XML 85 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivatives and Hedging
 12 Months Ended
Jul. 31, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging
(10)
   Derivatives and Hedging
 
The Company has entered into two interest rate swaps to exchange its variable interest rate payments commitment for fixed interest rate payments on the Term Loan balance which, at July 31, 2012 totaled $443.8 million. The first swap fixed the Company’s interest rate at 85 basis points plus the one month LIBOR rate on the first $337.5 million of its term debt. The second swap fixed the Company’s interest rate at 69 basis points plus the one month LIBOR rate on the next $106.3 million of its term debt.

The swap is a designated effective cash flow hedge under ASC 815, Derivatives and Hedging, and is recorded in other liabilities at its fair value, which at July 31, 2012 is $4.9 million. Each quarter, the Company measures hedge effectiveness using the “hypothetical derivative method” and records in earnings any hedge ineffectiveness with the effective portion of the hedge’s change in fair value recorded in other comprehensive income or loss.

The notional amount of the swap amortizes until all outstanding borrowings are due on the Term Loan on December 14, 2015 (see Note 9. Long-Term Debt). At July 31, 2012, the notional amount of the interest rate swaps was equal to the Term Loan balance, $443.8 million. The notional amount of the two derivative transactions amortizes $18.8 million per quarter through September 30, 2015 and $200.0 million on December 14, 2015.

The hedge provided by the swap could prove to be ineffective for a number of reasons, including early retirement of the Term Loan, as allowed under the Credit Facility, or in the event the counterparty to the interest rate swap is determined in the future to not be creditworthy. The Company has no plans for early retirement of the Term Loan.

The interest rate swaps are classified within Level II of the fair value hierarchy as the derivatives are valued using observable inputs. The Company determines fair value of the derivative utilizing observable market data of swap rates and basis rates. These inputs are placed into a pricing model using a discounted cash flow methodology in order to calculate the mark-to-market value of the interest rate swap.

The fair value of the interest rate swaps, a level II financial instrument, are (in thousands):

As of     Asset or
(Liability)		   Gain or (loss) in
Comprehensive
Income		   Amount
Reclassified into
Earnings
July 31, 2012
               $ (4,872 )         $ (3,110 )         $ —    
July 31, 2011
               $ —           $ —           $ —