Derivative Instruments and Foreign Currency Exposure

9 Months Ended

Oct. 31, 2011

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 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. We designated the forward contracts as derivatives not designated as hedging instruments with loss and gain recognized in the current earnings. In the three-months ended October 31, 2011, the Company sustained a loss on foreign exchange in Brazil of $340,000 or $(0.05) per share included in net income from continuing operations. In the three months ended October 31, 2010, the Company recorded a gain on foreign exchange in Brazil of $161,000 or $0.03 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 contracts derivatives not designated as hedging instruments 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:

Fair Value of Derivative Instruments

Derivatives not designated as hedging instruments

Foreign Exchange Forward Contracts

	Three Months Ended					Nine Months Ended
	October 31, 2011		October 31, 2010			October 31, 2011			October 31, 2010
Notional Value in USD	$	3,444,100	$	2,836,935		$	9,950,406		$	6,622,888
Gain and loss reported in current operating income (expense)	$	41,307	$	(118,147	)	$	(130,927	)	$	(198,007	)

There is no outstanding balance from foreign exchange forward contracts as of October 31, 2011 or October 31, 2010

Derivatives designated as hedging instruments

Asset Derivative from Foreign Currency Cash Flow Hedge

	As of October 31, 2011		Reported in balance sheet
Notional value in USD	$	9,539,425
Gain and loss reported in equity as other comprehensive income	$	87,615	Other assets

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

	Nine Months Ended October 31, 2011		Three Months Ended October 31, 2011
Gain reclassed from other comprehensive income into current earnings during three months ended October 31, 2011 reported in operating income	$	30,243	$	—

The cash flow hedge is designed to hedge the payments made in Euros and USD to our China subsidiaries. As of October 31, 2011, there were no open fair value hedge contracts, and $87,614 has been recorded as other asset to account for the value of cash flow hedge. There was no cash flow hedge in fiscal 2011.