Derivative Financial Instruments

6 Months Ended

Jul. 31, 2015

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for its derivative financial instruments in accordance with 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. The Company reduces its exposure to the Swiss franc and the Euro 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, the Company uses various derivative financial instruments to further reduce the net exposures to currency fluctuations, predominately forward contracts. 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 partially 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. 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, 2015 and 2014.

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 into earnings, thereby offsetting the current earnings effect 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, 2015, the Company’s entire net forward contracts hedging portfolio consisted of 34.0 million Swiss francs equivalent and 11.0 million Euros equivalent for various expiry dates ranging through January 28, 2016.

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, 2015 Fair Value			January 31, 2015 Fair Value	July 31, 2014 Fair Value		Balance Sheet Location	July 31, 2015 Fair Value			January 31, 2015 Fair Value	July 31, 2014 Fair Value
Derivatives not designated as hedging instruments:
Foreign Exchange Contracts	Other Current Assets	$	33	$	1,298	$	1	Accrued Liabilities	$	589	$	71	$	829
Total Derivative Instruments		$	33	$	1,298	$	1		$	589	$	71	$	829

	Asset Derivatives							Liability Derivatives
	Balance Sheet Location	July 31, 2015 Fair Value			January 31, 2015 Fair Value	July 31, 2014 Fair Value		Balance Sheet Location	July 31, 2015 Fair Value			January 31, 2015 Fair Value	July 31, 2014 Fair Value
Derivatives designated as hedging instruments:
Foreign Exchange Contracts	Other Current Assets	$	70	$	-	$	-	Accrued Liabilities	$	56	$	-	$	-
Total Derivative Instruments		$	70	$	-	$	-		$	56	$	-	$	-

As of July 31, 2015, the balance of deferred net gains on derivative financial instruments documented as cash flow hedges included in accumulated other comprehensive income (“AOCI”) was immaterial. As of July 31, 2014, there was no balance of deferred net gains or losses on derivative financial instruments documented as cash flow hedges included in AOCI. 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, 2015, the Company reclassified from AOCI to earnings $0.1 million of net loss, net of tax benefit of $0.1 million. For the six months ended July 31, 2015, the Company reclassified from AOCI to earnings $0.1 million of net gains, net of tax of $0.1 million. For the three and six months ended July 31, 2014, the Company had no reclassifications from AOCI to earnings.