This excerpt taken from the SMTX 10-K filed Apr 6, 2009.
In the normal course of business, the Company may be subject to litigation and claims from customers, suppliers and former employees. Management believes that adequate provisions have been recorded in the accounts, where required. Although it is not possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies would not have a material adverse effect on the financial position, results of operations and cash flows of the Company.
In 2007, a lawsuit was commenced against SMTC Corporation and certain of its subsidiaries in the United States Bankruptcy Court for the Western District of Texas Austin Division by Ronald E. Ingalls, Chapter 7 Trustee, who claims that SMTC Manufacturing Corporation of Texas made fraudulent transfers of assets to certain subsidiaries of the Company despite having had reasonable cause to believe that it was insolvent. Management believes that the allegations in these claims are without merit and intends to defend against them vigorously. However, there can be no assurance that the outcome of the litigation will be favorable to the Company or will not have a material adverse impact on the Companys financial position or liquidity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Expressed in thousands of US. dollars, except numbers of shares and per share amounts)
During the period ended January 4, 2009 the Company entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate changes related to forecasted Canadian dollar denominated payroll, rent and utility cash flows in the first quarter of fiscal 2009. These contracts were effective as hedges from an economic perspective, but were not designated as hedges for accounting purposes under SFAS 133. Accordingly, changes in the fair value of these contracts were recognized in the consolidated statement of operations and comprehensive income. The Company does not enter into forward foreign exchange contracts for trading or speculative purposes.
As of January 4, 2009, forward foreign exchange contracts with an aggregate exercise value of $3,598 were outstanding, and are to be settled between January 9, 2009 and April 3, 2009 at a forward rate of USD $1.00 = CAD $1.268. The unrealized gain recognized in earnings as a result of revaluing the instruments to fair value on January 4, 2009 was $185 which was included in other expense (recovery) in the statement of operations and comprehensive income and accounts receivable on the balance sheet. Fair value was determined using the market approach with quoted prices in active markets for identical assets.
There were no derivative instruments outstanding at December 31, 2007.
On March 6, 2009 the Company announced that the Boston facility will be closed. Restructuring charges associated with the closure, including severance and contract termination costs will be recorded in fiscal 2009.