Quality Products. Service Excellence.
2017 Annual Report
QUALITY PRODUCTS.
SERVICE EXCELLENCE.
We have a broad product offering:
To serve our customers in multiple markets and industries.
We promise ten day back order recovery on standard product:
We work hard to provide you with your required product in a prompt time line.
Value Added Services (Modifications, Assembly and Drop Shipment):
To go above and beyond our competition and provide our customers with the exact solution required.
OUR VALUES:
We are dedicated to our customers:
To provide quality products and service that create value to our customers.
We are responsible to our shareholders:
To provide an adequate return on their investment over the long term.
We are committed to our employees:
To provide competitive pay, open and frank communication and a safe work environment.
We recognize the importance of our suppliers:
To assist us in our ability to serve our customers.
Visit us online at www.hammondmfg.com
Hammond Manufacturing Company Limited
2017 Annual Report
4
5
Report to Shareholders
Management Discussion and Analysis
19 Management’s Responsibility for Financial Reporting
20
21
22
23
24
25
63
Independent Auditors’ Report
Consolidated Statements of Financial Position
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Corporate Directory
www.hammondmfg.com
Annual Report 2017 3
REPORT TO SHAREHOLDERS
Dear fellow shareholders, employees, and stakeholders:
In the following pages, you will find a detailed description of our financial results for 2017.
These results depended on a large number of factors. These are both within our control and sometimes,
like currency, are beyond our influence. They are measured as a profit and loss statement or a balance
sheet. All are neatly translated into Canadian dollars for our auditors, bankers, and shareholders.
What we don’t see in these financial schedules is the continuous evolution of Hammond Manufacturing
as a human and social entity.
Over recent years, we have continued to grow our team of associates. As we continue to find ways to
improve, we welcome the inputs and involvement of many associates. New hires plus our long service
associates have the opportunity to build a career with Hammond---not just a job. Last year, we
celebrated the 100th year since my grandfather, Oliver Hammond, set up a lathe in the back shed. The
business grew on the foundation of involved people.
Not shown in the numbers is the continued growth in our markets and customer relationships. Our
products are sold worldwide and the Hammond brand is globally recognized. We strive as a group to
think like a customer and offer value and quality.
And we couldn’t do this without our suppliers. Continued growth at Hammond creates jobs for materials,
services, and financiers.
Through our efforts to safeguard the environment with recycling, landscaping, and even bird feeders,
we make our footprint as small as possible.
And both through the efforts of individuals and corporate support, we care about the people in our
communities.
In summary, the following pages will show that 2017 was a good year financially and a good foundation
for the future. As well, we feel good about our contribution to our associates, our suppliers, our
customers, and our community.
We look forward to the future.
Sincerely,
Robert F. Hammond
Chairman & CEO
ANNUAL MEETING
The meeting of the Shareholders will be held on
April 30, 2018 at
Cutten Fields
190 College Avenue East, Guelph, Ontario
Commencing at 10:00 a.m.
www.hammondmfg.com
Annual Report 2017 4
MANAGEMENT DISCUSSION AND ANALYSIS
This management discussion and analysis (MD&A) comments on the consolidated financial condition
and results of operations of Hammond Manufacturing Company Limited (“HMCL” or “the Company”) for
the year ended December 31, 2017. This discussion should be read in conjunction with the Company’s
consolidated financial statements for the year ended December 31, 2017 and related notes. Additional
information about the Company can be found on its website, www.hammfg.com, or through the SEDAR
website at www.sedar.com which includes the Company’s Annual Information Form. The information
contained herein is dated as of March 5, 2018.
The annual consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS).
All amounts in this report are in Canadian dollars unless otherwise stated.
Advisory–Certain information in this MD&A is forward-looking and is subject to important risks and
uncertainties. The results or events predicted in this information may differ from actual results or events.
Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”,
“plan”, “estimate”, “expect”, “may”, “project”, “predict”, “potential”, “could”, “might”, “should” and other
similar expressions. The Company believes the expectations reflected in forward-looking statements are
reasonable but no assurance can be given that these expectations will prove to be correct. These
forward-looking statements speak only to the date of this MD&A. The Company disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required pursuant to applicable securities laws.
www.hammondmfg.com
Annual Report 2017 5
MANAGEMENT DISCUSSION AND ANALYSIS
COMPANY PROFILE
Hammond Manufacturing Company Limited manufactures electronic and electrical enclosures, outlet
strips and electronic transformers that are used by manufacturers of a wide range of electronic and
electrical products. Products are sold directly to Original Equipment Manufacturers (OEM) and through
a global network of distributors and agents.
Facilities are situated in Canada, the United States of America (US), the United Kingdom (UK), Taiwan
and Australia, with agents and distributors located worldwide. The Company also maintains a 40%
ownership share of RITEC Enclosures Inc. (RITEC) located in Taiwan. RITEC produces a line of small
cases for sale through the Hammond Manufacturing Company’s sales channels and also manages
sourcing of die cast and plastic enclosures.
OPERATIONS
2017 was a strong year, with our facility expansion in 2016 now behind us our operations settled in to a
focused effort. Our markets grew and we were ready to take on the increased load. The second phase
of our Guelph expansion is the reconfiguration of our Edinburgh Road facility. In 2017 the first step was
to relocate our stainless steel production line and expand its capacity. This project has now been
substantially completed and we are continuing with our re-layout projects which will include investment
in upgraded equipment to increase our throughput and efficiency levels.
QUARTERLY INFORMATION
HAMMOND MANUFACTURING COMPANY LIMITED
Summary of Quarterly Financial Information
(In thousands of Canadian dollars except earnings per share)
Q1
Q2
Q3
Q4
2017
Year-to-date
Total
Net product sales
$31,727
$33,486
$31,421
$30,772
$127,406
Income from operating activities
Net income for the period
Earnings per share
- Basic & diluted
1,449
1,002
$0.09
2,282
1,579
$0.14
1,032
1,161
$0.10
1,210
818
$0.07
5,973
4,560
$0.40
Net product sales
$31,774
$28,011
$27,944
$27,995
$115,724
Q1
Q2
Q3
Q4
2016
Year-to-date
Total
Income from operating activities
Net income for the period
2,022
1,725
(586)
(610)
188
(296)
Earnings per share
- Basic & diluted
Note: Interim consolidated financial information has not been reviewed by an auditor.
($0.05)
($0.03)
$0.15
672
(135)
2,296
684
($0.01)
$0.06
www.hammondmfg.com
Annual Report 2017 6
MANAGEMENT DISCUSSION AND ANALYSIS
FOURTH QUARTER RESULTS
NET PRODUCT SALES
Net product sales, for the three months ended December 31, 2017 were $30,772,000, down 2.1%
compared to net product sales of $31,421,000 in the third quarter of 2017. As expected, December sales
were down due to holidays. Net product sales for the current quarter were up 9.9% compared to net
product sales of $27,995,000 for the three months ended December 31, 2016. Foreign exchange pulled
down sales by approximately 3.1% or $863,000 as the Canadian dollar (CAD) was stronger against the
US dollar (USD) and British pound sterling (GBP). Our markets are all showing strength and we are
taking additional market share by providing superior service levels.
GROSS PROFIT
Gross profit for the fourth quarter of 2017 was 29.9% of net sales compared to 28.7% in the third quarter
of 2017. The Canadian dollar had strengthened against the US dollar during the third quarter which in
turn lowered the profit levels of our US sales. The trend reversed in the fourth quarter and we gained
back some of the drop. Gross profits of 29.9% are up from the fourth quarter of 2016 level of 28.2%. In
2016 we had just completed our Guelph facility expansion and were experiencing additional costs
associated with the startup.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE, RESEARCH AND
DEVELOPMENT (“R&D”) EXPENSES AND LOSS (GAIN) ON DISPOSAL OF PROPERTY,
PLANT AND EQUIPMENT
Fourth quarter selling and distribution, general and administrative, R&D expenses and loss (gain) on the
disposal of property plant and equipment of $7,989,000 was 26.0% of net sales for the three months
ended December 31, 2017. This compared with spending of $7,984,000 in the previous quarter that was
25.4% of net sales. Foreign exchange impact reduced costs by approximately $19,000. The fourth
quarter of 2016 saw spending levels of $7,229,000 which was 25.8% of net sales. Spend was up despite
the impact of foreign exchange reducing cost by $128,000.
Selling and distribution spending of $6,693,000 was flat over the prior quarter and up 12.8% over the
fourth quarter of 2016. Compared to the fourth quarter of 2016 the sales increase was the primary driver
of the quarter over quarter increase in expenses.
General and administrative expenses of $1,344,000 were up this quarter from the previous quarter’s
spending of $1,202,000. The primary driver of the quarter over quarter increase was a $30,000 increase
in our provision for doubtful accounts and legal expenses of $66,000 associated with the claim against
the Company identified in note 18 of the consolidated financial statements. This quarter’s spending was
also up from $1,179,000 spending in fourth quarter of 2016. The increase is the same as the change
from last quarter plus the additional expense of increased personnel and director expenses of $32,000.
Research and development spend of $59,000 was level with 2016 at $63,000.
A net gain of $107,000 on disposal of property, plant and equipment was recognized this quarter. This
was primarily from the sale of one of our lasers that had been fully depreciated.
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Annual Report 2017 7
MANAGEMENT DISCUSSION AND ANALYSIS
INCOME FROM OPERATING ACTIVITIES
Income from operating activities of $1,210,000 (3.9% of net sales) is up from the prior quarter of
$1,032,000 (3.3% of net sales) and up from the 2016 fourth quarter amount of $672,000 (2.4% of net
sales). 2017 results are not weighed down by the new facility startup in 2016.
INTEREST
Fourth quarter interest expense of $243,000 was flat to the third quarter expense of $245,000 and
comparable to the interest expense of $245,000 in the fourth quarter of 2016. Overall external debt has
come down with a slight increase in the interest rate on our line of credit.
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
During the fourth quarter of 2017, the Company recognized a gain on transactional foreign exchange of
$2,000 compared to a loss of $528,000 in the three months ended December 31, 2016. In 2016 the
intercompany balance impact was $234,000 of the $528,000 loss. There is an offset to the intercompany
impact found in the foreign exchange translation of foreign operations. There was not a lot of movement
in the exchange rates in the fourth quarter of 2017 compared to the third quarter of 2017.
INCOME TAX EXPENSE
Net income tax expense in the fourth quarter was $257,000 which included the final true up for the year’s
activities.
NET INCOME (LOSS) FOR THE PERIOD
Net income of $818,000 (2.7% return on net product sales) was recognized for the fourth quarter ended
December 31, 2017 this was down from a net return of $1,161,000 (3.7% return on net product sales)
in the previous quarter and up from the net loss of $135,000 (0.5% return on net product sales)
recognized in the fourth quarter of 2016.
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
The translation adjustment for the fourth quarter of 2017 was a gain of $89,000 compared to a translation
gain of $322,000 in the fourth quarter of 2016. The Canadian dollar weakening against our foreign entity
currencies providing a positive impact from foreign translation.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for the fourth quarter ended December 31, 2017 was $907,000 (2.9% of net
product sales) down from the 3 months ended December 31, 2016 of $187,000 (0.7% of net product
sales).
FULL YEAR RESULTS
NET PRODUCT SALES
Net product sales of $127,406,000 in 2017 were up 10.1% compared to net sales of $115,724,000
reported in 2016. Foreign exchange had a negative impact on the year over year reporting by
approximately $2,490,000 (2.2%) so sales were actually up 12.3% in constant dollars. Our markets are
all showing strength and we are taking additional market share by providing superior service levels.
www.hammondmfg.com
Annual Report 2017 8
MANAGEMENT DISCUSSION AND ANALYSIS
GROSS PROFIT
In 2017, gross profit was $38,006,000 or 29.8% of net product sales compared to $32,810,000 or 28.4%
achieved in 2016. In 2016 we felt the impact of bringing our new facility on line. The new facility added
infrastructure costs and production inefficiencies associated with the move and also created a drag on
2016 gross profit levels. The Group has seen production efficiencies improve in 2017 and the increased
sales volumes are having a positive impact covering the increased fixed costs.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE, RESEARCH AND
DEVELOPMENT (“R&D”) EXPENSES AND LOSS (GAIN) ON DISPOSAL OF PROPERTY,
PLANT AND EQUIPMENT
Selling and distribution, general and administrative, R&D expenses including the net impact of the
disposal of property, plant and equipment of $32,033,000 (25.1% of net product sales) was up 5.0%
compared to the 2016 spend of $30,514,000 (26.4% of net product sales). Foreign exchange had the
impact of lowering the reported expense levels by approximately $437,000 compared to the cost base
in 2016 so spend was actually up 6.2% compared to 2016.
Selling and distribution expenses of $26,999,000 increased 7.0% ($1,773,000) compared to 2016.
Foreign exchange had the impact of lowering comparative costs by $381,000. On a constant dollar basis
our costs were up 8.7%. The increase in costs is a reflection of the increase in sales output.
Our general and administrative expenses were down $98,000 or 2.0% compared to 2016 spending
levels of $4,935,000. Foreign exchange had the impact of lowering comparative costs by $56,000. On
a constant dollar basis our costs were down 0.9%.
In 2017 the research and development spending level was down 5.0% to $284,000 over 2016 spending
levels. We continue to invest in our future.
A net gain of $87,000 on disposal of property, plant and equipment was recognized as some old
equipment was sold and replaced.
INCOME FROM OPERATING ACTIVITIES
Overall, 2017 earnings from operating activities of $5,973,000 (4.7% of net product sales) is up
compared to 2016 earnings of $2,296,000 (2.0% of net product sales).
INTEREST
Interest expense of $1,000,000 increased $136,000 or 15.7% from the 2016 expense level of $864,000.
Our external debt grew throughout 2016 as we invested in our new facility. External debt at the end of
2016 was at $25,186,000 and has decreased to $22,552,000 at the end of 2017. In 2016 we were
utilizing our line to finance the expansion. As the project was completed we moved to fix some of the
debt associated with the expansion. The line has a low interest rate but is subject to the variability of the
market. By locking in we have accepted a higher rate but it is fixed in nature and reduces the company’s
exposure to rate increases.
