Interest Rate Risk

The PNC Facility bears interest at a floating rate. The weighted average interest rate incurred on the PNC Facility for the year ended December 28, 2014 was 4.6%. At December 28, 2014, the interest rate on the PNC Facility was 4.5% based on the U.S. prime rate plus 1.25%.

The impact of a 1% change in interest rates would not have a significant impact on our reported earnings.

Derivative Forward Contracts and Foreign Currency Exchange Risk

As a result of operating a global business, 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, Mexican and Asian payroll, Euro based component purchases and other various operating expenses denominated in local currencies in our geographic locations. To mitigate this risk, 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. 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 impact of a 10% change in exchange rates would not have a significant impact on our reported earnings.

The Company enters into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted Canadian dollar denominated payroll, rent and utility cash flows for the 12 months of fiscal 2015, and Mexican peso denominated payroll, rent and utility cash flows for the 12 months of fiscal 2015. 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 earnings (loss) 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 (expressed in thousands of Canadian dollars and Mexican pesos) presents a summary of the outstanding foreign currency forward contracts as at December 28, 2014:

The unrealized loss recognized in earnings as a result of revaluing the outstanding instruments to fair value on December 28, 2014 was $1,822 (2013 – unrealized loss of $1,107) which was recorded in cost of sales in the consolidated statement of operations and comprehensive income (loss). The realized loss on settled contracts during fiscal 2014 was $1,082 (2013 – gain $541), which was recorded 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”). For fiscal 2014, the average USD: CAD contracted rate on outstanding Canadian dollar forward contracts was 1.11 compared to the average mark-to-market rate of 1.17. For fiscal 2014, the average USD: PESO contracted rate on outstanding Mexican Peso forward contracts was 13.40 compared to the average mark-to-market rate of 14.87. For fiscal 2013, the average USD: CAD contracted rate on outstanding Canadian dollar forward contracts was 1.04 compared to the average mark-to-market rate of 1.08. For fiscal 2013, the average USD: PESO contracted rate on outstanding Mexican Peso forward contracts was 12.93 compared to the average mark-to-market rate of 13.24.

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 financial 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 from 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 February 28, 2015.

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 capital lease obligations which could exceed 90 days and our revolving debt facility which utilizes a lock-box to pay down the obligation effectively daily. We believe that cash flow from operations, together with cash on hand and our revolving credit facility, which has a credit limit of $40M are sufficient to fund our financial obligations.