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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
|
|
For the quarterly period ended September 27, 2020
|
OR
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
|
|
FOR THE TRANSITION PERIOD FROM
TO
|
COMMISSION FILE NUMBER 000-31051
SMTC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|
Delaware
|
98-0197680
|
|
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
|
(I.R.S. EMPLOYER IDENTIFICATION NO.)
|
7050 WOODBINE AVENUE
MARKHAM, Ontario,
Canada L3R 4G8
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(905) 479-1810
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
Common Stock
|
SMTX
|
Nasdaq Global Select Market
|
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an “emerging growth company”. See the
definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
|
Large accelerated filer ☐
|
Accelerated filer ☒
|
Non-accelerated filer ☐
|
Smaller reporting company ☒
|
Emerging growth company ☐
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
As of November 5, 2020, SMTC Corporation had 28,214,800 shares of
common stock, par value $0.01 per share, outstanding.
SMTC CORPORATION
Table of Contents
2
Part I
FINANCIAL INFORMATION
Item 1
Financial Statements
Interim Consolidated Balance Sheets:
(Expressed in thousands of U.S. dollars)
(Unaudited)
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
169
|
|
|
$
|
1,368
|
|
|
Accounts receivable — net (note 3)
|
|
|
73,406
|
|
|
|
69,919
|
|
|
Unbilled contract assets (note 3)
|
|
|
42,736
|
|
|
|
26,271
|
|
|
Inventories (note 3)
|
|
|
51,537
|
|
|
|
47,826
|
|
|
Prepaid expenses and other assets
|
|
|
6,564
|
|
|
|
7,044
|
|
|
Derivative assets (note 9)
|
|
|
720
|
|
|
|
—
|
|
|
Income taxes receivable
|
|
|
160
|
|
|
|
—
|
|
|
Total current assets
|
|
|
175,292
|
|
|
|
152,428
|
|
|
Property, plant and equipment — net (note 3)
|
|
|
23,397
|
|
|
|
25,310
|
|
|
Operating lease right of use assets — net
|
|
|
5,897
|
|
|
|
3,330
|
|
|
Goodwill (note 3)
|
|
|
18,165
|
|
|
|
18,165
|
|
|
Intangible assets — net (note 3)
|
|
|
10,029
|
|
|
|
12,747
|
|
|
Deferred income taxes — net
|
|
|
555
|
|
|
|
540
|
|
|
Deferred financing costs — net
|
|
|
742
|
|
|
|
859
|
|
|
Total assets
|
|
$
|
234,077
|
|
|
$
|
213,379
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Revolving credit facility (note 4)
|
|
$
|
34,356
|
|
|
$
|
34,701
|
|
|
Accounts payable
|
|
|
77,979
|
|
|
|
74,126
|
|
|
Accrued liabilities (note 3)
|
|
|
23,125
|
|
|
|
11,164
|
|
|
Warrant liability (note 4)
|
|
|
1,745
|
|
|
|
1,730
|
|
|
Restructuring liability (note 10)
|
|
|
364
|
|
|
|
1,597
|
|
|
Income taxes payable
|
|
|
254
|
|
|
|
157
|
|
|
Current portion of long-term debt (note 4)
|
|
|
2,188
|
|
|
|
1,250
|
|
|
Current portion of operating lease obligations
|
|
|
1,452
|
|
|
|
1,128
|
|
|
Current portion of finance lease obligations
|
|
|
1,818
|
|
|
|
1,226
|
|
|
Total current liabilities
|
|
|
143,281
|
|
|
|
127,079
|
|
|
Long-term debt (note 4)
|
|
|
32,513
|
|
|
|
33,750
|
|
|
Operating lease obligations
|
|
|
5,042
|
|
|
|
2,615
|
|
|
Finance lease obligations
|
|
|
8,696
|
|
|
|
8,838
|
|
|
Total liabilities
|
|
|
189,532
|
|
|
|
172,282
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Capital stock (note 5)
|
|
|
508
|
|
|
|
508
|
|
|
Additional paid-in capital
|
|
|
293,864
|
|
|
|
293,389
|
|
|
Deficit
|
|
|
(249,827
|
)
|
|
|
(252,800
|
)
|
|
|
|
|
44,545
|
|
|
|
41,097
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
234,077
|
|
|
$
|
213,379
|
|
Commitments (note 11)
See accompanying notes to interim consolidated financial
statements.
