Derivative Financial Instruments

3 Months Ended

Jan. 31, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

8. Derivative Financial Instruments

The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income and product purchases of its international subsidiaries that are denominated in currencies other than their functional currencies. The Company is also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars. Furthermore, the Company is exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in the Company’s consolidated financial statements due to the translation of the operating results and financial position of the Company’s international subsidiaries. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses various foreign currency exchange contracts and intercompany loans.

The Company accounts for all of its cash flow hedges under ASC 815, “Derivatives and Hedging,” which requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheet. In accordance with ASC 815, the Company designates forward contracts as cash flow hedges of forecasted purchases of commodities.

For derivative instruments that are designated and qualify as cash flow hedges, 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. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. As of January 31, 2012, the Company was hedging forecasted transactions expected to occur through October 2013. Assuming January 31, 2012 exchange rates remain constant, $5.8 million of gains, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next 21 months.

For the three months ended January 31, 2012 and 2011, the effective portions of gains and losses on derivative instruments in the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income (loss) were as follows:

	Three months ended January 31,
	2012			2011
In thousands	Amount						Location
Gain recognized in OCI on derivatives	$	16,690		$	1,149		Other comprehensive income
(Loss) gain reclassified from accumulated OCI into income	$	(3,075	)	$	748		Cost of goods sold
Loss reclassified from accumulated OCI into income	$	—		$	(1,033	)	Interest expense
(Loss) gain reclassified from accumulated OCI into income	$	(20	)	$	180		Foreign currency gain
Gain recognized in income on derivatives	$	181		$	—		Foreign currency gain

On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. Before entering into various hedge transactions, the Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy. In this documentation, the Company identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and indicates how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if management determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged by the derivative will not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if management determines that designation of the derivative as a hedge instrument is no longer appropriate.

The Company enters into forward exchange and other derivative contracts with major banks and is exposed to exchange rate losses in the event of nonperformance by these banks. The Company anticipates, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, the Company does not require collateral or other security to support the contracts.

As of January 31, 2012, the Company had the following outstanding derivative contracts that were entered into to hedge forecasted purchases and future cash receipts:

In thousands	Commodity	Notional Amount		Maturity		Fair Value
United States dollars	Inventory	$	388,232		Feb 2012 –Oct 2013	$	10,629
Swiss francs	Accounts receivable		8,292		Feb 2012 –Oct 2012		(358	)
British pounds	Accounts receivable		21,348		Feb 2012 –Oct 2012		(27	)
		$	417,872			$	10,244

ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:

• Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 assets and liabilities include debt and equity securities traded in an active exchange market, as well as U.S. Treasury securities.

• Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 – Valuation is determined using model-based techniques with significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of third party pricing services, option pricing models, discounted cash flow models and similar techniques.

The Company’s derivative assets and liabilities include foreign exchange derivatives that are measured at fair value using observable market inputs such as forward rates, interest rates, the Company’s credit risk and the Company’s counterparties’ credit risks. Based on these inputs, the Company’s derivative assets and liabilities are classified within Level 2 of the valuation hierarchy.

The following tables reflect the fair values of assets and liabilities measured and recognized at fair value on a recurring basis on the accompanying condensed consolidated balance sheets:

		$(10,344)		$(10,344)			$(10,344)		$(10,344)
	Fair Value Measurements Using							Assets
In thousands	Level 1		Level 2			Level 3		at Fair Value
	January 31, 2012
Derivative assets:
Other receivables	$	—	$	8,052		$	—	$	8,052
Other assets		—		7,045			—		7,045
Derivative liabilities:
Accrued liabilities		—		(4,132	)		—		(4,132	)
Other long-term liabilities		—		(721	)		—		(721	)
Total fair value	$	—	$	10,244		$	—	$	10,244
	October 31, 2011
Derivative assets:
Other receivables	$	—	$	1,031		$	—	$	1,031
Other assets		—		1,610			—		1,610
Derivative liabilities:
Accrued liabilities		—		(12,297	)		—		(12,297	)
Other long-term liabilities		—		(688	)		—		(688	)
Total fair value	$	—	$	(10,344	)	$	—	$	(10,344	)