Derivative Instruments and Foreign Currency Exposure

9 Months Ended

Oct. 31, 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 previously had 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. However, as a result of the financing situation with its former lender, TD Bank, the Company’s corporate hedging program has been temporarily suspended. In the third quarter of FY14, the Company has established a foreign exchange facility with Wells Fargo Bank, N.A. 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. The Company has continued its currency hedging in China. 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 October 31, 2013, the Company sustained a gain on foreign exchange in Brazil of $115,764 or $0.02 per share included in net income. In the nine months ended October 31, 2013, the Company recorded a loss on foreign exchange in Brazil of $(271,647) or $(0.05) per share included in net income.

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 October 31,				Nine Months Ended October 31,
	2013		2012		2013		2012
Notional Value in USD	$	1,000	$	11,175	$	6,587	$	36,501
Gain and loss reported in current operating income (expense)	$	(42)	$	205	$	81	$	261

There is no outstanding balance from foreign exchange forward contracts as of October 31, 2013 or 2012.

Derivatives designated as hedging instruments 

Asset Derivative from Foreign Currency Cash Flow Hedge

	As of October 31, 2013		As of January 31, 2013
Notional value in USD	$	412,440	$	6,944,040
Gain reported in equity as other comprehensive income		(59,078)		38,513

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

	Nine Months Ended October 31, 2013		Nine Months Ended October 31, 2012
Gain reclassifed from other comprehensive income into current earnings during three months ended October 31, 2013, reported in operating income	$	85	$	33

The cash flow hedge is designed to hedge the payments made in the Euro to our China subsidiaries. Other assets have been recorded as $92,011 and $19,544 in the balance sheet for Q3 FY14 vs. FY13, respectively.