3
Interim Consolidated Statements of Operations and Comprehensive
Income (loss)
(Expressed in thousands of U.S. dollars, except number of shares
and per share amounts)
(Unaudited)
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 27,
2020
|
|
|
September 29,
2019
|
|
|
September 27,
2020
|
|
|
September 29,
2019
|
|
|
Revenue (note 3)
|
|
$
|
99,547
|
|
|
$
|
88,682
|
|
|
$
|
285,091
|
|
|
$
|
282,267
|
|
|
Cost of sales (note 9)
|
|
|
88,445
|
|
|
|
79,776
|
|
|
|
253,664
|
|
|
|
255,740
|
|
|
Gross profit
|
|
|
11,102
|
|
|
|
8,906
|
|
|
|
31,427
|
|
|
|
26,527
|
|
|
Selling, general and administrative expenses
|
|
|
6,710
|
|
|
|
6,549
|
|
|
|
21,036
|
|
|
|
19,908
|
|
|
Change in fair value of contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,050
|
)
|
|
Restructuring charges (notes 3 and 10)
|
|
|
871
|
|
|
|
6,454
|
|
|
|
525
|
|
|
|
8,624
|
|
|
Operating income
|
|
|
3,521
|
|
|
|
(4,097
|
)
|
|
|
9,866
|
|
|
|
1,045
|
|
|
Fair value measurement loss (gain) on warrant liability (note
4)
|
|
|
133
|
|
|
|
(858
|
)
|
|
|
15
|
|
|
|
(919
|
)
|
|
Interest expense (note 3)
|
|
|
1,941
|
|
|
|
2,679
|
|
|
|
6,021
|
|
|
|
8,349
|
|
|
Net income(loss) before income taxes
|
|
|
1,447
|
|
|
|
(5,918
|
)
|
|
|
3,830
|
|
|
|
(6,385
|
)
|
|
Income tax expense (recovery) (note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
286
|
|
|
|
(103
|
)
|
|
|
872
|
|
|
|
592
|
|
|
Deferred
|
|
|
(82
|
)
|
|
|
(81
|
)
|
|
|
(15
|
)
|
|
|
14
|
|
|
|
|
|
204
|
|
|
|
(184
|
)
|
|
|
857
|
|
|
|
606
|
|
|
Net income (loss) and comprehensive income (loss)
|
|
|
1,243
|
|
|
|
(5,734
|
)
|
|
|
2,973
|
|
|
|
(6,991
|
)
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.28
|
)
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.28
|
)
|
|
Weighted average number of shares outstanding (note 7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,214,800
|
|
|
|
28,057,763
|
|
|
|
28,207,943
|
|
|
|
24,954,875
|
|
|
Diluted
|
|
|
29,636,319
|
|
|
|
28,057,763
|
|
|
|
29,629,462
|
|
|
|
24,954,875
|
|
See accompanying notes to interim consolidated financial
statements.