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
A $1,286,000 foreign exchange transactional gain was reported in 2017, compared to a transactional
loss of $212,000 in 2016. The Canadian dollar strengthened against the US dollar throughout 2017. It
opened at $1.00 USD to $1.343 CAD and closed the year at $1.00 USD to $1.255 CAD. A large portion
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Annual Report 2017 9
MANAGEMENT DISCUSSION AND ANALYSIS
of the gain is from the intercompany receivable. This year it created transaction gains of just over
$400,000 with the offset going to translational losses of other foreign operations.
INCOME TAX EXPENSE
2017 tax expenses of $1,827,000 were 28.6% of income before income tax. This compares to a 2016
tax expense of $540,000 which was 44.1% of income before income tax. The 2017 tax on income is
reflective of normal operational levels. In 2016 earnings by our US entity at a tax rate of 34% were not
offset by the loss of the Canadian entity at a tax rate of 25%.
NET INCOME FOR THE YEAR
Net income for the year ended December 31, 2017 was $4,560,000 (3.6% of net product sales) up
667.0% from the prior year net income of $684,000 (0.6% of net product sales).
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
During 2017 a loss of $1,041,000 on translational foreign exchange was realized compared to a loss of
$722,000 in 2016. The strengthening Canadian dollar caused a decrease in the valuation of our foreign
entities.
TOTAL COMPREHENSIVE INCOME (LOSS)
Comprehensive income for 2017 was $3,519,000 (2.8% of net product sales) up from a comprehensive
loss of $38,000 (0.0% of net product sales) in 2016.
SELECTED ANNUAL INFORMATION
Three year financial summary:
For the years ended December 31,
(In thousands except per share amounts)
Consolidated Statements of Comprehensive Income
2017
2016
2015
Net product sales
$
127,406
$
115,724
$
117,164
Income from operating activities
Net income for the year
Per share - basic & fully diluted
net earnings for the year
5,973
4,560
2,296
684
6,625
3,550
$0.40
$0.06
$0.31
Consolidated Statement of Financial Position
2017
2016
2015
Total assets
Total funded debt
Working capital
Net cash generated from (used in) operating activities
Dividends declared and paid
Dividends declared prior year and paid current year
Shareholders' equity
$
$
$
85,889
22,552
21,270
7,244
226
-
46,557
82,157
25,186
19,016
(3,370)
226
-
43,264
79,394
17,443
14,415
6,680
-
226
43,528
$
$
$
www.hammondmfg.com
Annual Report 2017 10
MANAGEMENT DISCUSSION AND ANALYSIS
CAPITAL RESOURCES AND LIQUIDITY
Net cash generated in operating activities for 2017 was $7,244,000 (net cash used in 2016 - $3,370,000).
Cash flows from financing activities amounted to a use of $2,229,000 (2016 – source of $7,566,000).
Cash used in investing activities was $3,440,000 (2016 - $4,071,000).
Trade and other receivables of $16,261,000 at December 31, 2017 have increased 4.7% compared to
the 2016 year-end. Higher sales contributed to this increase. Day’s sales outstanding (DSO) improved
over the previous year end. DSO as at December 31, 2017 calculated on net sales was 51.4 days which
was down from 52.5 days calculated as at December 31, 2016. The quality of accounts receivable
remains high.
The year-end investment in inventory of $34,700,000 was an increase of 5.6% from the 2016 inventory
value of $32,873,000. Inventory turnover increased slightly to 2.7 from 2.62 (cost of sales divided by the
twelve month average inventory level).
Trade and other payables increased by $1,805,000, or 14.7% over 2016 to $14,081,000. The majority
of this increase can be attributed to our increased output levels. Approximately $836,000 of the ending
payables is associated with a new piece of equipment received in December. Our total debt (long-term
debt and bank indebtedness) decreased by $2,634,000 over the prior year to $22,552,000. Our debt-
to-equity ratio at year-end was approximately 0.48:1 (2016 - 0.58:1).
The Company paid a dividend of $226,000 in August of 2017 (2016 - $226,000).
Property, plant, equipment and intangible asset additions in 2017 were $4,370,000 up from $4,071,000
in 2016. The Company spent $346,000 (2016 - $1,021,000) on building and leasehold improvements.
$1,003,000 (2016 - $124,000) was invested toward upgrading and replacing machinery and equipment,
$2,571,000 (2016 - $2,360,000) was invested toward machinery and equipment for capacity growth,
$357,000 (2016 - $311,000) was invested in tooling, $1,000 (2016 - $214,000) was invested in office
equipment and $92,000 (2016 – $41,000) was spent on software and development costs.
In 2015, the Group successfully applied for and was approved by the Federal Economic Development
Agency for Southern Ontario for an interest free loan up to $3,462,000 on eligible spending. As at
December 31, 2017, the Group had received $2,493,000 of this funding (2016 - $1,535,000).
In 2015, the Group successfully applied for and was approved by the Southwestern Ontario
Development Fund for a grant up to $1,500,000 on eligible spending. As at December 31, 2017, the
Group has received $724,000 of this funding (2016 - $500,000).
The grant and government funding noted above are contingent on adding new jobs and retaining existing
jobs at our Guelph, Ontario locations. As at the time of this report the Group was in compliance with this
requirement and did not foresee any future compliance issues although employee levels are a function
of the market conditions which can be unpredictable.
The contractual obligations of the Company are detailed in the following table.
Contractual obligations
(In thousands)
Long-term debt and
Capital lease obligations
Total
2018
2019
2020
2021
2022
Thereafter
$
16,836
$
11,040
$
856
$
1,163
$
1,225
$
1,278
$
1,274
Operating leases
8,416
2,046
1,929
1,633
617
417
1,774
Total contractual obligations
$
25,252
$
13,086
$
2,785
$
2,796
$
1,842
$
1,695
$
3,048
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Annual Report 2017 11
MANAGEMENT DISCUSSION AND ANALYSIS
$9,754,000 of the $12,247,000 long-term debt are demand loans and therefore are shown as due in
2018. The following table depicts the repayment obligation without the debt being called.
Contractual obligations
(In thousands)
Long-term debt and
Capital lease obligations
Total
2018
2019
2020
2021
2022
Thereafter
$
16,836
$
1,235
$
1,107
$
1,425
$
1,498
$
1,563
$
10,008
Operating leases
8,416
2,046
1,929
1,633
617
417
1,774
Total contractual obligations
$
25,252
$
3,281
$
3,036
$
3,058
$
2,115
$
1,980
$
11,782
In addition to the contractual obligations above, the Company has current obligations of $4,609,000
(2016 - $413,000) against open purchase orders for outstanding capital expenditures. $650,000 of this
is reflected in accounts payable. The Company also has open purchase commitments with RITEC as at
December 31, 2017 of $959,000 (2016 - $588,000). These expenditures should be completed in the first
half of 2018.
SHARE CAPITAL
As of March 5, 2018, 8,556,000 Class A subordinate voting shares and 2,778,300 Class B common
shares were issued and outstanding. The Company also has a management share option plan, with no
options currently outstanding.
EBITDA
EBITDA for the fourth quarter of 2017 was $2,042,000 significantly improved over the $1,431,000 in the
fourth quarter of 2016. Year to date 2017 EBITDA was $10,398,000 up $4,946,000 over the $5,452,000
achieved in 2016. EBITDA adjusted for foreign exchange shows similar improvement. EBITDA and
adjusted EBITDA is calculate as outlined in the following table:
Reconciliation of Net Earnings to Earnings Before Interest, Taxes Depreciation and Amortization
(EBITDA)*.
(In thousands of Canadian dollars)
Net income (loss) for the period
Add
Income tax expense
Depreciation and amortization
Finance costs
Subtotal
EBITDA*
Add:
FX transactional loss (gain)
Adjusted EBITDA *
Years Ended:
December 31,
2017
4,560
Three Months Ended:
December 31,
2016
684
December 31,
2017
818
December 31,
2016
(135)
1,827
3,011
1,000
5,838
10,398
(1,286)
9,112
540
3,364
864
4,768
5,452
212
5,664
257
724
243
1,224
2,042
(2)
2,040
99
1,222
245
1,566
1,431
528
1,959
* EBITDA and Adjusted EBITDA are non-IFRS earnings measures, therefore they do not have any
standardized meaning prescribed by International Financial Reporting Standards and may not be similar
to measures presented by other companies. EBITDA represents earnings before interest, income taxes,
depreciation and amortization. Adjusted EBITDA removes the impact of foreign exchange transactional
so management can assess the impact of this on the operating results. Management uses these
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Annual Report 2017 12
MANAGEMENT DISCUSSION AND ANALYSIS
measurements to evaluate the operating results of the Company. These measures are also important
to management since they are used by the Company’s lenders to evaluate the ongoing cash generating
capability of the Company and therefore the amounts those lenders are willing to lend to the Company.
Investors find EBITDA and Adjusted EBITDA to be useful information because they provide measures
of the Company’s operating performance.
ENVIRONMENTAL ISSUES
The Glen Ewing Property is a 50% co-tenancy with Hammond Power Solutions Inc. (HPSI) of a vacant
property located at 2 Glen Road, Georgetown. The soil has been contaminated by diesel oil, which is
believed to be related to site operations of prior owners. The Company and HPSI, as co-tenants, have
been working co-operatively with our environmental consultant, the Ministry of Environment and the
adjacent property owner to contain and remove any free flowing contaminants. The Company’s share
of expense for legal and consulting work for 2017 related to this property was $76,000 (2016 - $93,000).
The Company was successful in claiming back $126,000 of prior and current year expenses from an
adjacent property owner who is also involved in the environmental remediation. $70,000 was for years
prior to 2016, $31,000 was for the year 2016 and $25,000 was for 2017. The net reported recovery for
2017 was $50,000 (2016 – expense of $93,000).
The parties started remediation of the site in October 2009. The Company has relied on its consultant’s
best estimate for the remaining environmental remediation costs. The Company’s remaining portion of
environmental remediation costs for this site is $170,000 (2016 - $170,000) with $70,000 (2016 -
$70,000) presented as a current liability in the consolidated financial statements.
A statement of claim was issued on June 19, 2013, against the Company with respect to a property once
held by the Company. The claim alleges that contaminants originating from the property once owned by
the Company have migrated to a nearby, but not adjoining property owned by the claimants. The amount
of the claim is not fully known but includes $2,000,000 which is the estimated cost of construction of a
barrier and related expenses. At this point in time, there is no certainty that the contaminants emanated
from the property once owned by the Company. Furthermore, given the nature of the claim, there
remains significant uncertainty as to any costs to be incurred as a result of the claim and accordingly
management is unable to reasonably estimate any liability that may arise as a result of this claim. As
such, no amount has been recorded in these consolidated financial statements. In 2017 the claim moved
into the discovery proceedings level and we have seen corresponding legal fees in the year’s expenses.
Other than the above noted sites, management is not aware of any unusual or significant environmental
issues.
CRITICAL ACCOUNTING ESTIMATES
In the preparation of the consolidated financial statements, it is necessary for management to make
some estimates and judgments that affect reported amounts in the consolidated financial statements
and related disclosure of contingencies. Management determines these estimates using historical
experience, assumptions and rationale that are believed to be reasonable in the circumstances. The
Company evaluates these on an ongoing basis in order to form the judgment for the carrying value of
certain assets and liabilities.
Specifically, the Company has assessed the property valuations related to the sites noted under
“Environmental Issues” in this MD&A and in the notes to the consolidated financial statements (note 8).
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Annual Report 2017 13
MANAGEMENT DISCUSSION AND ANALYSIS
Based on this analysis, it is management’s judgment that the reported carrying values of these properties
are reasonable.
The value of goodwill related to the Company’s UK operations was reviewed by management and tested
for impairment in accordance with the guidelines set out in International Accounting Standard 36. Based
on this analysis, it is management’s judgment that the reported carrying value for goodwill is not
impaired.
The environmental provision has been established based on an analysis of cost estimates related to
expected activities required for active remediation for Glen Ewing Property. It is management’s
judgment that the reported carrying value for this provision, based on discounted cash flows over three
years, is a reasonable estimate of the Company’s share of these costs given information available at
this time, but acknowledges that this estimate is subject to future uncertainties.
Employee future health benefits have been estimated based on eligible employees and management’s
best estimates of the utilization of these benefits on a specific employee basis. It is management’s
judgment that the reported carrying value for this provision, based on discounted cash flows, is a
reasonable estimate of the Company’s costs given information available at this time, but acknowledges
that this estimate is subject to future uncertainties.
Inventory valuation includes provisions for slow moving inventory using management’s judgments based
on inactivity of the specific parts. Management also reviews inventory values compared to anticipated
sales values and provides a provision for lower of cost or market.
Although these estimates, which form the basis for carrying values of reported assets, liabilities,
revenues and expenses, are based on reasonable assumptions, it should be noted that actual results
may differ from these estimates.
CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant
information is gathered and reported to management on a timely basis so that appropriate decisions can
be made regarding public disclosure.
The purpose of internal controls over financial reporting as defined by the Canadian Securities
Administrators is to provide reasonable assurance that:
(i)
financial statements prepared for external purposes are in accordance with the Company's
Generally Accepted Accounting Principles,
(ii) transactions are recorded as necessary to permit the preparation of financial statements, and
records are maintained in reasonable detail,
(iii) receipts and expenditures of the Company are made only in accordance with authorizations of
the Company's management and directors, and
(iv) unauthorized acquisitions, uses or dispositions of the Company's assets that could have a
material effect on the financial statements will be prevented or detected in order to prevent
material error in financial statements.
Internal controls over financial reporting, no matter how well designed have inherent limitations.
Therefore, internal control over financial reporting determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and may not prevent or detect all
misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to
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Annual Report 2017 14
MANAGEMENT DISCUSSION AND ANALYSIS
the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Evaluation of Disclosure Controls and Procedures:
Management is responsible for establishing and maintaining disclosure controls and procedures. Under
the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), management evaluated the effectiveness of the Company’s disclosure controls and procedures.
Disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed in annual filings, interim filings or other reports filed or submitted by the
Company under securities legislation is recorded, processed, summarized and reported within the time
periods specified in the securities legislation and include controls and procedures designed to ensure
that information required to be disclosed in the annual filings, interim filings or other reports filed or
submitted under securities legislation is accumulated and communicated to management, including the
Company’s certifying officers, as appropriate to allow timely decisions regarding required disclosure.
Management concluded that the Company’s disclosure controls and procedures were effectively
designed as at the December 31, 2017 year end.
Evaluation of Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining internal control over financial reporting.
