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Derivative Instruments and Foreign Currency Exposure
 9 Months Ended
Oct. 31, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

11. Derivative Instruments and Foreign Currency Exposure

 

The Company has foreign currency exposure, principally through sales in Canada, Brazil, China, Argentina, Chile and the UK, and production in Brazil, Mexico and China. Management has commenced a derivative instrument program to partially offset this risk by purchasing forward contracts to sell the Canadian Dollar, the Chilean Peso, the Euro, the Great Britain Pound and the Argentina Peso. Such contracts are largely timed to expire with the last day of the fiscal quarter, with a new contract purchased on the first day of the following quarter, to match the operating cycle of the Company. Management has decided not to hedge its long position in the Chinese Yuan. Management previously had not hedged the Brazilian Real, but commenced doing so in May 2012. We designated the forward contracts as nonhedging instruments with loss and gain recognized in the current earnings. In the three and nine-months ended October 31, 2012, the Company sustained a pre-tax gain on foreign exchange in Brazil of $61,791or $0.01 per share and a pre-tax loss of  ($840,319) or ($0.13 per share, respectively included in pre-tax income from continuing operations. In the three and nine months ended October 31, 2011, the Company recorded a loss on foreign exchange in Brazil of ($343,803) or ($0.05) per share and ($94,953) or ($0.01) per share, respectively included in pre-tax income from continuing operations.

 

The Company accounts for its foreign exchange derivative instruments as either assets or liabilities at fair value, which may result in additional volatility in both current period earnings and other comprehensive income as a result of recording recognized and unrecognized gains and losses from changes in the fair value of derivative instruments.

 

We also enter cash flow hedge contracts with financial institutions to manage our currency exposure on future cash payments denominated in foreign currencies. The effective portion of gain or loss on cash flow hedge is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. Our hedge positions are summarized below:

 

Derivatives not designated as hedging instruments (in thousands)

Foreign Exchange Forward Contracts

    Three Months Ended     Nine Months Ended  
    October 31,
2012		     October 31,
2011		     October 31,
2012		     October 31,
2011		  
Notional Value in USD   $ 11,175     $ 3,444     $ 36,501     $ 9,950  
Gain and loss reported in current operating income (expense)   $ 205     $ 41     $ 261     $ (130 )

 

Derivatives designated as hedging instruments (in thousands)

Asset Derivative from Foreign Currency Cash Flow Hedge

 

   

As of

October 31, 2012

    

As of

January 31, 2012

  
Notional value in USD   $ 6,777     $ 6,904  
Gain and (loss) reported in equity as other comprehensive income   $ 11     $ 123  
Reported in Balance Sheet     Other payables       Other assets  

Effect of Derivative on Income Statement from Foreign Currency Cash Flow Hedge

 

    Nine Months Ended
October 31, 2012		     Nine Months Ended
October 31, 2011		  
Gain reclassed from other comprehensive income into current earnings during nine months ended October 31, 2012 reported in operating income   $ 33     $ 30  

 

The cash flow hedge is designed to hedge the payments made in Euros and USA dollars to our China subsidiaries. Fair value of $10,775 and $87,614 were both recorded as other assets as of October 31, 2012 and 2011.