4
Interim Consolidated Statements of Changes in Shareholders’
Equity
(Expressed in thousands of U.S. dollars)
Three months ended September 27, 2020
(Unaudited)
|
|
|
Common
Shares
|
|
|
Capital
stock
|
|
|
Additional
paid-in
capital
|
|
|
Deficit
|
|
|
Total
Shareholders’
equity
|
|
|
Balance, June 28, 2020
|
|
|
28,214,800
|
|
|
$
|
508
|
|
|
$
|
293,706
|
|
|
$
|
(251,070
|
)
|
|
$
|
43,144
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
158
|
|
|
|
—
|
|
|
|
158
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,243
|
|
|
|
1,243
|
|
|
Balance, September 27, 2020
|
|
|
28,214,800
|
|
|
|
508
|
|
|
|
293,864
|
|
|
|
(249,827
|
)
|
|
|
44,545
|
|
Three months ended September 29, 2019
(Unaudited)
|
|
|
Common
Shares
|
|
|
Capital
stock
|
|
|
Additional
paid-in
capital
|
|
|
Deficit
|
|
|
Total
Shareholders’
equity
|
|
|
Balance, June 30, 2019
|
|
|
28,011,088
|
|
|
$
|
506
|
|
|
$
|
292,829
|
|
|
$
|
(248,062
|
)
|
|
$
|
45,273
|
|
|
RSU vested and stock options exercised
|
|
|
87,386
|
|
|
|
1
|
|
|
|
45
|
|
|
|
—
|
|
|
|
46
|
|
|
Treasury stock
|
|
|
21,264
|
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
—
|
|
|
|
(75
|
)
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
353
|
|
|
|
—
|
|
|
|
353
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,734
|
)
|
|
|
(5,734
|
)
|
|
Balance, September 29, 2019
|
|
|
28,119,738
|
|
|
$
|
507
|
|
|
$
|
293,152
|
|
|
$
|
(253,796
|
)
|
|
$
|
39,863
|
|
See accompanying notes to interim consolidated financial
statements.
|
Nine months ended September 27, 2020
|
|
Common
Shares
|
|
|
Capital
stock
|
|
|
Additional
paid-in
capital
|
|
|
Deficit
|
|
|
Total
Shareholders’
equity
|
|
|
Balance, December 29, 2019
|
|
|
28,195,300
|
|
|
$
|
508
|
|
|
$
|
293,389
|
|
|
$
|
(252,800
|
)
|
|
$
|
41,097
|
|
|
RSU vested and stock options exercised
|
|
|
19,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
475
|
|
|
|
—
|
|
|
|
475
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,973
|
|
|
|
2,973
|
|
|
Balance, September 27, 2020
|
|
|
28,214,800
|
|
|
$
|
508
|
|
|
$
|
293,864
|
|
|
$
|
(249,827
|
)
|
|
$
|
44,545
|
|
|
Nine months ended September 29, 2019
|
|
Common
Shares
|
|
|
Capital
stock
|
|
|
Additional
paid-in
capital
|
|
|
Deficit
|
|
|
Total
Shareholders’
equity
|
|
|
Balance, December 30, 2018
|
|
|
23,189,381
|
|
|
$
|
458
|
|
|
$
|
278,648
|
|
|
$
|
(246,805
|
)
|
|
$
|
32,301
|
|
|
RSU vested and stock options exercised
|
|
|
267,063
|
|
|
|
3
|
|
|
|
43
|
|
|
|
—
|
|
|
|
46
|
|
|
Treasury stock
|
|
|
21,264
|
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
—
|
|
|
|
(75
|
)
|
|
Issuance of common shares from rights offering
|
|
|
4,642,030
|
|
|
|
46
|
|
|
|
13,998
|
|
|
|
—
|
|
|
|
14,044
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
538
|
|
|
|
—
|
|
|
|
538
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,991
|
)
|
|
|
(6,991
|
)
|
|
Balance, September 29, 2019
|
|
|
28,119,738
|
|
|
$
|
507
|
|
|
$
|
293,152
|
|
|
$
|
(253,796
|
)
|
|
$
|
39,863
|
|
5
Interim Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(Unaudited)
|
|
|
Nine months ended
|
|
|
|
|
September 27,
2020
|
|
|
September 29,
2019
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,973
|
|
|
$
|
(6,991
|
)
|
|
Items not involving cash:
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
4,767
|
|
|
|
4,902
|
|
|
Amortization of intangible assets
|
|
|
2,718
|
|
|
|
5,532
|
|
|
Unrealized foreign exchange gain on unsettled forward exchange