Under the supervision and with the participation of the Company’s CEO and the CFO, management
evaluated the effectiveness of the Company’s internal control over financial reporting. Internal control is
a process designed by, or under the supervision of, an issuer’s certifying officers, and effected by the
issuer’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS and includes those policies and procedures that: (a) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company; (b) are designed to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with
the IFRS, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (c) are designed to provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the annual financial statements or interim financial
statements. The CEO and CFO did not identify any material weaknesses in their evaluation of internal
control, and concluded that the Company’s internal control over financial reporting was effective, as at
December 31, 2017.
There has been no change to internal controls in the most recent quarter ended on December 31, 2017
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
RISKS AND UNCERTAINTIES
As with most businesses, the Company is subject to a number of marketplaces, industry and economic
related business risks, which could have some material, impact on our operating results.
These risks include:
• Security Breaches or Disruptions of Information Technology Systems Risk;
• Key personnel;
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Annual Report 2017 15
MANAGEMENT DISCUSSION AND ANALYSIS
• The cyclical effects, unpredictability and volatility of market driven commodity costs, raw
materials such as copper and steel pricing and supply and demand;
• A significant, unexpected change in the global demand for resources;
• The variability of the Canadian dollar versus the US dollar;
• Rising interest rates;
• Economic slowdown in the US and Canada;
• Brexit;
• Trade restrictions;
•
Labour costs and labour relations;
• Competition; and
• Global political unrest.
The Company continuously works to minimize the negative impact of these risks and strengthen its
position through diversification of its core business, market channel expansion, geographic diversity of
its operations and business hedging strategies. There are, however, several risks that deserve particular
attention.
Security Breaches or Disruptions of Information Technology Systems Risk
The Corporation utilizes a variety of information technology systems to manage and operate its
businesses. These information systems may be owned and maintained by the Corporation, outsource
providers or third parties such as customers, vendors and contractors. These information systems are
subject to attacks, failures, and access denials from a number of potential sources including viruses,
destructive or inadequate code, power failures, and physical damage to computers, hard drives,
communication lines and networking equipment. Despite the implementation of extensive security
measures (including access controls, data encryption, vulnerability assessments, continuous
monitoring, and maintenance of back-up and protective systems), the Corporation’s information
technology systems are potentially vulnerable to interruptions or delays, unauthorized access, computer
viruses, cyber-attack and other events, ranging from individual attempts to advanced persistent threats.
It is possible a security breach could result in theft of trade secrets or other intellectual property or
disclosure of confidential customer, supplier or employee information. Should the Corporation be unable
to prevent security breaches, disruptions could have an adverse effect on the Corporation’s operations
and financial results, as well as expose the Corporation to litigation, increased cyber security protection
costs, and reputational damage.
Key Personnel
The Company is dependent on the experience and industry knowledge of its executive officers and other
key employees to execute its business plan. If the Company were to experience a substantial turnover
in its leadership or other key employees, business results from operations and financial condition could
be materially adversely affected.
Commodity Prices
An area that has had a definite effect on the Company’s costs and earnings is the cyclical effects and
unprecedented market cost pressures of copper commodity and steel pricing in the global market. Due
to this unpredictability and volatility, particularly with copper pricing, the Company does not currently
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Annual Report 2017 16
MANAGEMENT DISCUSSION AND ANALYSIS
utilize future contracts. Strategic supply line agreements and alliances are in place with our major steel
suppliers to ensure adequate supply and competitive market pricing.
Foreign Exchange
The Company’s operating results are reported in Canadian dollars. A significant portion of our sales is
denominated in US dollars. A change in the value of the Canadian dollar against the US dollar will
impact revenues and earnings. We have created a bit of a natural hedge as this is partially offset by a
corresponding change in the cost of materials purchased from the US and commodities tied to US
dollar pricing. In general, a lower value for the Canadian dollar compared to the US dollar will have a
beneficial impact on the Company’s results; or, inversely, a higher value for the Canadian dollar
compared to the US dollar will have a negative impact on the Company’s profitability. In a sensitivity
review, if we did not react in any way to a one cent change in the value of the Canadian to US dollar
value it would have an approximate impact of $500,000 for each cent movement. The Company also
has a US operating subsidiary and US dollar assets. The exchange rate between the Canadian and
US dollar can vary significantly from year to year. There is a corresponding positive or negative impact
to the Company’s Consolidated Statements of Comprehensive Income solely related to the foreign
exchange translation of its Consolidated Statements of Financial Position. We have partially reduced
the impact of foreign exchange fluctuations through increasing our US dollar driven manufacturing
output. Finally, the Company periodically institutes price increases / reductions to help offset the
negative / positive impact of changes in foreign exchange and product cost increases / decreases. The
Company is also exposed to the impact from the British pound sterling and Euro as well as to the
Australian dollar but not to the level of exposure of the US dollar.
Interest Rates
Bank indebtedness makes up close to 25.3% of the Company debt financing. The rates for this financing
are low but variable. The Company is cognizant that a rise in interest rates will negatively impact the
financial results of the Company. The Company continuously reviews this strategy of hedging this risk
by fixing interest rates on part of its total debt.
North American Economy
Over the past several years the US dollar compared to the Canadian dollar has ranged from the low
1.20’s to the high 1.30’s Canadian dollar to US dollar ratio. A strengthening US market place has
contributed to the strengthening US dollar. Since our costs are highly Canadian dollar based, this is
providing an opportunity to price aggressively in the US market place and increase our market activity.
Current outlook sees the US dollar remaining strong. We will continue to react to the market conditions
to grow our business. Our efforts over the next 12 months will be on projects that will reduce our costs
and improve our manufacturing flexibility. We believe that being nimble as an organization will become
even more important in order to respond quickly to both unexpected opportunities as well as challenges.
We also believe that our growing access to a variety of markets both global and domestic through our
OEM and distributor channels will help the Company expand market share. We are closely watching the
North American Free Trade (NAFTA) negotiations and will react accordingly as the situation unfolds.
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Annual Report 2017 17
MANAGEMENT DISCUSSION AND ANALYSIS
OUTLOOK FACTORS FOR 2018
Our current market expectation is to see stable growth in all our market places. The strong US dollar is
providing us the opportunity to competitively price our products and stimulate market share growth. We
will continue to monitor the NAFTA trade discussions and react accordingly. The Company continues
with the objective of sales growth and increased market share but will weigh this against achieving
acceptable margins.
Capital spending will continue to be focused on high impact projects as accommodated by cash flows.
Our primary focus continues to be on productivity and margin improvement.
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Annual Report 2017 18
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements are the responsibility of the management of Hammond
Manufacturing Company Limited. These statements have been prepared in accordance with
International Financial Reporting Standards, using management’s best estimates and judgments, where
appropriate.
Management is responsible for the reliability and integrity of the consolidated financial statements, the
notes to the consolidated financial statements and other financial information contained in the report. In
the preparation of these statements, estimates are sometimes necessary because a precise
determination of certain assets and liabilities is dependent on future events. Management believes such
estimates have been based on careful judgment and have been properly reflected in the accompanying
consolidated financial statements.
Management is responsible for the maintenance of a system of internal controls designed to provide
reasonable assurance that the assets are safeguarded and that accounting systems provide timely,
accurate and reliable financial information.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial
reporting and internal control. The Board of Directors is assisted in exercising its responsibilities through
the Audit Committee of the Board, which is composed of three non-management directors. The Audit
Committee meets periodically with management and the auditors to satisfy itself that management’s
responsibilities are properly discharged, to review the consolidated financial statements and to
recommend approval of the consolidated financial statements to the Board of Directors.
KPMG LLP, the independent auditors appointed by the shareholders, has audited the Company’s
consolidated financial statements in accordance with Canadian generally accepted auditing standards
and their report follows. The independent auditors have full and unrestricted access to the Audit
Committee to discuss their audit and related findings as to the integrity of the financial reporting process.
R.F. Hammond
A. Stirling
Chairman & CEO
Secretary & CFO
Guelph, Ontario
March 5, 2018
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Annual Report 2017 19
(cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55)(cid:3)(cid:36)(cid:56)(cid:39)(cid:44)(cid:55)(cid:50)(cid:53)(cid:54)(cid:182)(cid:3)(cid:53)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)
To the Shareholders of Hammond Manufacturing Company Limited
We have audited the accompanying consolidated financial statements of Hammond Manufacturing
Company Limited, which comprise the consolidated statements of financial position as at December
31, 2017 and December 31, 2016, the consolidated statements of comprehensive income(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12),
changes in equity and cash flows for the years then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant
to the entity’s preparation and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Hammond Manufacturing Company Limited as at December
31, 2017 and December 31, 2016, and
its
consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards.
financial performance and
its consolidated
Chartered Professional Accountants, Licensed Public Accountants
March 5, 2018
Waterloo, Canada
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Annual Report 2017 20
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at December 31,
Note
2017
2016
Assets
Current assets:
Cash
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Total current assets
Non-current assets:
Property, plant and equipment
Intangible assets and goodwill
Investment property
Equity investment
Total non-current assets
Total assets
Liabilities
Current liabilities:
Bank indebtedness
Trade and other payables
Income taxes payable
Current portion of provisions
Current portion of employee future benefits
Current portion of long-term debt
Total current liabilities
Non-current liabilities:
Employee future benefits
Long-term debt
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity:
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total equity
Commitments
Contingency
Total liabilities and equity
4
5
6
7
8
9
10
11
12
13
10
13
10
12
14
15
$
1,051
16,261
-
34,700
1,181
53,193
$
614
15,536
460
32,873
1,131
50,614
30,629
269
1,044
754
32,696
29,538
323
1,044
638
31,543
$
85,889
$
82,157
$
5,716
14,081
918
115
53
11,040
31,923
$
7,343
12,276
-
125
67
11,787
31,598
237
5,796
100
1,276
7,409
39,332
10,249
290
1,875
34,143
46,557
241
6,056
100
898
7,295
38,893
10,249
290
2,916
29,809
43,264
16 &17
18
$
85,889
$
82,157
The notes on pages 25 to 61 are an integral part of these consolidated financial statements.
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Annual Report 2017 21
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars, except earnings per share)
For The Years Ended December 31,
Note
2017
2016
Net product sales
Cost of sales
Gross profit
Selling and distribution
General and administrative
Research and development
Loss (gain) on disposal of property, plant and equipment
Income from operating activities
Interest expense
Foreign exchange gain (loss)
Net finance income (expense)
Share of profit of equity accounted investees
Share of recovery (expenses) from investment property
Income before income tax
Income tax expense
Net income for the year
Other comprehensive loss:
Foreign currency translation differences for foreign
operations
Other comprehensive loss for the year, net of income tax
10
9
8
19
$ 127,406
$ 115,724
89,400
38,006
26,999
4,837
284
(87)
5,973
(1,000)
1,286
286
78
50
6,387
1,827
4,560
(1,041)
(1,041)
82,914
32,810
25,226
4,935
299
54
2,296
(864)
(212)
(1,076)
97
(93)
1,224
540
684
(722)
(722)
Total comprehensive income (loss) for the year
$ 3,519
$
(38)
Earnings per share
Basic earnings per share
Diluted earnings per share
20
20
$ 0.40
$ 0.40
$ 0.06
$ 0.06
The notes on pages 25 to 61 are an integral part of these consolidated financial statements.
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Annual Report 2017 22
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Changes in Equity
For the years December 31, 2017 and December 31, 2016
(in thousands of Canadian dollars)
Attributable to equity holders of the Company
Share
Capital
Contributed
Surplus
AOCI**
Retained
earnings
Total
equity
Balance at January 1, 2016
$
10,249
$
290
$
3,638
$
29,351
$
43,528
Net income for the year
Other comprehensive loss:
Foreign currency translation differences
Total comprehensive income (loss) for the year
Transactions with owners, recorded directly in equity:
Dividends to equity holders
-
-
-
-
-
-
-
-
684
684
(722)
-
(722)
(722)
684
(38)
-
(226)
(226)
Balance at December 31, 2016
$
10,249
$
290
$
2,916
$
29,809
$
43,264
Balance at January 1, 2017
$
10,249
$
290
$
2,916
$
29,809
$
43,264
Net income for the year
Other comprehensive loss:
Foreign currency translation differences
Total comprehensive income (loss) for the year
Transactions with owners, recorded directly in equity:
Dividends to equity holders
-
-
-
-
-
-
-
-
4,560
4,560
(1,041)
-
(1,041)
(1,041)
4,560
3,519
-
(226)
(226)
Balance at December 31, 2017
** Accumulated other comprehensive income (loss)
$
10,249
$
290
$
1,875
$
34,143
$
46,557
The notes on pages 25 to 61 are an integral part of these consolidated financial statements.
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Annual Report 2017 23
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
For the Years Ended December 31,
2017
2016
Cash flows from operating activities
Net income for the year
$
4,560
$
684
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Interest expense
Income tax expense
Loss (gain) on disposal of property, plant and equipment
Provisions and employee future benefits
Equity investments
Change in non-cash working capital:
Inventories
Trade and other receivables
Prepaid expenses
Trade and other payables
Cash generated from (used) in operating activities
Interest paid
Income tax paid
Net cash generated from (used in) operating activities
Cash flows from financing activities
Bank indebtedness
Payment of long-term debt
Advances of long-term debt
Payment of dividends
Net cash generated (used) from financing activities
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment
Acquisition of of property, plant and equipment
Intangible asset additions
Net cash used in investing activities
Net increase in cash
Cash at beginning of year
Foreign exchange gain (loss) on cash and cash
equivalents in a foreign currency
2,955
56
1,000
1,827
(87)
-
(116)
10,195
(1,899)
(1,068)
(54)
1,057
8,231
(915)
(72)
7,244
(1,635)
(1,326)
958
(226)
(2,229)
94
(3,534)
-
(3,440)
1,575
614
(1,138)
3,286
78
864
540
54
(12)
(89)
5,405
(2,887)
305
19
(4,725)
(1,883)
(864)
(623)
(3,370)
(4,894)
(850)
13,536
(226)
7,566
-
(4,030)
(41)
(4,071)
125
263
226
Cash at end of year
$
1,051
$
614
The notes on pages 25 to 61 are an integral part of these consolidated financial statements.
