Quarterly report pursuant to Section 13 or 15(d)

Note 9 - Derivative Financial Instruments

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Note 9 - Derivative Financial Instruments
 6 Months Ended
Jul. 03, 2016
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
9
.
Derivative financial instruments
 
The Company enters into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted Canadian dollar and Mexican Peso denominated payroll, rent and utility cash flows for the six remaining months of fiscal 2016 and first six months of fiscal 2017. These contracts are effective economic hedges but do not qualify for hedge accounting under ASC 815 “Derivatives and Hedging”. Accordingly, changes in the fair value of these derivative contracts are recognized into cost of sales in the consolidated statement of operations and comprehensive income (loss). The Company does not enter into forward foreign exchange contracts for trading or speculative purposes.
 
The following table presents a summary of the outstanding foreign currency forward contracts as at July 3, 2016:
 
Currency
  
Buy/Sell
  
Foreign Currency Amount
    
Notional Contract
Value in USD
  
Canadian Dollar
  
Buy
  
CAD 7,020
     $ 5,300  
Mexican Peso
  
Buy
  
MXN 231,939
     $ 13,635  
 
The unrealized loss recognized in earnings for the three month period as a result of revaluing the outstanding instruments to fair value on July 3, 2016 was $47 (June 28, 2015 – unrealized gain $789), and the unrealized gain for the six month period ended July 3, 2016 was $999 (June 28, 2015 – unrealized gain $471), which was included in cost of sales in the consolidated statement of operations and comprehensive income (loss). The realized loss on the settled contracts for the three months period ended July 3, 2016 was $647 (June 28, 2015 – realized loss $1,028), and the realized loss for the six month period ended July 3, 2016 was $1,578 (June 28, 2015 – realized loss $1,882), which is included in cost of sales in the consolidated statement of operations and comprehensive income (loss). Fair value was determined using the market approach with valuation based on market observables (Level 2 quantitative inputs in the hierarchy set forth under ASC 820 “Fair Value Measurements”).
 
 
 
July
3,
2016
 
 
January 3,
2016
 
Average USD:CAD contract rate
     1.32       1.26  
Average USD:CAD mark-to-market rate
     1.29       1.38  
Average USD:PESO contract rate
     17.01       15.88  
Average USD:PESO mark-to-market rate
     18.69       17.47  
 
 
The derivative asset as at July 3, 2016 was $139 ($Nil as at January 3, 2016) and derivative liability as at July 3, 2016 was $1,227 ($2,087 as at January 3, 2016) which reflected the fair market value of the unsettled forward foreign exchange contracts.