Derivatives and Hedging Activities

9 Months Ended

Apr. 30, 2012

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 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 18 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, 2012 and July 31, 2011, the notional amount of outstanding forward exchange contracts was $50,999 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 three-month or nine-month periods ended April 30, 2012 and 2011.

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, Malaysian Ringgit, 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, 2012 and July 31, 2011, unrealized gains of $177 and unrealized losses of $1,535 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, 2012 and July 31, 2011, the Company had $181 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 April 30, 2012 and July 31, 2011, the Company had $144 and $830, 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, 2012 and July 31, 2011, the U.S. dollar equivalent of these outstanding forward foreign exchange contracts totaled $24,326 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 nine months ended April 30, 2012, 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 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.

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 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 foreign operation. At April 30, 2012, and July 31, 2011, the Company had $23 and $5,295, respectively, of forward foreign exchange currency contracts designated as net investment hedges included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets. At April 30, 2012 and July 31, 2011, the U.S dollar equivalent of these outstanding forward foreign exchange contracts totaled $12,999 and $50,000, respectively, including contracts to sell Euros, Singapore Dollars, and Malaysian Ringgit.

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

	Asset Derivatives						Liability Derivatives
	April 30, 2012			July 31, 2011			April 30, 2012			July 31, 2011
Derivatives designated as hedging instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Cash flow hedges
Foreign exchange contracts	Prepaid expenses and other current assets	$	181	Prepaid expenses and other current assets	$	16	Other current liabilities	$	144	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	$	23	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	$	99,398	Long term obligations, less current maturities		107,985
Total derivatives designated as hedging instruments		$	181		$	16		$	99,565		$	114,110
Derivatives not designated as hedging instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	23	Prepaid expenses and other current assets	$	3	Other current liabilities	$	—	Other current liabilities	$	2
Total derivatives not designated as hedging instruments		$	23		$	3		$	—		$	2

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

Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)					Location of Gain or (Loss) Reclassified From Accumulated OCI into Income (Effective Portion)	Amount of Gain or  (Loss) Reclassified From Accumulated  OCI Into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
	Nine months ended April 30,						Nine months ended April 30,							Nine months ended April 30,
	2012		2011				2012			2011				2012		2011
Foreign exchange contracts	$	177	$	(2,210	)	Cost of goods sold	$	(650	)	$	(887	)	Cost of goods sold	$	—	$	—
Total	$	177	$	(2,210	)		$	(650	)	$	(887	)		$	—	$	—

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

Derivatives in Net Invesment Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss) Reclassified From Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified From Accumulated  OCI into Income (Effective Portion)				Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
	Nine months ended April 30,							Nine months ended April 30,					Nine months ended April 30,
	2012			2011				2012		2011			2012		2011
Foreign currency intercompany debt	$	113		$	—		Investment and other income — net	$	—	$	—	Investment and other income — net	$	—	$	—
Foreign currency denominated debt		8,588			(11,362	)	Investment and other income — net		—		—	Investment and other income — net		—		—
Foreign exchange contracts		(1,166	)		(14,069	)	Investment and other income — net		—		—	Investment and other income — net		—		—
Total	$	7,535		$	(25,431	)		$	—	$	—		$	—	$	—

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
Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Nine months ended April  30, 2012		Nine months ended April  30, 2011
Foreign exchange contracts	Other income (expense)	$	227		$	(953	)
Total		$	227		$	(953	)