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Annual Report 2017 24
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
1) Reporting entity:
Hammond Manufacturing Company Limited (“HMCL” or the “Company”) is a public company traded
on the Toronto Stock Exchange under the symbol “HMM.A” and is incorporated under the Ontario
Business Corporations Act. The address of the Company’s registered office is 394 Edinburgh Road
North, Guelph, Ontario. The consolidated financial statements of the Company as at and for the year
ended December 31, 2017 include the Company and its subsidiaries (together referred to as the
“Group” and individually as “Group entities”) and the Group’s interest in jointly controlled entities.
The Group primarily is involved in the design, manufacture and sale of electrical and electronic
components. Facilities are located in Canada, the US, the UK, Taiwan and Australia, with agents
and distributors located worldwide. The Company also maintains a 40% ownership share of RITEC
Enclosures Inc. (RITEC) located in Taiwan. RITEC produces plastic and die cast enclosures for sale
through the Company’s sales network and its own existing market channels.
2) Basis of preparation:
a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS).
The Board of Directors approved these consolidated financial statements on March 5, 2018.
b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis.
c) Functional and presentation currency:
The consolidated financial statements are presented in Canadian dollars. The functional
currency of the Group’s entities is the currency of their primary economic environment. In
individual companies, transactions in foreign currencies are recorded at the rate of exchange at
the date of the transaction. Monetary assets and liabilities in foreign currencies at the reporting
date are re-measured to the functional currency at the exchange rate at that date. Any resulting
exchange differences are taken to the statement of comprehensive income. Non-monetary
items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. On consolidation, assets and liabilities of Group
entities reported in their functional currencies are translated into the Canadian dollar, being the
presentation currency, at the exchange rate on the reporting date. The income and expenses of
foreign operations are translated to Canadian dollars using average exchange rates for the
months during which the transactions occurred. Foreign currency translation differences are
recognized in other comprehensive
income which is included in accumulated other
comprehensive income. The functional currency of the Company’s subsidiary operations located
in the US, UK, Taiwan and Australia are the US dollar, the British pound sterling, Taiwan dollar
and the Australian dollar respectively. The functional currency of the Company’s Canadian
operations is the Canadian dollar.
d) Use of estimates:
The preparation of financial statements in conformity with IFRS requires management to make
estimates and assumptions that affect the application of accounting policies and the reported
amount of assets, liabilities, income and expense. Actual results may differ from these
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Annual Report 2017 25
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
estimates. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected. Management periodically reviews its
estimates and underlying assumptions relating to the following items:
i) Amortization
Management makes estimates of the appropriate useful lives to be assigned to intangible
assets based on the individual circumstances of an acquisition. Management reviews the
appropriateness of the lives assigned and makes adjustments prospectively, where
necessary.
ii)
Impairment tests
Management makes estimates of sustainable earnings, future expected cash flows and
discount rates in the determination of the value-in-use or fair value less costs of disposal of
cash-generating units (“CGUs”).
iii) Provision against accounts receivable
Management makes estimates on the recoverability of accounts receivable balances based
on specific facts and circumstances as well as past experience of write-offs. Changes in the
economic conditions in which the Company’s customers operate and their underlying
financial stability may impact these estimates.
iv) Employee future benefits
Management estimates the discount rates, retirement age and future costs of benefits
associated with providing future employee benefits and exercises judgment to determine
how many employees will utilize these benefits.
v) Tax assets
Deferred tax assets and liabilities contain estimates about the nature and timing of future
permanent and temporary differences as well as the future tax rates that will apply to those
differences. Changes in tax laws and rates as well as changes to the expected timing of
reversals may have a significant impact on the amounts recorded for deferred tax assets
and liabilities. Management closely monitors current and potential changes to tax law and
bases its estimates on the best available information at each reporting date.
vi) Depreciation
Management estimates future residual values and the rate at which the useful lives of
property and equipment are consumed to determine appropriate depreciation charges.
Estimates of residual value and useful lives are based on data and information from various
sources, including vendors, industry practice and Company-specific history. Management
reviews the appropriateness of the lives assigned and makes adjustments prospectively,
where necessary.
vii) Stock options
Management makes estimates with respect to risk-free rates of return, expected volatility,
expected dividends, expected life of options, expected forfeitures and future market
conditions to calculate the fair value of stock options.
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Annual Report 2017 26
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
viii) Property value
Management estimates the value of the investment property to assess if impairment has
occurred. The estimate is made by reviewing local land prices and current sales of similar
properties as well as property tax value assessment.
ix) Environmental remediation:
Management estimates the value to complete the remediation project on the Glen Ewing
Property each year by reviewing the project status and activities still to be completed. Any
changes to the project scope are updated in the cost estimation model and any change in
the required reserve is booked in the current year.
x) Sales returns:
Management estimates the value of product that will be returned based on a historical
analysis. Any change to the estimate is recorded as a reduction of revenue in the current
period.
e) Use of judgments:
The preparation of financial statements in conformity with IFRS requires management to make
judgments that affect the application of accounting policies and the interpretation of accounting
standards. Management periodically reviews its judgments and underlying assumptions relating
to the following items:
i) Provision for claims
Judgment is exercised in deciding whether a liability for a claim meets the criteria of a
present obligation and in assessing the probability of the outflow of economic resources.
ii) Lease classification
The Company enters into leases for premises and operating equipment that may be
classified as operating or finance leases. Management exercises judgment to determine
whether substantially all the risks and rewards incidental to ownership have been
transferred to the Company.
iii) Impairment tests
Management exercises judgment to determine whether there are factors that would indicate
that an asset or a CGU is impaired. The determination of CGUs is also based on
management’s judgment and is an assessment of the smallest group of assets that generate
cash inflows independently of other assets. Factors considered include whether an active
market exists for the output produced by the asset or group of assets as well as how
management monitors and makes decisions about the Company’s operations.
iv) Intangible assets
Management exercises judgment to determine whether identifiable intangible assets were
acquired in a business combination, separate from goodwill and whether they will provide
future economic benefits to the Company.
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Annual Report 2017 27
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
3) Summary of significant accounting policies:
Except for the changes explained in “new standards and interpretations adopted” below, the
accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements. These accounting policies have been consistently applied by all
Group entities.
a) Basis of consolidation:
The consolidated financial statements include the accounts of Hammond Manufacturing
Company Limited, its wholly owned subsidiaries, Hammond Manufacturing Company Inc.,
Hammond Electronics Limited, Hammond Electronics Pty Limited., Les Fabrications Hammond
(Quebec) Inc., Hammond Electronics Asia Limited and its proportionate share of the Glen Ewing
Property, an unincorporated co-tenancy (50%). All significant intercompany balances and
transactions have been eliminated on consolidation. The consolidated financial statements
include the investment in RITEC, which is accounted for using the equity method.
b) Revenue recognition:
The Company recognizes revenue on product sales and services at the time the products are
shipped or services rendered to customers, when the customer takes ownership and assumes
risk of loss, collection of the relevant receivable is probable, persuasive evidence of an
arrangement exists and the sales price is fixed or determinable. A provision for sales returns is
recognized when the underlying products or services are sold. The provision is based on
historical returns data and a weighting of all possible outcomes against their associated
probabilities.
c)
Inventories:
Inventories are valued at the lower of cost, determined on a first-in, first-out basis and net
realizable value, and include expenditures incurred in acquiring the inventories, production or
conversion costs and other costs incurred in bringing them to their existing location and
condition. In the case of manufactured inventories and work in progress, costs include an
appropriate share of production overheads based on normal operating capacity. Net realizable
value is the estimated selling price in the ordinary course of business, less the estimated costs
of completion and selling expenses. When circumstances that previously gave rise to an
inventory write down no longer exist, the previous impairment is reversed.
d)
Investment property:
Investment property is property held either to earn rental income or for capital appreciation or
for both, but not for sale in the ordinary course of business, use in the production or supply of
goods or services or for administrative purposes. The Group measures its investment property,
being the land held by Glen Ewing Property, at historical cost.
e) Property, plant and equipment:
Property, plant and equipment are shown in the statements of financial position at their historical
cost. Cost includes expenditure that is directly attributable to the acquisition of the asset. The
cost of self-constructed assets includes the cost of materials and direct labour, any other costs
directly attributable to bringing the assets to a working condition for their intended use, the costs
of dismantling and removing the items and restoring the site on which they are located, and
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Annual Report 2017 28
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
borrowing costs on qualifying assets. Purchased software that is integral to the functionality of
the related equipment is capitalized as part of that equipment. When parts of an item of property,
plant and equipment have different useful lives, they are accounted for as separate items (major
components) of property, plant and equipment. Depreciation is provided on components that
have homogenous useful lives by using the straight-line method or unit of production method so
as to depreciate the initial cost down to the residual value over the estimated useful lives.
The depreciation rates based on the estimated useful lives for the current and comparative
periods are as follows:
Asset
Buildings
Office equipment
Machinery and equipment
Tooling general use
Tooling specific part
Rate
2.5% - 5%
10% - 25%
10% - 25%
10% - 25%
Based on anticipated life output
Machinery and equipment under capital lease is initially recorded at the present value of
minimum lease payments at the inception of the lease and amortized over the shorter of the
lease term and their useful lives.
Depreciation methods, useful lives and residual values are reviewed at each financial year-end
and adjusted, if appropriate.
f)
Intangible assets other than goodwill:
Intangible assets have been externally acquired. Intangible assets are stated at cost less
accumulated amortization. Intangible assets with a finite life are amortized using the straight-
line method at rates calculated to amortize the cost of these assets over their estimated useful
lives.
The amortization rates based on the estimated useful lives for the current and comparative
periods are as follows:
Asset
Computer software
Development costs
Rate
20%
20%
Amortization methods, useful lives and residual values are reviewed at each financial year-end
and adjusted, if appropriate.
g)
Investments measured using equity method:
The Company uses the equity method as a basis of accounting for investments in companies
over which it exercises significant influence or joint control. Under the equity method, the
Company records these investments initially at cost and the carrying values are adjusted
thereafter to include the Company's pro rata share of post-acquisition earnings of the investees,
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Annual Report 2017 29
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
computed by the consolidation method. The adjustments are included in the determination of
net income by the Company, and the investment accounts of the Company are also increased
or decreased to reflect the Company's share of capital transactions (including amounts
recognized in other comprehensive income). Profit distributions received from investees reduce
the carrying values of the investments. Unrealized intercompany gains or losses are eliminated.
The Company’s determination of significant influence is based on consideration of voting
interest in the investees along with other indicators such as representation on the board of
directors, participation in policy-making processes, material intercompany transactions,
interchange of managerial personnel or provision of technical information. The Company uses
the equity method to account for its 40% interest in RITEC.
h)
Income taxes:
The Company uses the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the date of enactment or substantive enactment. A deferred
tax asset is recognized for unused tax losses, tax credits and deductible temporary differences,
to the extent that it is probable that future taxable profits will be available against which they can
be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
i) Goodwill:
Acquisitions on or after January 1, 2010, are accounted for using the acquisition method
required by IFRS 3. Goodwill is the residual amount that results when the purchase price of an
acquired business exceeds the sum of the amount allocated to the identifiable assets acquired
less liabilities assumed based on their fair values. Goodwill is allocated as of the date of the
business combination to the Company’s CGUs that are expected to benefit from the synergies
of the business combination. As part of its transition to IFRS, the Company elected to restate
only those business combinations that occurred on or after January 1, 2010. In respect of
acquisitions prior to January 1, 2010, goodwill represents the amounts recognized under
previous Canadian GAAP.
Goodwill is tested for impairment at least annually and upon the occurrence of an indication of
impairment.
j) Provisions:
Provisions may include liabilities of uncertain timing or amounts that arise from environmental,
litigation, commercial or other risks. Provisions are recognized when a legal or constructive
obligation exists stemming from a past event and when the future cash outflows can be reliably
estimated. Provisions are determined by discounting the expected future cash flows at a pre-
tax rate that reflects the current market assessments of the time value of money and the risks
specific to the liability. Environmental provisions consider the present value of the anticipated
clean-up costs.
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Annual Report 2017 30
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
k) Earnings per share:
Basic earnings per share are computed by dividing net earnings by the weighted average shares
outstanding during the reporting period. Diluted earnings per share are computed similar to
basic earnings per share except that the weighted average shares outstanding are increased to
include additional shares from the assumed exercise of stock options, if dilutive. The number
of additional shares is calculated by assuming that outstanding stock options were exercised
and that the proceeds from such exercises were used to acquire shares of common stock at the
average market price during the reporting period.
l) Financial instruments:
The Company aggregates its financial instruments into classes based on their nature and
characteristics. The Group has classified its financial instruments as follows:
• Cash and trade and other receivables are classified as loans and receivables
• Bank indebtedness, trade and other payables and long-term debt are classified as other
liabilities.
m) Financial assets and financial liabilities:
All financial assets and financial liabilities are initially recognized at fair value plus directly
attributable transaction costs, unless the transaction costs relate to financial instruments
classified as fair value through profit and loss, in which case they are expensed immediately.
Subsequent measurement is determined based on initial classification.
The Group uses trade date accounting for regular-way purchases and sales of financial assets.
i) Loans and receivables:
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. This category includes cash and trade
and other receivables. Subsequent to initial measurement, loans and receivables are carried
at amortized cost using the effective interest rate method less appropriate allowances for
doubtful receivables. Allowance for doubtful accounts represent the Group’s estimate of
losses that could arise from the failure or inability of customers to make payments when
due. Loans and receivables are further classified as current and non-current depending
whether these will be realized within twelve months after the balance sheet date or beyond.
ii) Other liabilities:
This category includes bank indebtedness, trade and other payables and long-term debt.
Subsequent to initial measurement, other liabilities are carried at amortized cost using the
effective interest rate method.
n)
Impairment:
i) Financial assets:
A financial asset not carried at fair value through profit or loss is assessed at each reporting
date to determine whether there is objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on the estimated
future cash flows of that asset that can be estimated reliably.
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Annual Report 2017 31
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Objective evidence that financial assets are impaired can include default or delinquency by
a debtor, restructuring of an amount due to the Group on terms that the Group would not
consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the
disappearance of an active market for a security. In addition, for an investment in an equity
security, a significant or prolonged decline in its fair value below its cost is objective evidence
of impairment.
The Group considers evidence of impairment for receivables at both a specific asset and
collective level. All individually significant receivables are assessed for specific impairment.
All individually significant receivables found not to be specifically impaired are then
collectively assessed for any impairment that has been incurred but not yet identified.
Receivables that are not individually significant are collectively assessed for impairment by
grouping together receivables with similar risk characteristics.
In assessing collective impairment the Group uses historical trends of the probability of
default, timing of recoveries and the amount of loss incurred, adjusted for management’s
judgment as to whether current economic and credit conditions are such that the actual
losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortized cost is calculated
as the difference between its carrying amount and the present value of the estimated future
cash flows discounted at the asset’s original effective interest rate. Losses are recognized
in profit or loss and reflected in an allowance account against receivables. Interest on the
impaired asset continues to be recognized through the unwinding of the discount. When a
subsequent event causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
ii) Non-financial assets:
The carrying amounts of the Group’s non-financial assets are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists,
then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that
have indefinite useful lives or that are not yet available for use, the recoverable amount is
estimated each year at the same time.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair
value less costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into
the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets.
For the purposes of goodwill impairment testing, goodwill acquired in a business
combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from
the synergies of the combination. The value in use is based on their future projected cash
flows discounted to the present value at an appropriate pre-tax discount rate. Usually, the
cash flows correspond to estimates made by Group management in financial and strategic
business plans covering a period of five years. They are then projected beyond five years
using a steady or declining growth rate given that the Group businesses are of a long-term
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Annual Report 2017 32
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
nature. The discount rate used approximates the Company’s weighted average cost of
capital. The business risk is included in the determination of the cash flows. Both the cash
flows and the discount rates exclude inflation. An impairment loss in respect of goodwill is
never subsequently reversed. The Group completed its annual impairment test at December
31, 2017 and December 31, 2016, and concluded there was no impairment.
The Group’s corporate assets do not generate separate cash inflows. If there is an indication
that a corporate asset may be impaired, then the recoverable amount is determined for the
CGU to which the corporate asset is allocated.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying
amount of any goodwill allocated to the units, and then to reduce the carrying amounts of
the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment loss
had been recognized.
Goodwill that forms part of the carrying amount of an investment in an associate is not
recognized separately, and therefore is not tested for impairment separately. Instead, the
entire amount of the investment in an associate is tested for impairment as a single asset
when there is objective evidence that the investment in an associate may be impaired.
o) Employee Benefits:
i) Defined contribution plans:
A defined contribution plan is a post-employment benefit plan under which an entity pays
fixed contributions into a separate entity and will have no legal or constructive obligation to
pay further amounts. Obligations for contributions to defined contribution pension plans are
recognized as an employee benefit expense in the periods during which services are
rendered by the employees. Prepaid contributions are recognized as an asset to the extent
that a cash refund or a reduction in future payments is available.
ii) Other long-term employee benefits:
The Group’s net obligation in respect of long-term employee benefits, other than pension
plans, is the amount of future benefit that employees have earned in return for their service
in the current and prior periods; that benefit is discounted to determine its present value and
the fair value of any related assets is deducted. Any actuarial gains and losses are
recognized in profit or loss in the period in which they arise.
iii) Termination benefits:
Termination benefits are recognized as an expense when the Group is committed
demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either
terminate employment before the normal retirement date, or to provide termination benefits
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Annual Report 2017 33
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
as a result of an offer made to encourage voluntary redundancy. Termination benefits for
voluntary redundancies are recognized as an expense if the Group has made an offer of
voluntary redundancy, it is probable that the offer will be accepted, and the number of
acceptances can be estimated reliably. If benefits are payable more than 12 months after
the reporting period, then they are discounted to their present value.
iv) Short-term employee benefits:
Short-term employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided. A liability is recognized for the amount expected
to be paid under short-term cash bonus or profit-sharing plans if the Group has a present
legal or constructive obligation to pay this amount as a result of past service provided by
the employee, and the obligation can be estimated reliably.
v) Share-based payment transactions:
The grant date fair value of share-based payment awards granted to employees is
recognized as an employee expense, with a corresponding increase in contributed surplus
in equity, over the period that the employees unconditionally become entitled to the awards.
The amount recognized as an expense is adjusted to reflect the number of awards for which
the related service and non-market vesting conditions are expected to be met, such that the
amount ultimately recognized as an expense is based on the number of awards that do
meet the related service and non-market performance conditions at the vesting date. For
share-based payment awards with non-vesting conditions, the grant date fair value of the
share-based payment is measured to reflect such conditions and there is no true up for
differences between expected and actual outcomes. Share-based payment arrangements
in which the Group receives goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based payment transactions,
regardless of how the equity instruments are obtained by the Group.
p) Segment reporting:
The continuing operations of the Company are in one operating segment, electrical and
electronic components.
q) Finance costs:
Finance costs consist of interest on borrowings and finance leases.
r) Government Grants:
Grants from the government are recognized at their fair value where there is a reasonable
assurance that the grant will be received and the Company will comply with all attached
conditions.
Government grants in respect of capital expenditures are credited to the carrying amount of the
related asset and are released to income over the expected useful lives of the relevant assets.
Government grants which are not associated with an asset are credited to income so as to net
them against the expense to which they relate.
s) New standards and interpretations adopted:
The International Accounting Standards Board (IASB) has issued the following Standards,
Interpretations and Amendments to Standards that were adopted by the Group.
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Annual Report 2017 34
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Statement of Cash flows (Amendments to IAS 7)
Amendments to IAS 7 - Statement of Cash Flows, require disclosures that enable users of
financial statements to evaluate changes in liabilities arising from financing activities; including
both changes arising from cash flows and non-cash flows. The required disclosures have been
included in note 10 herein.
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)
In January 2016, the IASB issued Amendments to IAS 12, Income Taxes to clarify the deferred
tax treatment for debt instruments and the determination of ‘future taxable profit’ for the
recognition of deferred tax assets.
The amendments clarify that the existence of a deductible temporary difference on debt
instruments measured at fair value are dependent solely on a comparison of the carrying amount
of an asset and its tax base at the end of the reporting period, and is not affected by possible
future changes in the carrying amount or expected manner of recovery of the asset.
The methodology to determine the future taxable profits has been clarified to state that the future
taxable profit, for the purpose of the recognition of deferred tax asset, is not the bottom line of
the tax return, but is rather the bottom line of the tax return adjusted for the reversing taxable
temporary differences and deductible temporary differences to avoid double counting.
Consequently, taxable profit used for assessing the utilization of deductible temporary
differences is different from taxable profit on which income taxes are payable.
The amendments are effective for annual periods beginning on or after January 1, 2017, with
earlier application permitted. The amendments shall be applied retrospectively. The Group has
adopted the amendments to IAS 12 in its consolidated financial statements for the annual period
beginning on January 1, 2017. The amendments did not have a material impact on the
consolidated financial statements.
Annual Improvements to IFRSs 2014-2016 Cycle
In December 2016, as part of its process to make non-urgent but necessary amendments to
IFRS, the IASB issued narrow-scope amendments IFRS 12 Disclosure of Interest in Other
Entities.
The amendments to IFRS 12 clarify that:
•
the disclosure requirements for interests in other entities also apply to interests that are
classified (or included in a disposal group that is classified) as held for sale, held for
distribution or discontinued operations.
The Group adopted this amendment in its consolidated financial statements for the annual
period beginning on January 1, 2017. The amendment did not have a material impact on the
consolidated financial statements.
t) New standards and interpretations not yet adopted:
The IASB has issued the following Standards, Interpretations and Amendments to Standards
that are not yet effective and while considered relevant to the Group have not yet been adopted
by the Group.
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Annual Report 2017 35
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Classification and Measurement of Share-Based Payment Transactions (Amendment to
IFRS 2):
In June 2016, the IASB issued amendments to IFRS 2, Share-Based Payments clarifying how
to account for certain types of share-based payment transactions. The amendments apply for
annual periods beginning on or after January 1, 2018. As a practical simplification, the
amendments can be applied prospectively. Retrospective, or early, application is permitted if
information is available without the use of hindsight.
The amendments provide requirements on the accounting for:
•
•
the effects of vesting and non-vesting conditions on the measurement of cash-settled
share-based payments;
share-based payment transactions with a net settlement feature for withholding tax
obligations; and
• a modification to the terms and conditions of a share-based payment that changes the
classification of the transaction from cash-settled to equity settled.
The Group intends to adopt the amendments to IFRS 2 in its consolidated financial statements
for the annual period beginning on January 1, 2018. The Group does not expect the
amendments to have a material impact on the consolidated financial statements.
IFRS 15 Revenue from contracts with customers
In May 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers. This new
standard is effective for annual periods beginning on or after January 1, 2018. IFRS 15 will
replace IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty
Programs, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of
Assets from Customers and SIC 31, Revenue – Barter Transactions Involving Advertising
Services. On April 12, 2016, the IASB issued Clarification to IFRS 15, Revenue from Contracts
with Customers, which is effective at the same time as IFRS 15.
The standard contains a single model that applies to contracts with customers and two
approaches to recognizing revenue: at a point in time or over time. The model features a
contract-based five-step analysis of transactions to determine whether, how much and when
revenue is recognized. New estimates and judgmental thresholds have been introduced, which
may affect the amount and/or timing of revenue recognized. The new standard applies to
contracts with customers and is effective for fiscal years beginning on or after January 1, 2018.
It does not apply to insurance contracts, financial instruments or lease contracts. The extent
of the impact of adoption of this standard has yet to be determined.
IFRS 9 Financial instruments
In July 2014 the IASB issued the complete IFRS 9, Financial Instruments (IFRS 9 (2014)). The
mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018
and must be applied retrospectively with some exemptions. The restatement of prior periods
is not required and is only permitted if information is available without the use of hindsight. IFRS
9 (2014) introduces new requirements for the classification and measurement of financial
assets. Under IFRS 9 (2014), financial assets are classified and measured based on the
business model in which they are held and the characteristics of their contractual cash flows.
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Annual Report 2017 36
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The standard introduces additional changes relating to financial liabilities. It also amends the
impairment model by introducing a new ‘expected credit loss’ model for calculating impairment.
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge
accounting more closely with risk management. This new standard does not fundamentally
change the types of hedging relationships or the requirement to measure and recognize
ineffectiveness, however it will provide more hedging strategies that are used for risk
management to qualify for hedge accounting and introduce more judgment to assess the
effectiveness of a hedging relationship. Special transitional requirements have been set for the
application of the new general hedging model. The Group intends to adopt IFRS 9 (2014) in its
consolidated financial statements for the annual period beginning on January 1, 2018. The
extent of the impact of adoption of this standard has yet to be determined.
IFRS 16 Leases
In January 2016 the IASB issued IFRS 16, Leases. The new standard is effective for annual
periods beginning on or after January 1, 2019. Earlier application is permitted for entities that
apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial adoption
of IFRS 16. IFRS 16 will replace IAS 17 Leases. This standard introduces a single lessee
accounting model and requires a lessee to recognize assets and liabilities from all leases with
a term of more than 12 months, unless the underlying asset is of low value. A lessee is required
to recognize a right-of-use asset representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. This standard substantially carries
forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to
be provided by lessors. Other areas of the lease accounting model have been impacted,
including the definition of a lease. The Group intends to adopt IFRS 16 in its consolidated
financial statements for the annual period beginning on January 1, 2019. The extent of the
impact of adoption of this standard has yet to be determined.
IAS 40 Transfer of Investment Property
In December 2016, the IASB issued Amendments to IAS 40, Transfers of Investment Property.
The amendments clarify that:
•
•
an entity shall transfer a property to, or from, investment property when, and only
when, there is a change in use of a property supported by evidence that a change in
use has occurred; and
the list of circumstances of when a change in use has occurred is non-exhaustive.
The amendments apply for annual periods beginning on or after January 1, 2018. Early
adoption is permitted.
The amendments provide transitional provisions which allow an entity to apply the amendments
prospectively to changes in use that occur on or after the beginning of the annual reporting
period in which the entity first applies the amendments (the date of initial application). At the
date of initial application, an entity shall also reassess the classification of property held at that
date and, if applicable, reclassify property to reflect conditions that exist at that date. An entity
is permitted to apply the amendments retrospectively, but only if it does not involve the use of
hindsight.
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Annual Report 2017 37
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Group intends to adopt the amendments to IAS 40 in its consolidated financial statements
for the annual period beginning on January 1, 2018. The Group does not expect the
amendments to have a material impact on the consolidated financial statements.
Annual Improvements to IFRSs 2015-2017 Cycle
On December 12, 2017 the IASB issued narrow-scope amendments to three standards as part
of its annual improvements process.
Amendments were made to the following standards:
•
•
•
IFRS 3 Business Combinations and IFRS 11 Joint Arrangements - to clarify how a
company accounts for increasing its interest in a joint operation that meets the definition
of a business;
IAS 12 Income Taxes – to clarify that all income tax consequences of dividends are
recognized consistently with the transactions that generated the distributable profits –
i.e. in profit or loss, OCI, or equity; and
IAS 23 Borrowing Costs – to clarify that specific borrowings – i.e. funds borrowed
specifically to finance the construction of a qualifying asset should be transferred to the
general borrowings pool once the construction of the qualifying asset has been
completed.
The amendments are effective on or after January 1, 2019, with early application permitted.
Each of the amendments has its own specific transition requirements.
The Company intends to adopt these amendments in its consolidated financial statements for
the annual period beginning on January 1, 2019. The extent of the impact of adoption of the
amendments has not yet been determined.
Foreign Currency Transactions – Advance Consideration
In December 2016, the IASB issued IFRIC Interpretation 22, Foreign Currency Transactions
and Advance Consideration in response to diversity in practice in determining the appropriate
exchange rate to use when translating assets, expenses or income, when foreign currency
consideration is paid or received in advance of the item to which it relates.
The Interpretation clarifies that the date of the transaction for the purpose of determining the
exchange rate to use on initial recognition of the related asset, expense or income (or part of it)
is the date on which an entity initially recognizes the non-monetary asset or non-monetary
liability arising from the payment or receipt of advance consideration. For transactions involving
multiple payments or receipts, each payment or receipt gives rise to a separate transaction date.
The Interpretation may be applied either:
•
•
retrospectively; or
prospectively to all assets, expenses and income in the scope of the Interpretation
initially recognized on or after:
–
–
the beginning of the reporting period in which the entity first applies the
Interpretation; or
the beginning of a prior reporting period presented as comparative information
in the financial statements.
www.hammondmfg.com
Annual Report 2017 38
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Interpretation is applicable for annual periods beginning on or after January 1, 2018. Earlier
application is permitted.
