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(4) Commitments & Contingencies

3 Months Ended

Mar. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments

Leases

The Company has two real estate leases—one expiring in February 2021 and one with a 12 month duration with options to extend additional years. Since the latter is not reasonably certain that any options will be exercised, it has not been recorded on the balance sheet in accordance with the accounting policy elected in Note 2. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these have been capitalized.

The lease expiring in 2021 (the “Norton facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet. This asset and liability was recognized on December 30, 2018 based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at commencement dates. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is included in rents on the income statements and is reported net of lease income. Lease income is not material to the results of operations for the quarter ended March 30, 2019.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of March 30, 2019

(Dollars in Thousands)		March 30, 2019
Maturity of capitalized lease liabilities		Lease payments
2019 (remaining)	$	114
2020		152
2021		26
Total undiscounted operating lease payments	$	292
Less: Imputed interest		(16)
Present value of operating lease liability	$	276

Additionally, the Company has no short-term lease commitments not reflected in the schedule above and not recorded as a right-of-use asset in accordance with the Company’s accounting policy.

Balance Sheet Classification
Current lease liability (recorded in other current liabilities)	$	148
Long-term lease liability		128
Total operating lease liability	$	276
Other Information
Weighted-average remaining lease term for capitalized operating leases		13 months
Weighted-average discount rate for capitalized operating leases		6.5%

Cash Flows

An initial right-of-use asset of $310 thousand was recognized as a non-cash asset addition with the adoption of the new lease accounting standard. Cash paid for the amounts included in the present value of operating lease liabilities was $38 thousand during the first quarter 2019 and is included in operating cash flows.

Operating Lease Costs

Operating lease cost was $38 thousand during the first quarter of 2019. This cost is related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases.

Loss contingency

The Company manufactures baseplates for power module manufacturers. Most baseplates manufactured by CPS require a nickel coating be applied to the baseplate (“Ni plating”). CPS warranties its baseplates meet the Ni plating specifications required by our customers, and we flow this requirement to our Ni plating vendors.

On January 24, 2018 the Company received a “Claim and Non-Conformance Notification” from one of its European customers relating to the Ni plating on our baseplates. Upon investigation, it was determined that one employee of the Ni plating vendor used by CPS had deviated from the prescribed work instruction for Ni plating from mid-September 2017 until mid-January 2018. The Company's Ni plating vendor has acknowledged this violation and is committed to correcting the problem.

In the case of affected baseplates, which have not been assembled into modules, it is a straight-forward process for the Ni plating vendor to rework these baseplates. The larger issue is baseplates that have already been assembled into modules. During this four-month period approximately 15,000 baseplates from this Ni plating vendor were assembled into modules; only a small portion of these baseplates are affected.

In alerting the Company to “non-conformance” the customer stated that it “may incur several additional expenses, costs and consequential damages due to this non-conformity.” The notification went on to say that “the exact total value of such expenses, costs and consequential damages cannot be calculated until the quality issue will be completely solved.” Although the Company expects this issue to be resolved amicably, there is a possibility that this could result in legal proceedings.

The Company is working closely with its customer and its Ni plating vendor to correct the situation and has informed its insurer of potential claims and the Ni plating vendor has done the same with its insurer. The Company believes that it is possible that damages will be assessed but it is not possible at this time to quantify the potential financial impact, especially when insurance is considered. No amounts for damages have been recorded in the accompanying financial statements related to this situation.