contracts
|
|
|
(720
|
)
|
|
|
—
|
|
|
Write down of property, plant and equipment
|
|
|
—
|
|
|
|
261
|
|
|
Deferred income taxes expense (recovery)
|
|
|
(15
|
)
|
|
|
14
|
|
|
Amortization of deferred financing fees and debt insurance
costs
|
|
|
892
|
|
|
|
1,300
|
|
|
Stock-based compensation
|
|
|
475
|
|
|
|
538
|
|
|
Change in fair value of warrant liability
|
|
|
15
|
|
|
|
(919
|
)
|
|
Change in fair value of contingent consideration
|
|
|
—
|
|
|
|
(3,050
|
)
|
|
Change in non-cash operating working capital:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,487
|
)
|
|
|
11,778
|
|
|
Unbilled contract assets
|
|
|
(16,465
|
)
|
|
|
(6,385
|
)
|
|
Inventories
|
|
|
(3,711
|
)
|
|
|
3,668
|
|
|
Prepaid expenses and other assets
|
|
|
480
|
|
|
|
(1,095
|
)
|
|
Income taxes receivable/payable
|
|
|
(63
|
)
|
|
|
(116
|
)
|
|
Accounts payable
|
|
|
3,678
|
|
|
|
(9,845
|
)
|
|
Accrued liabilities
|
|
|
11,964
|
|
|
|
(265
|
)
|
|
Restructuring liability
|
|
|
(1,233
|
)
|
|
|
2,736
|
|
|
Net change in operating lease right of use asset and liability
|
|
|
184
|
|
|
|
414
|
|
|
|
|
|
2,452
|
|
|
|
2,477
|
|
|
Financing:
|
|
|
|
|
|
|
|
|
|
Repayments (borrowing) of revolving credit facility
|
|
|
(345
|
)
|
|
|
9,820
|
|
|
Repayment of long-term debt
|
|
|
(937
|
)
|
|
|
(22,625
|
)
|
|
Deferred financing fees
|
|
|
(137
|
)
|
|
|
(371
|
)
|
|
Principal repayments of finance lease obligations
|
|
|
(997
|
)
|
|
|
(1,199
|
)
|
|
Proceeds from issuance of common stock through exercise of stock
options
|
|
|
—
|
|
|
|
45
|
|
|
Proceeds from issuance of common stock through rights offerings
|
|
|
—
|
|
|
|
14,044
|
|
|
|
|
|
(2,416
|
)
|
|
|
(286
|
)
|
|
Investing:
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(1,235
|
)
|
|
|
(3,191
|
)
|
|
|
|
|
(1,235
|
)
|
|
|
(3,191
|
)
|
|
Decrease in cash
|
|
|
(1,199
|
)
|
|
|
(1,000
|
)
|
|
Cash, beginning of period
|
|
|
1,368
|
|
|
|
1,601
|
|
|
Cash, end of the period
|
|
$
|
169
|
|
|
$
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information
|
|
|
|
|
|
|
|
|
|
Cash interest paid
|
|
$
|
5,643
|
|
|
$
|
6,856
|
|
|
Increase in operating right of use assets
|
|
$
|
3,707
|
|
|
$
|
5,559
|
|
|
Property, plant and equipment acquired through capital lease
|
|
$
|
1,447
|
|
|
$
|
126
|
|
|
Property, plant and equipment acquired that was unpaid in cash and
included in accounts payable and accrued liabilities
|
|
$
|
404
|
|
|
$
|
418
|
|
See accompanying notes to interim consolidated financial
statements.
6
Unaudited Notes to Interim Consolidated
Financial Statements
(in thousands)
|
1.
|
Business and Basis of Presentation
|
Background
SMTC Corporation (the “Company,” “we,” “our,” or “SMTC”) is a
provider of end-to-end electronics manufacturing services (“EMS”),
including product design and engineering services, printed circuit
board assembly (“PCBA”), production, enclosure, cable assembly,
precision metal fabrication, systems integration and comprehensive
testing services, configuration to order (“CTO”), build to order
(“BTO”) and direct order fulfillment (“DOF”). SMTC has more than 50
manufacturing and assembly lines at strategically located
facilities in the United States, Canada and Mexico that provide
local support and manufacturing capabilities to our global
customers. SMTC’s services extend over the entire electronic
product life cycle from new product development and new product
introduction (“NPI”) through to growth, maturity and end of life
phases.