The Group intends to adopt the Interpretation in its consolidated financial statements for the
annual period beginning on January 1, 2018. The Group does not expect the Interpretation to
have a material impact on the consolidated financial statements.
IFRIC 23 Uncertainty over Income Tax Treatments
On June 7, 2017, the IASB issued IFRIC Interpretation 23 Uncertainty over Income Tax
Treatments.
The Interpretation provides guidance on the accounting for current and deferred tax liabilities
and assets in circumstances in which there is uncertainty over income tax treatments.
The Interpretation requires:
•
•
•
an entity to contemplate whether uncertain tax treatments should be considered
separately, or together as a group, based on which approach provides better
predictions of the resolution;
an entity to determine if it is probable that the tax authorities will accept the uncertain
tax treatment; and
if it is not probable that the uncertain tax treatment will be accepted, measure the tax
uncertainty based on the most likely amount or expected value, depending on
whichever method better predicts the resolution of the uncertainty.
The Interpretation is applicable for annual periods beginning on or after January 1, 2019.
Earlier application is permitted.
The Group intends to adopt the Interpretation in its consolidated financial statements for the
annual period beginning on January 1, 2019. The extent of the impact of adoption of the
Interpretation has not yet been determined.
4) Trade and other receivables:
Trade receivables
Employee receivables
Other receivables
Allowance for doubtful accounts
Trade and other receivables
December 31, 2017
December 31, 2016
$ 15,485
20
911
16,416
(155)
$ 16,261
$ 15,024
12
650
15,686
(150)
$ 15,536
The Company’s exposure to credit and currency risks, and impairment losses related to trade and
other receivables is disclosed in note 24.
www.hammondmfg.com
Annual Report 2017 39
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
5)
Inventories:
December 31, 2017
December 31, 2016
Raw materials and work-in-process
Finished goods
$ 10,472
24,228
$ 9,981
22,892
Inventories
$ 34,700
$ 32,873
Inventories carried at fair value less
cost to sell
$ 1,443
$ 1,288
In 2017, raw materials, consumables and changes in finished goods and work in progress
recognized as cost of sales amounted to approximately $89,357,000 (2016 - $82,831,000). In 2017,
the write-down of inventories to net realizable value amounted to approximately $43,000 (2016 -
$83,000). The write-down is included in cost of sales.
www.hammondmfg.com
Annual Report 2017 40
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
6) Property, plant and equipment:
Cost
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
Balance at December 31, 2015
$
19,128
$
42,113
$
9,715
$
4,948
$
75,904
Additions
Disposals
Effect of movements in exchange rates
$
1,021
-
(19)
$
2,484
(1,197)
(122)
$
311
-
(269)
$
214
-
(51)
$
4,030
(1,197)
(461)
Balance at December 31, 2016
$
20,130
$
43,278
$
9,757
$
5,111
$
78,276
Additions
Disposals
Effect of movements in exchange rates
$
491
(3)
1
$
2,957
(1,068)
(98)
$
511
(507)
(73)
$
139
(106)
(5)
$
4,098
(1,684)
(175)
Balance at December 31, 2017
$
20,619
$
45,069
$
9,688
$
5,139
$
80,515
At December 31, 2017, the amount of expenditures recognized in the carrying amount that were in
the course of construction is $nil (2016 - $nil) in land and buildings, $733,292 (2016 - $111,507) in
machinery and equipment, $143,039 (2016 - $56,000) in tooling and $10,941 (2016 - $nil) in office
equipment.
Accumulated depreciation
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
Balance at December 31, 2015
$
5,316
$
29,686
$
7,187
$
4,764
$
46,953
Depreciation for the year
Disposals
Effect of movements in exchange rates
$
453
-
(15)
$
2,354
(1,143)
(78)
$
353
-
(219)
$
126
-
(46)
$
3,286
(1,143)
(358)
Balance at December 31, 2016
$
5,754
$
30,819
$
7,321
$
4,844
$
48,738
Depreciation for the year
Disposals
Effect of movements in exchange rates
$
525
(2)
1
$
1,965
(1,068)
(80)
$
353
(488)
(62)
$
112
(106)
(2)
$
2,955
(1,664)
(143)
Balance at December 31, 2017
$
6,278
$
31,636
$
7,124
$
4,848
$
49,886
Carrying amounts
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
At December 31, 2015
$
13,812
$
12,427
$
2,528
$
184
$
28,951
At December 31, 2016
$
14,376
$
12,459
$
2,436
$
267
$
29,538
At December 31, 2017
$
14,341
$
13,433
$
2,564
$
291
$
30,629
www.hammondmfg.com
Annual Report 2017 41
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Depreciation of $2,955,000 (2016 - $3,286,000) was recorded in the consolidated statement of
comprehensive income (loss) as follows: cost of sales $2,694,000 (2016 – $2,987,000), selling and
distribution $183,000 (2016 – $180,000) and general and administrative $78,000 (2016 – $119,000).
7)
Intangible assets and goodwill:
Cost
Goodwill
Computer
software
Development
costs
Total
Balance at December 31, 2015
$
136
$
2,113
$
210
$
2,459
Additions
Effect of movement in exchange rates
$
-
(26)
$
10
(2)
$
31
-
$
41
(28)
Balance at December 31, 2016
$
110
$
2,121
$
241
$
2,472
Additions
Effect of movement in exchange rates
$
-
2
$
-
(5)
$
-
-
$
-
(3)
Balance at December 31, 2017
$
112
$
2,116
$
241
$
2,469
Amortization
Goodwill
Computer
software
Development
costs
Total
Balance at December 31, 2015
$
-
$
1,938
$
135
$
2,073
Amortization for the year
Effect of movement in exchange rates
$
-
-
$
51
(2)
$
27
-
$
78
(2)
Balance at December 31, 2016
$
-
$
1,987
$
162
$
2,149
Amortization for the year
Effect of movement in exchange rates
-
$
-
$
28
(5)
$
28
-
$
56
(5)
Balance at December 31, 2017
$
-
$
2,010
$
190
$
2,200
Carrying amounts
Goodwill
Computer
software
Development
costs
Total
At December 31, 2015
$
136
$
175
$
75
$
386
At December 31, 2016
$
110
$
134
$
79
$
323
At December 31, 2017
$
112
$
106
$
51
$
269
All the intangible assets have been externally acquired. All amortization expense have been recoded
against cost of sales in the consolidated statement of comprehensive income (loss)
www.hammondmfg.com
Annual Report 2017 42
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Impairment testing for CGUs:
The Company has defined its CGUs as each individual legal entity, due to the fact that each location
is largely independent of the other entities and each is ultimately responsible for sales generated in
their markets. The Company monitors the performance of each legal entity through the use of
profitability analysis based on the most recent business plan in place as at December 31, 2017.
Impairment testing for CGUs containing goodwill:
The Company performed an impairment test on the goodwill of its UK entity using the value in use
method, under which a five year present value cash flow projection was completed using the
Hammond Electronics Limited weighted average pre-tax cost of capital of 6.0%. The cash flow
model also incorporated growth rates in the range of 3% – 5% based on the market location and the
facility’s operating history. This was then compared to the carrying value of the facility’s assets,
including goodwill, to determine if there was impairment. Effective December 31, 2017 and
December 31, 2016, the assets, including goodwill of $113,000 (2016 - $110,000), of the Company’s
wholly owned subsidiary, Hammond Electronics Limited, were tested and no impairment was found.
8)
Investment property:
The Group has a 50% ownership of a property in Georgetown, Ontario (referred to as the Glen
Ewing Property). It is a vacant plot of land and currently under environmental remediation. The
property value represents the actual historical cost of the property. Management has reviewed the
property and local market conditions as well as the environmental condition of the property in
estimating the property’s fair value. Management estimates its interest in the property’s fair market
value to be approximately $1,250,000. This estimate is unchanged from December 31, 2016. No
independent valuation has been performed. The property is currently vacant and no income is being
derived from it. The Company’s direct operating recovery in 2017 related to the property was
$50,000 (2016 - expense of $93,000).
9) Equity investment:
RITEC Enclosures Inc.
December 31, 2015
Equity in 2016 earnings
December 31, 2016
Equity in 2017 earnings
December 31, 2017
Total
$ 549
89
$ 638
116
$ 754
Since 2008, the Company has had 40% ownership of RITEC. All dividends paid since taking the
40% holding in 2008 have been reinvested in RITEC.
www.hammondmfg.com
Annual Report 2017 43
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
For the years ended December 31,
2017
2016
RITEC Enclosures Inc.
Share of profit
Foreign exchange gain (loss)
Income tax expense
Equity investment earnings
Share of profit
Profit in inventory movement
$
43
$
100
80
(7)
(3)
(8)
$
116
$
89
$
43
$
100
35
(3)
Share of profit of equity accounted investees
$
78
$
97
RITEC Enclosures Inc.
Assets
Liabilities
Revenues
Profit (after tax)
10) Loans and borrowings:
Bank indebtedness:
December 31, 2017 December 31, 2016
2,645
$
$
2,931
1,617
3,457
290
1,361
4,124
223
Bank indebtedness is due on demand and secured by inventories, a general assignment of trade
receivables and a charge on specific assets of the Company. The Company has established
operating lines for the entities in Canada, the US and the UK. The following chart depicts the amount
utilized in each of the entities’ lines of credit.
Canadian entities CAD
UK entity
GBP
Bank indebtedness
December 31, 2017
December 31, 2016
Local currency
$ 5,351
£ 215
CAD
$ 5,351
365
$ 5,716
Local currency
$ 7,076
£ 161
CAD
$ 7,076
267
$ 7,343
Interest is payable at the rate of bank prime plus 50 basis points (2016 - bank prime plus 50 basis
points).
www.hammondmfg.com
Annual Report 2017 44
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Long-term debt:
December 31,
December 31,
2017
2016
Demand term loan drawn in USD funds at a fixed interest rate of 6.05%
through December 2018, secured by the assets of HMCL. Monthly
principal installments of $15 USD.
Demand term loan amortized over 25 years drawn in USD funds at a
fixed interest rate of 5.30% through March 2026, secured by the assets
of HMCL. Monthly blended installments of $9 USD.
Demand term loan amortized over 25 years drawn in CAD funds at a
fixed interest rate of 5.20% through March 2026, secured by the assets
of HMCL. Monthly blended installments of $9 CAD.
Demand term loan amortized over 25 years drawn in CAD funds at a
fixed interest rate of 4.1% through December 2023, secured by the
assets of HMCL. Monthly blended installments of $37 CAD.
Interest free term loan of $385 CAD made in 2015, $1,150 CAD in 2016
and $958 CAD in 2017 through the Federal Economic Development
Agency for Southern Ontario. Repayment will be over 60 equal monthly
installments starting January 1, 2020. Value represents the present
value of the stream of payments to repay utilizing a 5.2% discount
factor.
Subtotal
Finance lease obligations:
Secured by equipment, drawn in GBP sterling at interest rate 8.8%.
Monthly installments of £1 GBP until April 2019.
Secured by equipment, drawn in GBP sterling at interest rate 4.85%.
Monthly installments of £1.46 GBP until October 2020.
Secured by equipment, drawn in USD funds at interest rate of 4.97%.
Monthly installments of $7 USD until April 2019 with a lump sum
payment at that time of $114 USD.
$ 230
$ 491
1,845
2,014
1,470
1,500
6,728
6,890
1,975
12,248
1,155
12,050
31
79
267
51
101
380
Secured by equipment, drawn in USD funds at interest rate of 3.75%.
Monthly installments of $57 USD until May 2023.
4,193
5,236
Secured by equipment, drawn in USD funds at interest rate of 3.5%.
Monthly installments of $0.42 USD until December 2020.
Subtotal
Total long-term debt
Less current portion of long-term debt
Non-current long-term debt
18
4,588
25
5,793
$ 16,836
$ 17,843
11,040
11,787
$ 5,796
$ 6,056
www.hammondmfg.com
Annual Report 2017 45
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The aggregate amount of principal payments required to meet the existing long-term debt obligations
in each of the next five years is as follows:
2018
2019
2020
2021
2022
Thereafter
$
11,040
856
1,163
1,225
1,278
1,274
$
16,836
The following reflects the aggregate amount of principal payments required to meet the existing
long-term debt obligations in each of the next five years is if the loans are not placed on demand:
2018
2019
2020
2021
2022
Thereafter
$
1,235
1,107
1,425
1,498
1,563
10,008
$
16,836
Interest expense is comprised as follows:
December 31, 2017
December 31, 2016
Long-term debt, including capital leases
Bank indebtedness
$ 670
330
$ 444
420
Interest expense
$ 1,000
$ 864
Reconciliation of movements of liabilities to cash flows arising from financing activities:
Long-term debt
Bank indebtedness
Balance at January 1, 2017
$ 17,843
$ 7,343
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of borrowings
Total changes from financing cash flows
Liability related
Interest expense
Interest paid
Impact of interest free term loan
Total liability-related other changes
Foreign exchange impact
Balance at December 31, 2017
958
(1,326)
(368)
670
(585)
(223)
(138)
(501)
$ 16,836
-
(1,635)
(1,635)
330
(330)
-
-
8
$ 5,716
www.hammondmfg.com
Annual Report 2017 46
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
11) Trade and other payables:
Trade payables
Non-trade payables and accrued expenses
December 31, 2017
December 31, 2016
$ 4,911
9,170
$ 14,081
$ 5,116
7,160
$ 12,276
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed
in note 24.
12) Provisions:
Environmental
remediation
Sales returns
Total
Balance at December 31, 2015
$ 170
$ 55
$ 225
Provisions made during the year
Provisions used during the year
93
(93)
55
(55)
148
(148)
Balance at December 31, 2016
$ 170
$ 55
$ 225
Provisions made during the year
Provisions used during the year
-
-
39
(49)
39
(49)
Balance at December 31, 2017
$ 170
$ 45
$ 215
Non-current
Current
100
70
-
45
100
115
Balance at December 31, 2017
$ 170
$ 45
$ 215
The provision for environmental remediation is based on the estimated costs to setup and extract
contamination from the Glen Ewing Property. The anticipated costs are based on an external
consultant’s remediation plan, discounted for expected timing of expenditures. There are
approximately three years remaining in the clean-up plan. The Glen Ewing Property is owned equally
as a co-tenant with Hammond Power Solutions Incorporated and any expenses or liabilities in
respect of the property have been agreed to be shared equally. The contamination did not result
from the normal operations of the Company. The parties have cooperatively developed a
remediation action plan and began remediation in October 2009. The Ministry of Environment is
aware of the remediation and the process being used. New extraction wells scheduled for 2015 were
deferred for three years which in turn has pushed the remediation plan out three years. The
Company is satisfied that their consultants have provided the best estimate available for the
Company’s remaining portion of the environmental remediation costs for this site of $170,000 (2016
- $170,000) with $70,000 (2016 - $70,000) presented as a current provision.
