Note 8 - Financial Instruments and Risks
|12 Months Ended|
Dec. 29, 2019
|Notes to Financial Statements|
|Derivative Instruments and Hedging Activities Disclosure [Text Block]||
Interest Rate Risk
The Company borrows money under the PNC Facility. The PNC Facility has a term ending on
November 8, 2023.Advances made under the PNC Facility bear interest at the U.S. base rate plus an applicable margin ranging from
1.25%,or LIBOR plus an applicable margin ranging from
3.00%.The base commercial lending rate should approximate U.S. prime rate. The base commercial lending rate should approximate U.S. prime rate.
The Company also borrows money under the Financing Agreement. The Term Loan A Facility matures on
November 8, 2023.The Term Loan A Facility bears interest LIBOR plus an applicable margin of
June 30, 2020,and borrowings under the Financing Agreement will thereafter bear interest at LIBOR plus an applicable margin ranging from
July 2019,the Company paid the Term Loan B Facility in full. In
August 2019,the Company paid
$10,000off the Term Loan A Facility.
The impact of a
10%change in interest rates would have a significant impact on our reported earnings.
Derivative Forward Contracts and Foreign Currency Exchange Risk
Given the Company’s global business operations, we are exposed to exchange rate fluctuations on expenditures denominated in foreign currencies. However, most of our sales and component purchases are denominated in U.S. dollars, which limits our foreign currency risk. Our foreign exchange risk relates primarily to our Canadian and Mexican and payroll, Euro based component purchases and other operating expenses denominated in local currencies in our geographic locations. To mitigate this risk, the Company has historically entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted Canadian dollar and Mexican peso. There were
nooutstanding forward foreign exchange contracts at
December 29, 2019.The strengthening of the Canadian dollar and Mexican peso would result in an increase in costs to the organization and
maylead to a reduction in reported earnings.
The impact of a
10%change in exchange rates would be estimated to have the following impact on cost of sales for the Company:
The Company has historically entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to a portion of forecasted Canadian dollar denominated payroll, rent and utility cash flows and Mexican peso denominated payroll, rent and utility cash flows. These contracts were effective economic hedges, but did
notqualify for hedge accounting under ASC
815“Derivatives and Hedging”. Accordingly, changes in the fair value of these derivative contracts were recognized into net loss in the consolidated statement of operations and comprehensive loss. The Company does
notenter into forward foreign exchange contracts for trading or speculative purposes. The Company had
noforward foreign exchange contracts outstanding as at
December 29, 2019.
The unrealized gain recognized in earnings as a result of revaluing the outstanding instruments to fair value on
December 29, 2019was
2018– unrealized gain of
2017– unrealized gain of
$918) which was recorded in cost of sales in the consolidated statement of operations and comprehensive loss. The realized loss on settled contracts during
2018– realized loss
2017– realized loss
$116), which was recorded in cost of sales in the consolidated statement of operations and comprehensive loss. Fair value was determined using the market approach with valuation based on market observables (Level
2quantitative inputs in the hierarchy set forth under ASC
820“Fair Value Measurements”).
The derivative asset as at
December 29, 2019was
December 30, 2018)and derivative liability as at
December 29, 2019was
December 30, 2018)which reflected the fair market value of the unsettled forward foreign exchange contracts.
Foreign exchange gains and losses are recorded in cost of sales in the consolidated statement of operations and comprehensive loss pertaining to translation of foreign denominated transactions during the period in addition to foreign denominated monetary assets and liabilities at the end of the reporting period. A total aggregate translated foreign exchange loss of
$394was recognized for the fiscal year ended
December 29, 2019 (
December 30, 2018 –loss of
December 31, 2017 –gain of
In the normal course of operations, there is a risk that a counterparty
maydefault on its contractual obligations to us which would result in a financial loss that could impact our reported earnings. In order to mitigate this risk, we complete credit approval procedures for new and existing customers and obtain credit insurance where it is financially viable to do so given anticipated revenue volumes, in addition to monitoring our customers’ financial performance. We believe our procedures in place to mitigate customer credit risk and the respective allowance for doubtful accounts are adequate. During the fiscal year ended
December 29, 2019,the Company recorded an additional provision for bad debt expense of
$2,125million predominantly related to
onecustomer which was serviced out of the Dongguan China facility and included within restructuring charges. The Company takes measures to reduce credit risk, these charges can have a material impact on our financial performance.
There is limited risk of financial loss or defaults on our outstanding forward currency contracts as the counterparty to the transactions had a Standard and Poor’s rating of A- or above as at
December 29, 2019.
There is a risk that we
nothave sufficient cash available to satisfy our financial obligations as they come due. The financial liabilities we have recorded in the form of accounts payable, accrued liabilities and other current liabilities are primarily due within
90days with the exception of the current portion of finance lease obligations which could exceed
90days and our PNC Facility which utilizes a lock-box to pay down the obligation effectively daily. As at
December 29, 2019,the Company’s liquidity was comprised of
$1,368in cash on hand and
$21,644of funds available to borrow under the PNC Facility. We believe that cash flow from operations, together with cash on hand and our PNC Facility, which had
$21,644of funds available as at
December 29, 2019is sufficient to fund our financial obligations. However, availability under the PNC Facility is subject to certain conditions, including borrowing base conditions based on eligible inventory and accounts receivable, as determined by the lender.
July 3, 2019,the Company used the net proceeds from the Rights Offering to repay the
$12,000of borrowings outstanding under its Term Loan B Facility. On
August 8, 2019,the Company repaid an additional
$10,000of the portion of borrowings outstanding under its Term Loan A Facility, which was funded through the use of our PNC Facility.
Fair Value Measurement
The carrying values of the Company’s cash, accounts receivable, accounts payable and accrued liabilities due within
one-year approximate fair values due to the short-term maturity of these instruments. The Company’s financial instruments at
2019,are comprised of the following:
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef