2019
ANNUAL REPORT
Over 100 Years
& Four Generations
Server Racks and Cabinets
Electrical Enclosures
Outlet Strips
Small Enclosures
Electronic Transformers
Over 100 years
& four generations
in business.
Established 1917.
Fred Hammond, VE3HC
(right) was part of the
second generation of a fast
growing family run business.
Fred was one of six brothers
and two sisters.
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): we go above
and beyond our competition and
provide our customers with the
exact solution required.
Our Values:
• We are dedicated to our
customers. We provide quality
products and service that
create value to our customers.
• We are responsible to our
shareholders. We provide
an adequate return on their
investment over the long term.
• We are committed to our
employees. We provide
competitive pay, open and frank
communication and a safe work
environments.
• We recognize the importance of
our suppliers assisting us in our
ability to serve our customers.
Hammond Manufacturing Company Limited
2019 Annual Report
4
5
Report to Shareholders
Management Discussion and Analysis
22 Management’s Responsibility for Financial Reporting
23
27
28
29
30
31
72
Independent Auditors’ Report
Consolidated Statements of Financial Position
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Corporate Directory
www.hammondmfg.com
Annual Report 2019 3
REPORT TO SHAREHOLDERS
Dear fellow shareholders, employees, and stakeholders:
We are pleased to report our 2019 results that show another strong performance, despite uncertainties
in the global markets.
Although we are now also monitoring the potential impact of COVID-19 on our customers and suppliers,
we are focussed on the growth of our market share in the United States and Europe
Our continuing goal is to build for long term security and success.
Sincerely,
Robert F. Hammond
Alex Stirling
Chairman & CEO
CFO
ANNUAL MEETING
The meeting of the Shareholders will be held on
April 27, 2020 at
Cutten Fields
190 College Avenue East, Guelph, Ontario
Commencing at 10:00 a.m.
www.hammondmfg.com
Annual Report 2019 4
MANAGEMENT DISCUSSION AND ANALYSIS
This management discussion and analysis (MD&A) comments on the consolidated financial position and
financial performance of Hammond Manufacturing Company Limited (“HMCL” or “the Company”) for the
year ended December 31, 2019. This discussion should be read in conjunction with the Company’s
consolidated financial statements for the year ended December 31, 2019 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 3, 2020.
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 2019 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. In 2019 the Company established an entity in the
Netherlands that can serve as a European based company depending on the impact of BREXIT.
OPERATIONS
There were no significant changes in 2019. Our facilities are all fully utilized and we continue with
projects to stream line activities and improve efficiencies.
In October of 2019 our insurer of our Guelph area warehouse advised they would no longer cover this
facility as it does not have a sprinkler system. The building is in an area without a municipal water supply
and only has well water available which cannot be utilized for a sprinkler system. The insurance market
for property coverage has become very tight and we were forced to go into special markets overseas to
get coverage. The new coverage has added $456,000 in additional annual insurance coverage. We are
currently looking into a water tank system that would allow us to properly sprinkler the facility. The
preliminary budgeting on a system for the facility is approximately $750,000.
QUARTERLY INFORMATION
HAMMOND MANUFACTURING COMPANY LIMITED
Summary of Quarterly Financial Information
(In thousands of Canadian dollars except earnings per share)
Q1
Q2
Q3
Q4
2019
Year-to-date
Total
Net product sales
$38,056
$38,262
$37,229
$35,045
$148,592
Income from operating activities
Net income for the period
Earnings per share
- Basic & diluted
2,511
1,726
$0.15
2,010
1,217
$0.11
1,768
839
$0.07
1,180
967
$0.09
7,469
4,749
$0.42
Q1
Q2
Q3
Q4
2018
Year-to-date
Total
Net product sales
$36,150
$37,750
$37,333
$34,369
$145,602
Income from operating activities
Net income for the period
Earnings per share
- Basic & diluted
1,984
1,097
$0.10
1,925
904
$0.08
2,207
1,489
$0.13
1,597
274
$0.02
7,713
3,764
$0.33
www.hammondmfg.com
Annual Report 2019 6
MANAGEMENT DISCUSSION AND ANALYSIS
In the following discussions we will reference the impact from the adoption of IFRS 16 Leases, effective
January 1, 2019. The company has chosen the modified retrospective approach which does not require
the restatement of prior comparative periods. In essence the impact of the change creates a change in
rental expense recognition. The previous reported rental expense is now broken into a depreciation
expense and interest component. This will lower the costs previously recognized in cost of goods sold,
sales and distribution, and general and administrative, and increase interest expense. The lease liability
interest expense recognized in 2019 was $383,000. The adoption of IFRS 16 Leases is discussed in
greater detail later in the management and discussion analysis and in note 3 of the annual financial
statements.
FOURTH QUARTER RESULTS
NET PRODUCT SALES
Net product sales, for the three months ended December 31, 2019 were $35,045,000, down 5.9%
compared to net product sales of $37,229,000 in the third quarter of 2019. The drop in sales is indicative
of the fourth quarter as sales in December always fall off as we approach the yearend holidays. Net
product sales for the current quarter were up 2.0% compared to net product sales of $34,369,000 for
the three months ended December 31, 2018. This quarter was helped by having 61 sale days’ vs 60
sale days in the fourth quarter of 2018. Foreign exchange compared to the fourth quarter of 2018 also
provided currency gain of $381,000 or 1.1% lift in sales
GROSS PROFIT
Gross profit of $10,910,000 for the fourth quarter of 2019 was 31.1% of net sales compared to 30.2% in
the third quarter of 2019. Production levels remained constant despite the drop in sales which
replenished inventories. This year we experienced a pickup in our annual physical inventory that added
approximately $300,000 (or 0.9%) upside to the quarter. Gross profits of 31.1% are up from the fourth
quarter of 2018 level of 30.9%.
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 $9,730,000 was 27.8% of net sales for the three months
ended December 31, 2019. This compared with spending of $9,463,000 in the previous quarter that was
25.4% of net sales. Foreign exchange impact was minimal. The fourth quarter of 2018 saw spending
levels of $9,012,000 which was 26.2% of net sales. Foreign exchange increased the expense levels by
$66,000 over this comparative period.
Selling and distribution spending of $8,085,000 was up 0.4% over the prior quarter spend of $8,055,000
and up $537,000 or 7.1% over the fourth quarter of 2018. Compared to the fourth quarter of 2018
increased staffing levels had an impact of $71,000 or 0.9% of the increase. The sales mix through
commission supported customers was up 11% which drove an increase in commission expense of
approximately $180,000 or 2.4% of the increase in spending. Advertising expenses were up over the
comparative quarter of last year by $98,000 or 1.3% of the increase in spending.
General and administrative expenses of $1,550,000 were up this quarter from the previous quarter’s
spending of $1,314,000 and up over the fourth quarter spend of 2018 of $1,405,000. This quarter
includes just over $200,000 in severance expenses.
www.hammondmfg.com
Annual Report 2019 7
MANAGEMENT DISCUSSION AND ANALYSIS
Research and development spend of $64,000 was down from the comparative fourth quarter spend of
$103,000 in 2018. Staffing levels and general expenses levels were down this quarter but should
increase in the first quarter of 2020.
A net loss of $31,000 on disposal of property, plant and equipment was recognized this quarter.
INCOME FROM OPERATING ACTIVITIES
Income from operating activities of $1,180,000 (3.4% of net sales) is down from the prior quarter of
$1,768,000 (4.7% of net sales) and down from the 2018 fourth quarter amount of $1,597,000 (4.6% of
net sales).
INTEREST
Fourth quarter interest expense on bank indebtedness and loans was $281,000 compared to an
expense of $541,000 for the fourth quarter 2018.The comparative loan base has dropped throughout
the year and is down just over $4 million form the end on 2018 to 2019.
The following is a breakdown of the interest expenses. Note that lease liability interest expense
introduced through IFRS 16 was $40,000 for the fourth quarter of 2019.
Interest expense is comprised as follows:
Three Months Ended:
December 31,
2019
December 31,
2018
Long Term debt, excluding capital finance leases
$
209
$
439
Bank indebtedness
Interest expense
Interest expense leases
72
102
$
281
$
541
$
78
$
66
Total Interest and Lease Interest expense
$
359
$
607
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
During the fourth quarter of 2019, the Company recognized a gain on transactional foreign exchange of
$357,000 compared to a loss of $675,000 in the three months ended December 31, 2018. The spot rate
at the opening of the fourth quarter of 2018 was 1.00 USD to 1.2945 CAD. The closing spot rate for
2018 was 1.00 USD to 1.3642 CAD. In 2019 the fourth quarter spot rate opened at 1.00 USD to 1.3249
and closed at 1.00 USD to 1.2988 CAD. The intercompany balance payable to our US entity accounts
for approximately $185,000 of the $357,000 gain in the fourth quarter of 2019 compared to the
intercompany impact loss of approximately $420,000 in the fourth quarter of 2018. There is an offset to
the intercompany impact found in the foreign exchange translation of foreign operations as the offsetting
US receivable is due from the Canadian entity and would be part of the translational adjustment of the
US entities balance sheet on consolidation.
INCOME TAX EXPENSE (INCOME)
The final true up for the year’s activities combined with a low income before tax provided for tax income
of $24,000 in 2018 compared to a tax expense of $230,000 19.2% of income before tax) in the fourth
quarter of 2019.
www.hammondmfg.com
Annual Report 2019 8
MANAGEMENT DISCUSSION AND ANALYSIS
NET INCOME (LOSS) FOR THE PERIOD
Net income of $967,000 (2.8% return on net product sales) was recognized for the fourth quarter ended
December 31, 2019 this was up from a net return of $839,000 (2.3% return on net product sales) in the
previous quarter and up from the net return of $274,000 (0.8% return on net product sales) recognized
in the fourth quarter of 2018.
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
The translation adjustment for the fourth quarter of 2019 was a loss of $288,000 compared to a
translation gain of $1,036,000 in the fourth quarter of 2018. The Canadian dollar strengthening against
our foreign entity currencies provided a negative impact from foreign translation in the fourth quarter of
2019. This is the opposite situation seen in the fourth quarter of 2018.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for the fourth quarter ended December 31, 2019 was $679,000 (1.9% of net
product sales) down from the 3 months ended December 31, 2018 of $1,310,000 (3.8% of net product
sales) and down from the previous quarters total comprehensive income of $1,044,000 (2.8% of net
product sales).
FULL YEAR RESULTS
NET PRODUCT SALES
Net product sales of $148,592,000 in 2019 were up 2.1% compared to net sales of $145,602,000
reported in 2018. Foreign exchange had a positive impact on the year over year reporting by
approximately $1,591,000 (1.1%) so sales were actually up 1.0% in constant dollars. Our Canadian
market was up 5.1% while the US was down 1.5%. Several of our larger distribution customers drew
down their inventories which impacted our sales volumes. Our European markets were relatively flat
year over year. We feel BREXIT situation has had a negative effect on sales levels as markets proceed
cautiously.
GROSS PROFIT
In 2019, gross profit was $45,528,000 or 30.6% of net product sales compared to $43,426,000 or 29.8%
achieved in 2018.The positive impact of foreign exchange and cost reductions have helped increase the
margins over 2018.
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 $38,059,000 (25.6% of net product sales) was up 6.6%
compared to the 2018 spend of $35,713,000 (24.5% of net product sales). Foreign exchange had the
impact of increasing the reported expense levels by approximately $270,000 compared to the cost base
in 2018 so spend was actually up 5.8% compared to 2018.