The provision for sales returns is based on estimates from historical returns of product. The provision
reflects the estimated profit margin of the anticipated returns.
13) Employee future benefits:
The Company’s net obligation in respect of its current and long-term employee benefits is calculated
by estimating the amount of future benefit that employees have earned in return for their service in
www.hammondmfg.com
Annual Report 2017 47
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
the current and prior periods. The terms of the agreements do not require the Company to fund
these obligations as they accumulate. The Company has accounted for these post-employment
benefits as defined benefit plans. The benefit plans are broken into two categories:
a) Benefit for post-employment health benefits:
If an employee meets the set criteria and retires between the age of 60 and 65, their health plan
will continue until age 65. This program was closed in 2014 and the obligation reflects the
anticipated cost for those employees who exercised this option prior to closing.
b) Disability health coverage:
This benefit is for employees who are off work due to a covered disability. Health coverage will
continue until they are off disability or reach the age of 65, whichever occurs first.
In determining both the post-employment health benefit and the disability health coverage liabilities
a 3.5% (2016 – 3.5%) per annum health cost increase and a discount rate of 6.0% (2016 – 6.0%)
were utilized to determine its present value.
Assumed healthcare cost trend rates affect the amounts recognized in profit and loss. A 1% change
in assumed healthcare cost trend rates would increase (decrease) the aggregate service and
interest costs by $20,000 (2016 - $21,000). Changes in assumptions resulted in nominal
gains/losses which have been included in general and administrative expense.
December 31, 2017 December 31, 2016
$ 27
$ 20
Post employment health benefits
Employee health benefits while on disability
Total employee future benefits
Post employment
health benefits
Balance at December 31, 2015
$ 40
270
$ 290
Employee health
benefits while on
disability
$ 280
Provisions made during the year
Provisions used during the year
2
(15)
69
(68)
281
$ 308
Total
$ 320
71
(83)
Balance at December 31, 2016
$ 27
$ 281
$ 308
Provisions made during the year
Provisions used during the year
-
(7)
46
(57)
46
(64)
Balance at December 31, 2017
$ 20
$ 270
$ 290
Non-current
Current
12
8
225
45
237
53
Balance at December 31, 2017
$ 20
$ 270
$ 290
www.hammondmfg.com
Annual Report 2017 48
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
14) Deferred tax assets and liabilities:
Unrecognized deferred tax liabilities:
At December 31, 2017, temporary differences of $16,598,000 (2016 - $16,016,000) related to
investments in subsidiaries were not recognized because the Company controls whether the liability
will be incurred and it is satisfied that it will not be incurred in the foreseeable future.
Recognized deferred tax liabilities:
Deferred tax assets and liabilities are attributable to the following:
Deferred tax assets
Intangible assets
Investment property
Inventories
Loans and borrowings
Provisions
Total deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Total deferred tax liabilities
December 31, 2017
December 31, 2016
$ 25 $ 27
8
8
426 505
1,104
1,410
96 105
2,055
1,659
(2,935) (2,953)
(2,935) (2,953)
Net tax liabilities
$ (1,276) $ (898)
15) Share capital:
a) Authorized:
Unlimited number of Class A subordinate voting shares, no par value.
Unlimited number of Class B common shares with four votes per share, convertible into Class
A subordinate voting shares on a one-for-one basis, no par value. Annual dividends on the Class
B common shares may not exceed the annual dividends on the Class A subordinate voting
shares.
Unlimited number of Class YA non-voting, no par value, redeemable, retractable shares entitled
to non-cumulative discretionary dividends. No dividends shall be declared or paid on the Class
YA shares unless the same dividend is simultaneously declared and paid on the Class YB
shares.
Unlimited number of Class YB non-voting, no par value, redeemable, retractable shares entitled
to non-cumulative discretionary dividends. No dividends shall be declared or paid on the Class
YB shares unless the same dividend is simultaneously declared and paid on the Class YA
shares.
www.hammondmfg.com
Annual Report 2017 49
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
b)
Issued:
8,556,000 Class A shares (2016 - 8,556,000)
2,778,300 Class B shares (2016 - 2,778,300)
$
10,242
7
$
10,242
7
$
10,249
$
10,249
December 31, 2017 December 31, 2016
No shares were issued in 2017 or in 2016.
c) Dividends:
The following dividends were declared and paid by the Company:
Special cash dividends of $0.02 Class A subordinate voting share were declared in 2017 (2016
– $0.02) and special cash dividends of $0.02 Class B common share were declared in 2017
(2016 – $0.02).
Special cash dividends of $0.02 per Class A subordinate voting share (2016 - $0.02) and special
cash dividends of $0.02 per Class B common share (2016 - $0.02) were paid in 2017.
Total dividends declared were $226,000 (2016 - $226,000). Total dividends paid were $226,000
(2016 - $226,000).
16) Operating leases:
The Company is committed to payments under operating leases for equipment and buildings. The
future minimum non-cancellable operating lease rentals are payable as follows:
Less than 1 year
Between 1 and 5 years
Thereafter
Total minimum payments
December 31, 2017
$ 2,046
4,597
1,773
$ 8,416
December 31, 2016
$ 1,971
5,185
2,191
$ 9,347
The Group leases a number of offices and warehouses and factory facilities under operating leases.
The leases typically run for a period of three to five years, with an option to renew the lease after
that date. The Group does have one warehouse lease that runs to 2027.
During the year ended December 31, 2017, an amount of $2,032,000 was recognized as an expense
in profit or loss in respect of operating leases (2016 - $1,931,000).
The warehouse and factory leases have been renewed over several terms as combined leases of
land and buildings. Since the land title does not pass, the rent paid to the landlord of the building is
increased to market rent at regular intervals, and the Company does not participate in the residual
value of the building, it was determined that substantially all the risks and rewards of the building
are with the landlord. As such, the Company determined that the leases are operating leases.
17) Commitments:
The Company has contractual obligations for outstanding capital expenditures of $4,609,000 (2016
- $413,000). These expenditures should be completed in the first half of 2018.
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Annual Report 2017 50
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
18) Contingency:
A statement of claim was issued on June 19, 2013, against HMCL with respect to a property once
held by the Company. The claim alleges that contaminants originating from the property once owned
by HMCL have migrated to a nearby, but not adjoining property owned by the claimants. The amount
of the claim is not fully known but includes $2,000,000 which is the estimated cost of construction of
a barrier and related expenses. At this point in time, there is no certainty that the contaminants
emanated from the property once owned by HMCL. In 2017, the claim moved into the discovery
proceedings level. There have been no significant developments to this claim otherwise. Given the
nature of the claim, there remains significant uncertainty as to any costs to be incurred as a result
of the claim and accordingly management is unable to reasonably estimate any liability that may
arise as a result of this claim. As such, no amount has been recorded in these consolidated financial
statements.
19) Income tax expense:
December 31, 2017 December 31, 2016
Current tax expense
$ 1,450
$ 361
Deferred tax expense:
Origination and reversal of temporary differences
Total income tax expense
377 179
$ 1,827
$ 540
Net income for the year
Total income tax expense
Income before income tax
2017
2017
2016
2016
$ 4,560
1,827
$ 6,387
$ 684
540
$ 1,224
Income tax using the Company’s domestic tax rate
38.00% 2,427
38.00% 465
Reduced rate for active business and manufacturing
and processing
(8.02%) (512)
8.33% 102
Effect of tax rates in foreign jurisdictions
(2.27%) (145)
(7.27%) (89)
Reduction in tax rate
Non-deductible expenses
Other
0.08% 5
0.00% -
0.22% 14
3.10% 38
0.59% 38
28.61% $ 1,827
1.96% 24
44.13% $ 540
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Annual Report 2017 51
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
20) Earnings per share:
The computations for basic and diluted earnings per share are as follows:
December 31, 2017
December 31, 2016
Net income for the year
$ 4,560
$ 684
Average number of common shares outstanding:
Basic and Diluted
Earnings per share:
Basic
Diluted
11,334,300
11,334,300
$ 0.40
0.40
$ 0.06
0.06
No share options to purchase common shares were outstanding as at December 31, 2017 or
December 31, 2016.
21) Personnel expenses:
Wages and salaries
Health benefit plans
Canada Pension Plan and Employment Insurance
Contributions to defined contribution plans
Cost of sales
Selling and distribution
General and administrative
Research and development
22) Management share option plan:
2017
$ 38,777
4,882
1,808
1,090
$ 46,557
2017
$ 33,814
9,379
3,183
181
$ 46,557
2016
$ 37,166
4,701
1,841
966
$ 44,674
2016
$ 32,665
9,021
2,787
201
$ 44,674
As at December 31, 2017, the Company has a stock-based compensation plan, which is described
below. No options were granted through December 31, 2017 or in 2016 and no stock options were
outstanding as of January 1, 2016, and, accordingly, no stock-based compensation expense has
been incurred in either year.
In 1986, the Company established the management share option plan providing for the granting to
directors, officers and key employees of the Company options to purchase the Class A subordinate
voting shares of the Company. A maximum number of 540,000 Class A subordinate voting shares
are issuable under the plan. The exercise price for purchasing Class A subordinate voting shares
may not be less than the market price of the Class A subordinate voting shares at the date the option
is granted.
23) Determination of fair values:
The carrying values of the Group’s financial assets and liabilities, consisting of cash, trade and other
accounts receivables, bank indebtedness, trade and other accounts payables approximate their fair
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Annual Report 2017 52
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
values due to the relatively short periods to maturity of the instruments. The carrying value of term
loans, and finance leases with fixed interest rates are comparable to their fair market value since
the interest rates approximate market rates.
The market values of financial assets and liabilities together with the carrying amounts shown in the
statements of financial position are as follows:
December 31, 2017
Carrying
amount
Market value
December 31, 2016
Carrying
amount
Market value
Assets carried at amortized cost
Cash
Trade and other receivables
Income taxes recievable
Liabilities carried at amortized cost
Bank indebtedness
Trade and other payables
Income taxes payable
Term loans
Finance lease obligations
16,261
$ 1,051 $ 1,051
16,261
- -
$ 17,312
$ 17,312
$ 5,716
14,081
1,024
12,248
4,588
$ 37,657
$ 5,716
14,081
1,024
11,804
4,434
$ 37,059
$ 614
15,536
460
$ 16,610
$ 7,343
12,276
-
12,050
5,793
$ 37,462
$ 614
15,536
460
$ 16,610
$ 7,343
12,276
-
11,842
5,712
$ 37,173
Interest rates used to discount estimated cash flows, when applicable, are based on bank indication
rates for similar type arrangements.
Bank indication interest rates
December 31, 2017
December 31, 2016
Nonsecured variable interest rates
Fixed rates
1 to 2 year secured
3 to 4 year secured
5 year secured
7 year secured
10 year secured
From
3.2%
4.3%
4.6%
4.7%
4.9%
5.1%
To
4.2%
5.3%
5.6%
5.7%
5.9%
6.1%
From
2.7%
3.5%
3.8%
4.0%
4.3%
4.5%
To
3.7%
4.5%
4.8%
5.0%
5.3%
5.5%
Rates fluctuate depending on currency and jurisdiction.
24) Financial instruments and risk management:
Overview
The Group has exposure to the following risks from its use of financial instruments:
•
•
credit risk
liquidity risk
• market risk
•
•
•
foreign currency risk
interest rate risk
operational risk
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Annual Report 2017 53
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
This note presents information about the Group’s exposure to each of the above risks, the
Group’s objectives, policies and processes for measuring and managing risk, and the Group’s
management of capital. Further quantitative disclosures are included throughout these
consolidated financial statements.
Risk management framework:
The Board of Directors has overall responsibility for the oversight of the Group’s risk
management framework. The Board is responsible for monitoring the Group’s risk management
policies.
The Group’s risk management policies are established to identify and analyze the risks faced
by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to
limits. Risk management policies and systems are reviewed regularly to reflect changes in
market conditions and the Group’s activities. The Group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations.
The Group’s Audit Committee oversees how management monitors compliance with the
Group’s risk management policies and procedures, and reviews the adequacy of the risk
management framework in relation to the risks faced by the Group. The Group’s Audit
Committee is assisted in its oversight role by the corporate finance group. The corporate finance
group undertakes both regular and ad hoc reviews of risk management controls and procedures,
the results of which are reported to the Audit Committee.
Credit risk:
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s
receivables from customers. The carrying amount of financial assets represents the maximum
credit risk exposure.
Trade and other receivables:
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. However, management also considers the demographics of the Group’s customer
base, including the default risk of the industry and country in which customers operate, as these
factors may have an influence on credit risk.
The Group has established a credit policy under which each new customer is analyzed
individually for creditworthiness before the Group’s standard payment and delivery terms and
conditions are offered. The Group’s review includes external ratings, when available, and in
some cases bank references. Purchase limits are established for each customer, which
represents the maximum open amount without requiring approval from management.
Customers that fail to meet the Group’s benchmark creditworthiness may transact with the
Group only on a prepayment basis.
In monitoring customer credit risk, customers are grouped according to their credit
characteristics, including whether they are an individual or legal entity, whether they are a
wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and
existence of previous financial difficulties. Trade and other receivables relate mainly to the
Group’s wholesale customers. Customers that are graded as “high risk” are placed on a
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Annual Report 2017 54
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
restricted customer list and monitored by the accounts receivable department, and future sales
are made on a prepayment basis.
The Group does not require collateral in respect of trade and other receivables.
The Group establishes an allowance for doubtful accounts that represents its estimate of losses
that could arise from the failure or inability of customers to make payments when due. The main
component of this allowance are a specific loss component that relates to individually significant
exposures, and a collective loss component established for groups of similar assets in respect
of losses that have been incurred but not yet identified. The collective allowance is determined
based on historical data of payment statistics for similar financial assets.
The Company is exposed to financial risk that arises from the credit quality of the entities to
which it sells products and services. The Company sells to a variety of companies in a number
of different industries and geographic areas. As a result, the requirement for an industry specific
or geographic reserve is minimal.
