Derivative Instruments and Foreign Currency Exposure

6 Months Ended

Jul. 31, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

12. 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 hedging 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 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. Management has decided not to hedge its long position in the Chinese Yuan or the Brazilian Real.

The Company accounts for its foreign exchange derivative instruments under guidance issued by the FASB addressing accounting for derivative instruments and hedging activities. This guidance requires recognition of all derivatives as either assets or liabilities at fair value and 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 limit these risks by following established risk management policies and procedures by utilizing derivative financial 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 or certain assets and liabilities denominated in foreign currencies, and those forward contracts are generally settled quarterly. Gain and loss on forward contracts are including 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 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:

	Three Months Ended July					Three Months Ended April
Fair Value Hedges	2011		2010			2011			2010
Notional amounts in USD	$	3,634,759	$	2,624,344		$	2,871,547		$	1,161,609
Gain (loss)	$	13,996	$	(24,891	)	$	(186,230	)	$	(54,969	)

Cash Flow Hedge	As of July 31, 2011				As of April 30, 2011
Outstanding notional amount in USD	$	1,800,375		—	$	2,131,622		—
Gain (loss) reported in other comprehensive income	$	(8,098	)	—	$	(67,354	)	—
Gain (loss) reported in Current earnings	$	2,149		—		—		—

The cash flow hedge is designed to hedge the payments made in Euros to our China subsidiaries. As of July 31, 2011, there were no open fair value hedge contracts and $8,089 has been recorded as a liability to account for the value of cash flow hedge.