Derivative Instruments and Foreign Currency Exposure

6 Months Ended

Jul. 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 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. 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 six-months ended July 31, 2012, the Company sustained a pre-tax loss on foreign exchange in Brazil of $(375,741) or $(0.07) per share and $(691,528) or $(0.13) per share, respectively included in pre-tax income from continuing operations. In the three and six months ended July 31, 2011, the Company recorded a gain on foreign exchange in Brazil of $28,083 or $0.005 per share and $248,850 or $0.05 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.

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 certain assets and liabilities denominated in foreign currencies. Those forward contracts derivatives not designated as hedging instruments are generally settled quarterly or monthly. Gain and loss on 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 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				Six Months Ended
	July 31, 2012		July 31, 2011		April 30, 2012			April 30, 2011
Notional Value in USD	$	22,822	$	3,635	$	25,326		$	6,506
Gain and loss reported in current operating income (expense)	$	2	$	14	$	(56	)	$	(172	)

The above fluctuations among the periods are mainly from our new program started in May 2012 on Brazilian currency hedge. Total outstanding balances on the above derivatives are $6,681,960 and $0 for the periods ended July 31, 2012 and 2011, respectively.

Derivatives designated as hedging instruments (in thousands)

Asset Derivative from Foreign Currency Cash Flow Hedge

	As of July 31, 2012			As of  January 31, 2012
Notional value in USD	$	8,719		$	6,904
Gain and (loss) reported in equity as other comprehensive income	$	(108	)	$	123
Reported in Balance Sheet		Other payables			Other assets

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

	Six Months Ended  July 31, 2012		Six Months Ended July 31, 2011
Gain reclassed from other comprehensive income into current earnings during six months ended  July 31, 2012 reported in operating income	$	10	$	32

The cash flow hedge is designed to hedge the payments made in Euros and USA dollars to our China subsidiaries. Fair value of $107,552 and $123,313 were recorded as other liability and other assets as of July 31, 2012 and 2011, respectively.