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Derivative Financial Instruments
 6 Months Ended
Jul. 31, 2016
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for its derivative financial instruments in accordance with the accounting guidance which requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. A significant portion of the Company’s purchases are denominated in Swiss francs. The Company also sells to third-party customers in a variety of foreign currencies, most notably the Euro and the British Pound. The Company reduces its exposure to the Swiss franc, Euro and British Pound exchange rate risks through a hedging program. Under the hedging program, the Company manages most of its foreign currency exposures on a consolidated basis, which allows it to net certain exposures and take advantage of natural offsets. In the event these exposures do not offset, from time to time the Company uses forward contracts to further reduce the net exposures to currency fluctuations. When entered into, the Company designates and documents these derivative instruments as a cash flow hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transactions. Changes in the fair value of a derivative that is designated and documented as a cash flow hedge and is highly effective, are recorded in other comprehensive income until the underlying transaction affects earnings, and then are later reclassified into earnings in the same account as the hedged transaction. The earnings impact is mostly offset by the effects of currency movements on the underlying hedged transactions. The Company formally assesses, both at the inception and at each financial quarter thereafter, the effectiveness of the derivative instrument hedging the underlying forecasted cash flow transaction. The Company does not exclude any designated cash flow hedges from its effectiveness testing. Any ineffectiveness related to the derivative financial instruments’ change in fair value will be recognized as other income in the Consolidated Statements of Operations in the period in which the ineffectiveness was calculated. No ineffectiveness has been recorded in the three and six months ended July 31, 2016 and 2015.

The Company uses forward exchange contracts to offset its exposure to certain foreign currency receivables and liabilities. These forward contracts are not designated as qualified hedges and, therefore, changes in the fair value of these derivatives are recognized in earnings in the period they arise, thereby offsetting the current earnings effect resulting from the revaluation of the related foreign currency receivables and liabilities.

All of the Company’s derivative instruments have liquid markets to assess fair value. The Company does not enter into any derivative instruments for trading purposes.

As of July 31, 2016, the Company’s entire net forward contracts hedging portfolio consisted of 36.0 million Swiss francs equivalent and 10.0 million Euros equivalent for various expiry dates ranging through January 10, 2017.

The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivatives (in thousands):

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Balance

Sheet

Location

 

 

July 31,

2016

Fair

Value

 

 

January 31,

2016

Fair

Value

 

 

July 31,

2015

Fair

Value

 

 

Balance

Sheet

Location

 

 

July 31,

2016

Fair

Value

 

 

January 31,

2016

Fair

Value

 

 

July 31,

2015

Fair

Value

 

Derivatives not

   designated as

   hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange

   Contracts

Other Current

Assets

 

 

$

355

 

 

$

1

 

 

$

33

 

 

 

Accrued

Liabilities

 

 

$

92

 

 

$

1,163

 

 

$

589

 

Total Derivative

   Instruments

 

 

 

$

355

 

 

$

1

 

 

$

33

 

 

 

 

 

 

$

92

 

 

$

1,163

 

 

$

589

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Balance

Sheet

Location

 

 

July 31,

2016

Fair

Value

 

 

January 31,

2016

Fair

Value

 

 

July 31,

2015

Fair

Value

 

 

Balance

Sheet

Location

 

 

July 31,

2016

Fair

Value

 

 

January 31,

2016

Fair

Value

 

 

July 31,

2015

Fair

Value

 

Derivatives

   designated as

   hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange

   Contracts

Other Current

Assets

 

 

$

194

 

 

$

63

 

 

$

70

 

 

 

Accrued

Liabilities

 

 

$

—

 

 

$

—

 

 

$

56

 

Total Derivative

   Instruments

 

 

 

$

194

 

 

$

63

 

 

$

70

 

 

 

 

 

 

$

—

 

 

$

—

 

 

$

56

 

 

As of July 31, 2016 and 2015, the balance of deferred net gains on derivative financial instruments documented as cash flow hedges included in accumulated other comprehensive income (“AOCI”) were immaterial for both periods, respectively. The maximum length of time the Company hedges its exposure to the fluctuation in future cash flows for forecasted transactions is 24 months. For the three months ended July 31, 2016 and 2015, the Company reclassified amounts from AOCI to earnings that were immaterial for both periods, respectively. For the six months ended July 31, 2016 and 2015, the Company reclassified amounts from AOCI to earnings that were immaterial for both periods, respectively.