The carrying amount of financial assets represents the maximum credit exposure which was as
follows at the reporting date:
December 31, 2017
December 31, 2016
Cash and receivables:
Cash
Trade and other receivables
$ 1,051
16,261
$ 17,312
$ 614
15,536
$ 16,150
The maximum exposure to credit risk for loans and receivables at the reporting date by
geographic region was:
December 31, 2017
December 31, 2016
Cash and receivables:
Canada
US
UK
Australia
$ 9,327
6,818
1,082
85
$ 17,312
$ 9,294
5,773
973
110
$ 16,150
The following table reflects the net details of trade receivables as at December 31, 2017 and
December 31, 2016:
December 31, 2017
December 31, 2016
Gross
Impairment
Carrying
value
Gross Impairment
Carrying
value
Aging of trade receivables:
1 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
$ 8,685
5,151
1,363
286
-
$
-
-
155
$ 8,685
5,151
1,363
131
$ 8,098
5,394
1,225
306
-
$
-
-
150
$ 8,098
5,394
1,225
156
Trade receivables
$ 15,485
$
155
$ 15,330
$ 15,023 $ 150
$ 14,873
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Annual Report 2017 55
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The following table provides the roll forward of the allowance for doubtful accounts:
Allowance for doubtful accounts, beginning of year
December 31, 2017 December 31, 2016
146
$
$
150
Accounts provided for in the period
Amounts written off during the period
5
-
6
(2)
Allowance for doubtful accounts
$
155
$
150
Allowance for doubtful accounts as % of net
trade receivable
1.0%
1.0%
The following table provides the net details of trade and other receivables:
Net trade receivable
Employee receivables
Other receivable
December 31, 2017 December 31, 2016
$
15,485
20
911
$
14,873
12
651
Trade and other receivables
$
16,416
$
15,536
Liquidity risk:
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial
asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group uses planning tools to identify future cash flow requirements.
The Group has established a $15,500,000 overdraft facility that is secured against inventory
and accounts receivable. If drawn upon, interest would be payable at the rate of bank prime plus
50 basis points (2016 - bank prime plus 50 basis points). The Company had available unused
credit facilities in the amount of $9,784,000 at December 31, 2017 (2016 - $8,154,000) to meet
fluctuations in working capital requirements.
The Group has established an $11,000,000 lease line to finance new equipment purchases of
which it has utilized $5,236,000 (2016 - $5,236,000).
In 2015, the Group successfully applied for and was approved by the Federal Economic
Development Agency for Southern Ontario for an interest free loan up to $3,462,000 on eligible
spending. As at December 31, 2017, the group had received $2,493,000 of this funding (2016 -
$1,535,000). The present value of this funding $1,975,000 was set up as long term debt and
$518,000 which reflects the interest savings has been offset to property, plant and equipment.
In 2015, the Group successfully applied for and was approved by the Southwestern Ontario
Development Fund for a grant up to $1,500,000 on eligible spending. As at December 31, 2017,
the Group had received $724,000 (2016 - $500,000) of this funding and has a receivable for an
additional $476,000 based on the eligible spending to date. The $1,200,000 has been offset to
property, plant and equipment.
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Annual Report 2017 56
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The interest free loan and grant noted above are contingent on adding new jobs and retaining
existing jobs at its Guelph, Ontario locations. As at December 31, 2017, the Group was in
compliance with this requirement.
The following are the contractual maturities of financial liabilities, including estimated interest
payments and excluding the impact of netting arrangements. It is not expected that the cash
flows included in the maturity analysis will occur significantly earlier or at materially different
amounts.
December 31, 2017
Carrying
amount
Contractual
cash flows
2018
2019
2020 to
2021
Thereafter
Non-derivative financial liabilities
$ - $ (997) $ (1,496)
Term loans
Finance lease obligations 4,588 (5,052) (1,034) (1,091) (1,769) (1,158)
$ 12,248 $ (12,766) $(10,273)
Trade and other payables 14,081
Bank indebtedness
(14,081) (14,081)
5,716 (5,716) (5,716)
- - -
- - -
Total
$ 36,633 $ (37,615) $(31,104) $ (1,091) $ (2,766) $ (2,654)
December 31, 2016
Carrying
amount
Contractual
cash flows
2017
2018
2019 to
2020
Thereafter
Non-derivative financial liabilities
Term loans
$ - $ (307) $ (1,228)
Finance lease obligations 5,793 (6,571) (1,101) (1,101) (2,122) (2,247)
$ 12,050 $ (12,430) $(10,895)
Trade and other payables 12,276
Bank indebtedness
(12,276) (12,276)
7,343 (7,343) (7,343)
- - -
- - -
Total
$ 37,462 $ (38,620) $(31,615) $ (1,101) $ (2,429) $ (3,475)
Market risk:
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest
rates will affect the Group’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimizing the return.
Foreign currency risk:
The Group has a substantial number of transactions denominated in US dollars and is exposed
to risk with respect to fluctuations in exchange rates between Canadian and US dollars. The
Group holds smaller positions in other foreign currencies. The Group does not use derivative
instruments to reduce its exposure to foreign currency risk. As a result, variations in foreign
exchange rates could cause unanticipated fluctuations in the Group’s operating results.
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Annual Report 2017 57
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The following chart depicts the foreign currency positions.
Currency
Accounts receivable
Accounts payable
Dec 31, 2017 Dec 31, 2016 Dec 31, 2017 Dec 31, 2016 Dec 31, 2017 Dec 31, 2016
Long-term debt
Australia
Europe
New Zealand
Taiwan
UK
US
AUD
EURO
NZD
TWD
GBP
USD
30
203
52
499
473
5,281
41
155
46
166
455
6,658
(14)
(22)
-
-
(232)
(2,451)
(14)
(22)
-
-
(316)
(1,944)
-
-
-
-
(65)
(5,223)
-
-
-
-
(92)
(6,066)
Long-term debt includes loans and capital leases denominated in foreign currencies which may
affect the amount of principal and interest payments ultimately recorded.
Sensitivity Analysis:
An average one-cent decrease of the Canadian dollar against the US dollar in 2017 would
have increased net product sales by $552,000 (2016 - $489,000) and increased income
from operations by $594,000 (2016 - $536,000). Inversely, a one cent increase in the
Canadian dollar against the US dollar in 2017 would have had the equal but opposite effect.
This analysis assumes that all other variables remain constant. As noted, the Company
does deal in other currencies but the level of impact of these currencies would not be
significant.
Interest rate risk:
Interest rate risk arises from the possibility that the cash flows related to a financial instrument
would fluctuate as a result of changes in market interest rates. The Group is exposed to financial
risk that arises from the interest rate differentials between the market interest rate and the rates
on its cash, bank indebtedness, and its float rate term loans. Changes in variable interest rates
could cause unanticipated fluctuations in the Group’s operating results.
Sensitivity Analysis:
A one percent increase in the variable rates charged on ending 2017 bank indebtedness
would increase annual interest expense by $57,000 (2016 - $73,000). This analysis
assumes that all other variables remain constant. Inversely, a one percent decrease in the
variable rates charged on ending 2017 bank indebtedness would have had the equal but
opposite effect.
Operational risk:
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes
associated with the Group’s processes, personnel, technology and infrastructure, and from
external factors other than credit, liquidity and market risks such as those arising from legal and
regulatory requirements and generally accepted standards of corporate behavior.
The Group’s objective is to manage operational risk so as to balance the avoidance of financial
losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control
procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address
operational risk is assigned to senior management within each business unit. This responsibility
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Annual Report 2017 58
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
is supported by the development of overall Group standards for the management of operational
risk in the following areas:
•
•
•
•
•
•
•
•
•
•
requirements for appropriate segregation of duties, including the independent
authorization of transactions
requirements for the reconciliation and monitoring of transactions
compliance with regulatory and other legal requirements
documentation of controls and procedures
requirements for the periodic assessment of operational risks faced, and the adequacy
of controls and procedures to address the risks identified
requirements for the reporting of operational losses and proposed remedial action
development of contingency plans
training and professional development
ethical and business standards
risk mitigation, including insurance when this is effective.
Compliance with Group standards is supported by a program of periodic reviews undertaken by
the corporate finance group. The results of the reviews are discussed with the management of
the business unit to which they relate, with summaries submitted to the Audit Committee and
senior management of the Group.
Capital management:
In order to manage capital, the Group regularly identifies and assesses risks that threaten the
ability to meet the Company’s capital management objectives, and determines the appropriate
strategy to mitigate these risks.
The Group’s objectives when managing capital are to:
• maintain financial flexibility in order to preserve its ability to meet financial obligations
•
deploy capital to provide an appropriate investment return to its shareholders
• maintain capital structure that allows multiple financing options to the Group should a
financing need arise.
The Group defines its capital as follows:
•
•
•
shareholders’ equity
long-term debt, including the current portion
cash and cash equivalents and short-term borrowings
The Group is subject to externally imposed capital requirements through the covenants of its
facility arrangements with the bank. The covenants measure Debt to Total Net Worth, Debt
Service Ratio and Current Ratio. The Group is in compliance with its covenants at December
31, 2017 and has been in compliance with its covenants through 2016 and 2017. There were
no changes to the Group’s approach to capital management during 2017. Neither the Company,
nor any of its subsidiaries, is subject to externally imposed capital requirements.
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Annual Report 2017 59
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
25) Segment disclosures:
The continuing operations of the Company are in one operating segment, electrical and electronic
components.
The Company and its subsidiaries operate in Canada, the US, the UK and Australia.
Geographic segments
Years ended:
December 31, 2017
December 31, 2016
Net product sales:
Canada:
US:
Sales to customers
Sales to customers
All other countries:
Sales to customers
Net product sales
Non-current assets:
Canada:
$ 47,811
67,737
11,858
$ 127,406
$ 43,743
61,165
10,816
$ 115,724
Non-current assets
$ 31,619
$ 30,314
US:
Non-current assets
All other countries:
Non-current assets
Non-current assets
Total
26) Related party transactions:
541
536
627
602
$ 32,696
$ 31,543
a) Key management includes the Company’s directors and members of the executive
management team. Compensation awarded to key management included:
Years ended:
December 31, 2017
December 31, 2016
Salaries and short-term employee benefits
$ 678
$ 650
b) The Company purchased $2,601,000 of product from RITEC in 2017 (2016 - $2,708,000). The
Company sold $27,533 of product to RITEC in 2017 (2016 - $11,300). These transactions were
made in the normal course of business and have been recorded at the exchange amounts, being
the amount agreed to by the two parties.
All outstanding trade balances with related parties are to be settled in cash within six months of
the reporting date. None of the balances are secured. Receivables as at December 31, 2017
were $21,200 (2016 - $23,000) while payables were $nil (2016 - $277,000). Trade receivables
and payables to related parties are included within trade and other receivables and trade and
other payables on the Consolidated Statement of Financial Position.
c) The Chairman of the Corporation, Robert Frederick Hammond, through direct and indirect
ownership of Class A and Class B voting shares effectively controls the Company.
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Annual Report 2017 60
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(tabular amounts (except share amounts) in thousands of Canadian dollars)
d) Consolidated entities:
HAMMOND MANUFACTURING COMPANY LIMITED
Country of
incorporation
% Ownership interest
December 31,
2017
December 31,
2016
Les Fabrications Hammond (Quebec) Inc. /
Hammond Manufacturing (Quebec) Inc. Canada
Hammond Electronics Pty Limited
Australia
Hammond Electronics Limited
Subsidiary of above:
Hammond Electronics Asia Limited
UK
Taiwan
Hammond Manufacturing Company Inc. US
Subsidiaries of above:
Hammond Holdings Inc.
Paulding Electrical Products, Inc
US
US
100
100
100
100
100
100
100
100
100
100
100
100
100
100
The year end for each of the entities listed in the table above is December 31.
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Annual Report 2017 61
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Annual Report 2017 62
Officers/Senior Management
Robert F. Hammond
Chairman and CEO
Alexander Stirling
Secretary & CFO
Ray Shatzel
Vice-President, Electronic Sales
Ross N. Hammond
Assistant Secretary
CORPORATE DIRECTORY
Directors
Robert F. Hammond
Chairman and CEO
Edward Sehl *
Principal - Sehl Consulting
Director of Guelph General Hospital
Paul Quigley *
President
Quigley Group Inc.
Sheila Hammond B.A., B.Ed., M.Sc.
Registered Psychotherapist
Registered Marriage & Family Therapist
Officer & Director, Eramosa Group Ltd.
Michael Fricker *
CFO at Bento Inc.
William Wiener *
CEO of Viscor Inc.
CEO of 35 Oak Holdings Ltd.
Sarah Hansen
Operations Manager of Emco Corporation in Calgary
Director of Eramosa Group Ltd.
Director of DKH Engineering Services Inc.
Director of Canadian Institute of Plumbing and Heating, Cal-
gary Chapter
*Members of the Audit Committee and Compensation Committee
Auditors
KPMG LLP
RSM, UK
ASF Audits, Australia
Legal Counsel
Borden Ladner Gervais
Stock Listing
Toronto Stock Exchange
Symbol: HMM.A
Bankers
HSBC
Transfer Agent and Registrar
Computershare Investor Services Inc.
Over 95 Years of providing
Quality Products & Service Excellence.
Corporate Head Office
394 Edinburgh Road North
Guelph, Ontario N1H 1E5
Canada
Email:
ir@hammfg.com
Les Fabrications Hammond
(Québec) Inc.
985 Rue Bergar
Laval, Quebec H7L 4Z6
Canada
OFFICES AND LOCATIONS
Hammond Manufacturing Co. Inc.
475 Cayuga Rd.
Cheektowaga, NY 14225
USA
Hammond Electronics Ltd.
1 Onslow Close
Kingsland Business Park
Basingstoke, Hampshire
RG248QL
England
Hammond Electronics Pty. Ltd.
11-13 Port Road
Queenstown, SA 5024
Australia
Tel:
Fax:
(519) 822-2960
(519) 822-7289
Tel:
Fax:
(450) 975-1884
(450) 975-2098
Tel:
Fax:
(716) 630-7030
(716) 630-7042
Tel:
Fax:
01256 812812
01256 332249
Tel:
Fax:
61-8-8235-0744
61-8-8356-3652
© Copyright. Hammond Manufacturing Co. Ltd.