Basis of Presentation
The accompanying unaudited interim consolidated financial
statements of the Company have been prepared in accordance with the
accounting principles and methods of application disclosed in the
audited consolidated financial statements within the Company’s Form
10-K for the fiscal period ended December 29, 2019, (“Form 10-K”)
filed with the Securities and Exchange Commission (the “SEC”) on
March 13, 2020. The accompanying unaudited interim
consolidated financial statements include adjustments of a normal,
recurring nature that are, in the opinion of management, necessary
for a fair statement of the consolidated financial statements under
generally accepted accounting principles in the United States
(“U.S. GAAP”). These unaudited interim consolidated financial
statements should be read in conjunction with the Company’s audited
consolidated financial statements contained in the Company’s Form
10-K. The consolidated balance sheet at December 29, 2019 was
derived from the audited annual consolidated financial statements,
but does not contain all of the footnote disclosures from the
annual consolidated financial statements.
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the
unaudited condensed consolidated financial statements and
accompanying notes. Due to the COVID-19 pandemic, the global
economy and financial markets have been disrupted and there
continues to be significant uncertainty about the length and
severity of the consequences caused by the pandemic. Consequently,
actual results could differ materially from these estimates and be
significantly affected by the severity and duration of the
pandemic, the extent of actions to contain or treat COVID-19, how
quickly and to what extent normal economic and operating activity
can resume, and the severity and duration of the global economic
downturn that results from the pandemic.
Unless otherwise specified or the context requires otherwise, all
statements in these notes to the interim consolidated financial
statements regarding financial figures are expressed in thousands
of U.S. dollars.
As at September 27, 2020, the additional funds
available to borrow under our PNC Facility (as described and
defined in note 4 below) after deducting the current borrowing base
conditions and subject to debt covenants, should the Company
require additional funding during the COVID-19 pandemic, was
$30,464 (December 29, 2020 - $21,644).
Transition of China Manufacturing
During the fourth quarter of 2019, we ceased manufacturing in China
and began to relocate the equipment used at our Dongguan
manufacturing facility to our other North American sites. During
the first quarter of 2020, we completed final shipments for
customers serviced at our Chinese manufacturing facility and the
relocation of that equipment. Customer concerns about uncertainties
relating to the prolonged impact of tariffs and macro-economic
factors caused a number of our customers to begin to re-evaluate
demand for some of their products and reconsider where they
outsource their manufacturing. These factors ultimately resulted in
the decision to close the manufacturing facility. The closure of
the Dongguan facility was substantially completed as at September
27, 2020 with final deregistration steps expected to be completed
during the fourth quarter of 2020.
|
2.
|
Accounting Pronouncements
|
Recent Accounting Pronouncements Adopted
In August 2018, the FASB published ASU 2018-13: Fair Value
Measurement (Topic 820): Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement. The amendment
includes the removal, modification and addition of disclosure
requirements under Topic 820. The amendments in this ASU are
effective for all entities for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. The
impact of the adoption of the standard expands the disclosure of
certain assets and liabilities recorded at fair value.
In March 2020, the FASB published ASU 2020-04: Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting. The amendments in this update are
elective and provide optional guidance for a limited period of
7
time to ease the potential burden in accounting for (or recognizing
the effects of) reference rate reform on financial
reporting. The amendments in this Update are effective
for all entities as of March 12, 2020, through December 31,
2022. An entity may elect to apply the amendments for
contract modifications by Topic or Industry Subtopic as of any date
from the beginning of an interim period that includes or is
subsequent to March 12, 2020, or prospectively from a date within
an interim period that includes or is subsequent to March 12, 2020,
up to the date that the financial statements are available to be
issued. Once elected for a Topic or an Industry Subtopic, the
amendments in this Update must be applied prospectively for all
eligible contract modifications for that Topic or Industry
Subtopic. The impact of the adoption of the standard is not
material to the Company, as alternative reference rates are
available under the agreements governing the financial
instruments.
Recent Accounting Pronouncements Not Yet Adopted
In May 2016, the FASB published ASU 2016-13: Financial Instruments
– Credit losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The main objective of Topic 326 is to
provide financial statement users with more decision-useful
information about the expected credit losses on
financial instruments and other commitments to extend credit
held by a reporting entity at each reporting date. To achieve
this objective, the amendments in this update replace the incurred
loss impairment methodology in current U.S. GAAP with
a methodology that reflects expected credit losses and
requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. In April
2019, the FASB published ASU 2019-04 Codification Improvements to
Topic 326, Financial Instruments – Credit Losses, which made
certain amendments and corrections to the original codification. In
May 2019, the FASB published ASU 2019-05 Financial Instruments –
Credit losses (Topic 326) which made transitional relief available,
specifically allowing the option to elect a fair value option for
financial instruments measured at amortized cost. In November 2019,
the FASB published ASU 2019-11 Codification Improvements to Topic
326, Financial Instruments – Credit losses, which made certain
amendments and corrections to the original
codification. In November 2019, the FASB published ASU
2019-10 Financial Instruments – Credit losses (Topic 326), which
made certain amendments to the effective dates of the new
standard. The amendment is effective for the Company for
years beginning after December 15, 2022 including interim periods
with those years. On March 9, 2020, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No.
2020-03 Codification Improvements to Financial
Instruments. The Company is currently evaluating the impact of
this accounting standard, but it is expected that the new standard
may result in additional credit losses being recorded.
In January 2017, the FASB published ASU 2017-04: Intangibles –
Goodwill and Other (Topic 350): Topic 350 seeks to simplify
goodwill impairment testing requirements for public entities. Under
the amendments in this update, an entity should perform its annual,
or interim, goodwill impairment test by comparing the fair value of
a reporting unit with its carrying amount. An entity should
recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated
to that reporting unit. Additionally, an entity should consider
income tax effects from any tax-deductible goodwill on the carrying
amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. The FASB also eliminated the requirements for
any reporting unit with a zero or negative carrying amount to
perform a qualitative assessment and, if it fails that qualitative
test, to perform Step 2 of the goodwill impairment test. Therefore,
the same impairment assessment applies to all reporting units. An
entity is required to disclose the amount of goodwill allocated to
each reporting unit with a zero or negative carrying amount of net
assets. The amendments in this ASU are effective for all entities
for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2022. The Company is currently
evaluating the impact of this accounting
standard. However, it is expected that this may reduce
the complexity of evaluating goodwill for impairment.
In December 2019, the FASB published ASU 2019-12: Income Taxes
(Topic 740): Simplifying the Accounting for income taxes. The
purpose of this codification is to simplify the accounting for
income taxes, which addresses a number of topics including but not
limited to the removal of certain exceptions currently included in
the standard related to intraperiod allocation when there are
losses, in addition to calculation of income taxes when current
year-to-date losses exceed anticipated loss for the year. The
amendment also simplifies accounting for certain franchise taxes
and disclosure of the effect of enacted change in tax laws or
rates. Topic 740 is effective for public entities for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2020. The impact of the adoption of the standard has
not yet been determined and is being evaluated.
8
|
3.
|
Interim Consolidated financial statement details
|
The following consolidated financial statement details are
presented as of the period ended for the consolidated balance
sheets and for the periods ended for each of the consolidated
statements of operations and comprehensive income (loss).
Consolidated Balance
Sheets
Accounts receivable – net:
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
Trade accounts receivable
|
|
$
|
75,000
|
|
|
$
|
71,113
|
|
|
Other receivables
|
|
|
731
|
|
|
|
1,098
|
|
|
Allowance for doubtful accounts
|
|
|
(2,325
|
)
|
|
|
(2,292
|
)
|
|
Total
|
|
$
|
73,406
|
|
|
$
|
69,919
|
|
The allowance for doubtful accounts pertains primarily to one
customer previously serviced out of Dongguan China. This was
provisioned and included with the restructuring charges for the
closure of the facility in 2019. Refer to note 10 for further
details of the restructuring. To date, there has been no material
impact of the COVID-19 pandemic on the allowance for doubtful
accounts.
Unbilled contract assets
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
Opening
|
|
$
|
26,271
|
|
|
$
|
20,405
|
|
|
Contract assets additions
|
|
|
276,330
|
|
|
|
350,709
|
|
|
Contract assets invoiced
|
|
|
(259,865
|
)
|
|
|
(344,843
|
)
|
|
Ending
|
|
$
|
42,736
|
|
|
$
|
26,271
|
|
Inventories:
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
Raw materials
|
|
$
|
51,783
|
|
|
$
|
48,067
|
|
|
Parts and other
|
|
|
292
|
|
|
|
586
|
|
|
Provision for obsolescence
|
|
|
(538
|
)
|
|
|
(827
|
)
|
|
Total
|
|
$
|
51,537
|
|
|
$
|
47,826
|
|
The provision for obsolescence primarily pertains to customers
previously serviced out of the Dongguan facility. These have been
provisioned and included with the restructuring charges for the
closure of the facility in 2019. Refer to note 10 for further
details of the restructuring.
9
Property, plant and equipment – net:
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,648
|
|
|
$
|
1,648
|
|
|
Buildings (b)
|
|
|
18,985
|
|
|
|
18,985
|
|
|
Machinery and equipment (a) (e)
|
|
|
44,116
|
|
|
|
42,732
|
|
|
Office furniture and equipment (c) (e)
|
|
|
869
|
|
|
|
1,005
|
|
|
Computer hardware and software (d) (e)
|
|
|
3,940
|
|
|
|
3,979
|
|
|
Leasehold improvements (e)
|
|
|
4,447
|
|
|
|
4,265
|
|
|
|
|
|
74,005
|
|
|
|
72,614
|
|
|
Less accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
—
|
|
|
|
—
|
|
|
Buildings (b)
|
|
|
(11,220
|
)
|
|
|
(10,392
|
)
|
|
Machinery and equipment (a) (e)
|
|
|
(33,727
|
)
|
|
|
(31,192
|
)
|
|
Office furniture and equipment (c) (e)
|
|
|
(423
|
)
|
|
|
(546
|
)
|
|
Computer hardware and software (d) (e)
|
|
|
(3,162
|
)
|
|
|
(3,289
|
)
|
|
Leasehold improvements (e)
|
|
|
(2,076
|
)
|
|
|
(1,885
|
)
|
|
|
|
|
(50,608
|
)
|
|
|
(47,304
|
)
|
|
Property, plant and equipment—net
|
|
$
|
23,397
|
|
|
$
|
25,310
|
|
|
(a)
|
Included within machinery and equipment were assets under finance
leases with costs of $4,193 and $2,275 and associated accumulated
depreciation of $1,539 and $974 as of September 27, 2020 and
December 29, 2019, respectively. The related depreciation expense
for the three months ended September 27, 2020 and September 29,
2019 was $134 and $142, respectively. The related depreciation
expense for the nine months ended September 27, 2020 and September
29, 2019 was $356 and $426, respectively.
|
|
(b)
|
Included within buildings are costs
associated with Melbourne facility under finance leases of $9,082
and associated accumulated depreciation of $1,504 and $900 as
of September 27, 2020 and December 29, 2019, respectively. The related depreciation
expense for the three months ended September 27, 2020
and September 29, 2019
was $201 and $201, respectively. The
related depreciation expense for nine months ended September
27, 2020 and September 29, 2019 was
$604 and $603, respectively.
|
|
(c)
|
Included within office furniture and equipment were assets
under finance leases with costs of $307 and $307 and associated
accumulated depreciation of $101 and $52 as of September 27, 2020 and December 29, 2019, respectively. The
related depreciation expense for the three months ended
September 27, 2020 and
September 29, 2019 was $16 and
$9, respectively. The related depreciation expense for the nine
months ended September 27, 2020
and September 29, 2019 was $49 and $29, respectively.
