January 31, 2023 and July 31, 2022, unrealized gains of $1,911 and $1,040 have been included in OCI, respectively.

Net Investment Hedges

The Company has designated certain third party foreign currency denominated debt borrowed under its credit agreement as net investment hedges. These debt obligations, denominated in Euros and British Pounds, were designated as net investment hedges to hedge portions of the Company's net investment in its European operations. The Company’s foreign currency denominated debt obligations are valued under a market approach using publicized spot prices, and the net gains or losses attributable to the changes in spot prices are recorded as cumulative translation within AOCI and are included in the foreign currency translation adjustments section of the condensed consolidated statements of comprehensive income. As of January 31, 2023 and July 31, 2022, the cumulative balance recognized in accumulated other comprehensive income were losses of $841 and $0, respectively, on any outstanding foreign currency denominated debt obligations.

The following table summarizes the amount of pre-tax gains and losses related to derivatives designated as hedging instruments:

	Three months ended January 31,				Six months ended January 31,
	2023		2022		2023		2022
Gains (losses) recognized in OCI:
Forward exchange contracts (cash flow hedges)	$	776	$	225	$	1,669	$	199
Foreign currency denominated debt (net investment hedges)	(841)		—		(841)		—
Gains reclassified from OCI into cost of goods sold
Forward exchange contracts (cash flow hedges)	217		36		798		604

Fair values of derivative instruments in the condensed consolidated balance sheets were as follows:

	January 31, 2023				July 31, 2022
	Prepaid expenses and other current assets		Other current liabilities	Long-term obligations	Prepaid expenses and other current assets		Other current liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts (cash flow hedges)	$	1,564	(116)	—	$	489	$	30
Foreign currency denominated debt (net investment hedges)	—		—	(38,981)	—		—
Derivatives not designated as hedging instruments:
Foreign exchange contracts (non-designated hedges)	27		—	—	—		2
Total derivative instruments	$	1,591	(116)	(38,981)	$	489	$	32