Derivatives and Hedging Activities

3 Months Ended

Oct. 31, 2011

Derivatives And Hedging Activities [Abstract]

Derivatives and Hedging Activities

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. 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 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 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. As of October 31, 2011 and July 31, 2011, the notional amount of outstanding forward exchange contracts was $56,938 and $80,807, 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 quarters ended October 31, 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, Japanese Yen, Swiss Franc and Singapore Dollar. 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 October 31, 2011, unrealized gains of $252 have been included in OCI. As of July 31, 2011, unrealized losses of $1,535 have been included in OCI. All balances are expected to be reclassified from OCI to earnings during the next twelve months when the hedged transactions impact earnings.

At October 31, 2011 and July 31, 2011, the Company had $296 and $16 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 October 31, 2011 and July 31, 2011, the Company had $188 and $830, respectively, of forward exchange contracts designated as hedge instruments included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets. At October 31, 2011 and July 31, 2011, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $25,288 and $30,519, respectively, including contracts to sell Euros, Canadian Dollars, Australian Dollars, British Pounds, U.S. Dollars, and Swiss Franc.

The Company has also designated intercompany and third party foreign currency denominated debt instruments as net investments hedges. During the three months ended October 31, 2011, the Company designated €4,581 of intercompany loans as net investment hedges to hedge portions of its net investment in European foreign operations. No intercompany loans were designated as net investment hedges as of July 31, 2011. 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 selectively hedge portions of its net investment in European foreign operations. As net investment hedges, the currency effects of the intercompany and third party 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 European operations. The Company’s foreign denominated debt obligations are valued under a market approach using publicized spot prices.

Additionally, the Company utilizes forward foreign exchange currency contracts designated as hedge instruments to hedge portions of the Company’s net investments in foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within other comprehensive income. Any ineffective portions are to be 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 October 31, 2011 and July 31, 2011, the Company had $2,656 and $5,295, respectively, of forward foreign exchange currency contracts designated as net investment hedges included in “Other current liabilities” on the Condensed Consolidated Balance Sheet. At October 31, 2011 and July 31, 2011, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $31,650 and $50,000, respectively, including contracts to sell Euros and Singapore Dollars.

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

	Asset Derivatives						Liability Derivatives
	October 31, 2011			July 31, 2011			October 31, 2011			July 31, 2011
Derivatives	Balance			Balance			Balance			Balance
designated as	Sheet	Fair		Sheet	Fair		Sheet	Fair		Sheet	Fair
hedging instruments	Location	Value		Location	Value		Location	Value		Location	Value
Cash flow hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	296	Prepaid expenses and other current assets	$	16	Other current liabilities	$	188	Other current liabilities	$	830
Net investment hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	—	Prepaid expenses and other current assets	$	—	Other current liabilities	$	2,656	Other current liabilities	$	5,295
Foreign currency denominated debt	Prepaid expenses and other current assets	$	—	Prepaid expenses and other current assets	$	—	Long term obligations, less current maturities	$	106,125	Long term obligations, less current maturities	$	107,985
Total derivatives designated as hedging instruments		$	296		$	16		$	108,969		$	114,110
Derivatives not designated as hedging instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	21	Prepaid expenses and other current assets	$	3	Other current liabilities	$	1	Other current liabilities	$	2
Total derivatives not designated as hedging instruments		$	21		$	3		$	1		$	2

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

							Amount of Gain						Location of
	Amount of Gain					Location of Gain or	or (Loss)						Gain or (Loss)	Amount of Gain
	or (Loss)					(Loss) Reclassified	Reclassified From						Recognized in	or (Loss)
Derivatives in	Recognized in					From Accumulated	Accumulated OCI						Income on	Recognized in
Cash Flow Hedging	OCI on Derivative					OCI into Income	Into Income						Derivative	Income on Derivative
Relationships	(Effective Portion)					(Effective Portion)	(Effective Portion)						(Ineffective Portion)	(Ineffective Portion)
	Three months						Three months							Three months
	ended October 31,						ended October 31,							ended October 31,
	2011		2010				2011			2010				2011		2010
Foreign exchange contracts	$	230	$	(185	)	Cost of goods sold	$	(777	)	$	(100	)	Cost of goods sold	$	—	$	—
Total	$	230	$	(185	)		$	(777	)	$	(100	)		$	—	$	—

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				Location of
	Amount of Gain						Location of Gain or	or (Loss)				Gain or (Loss)	Amount of Gain
	or (Loss)						(Loss) Reclassified	Reclassified From				Recognized in	or (Loss)
Derivatives in Net	Recognized in						From Accumulated	Accumulated OCI				Income on	Recognized in
Invesment Hedging	OCI on Derivative						OCI into Income	into Income				Derivative	Income on Derivative
Relationships	(Effective Portion)						(Effective Portion)	(Effective Portion)				(Ineffective Portion)	(Ineffective Portion)
	Three months							Three months					Three months
	ended October 31,							ended October 31,					ended October 31,
	2011			2010				2011		2010			2011		2010
Foreign currency intercompany debt	$	(298	)	$	—		Investment and other income — net	$	—	$	—	Investment and other income — net	$	—	$	—
Foreign currency denominated debt		(11,210	)		(6,720	)	Investment and other income — net		—		—	Investment and other income — net		—		—
Total	$	(11,508	)	$	(6,720	)		$	—	$	—		$	—	$	—