Interest Rate Risk

The Company borrows money under the PNC Facility. The PNC Facility matures on November 8, 2023. Advances made under the PNC Facility bear interest at the U.S. base rate plus an applicable margin ranging from 0.75% to 1.25%, or LIBOR plus an applicable margin ranging from 2.50% to 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 bore interest LIBOR plus an applicable margin of 8.75% through June 30, 2020, and borrowings under the Financing Agreement thereafter bear interest at LIBOR plus an applicable margin ranging from 7.25% to 8.75%.  

The following table highlights the impact of a hypothetical 10% change in interest rates 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 the Mexican peso.  The strengthening of the Canadian dollar and Mexican peso would result in an increase in costs to the organization and may lead to a reduction in reported earnings.

The following table highlights the impact of a hypothetical 10% change in exchange rates on cost of sales for the Company:

The following table presents a summary of the outstanding foreign currency forward exchange contracts as at January 3, 2021:

The Company has historically entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to Mexican peso denominated payroll, rent and utility cash flows. These contracts were effective economic hedges, but did not qualify 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 not enter into forward foreign exchange contracts for trading or speculative purposes.

The unrealized gain recognized in earnings as a result of revaluing the outstanding instruments to fair value on January 3, 2021 was $1,055 (2019 – unrealized gain of $0.0) (2018 – unrealized gain of $353) which was recorded in cost of sales in the consolidated statement of operations and comprehensive loss. The realized gain on settled contracts during 2020 was $583 (2019 – realized loss $89) (2018 – realized loss $118), 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 2 quantitative inputs in the hierarchy set forth under ASC 820 “Fair Value Measurements”).

The derivative asset as at January 3, 2021 was $1,055 ($0.0 as at December 29, 2019) ($15 as at 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 $349 was recognized for the fiscal year ended January 3, 2021 (December 29, 2019 – loss of $394, December 30, 2018 – loss of $181).

Credit Risk

In the normal course of operations, there is a risk that a counterparty may default 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.

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 January 3, 2021.

Liquidity Risk

There is a risk that we may not have 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 90 days with the exception of the current portion of finance lease obligations which could exceed 90 days and our PNC Facility which utilizes a lock-box to pay down the obligation effectively daily. As at January 3, 2021, the Company’s liquidity was comprised of $600 in cash on hand and $28,447 of 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 $28,447 of funds available as at January 3, 2021 is 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.

On July 3, 2019, the Company used the net proceeds from the Rights Offering to repay the $12,000 of borrowings outstanding under its Term Loan B Facility. On August 8, 2019, the Company repaid an additional $10,000 of 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 January 3, 2021, are comprised of the following: