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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

 

PART I FINANCIAL INFORMATION

3

  

  

 

Item 1

Financial Statements

3

  

  

 

 

Interim Consolidated Balance Sheets (unaudited)

3

  

  

 

 

Interim Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)

4

  

  

 

 

Interim Consolidated Statements of Changes in Shareholders’ Equity (unaudited) 

5

  

  

 

 

Interim Consolidated Statements of Cash Flows (unaudited)

6

  

  

 

 

Notes to Interim Consolidated Financial Statements (unaudited)

7

  

  

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

  

  

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

36

  

  

 

Item 4

Controls and Procedures

37

  

 

PART II OTHER INFORMATION

39

  

  

 

Item 1A

 Risk factors

39

 

 

 

Item 6

Exhibits

40

 

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.

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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.

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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.           

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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.

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Accrued liabilities: 

 

 

 

September 27,

2020

 

 

December 29,

2019

 

Payroll

 

$

7,515

 

 

$