|
|
(d)
|
Included within computer hardware and software were assets under
finance leases with costs of $91 and associated accumulated
depreciation of $73 and $51 as of September 27, 2020 and December 29, 2019, respectively. The
related depreciation expense for the three months ended
September 27, 2020 and
September 29, 2019 was $7 and
$8, respectively. The related depreciation expense for the nine
months ended September 27, 2020
and September 29, 2019 was $22 and $23, respectively.
|
|
(e)
|
Fully depreciated property, plant and equipment with cost of $1,466
and accumulated amortization of $1,463 was written off in the nine
months ended September 27, 2020.
|
10
Intangible assets:
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
12,350
|
|
|
$
|
12,350
|
|
|
Order backlog
|
|
|
6,990
|
|
|
|
6,990
|
|
|
Trade name
|
|
|
1,300
|
|
|
|
1,300
|
|
|
Non-compete agreements
|
|
|
360
|
|
|
|
360
|
|
|
|
|
|
21,000
|
|
|
|
21,000
|
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
(2,340
|
)
|
|
|
(1,414
|
)
|
|
Order backlog
|
|
|
(6,990
|
)
|
|
|
(5,333
|
)
|
|
Trade name
|
|
|
(1,300
|
)
|
|
|
(1,300
|
)
|
|
Non-compete agreements
|
|
|
(341
|
)
|
|
|
(206
|
)
|
|
|
|
|
(10,971
|
)
|
|
|
(8,253
|
)
|
|
Intangible assets—net
|
|
$
|
10,029
|
|
|
$
|
12,747
|
|
These intangible assets arose from the acquisition of MC Assembly
Holdings Inc. (“MC Assembly”) in November 2018 and were allocated
to the following operating segments:
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
U.S.
|
|
$
|
3,009
|
|
|
$
|
3,824
|
|
|
Mexico
|
|
|
7,020
|
|
|
|
8,923
|
|
|
Total
|
|
$
|
10,029
|
|
|
$
|
12,747
|
|
Amortization expense of $2,718 was recorded in cost of sales in the
consolidated statement of operations and comprehensive income(loss)
for the nine months ended September 27, 2020, and $5,532 for the
nine months ended September 29, 2019. Amortization
expense for the next five years and thereafter is as follows:
|
2020
|
|
$
|
328
|
|
|
2021
|
|
|
1,235
|
|
|
2022
|
|
|
1,235
|
|
|
2023
|
|
|
1,235
|
|
|
2024
|
|
|
1,235
|
|
|
2025 and thereafter
|
|
|
4,761
|
|
|
Total amortization
|
|
$
|
10,029
|
|
Goodwill:
The carrying value of goodwill as at September 27, 2020 was $18,165
(December 29, 2019 – $18,165). This goodwill arose from the
acquisition of MC Assembly in November 2018 and was allocated to
the following operating segments that are expected to benefit from
the synergies of this business combination and has not changed
since the acquisition:
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
U.S.
|
|
$
|
5,449
|
|
|
$
|
5,449
|
|
|
Mexico
|
|
|
12,716
|
|
|
|
12,716
|
|
|
Total
|
|
$
|
18,165
|
|
|
$
|
18,165
|
|
The carrying value of goodwill is assessed annually at year-end and
at each reporting period for impairment triggers to determine
whether there exists any indicators of impairment. The
assessment is done at the operating segment level as the group of
components (production facilities) within each operating segment
all have similar economic characteristics. Our business operations
have generally performed as expected during the first nine months
of 2020. While the COVID-19 pandemic creates significant
uncertainty, in the near term, the Company did not identify any
triggering events as at September 27, 2020.
11
Accrued liabilities:
|
|
|
September 27,
2020
|
|
|
December 29,
2019
|
|
|
Payroll
|
|
$
|
7,515
|
|
|
$
|
|