DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Oct. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company manages certain financial exposures through a risk management program that includes the use of foreign exchange derivative financial instruments. Derivatives are executed with counterparties with a minimum credit rating of “A” by Standard & Poors and “A2” by Moody’s Investor Services, in accordance with the Company’s policies. The Company does not utilize derivative instruments for trading or speculative purposes. As of October 31, 2013, the Company had foreign currency forward contracts outstanding with notional amounts aggregating $399,953, whose fair values were a net liability of $215.

Foreign Exchange Related:

a. Derivatives Not Designated as Hedging Instruments

The risk management objective of holding foreign exchange derivatives is to mitigate volatility to earnings and cash flows due to changes in foreign exchange rates. The Company and its subsidiaries conduct transactions in currencies other than their functional currencies. These transactions include non-functional intercompany and external sales as well as intercompany and external purchases. The Company uses foreign exchange forward contracts, matching the notional amounts and durations of the receivables and payables resulting from the aforementioned underlying foreign currency transactions, to mitigate the exposure to earnings and cash flows caused by the changes in fair value of these receivables and payables from fluctuating foreign exchange rates. The notional amount of foreign currency forward contracts not designated as hedging instruments entered into during the three months ended October 31, 2013 was $574,170. The notional amount of foreign currency forward contracts outstanding that were not designated as hedging instruments as of October 31, 2013 was $322,279.

b. Cash Flow Hedges

The Company uses foreign exchange forward contracts for cash flow hedging on its future transactional exposure to the Euro due to changes in market rates to exchange Euros for British Pounds. The hedges cover a British subsidiary (British Pound functional) with Euro revenues and a Swiss subsidiary (Euro functional) with British Pound expenses. The probability of the occurrence of these transactions is high and the Company’s assessment is based on observable facts including the frequency and amounts of similar past transactions. The objective of the cash flow hedges is to lock the British Pound equivalent amount of Euro sales for the British subsidiary and the Euro equivalent amount of British Pound expenses for the Swiss subsidiary at the agreed upon exchange rates in the foreign exchange forward contracts. There were no foreign currency forward contracts designated as hedging instruments entered into during the three months ended October 31, 2013. The notional amount of foreign currency forward contracts outstanding designated as hedging instruments as of October 31, 2013 was $77,674 and covers certain monthly transactional exposures through July 2014.

c. Net Investment Hedges

The risk management objective of designating the Company’s foreign currency loan as a hedge of a portion of its net investment in a wholly owned Japanese subsidiary is to mitigate the change in the fair value of the Company’s net investment due to changes in foreign exchange rates. The Company uses a JPY loan outstanding to hedge its equity of the same amount in the Japanese wholly owned subsidiary. The hedge of net investment consists of a JPY 9 billion loan.

The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows:

	Asset Derivatives			Liability Derivatives
October 31, 2013	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign exchange forward contracts	Other current assets	$	405	Other current liabilities	$	92
Derivatives not designated as hedging instruments
Foreign exchange forward contracts	Other current assets	$	775	Other current liabilities	$	1,303
Total derivatives		$	1,180		$	1,395
Nonderivative instruments designated as hedging instruments
Net investment hedge				Long-term debt, net of current portion	$	91,359

	Asset Derivatives			Liability Derivatives
July 31, 2013	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign exchange forward contracts	Other current assets	$	—	Other current liabilities	$	1,941
Derivatives not designated as hedging instruments
Foreign exchange forward contracts	Other current assets	$	301	Other current liabilities	$	1,125
Total derivatives		$	301		$	3,066
Nonderivative instruments designated as hedging instruments
Net investment hedge				Long-term debt, net of current portion	$	91,800

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments for the three months ended October 31, 2013 and October 31, 2012 are presented as follows:

	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) (a)
	Three Months Ended						Three Months Ended
	Oct 31, 2013		Oct 31, 2012				Oct 31, 2013			Oct 31, 2012
Derivatives in cash flow hedging relationships
Foreign exchange forward contracts	$	1,821	$	(1,952	)	Net sales	$	(1	)	$	(91	)
						Cost of sales	(820		)	—
Total derivatives	$	1,821	$	(1,952	)		$	(821	)	$	(91	)

(a) There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the three months ended October 31, 2013 and October 31, 2012.

The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments for the three months ended October 31, 2013 and October 31, 2012 are presented as follows:

		Amount of Gain or (Loss) Recognized in Earnings on Derivatives
		Three Months Ended
	Location of Gain or (Loss) Recognized in Earnings on Derivatives	Oct 31, 2013		Oct 31, 2012
Derivatives not designated as hedging relationships
Foreign exchange forward contracts	Selling, general and administrative expenses	$	450	$	(2,438	)

The amounts of the gains and losses related to the Company’s nonderivative financial instruments designated as hedging instruments for the three months ended October 31, 2013 and October 31, 2012 are presented as follows:

	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)(b)
	Three Months Ended						Three Months Ended
	Oct 31, 2013			Oct 31, 2012			Oct 31, 2013		Oct 31, 2012
Nonderivatives designated as hedging relationships
Net investment hedge	$	(441	)	$	1,337	N/A	$	—	$	—

(b) There were no gains or losses recognized in earnings related to the ineffective portion of the hedging relationship or related to the amount excluded from the assessment of hedge effectiveness for the three months ended October 31, 2013 and October 31, 2012.