Derivatives and Hedging Activities

9 Months Ended

Apr. 30, 2011

Derivatives and Hedging Activities [Abstract]

NOTE K — Derivatives and Hedging Activities

The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions and net investments. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate at a future date, with maturities of 12 months or less, which qualify as either cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objectives of the Company’s foreign currency exchange risk management are to minimize the impact of currency movements due to products purchased 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. As of April 30, 2011 and July 31, 2010, the notional amount of outstanding forward exchange contracts was $120,475 and $45,328, respectively.

Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an on-going basis. Gains or losses on the derivative related to hedge ineffectiveness are recognized in current earnings. The amount of hedge ineffectiveness was not significant for the three-month or nine-month periods ended April 30, 2011 and 2010.

The Company hedges a portion of known exposure using forward exchange contracts. Main exposures are related to transactions denominated in the British Pound, the Euro, Canadian Dollar, Australian Dollar, Singapore Dollar, Swedish Krona, Japanese Yen, Swiss Franc, and the Korean Won. Generally, these risk management transactions will involve the use of foreign currency derivatives to protect against exposure resulting from sales and identified inventory or other asset purchases.

The Company has designated a portion of its 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 earnings in the same period or periods during which the hedged transaction affects earnings. At April 30, 2011 and July 31, 2010, unrealized losses of $2,210 and $493 have been included in OCI, respectively. All balances are expected to be reclassified from OCI to earnings during the next twelve months when the hedged transactions impact earnings.

At April 30, 2011 and July 31, 2010, the Company had $65 and $156 of forward exchange contracts designated as cash flow hedges included in “Prepaid expenses and other current assets” on the accompanying Condensed Consolidated Balance Sheets. At April 30, 2011 and July 31, 2010, the Company had $1,672 and $829, respectively, of forward exchange contracts designated as cash flow hedges included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets. At April 30, 2011 and July 31, 2010, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $20,475 and $32,020, respectively, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds, U.S. Dollars, and Swiss Franc.

On May 13, 2010, the Company completed the private placement of €75.0 million aggregate principal amount of senior unsecured notes to accredited institutional investors. This Euro-denominated debt obligation was designated as a net investment hedge to hedge portions of the Company’s net investment in Euro-denominated foreign operations. As net investment hedges, the currency effects of the debt obligations are reflected in the foreign currency translation adjustments component of accumulated other comprehensive income where they offset gains and losses recorded on the Company’s net investment in Euro-denominated operations. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.

During the three and nine month period ended April 30, 2011, the Company used forward foreign exchange currency contracts designated as net investment hedges to hedge portions of the Company’s net investments in Euro-denominated foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the foreign exchange translation adjustment component of accumulated other comprehensive income where it offsets gains and losses recorded on the Company’s net investment in Euro-denominated foreign operations. Any ineffective portions are recognized in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At April 30, 2011, the Company had $14,069 of forward foreign exchange currency contracts designated as net investment hedges included in “Other current liabilities” on the Condensed Consolidated Balance Sheet. At April 30, 2011, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $100,000. There were no forward foreign exchange contracts designated as net investment hedges outstanding as of July 31, 2010.

Fair values of derivative instruments in the Condensed Consolidated Balance Sheets were as follows:


	Asset Derivatives						Liability Derivatives
	April 30, 2011			July 31, 2010			April 30, 2011			July 31, 2010
	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments

Cash flow hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	65	Prepaid expenses and other current assets	$	156	Other current liabilities	$	1,672	Other current liabilities	$	829


Net investment hedges

Foreign currency denominated debt	Prepaid expenses and other current assets	$	—	Prepaid expenses and other current assets	$	—	Long term obligations, less current maturities	$	109,110	Long term obligations, less current maturities	$	97,747


Foreign exchange contracts	Prepaid expenses and other current assets	$	—	Prepaid expenses and other current assets	$	—	Other current liabilities	$	14,069	Other current liabilities	$	—


Total derivatives designated as hedging instruments		$	65		$	156		$	124,851		$	98,576


Derivatives not designated as hedging instruments

Foreign exchange contracts	Prepaid expenses and other current assets	$	—	Prepaid expenses and other current assets	$	24	Other current liabilities	$	—	Other current liabilities	$	64


Total derivatives not designated as hedging instruments		$	—		$	24		$	—		$	64

The pre-tax effects of derivative instruments designated as cash flow hedges and net investment hedges on the Condensed Consolidated Statements of Income consisted of the following:

Location of

Gain or

Amount of Gain or (Loss)

Location of

Amount of Gain or (Loss)

(Loss)

Reclassified From

Gain or

Recognized in Income on

Recognized in OCI on

Reclassified

Accumulated OCI Into Income

(Loss)

Derivative (Ineffective

Derivative (Effective Portion)

From

(Effective Portion)

Recognized

Portion)

Nine

Accumulated

Nine

in Income

Nine

Derivatives in

months

OCI into

months

Cash Flow

ended

Income

ended

Derivative

ended

Hedging

April 30,

(Effective

April 30,

(Ineffective

April

April 30,

Relationships

2011

2010

Portion)

2011

2010

Portion)

30, 2011

2010

Cash Flow Hedges

Foreign exchange contracts

(2,210

)

(120

)

Cost of Goods Sold

(887

)

—

Cost of Goods Sold

—

Total

(2,210

)

(120

)

(887

)

—

The pre-tax effects of derivative instruments designated as net investment hedges on the Condensed Consolidated Balance Sheet consisted of the following:


								Amount of Gain
								or (Loss)					Amount of Gain
	Amount of Gain or (Loss)							Reclassified From					or (Loss)
	Recognized in OCI on						Location of Gain	Accumulated OCI					Recognized in
	Derivative						or (Loss)	Into Income				Location of	Income on Derivative
Derivatives in	(Effective Portion)						Reclassified From	(Effective Portion)				Gain or (Loss)	(Ineffective Portion)
Net Investment	Nine months ended						Accumulated	Nine months ended				Recognized in	Nine months ended
Hedging	April 30,						OCI into Income	April 30,				Income on Derivative	April 30,
Relationships	2011			2010			(Effective Portion)	2011		2010		(Ineffective Portion)	2011		2010
Foreign currency denominated debt	$	(11,362	)	$	—		Investment and other income — net	$	—	$	—	Investment and other income — net	$	—	$	—
Foreign exchange contracts	$	(14,069	)	$	(1,326	)	Investment and other income — net	$	—	$	—	Investment and other income — net	$	—	$	—

Total	$	(25,431	)	$	(1,326	)		$	—	$	—		$	—	$	—

The pre-tax effects of derivative instruments not designated as hedge instruments on the Condensed Consolidated Statements of Income consisted of the following:


		Amount of Gain or (Loss)
		Recognized in Income on Derivative
	Location of Gain or	Nine months			Nine months
	(Loss) Recognized in	ended April 30,			ended April 30,
Derivatives Not Designated as Hedging Instruments	Income on Derivative	2011			2010
Foreign exchange contracts	Other income (expense)	$	(953	)	$	(402	)

Total		$	(953	)	$	(402	)