FINANCIAL INSTRUMENTS AND RISKS AND UNCERTAINTIES

12 Months Ended

Jul. 31, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS AND RISKS AND UNCERTAINTIES

NOTE 10 – FINANCIAL INSTRUMENTS AND RISKS & UNCERTAINTIES

As of July 31, 2011, the Company had foreign currency forward contracts outstanding with notional amounts aggregating $296,252, whose fair values were a net asset of $978. As discussed in Note 8, Notes Payable and Long-term Debt, the Company refinanced its JPY 9 billion loan during the fourth quarter of fiscal year 2010. In conjunction with this refinancing, the previously existing variable to fixed rate interest rate swap that was used to lock in fixed cash outflows on its variable rate JPY 9 billion loan was settled. The Company used this swap to mitigate the associated risk of changes in market interest rates in Japan. As a result, the cumulative unrealized losses that were recorded in accumulated other comprehensive income were reclassified into earnings in fiscal year 2010. Under the new financing agreement, interest is at a fixed rate. The Company designated this borrowing as a non-derivative hedge of a portion of its net JPY investment in a Japanese subsidiary.

The Company manages certain financial exposures through a risk management program that includes the use of foreign exchange and interest rate derivative financial instruments. Derivatives are executed with counterparties with a minimum credit rating of “A” by Standard & Poors and Moody’s Investor Services, in accordance with the Company’s policies. The Company does not utilize derivative instruments for trading or speculative purposes.

Foreign Exchange

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 entered into during the twelve months ended July 31, 2011 and July 31, 2010 was $2,403,274 and $1,427,295, respectively.

b. 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.

Interest Rates

a. Cash Flow Hedges

At July 31, 2011 and July 31, 2010, there were no existing cash flow hedges. See above regarding the settlement of the previously existing variable to fixed rate interest rate swap.

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

	Asset Derivatives			Liability Derivatives
		Fair
July 31, 2011	Balance Sheet Location	Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Not applicable (“NA”)
Derivatives not designated as hedging instruments
Foreign exchange forward contracts	Other current assets	$	1,456	Other current liabilities	$	478
Total derivatives
Nonderivative instruments designated as hedging instruments
Net investment hedge				Long-term debt, net of current
				portion	$	115,803

	Asset Derivatives			Liability Derivatives
		Fair
July 31, 2010	Balance Sheet Location	Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Not applicable (“NA”)
Derivatives not designated as hedging instruments
Foreign exchange forward contracts	Other current assets	$	2,166	Other current liabilities	$	555
Total derivatives		$	2,166		$	555
Nonderivative instruments designated as hedging instruments
Net investment hedge				Long-term debt, net of current
				portion	$	104,166

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments for the years ended July 31, 2011 and July 31, 2010 are presented as follows:

					Location of Loss
	Amount of Gain				Reclassified from	Amount of Loss Reclassified from
	Recognized in OCI on Derivatives				Accumulated OCI	Accumulated OCI into Earnings
	(Effective Portion)				into Earnings	(Effective Portion) (a)
	Jul. 31, 2011		Jul. 31, 2010		(Effective Portion)	Jul. 31, 2011		Jul. 31, 2010
Derivatives in cash
flow hedging
relationships
Interest rate swap
contract	$	–	$	444	Interest expense	$	–	$	(1,024	)

(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 twelve months ended July 31, 2011 and July 31, 2010.

     The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments for the years ended July 31, 2011 and July 31, 2010 are presented as follows:

	Location of Loss Recognized in	Amount of Loss Recognized in Earnings on
	Earnings on Derivatives	Derivatives
		Jul. 31, 2011			Jul. 31, 2010
Derivatives not designated as
hedging relationships
Foreign exchange forward	Selling, general and administrative
contracts	expenses	$	(4,916	)	$	(2,154	)

     The amounts of the gains and losses related to the Company’s nonderivative financial instruments designated as hedging instruments for the years ended July 31, 2011 and July 31, 2010 are presented as follows:

							Location of Gain
							or (Loss)
	Amount of Loss						Reclassified from
	Recognized in OCI on						Accumulated OCI	Amount of Gain or (Loss) Reclassified from
	Derivatives						into Earnings	Accumulated OCI into Earnings
	(Effective Portion)						(Effective Portion)	(Effective Portion) (b)
	Jul. 31, 2011			Jul. 31, 2010				Jul. 31, 2011		Jul. 31, 2010
Nonderivatives
designated as
hedging relationships
Net investment hedge	$	(7,448	)	$	(5,789	)	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 years ended July 31, 2011 and July 31, 2010.

The credit risk related to the interest rate swap and the foreign exchange forwards is considered low because such instruments are entered into only with financial institutions having high credit ratings and are generally settled on a net basis.

The Company’s cash and cash equivalents are in high-quality securities placed with a wide array of financial institutions with high credit ratings limiting the Company’s exposure to concentration of credit risks.

The Company’s products are sold to a diverse group of customers throughout the world. The Company is subject to certain risks and uncertainties as a result of changes in general economic conditions, sources of supply, competition, foreign exchange rates, tax regulatory changes, litigation and other regulatory developments. Management believes the diversity and breadth of the Company’s products, markets served and geographic operations mitigate the risk that adverse changes in any one area would materially affect the Company’s financial position. Additionally, as a result of the diversity of its customer base, the Company does not consider itself exposed to concentration of credit risks. These customer risks are further minimized by placing credit limits, ongoing monitoring of customers’ account balances, and assessment of customers’ financial strength.