XML 18 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Instruments and Foreign Currency Exposure
 3 Months Ended
Apr. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

11. Derivative Instruments and Foreign Currency Exposure

 

The Company is exposed to foreign currency risk. 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 Brazil Real other than the cash flow hedge discussed below. 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. We designated the forward contracts as derivatives but not as hedging instruments, with loss and gain recognized in current earnings. In the three-months ended April 30, 2013, the Company sustained a loss on foreign exchange in Brazil of $27,142 or $(0.01) per share included in net income from continuing operations. In the three months ended April 30, 2012, the Company recorded a loss on foreign exchange in Brazil of $315,787 or $(0.06) per share included in net income from continuing operations.

 

The Company accounts for its foreign exchange derivative instruments by recognizing all derivatives 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.

 

Currently, we have two types of derivatives to manage the risk of foreign currency fluctuations. We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies. Those forward contract derivatives, not designated as hedging instruments, are generally settled quarterly. Gain and loss on those forward contracts are included in current earnings. 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 accumulated other comprehensive income. Our hedge positions are summarized below:

 

 

Fair Value of Derivative Instruments

 

Derivatives not designated as hedging instruments

Foreign Exchange Forward Contracts

  

    Three Months Ended  
    April 30, 2013     April 30, 2012  
Notional Value in USD   $ 4,587,136     $ 2,503,770  
Gain and loss reported in current operating income (expense)     29,879       (57,261 )

 

There is no outstanding balance from foreign exchange forward contracts as of April 30, 2013 or April 30, 2012.

 

Derivatives designated as hedging instruments

 

Asset Derivative from Foreign Currency Cash Flow Hedge

 

    As of
April 30, 2013		     As of January 31, 2013  
             
Notional value in USD   $ 3,135,120     $ 6,944,040  
Gain reported in equity as other comprehensive income     88,261       38,513  

 

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

 

    Three Months Ended
April 30, 2013		     Three Months Ended
April 30, 2012		  
                 
Gain reclassed from other comprehensive income into current earnings during three months ended April 30, 2013, reported in operating income   $ 75,668     $ 22,329  

 

The cash flow hedge is designed to hedge the payments made in USD and Euro to our China subsidiaries.  Other assets have been recorded as $92,011 and $19,544 in the balance sheet for Q1 FY14 vs. FYE2013, respectively.