Selling and distribution expenses of $32,259,000 increased $2,229,000 or 7.4% compared to 2018.
Foreign exchange had the impact of increasing comparative costs by $260,000 or 0.9% of the increase
in expenses. On a constant dollar basis our costs were up 6.5%. Expense levels are up over the revenue
increase of 2.1%. Some of the big drivers are as follows. Freight and warehouse expenses are up
$846,000 or 2.8% of the spend increase. Prepaid freight expenses are up $470,000 or 1.6% of the
www.hammondmfg.com
Annual Report 2019 9
MANAGEMENT DISCUSSION AND ANALYSIS
overall increase. Warehouse costs are up $295,000 of which wages account for $138,000, as staffing
levels were increased. Selling expenses in the US were up year over year by just over $1 million. Salaries
were up $328,000 with outside representative commission expense up $380,000 and advertising
expenses up $250,000 as we continue our push to grow our US market.
Our general and administrative expenses of $5,486,000 were up $145,000 or 2.7% compared to 2018
spending levels of $5,341,000. Foreign exchange increased costs over 2018 by $10,000. The fourth
quarter included just over $200,000 of severance expenses otherwise cost were relatively stable year
over year.
In 2019 the research and development spending level was down 20.8% to $294,000 over 2018 spending
levels. We were down an employee for the last three quarters of the year. We continue to invest in our
future.
A net loss of $20,000 on disposal of property, plant and equipment was recognized as some old
equipment was sold and replaced. This compares to a net gain on disposals of $29,000 recognized in
2018.
INCOME FROM OPERATING ACTIVITIES
Overall, 2019 earnings from operating activities of $7,469,000 (5.0% of net product sales) is down
compared to 2018 earnings of $7,713,000 (5.3% of net product sales).
INTEREST
Interest expense on bank indebtedness and loans was $1,145,000 compared to an expense of
$1,141,000 for 2018.The comparative loan base dropped in the last months of 2019 so the impact on
interest expense in 2019 was minimal.
The following is a breakdown of the interest expenses. Note that lease liability interest expense
introduced through IFRS 16 was $383,000 for 2019.
Interest expense is comprised as follows:
December 31,
2019
December 31,
2018
Long Term debt, excluding capital finance leases
$
794
$
791
Bank indebtedness
Interest expense
Interest expense leases
351
350
$
1,145
$
1,141
$
605
$
273
Total Interest and Lease Interest expense
$
1,750
$
1,414
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
A $626,000 foreign exchange transactional gain was reported in 2019, compared to a transactional loss
of $1,122,000 in 2018. The Canadian dollar weakened against the US dollar throughout 2018. It opened
at $1.00 USD to $1.255 CAD and closed the year at $1.00 USD to $1.364 CAD. In 2019 the reverse
happen as the Canadian dollar strengthened by the end of 2019 closing at $1.00 US dollar to 1.2988
CAD. A large portion of the gain is from our intercompany receivable. Our Canadian entity has a payable
to our US entity in US dollars. The Opening payable was $7.6 million USD and the closing balance was
www.hammondmfg.com
Annual Report 2019 10
MANAGEMENT DISCUSSION AND ANALYSIS
$7.4 million. This year it created transaction gain of approximately $484,000 with the offset going to
translational gains of other foreign operations.
INCOME TAX EXPENSE
2019 tax expenses of $1,533,000 were 24.4% of income before income tax. This compares to a 2018
tax expense of $1,288,000 which was 25.5% of income before income tax.
NET INCOME FOR THE YEAR
Net income for the year ended December 31, 2019 was $4,749,000 (3.2% of net product sales) up
26.2% from the prior year net income of $3,764,000 (2.6% of net product sales).
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
During 2019 a loss of $966,000 on translational foreign exchange was realized compared to a gain of
$1,532,000 in 2018. The weakening Canadian dollar caused a increase in the valuation of our foreign
entities. This is the opposite situation to what happened in 2018. As noted earlier a large part
(approximately $484,000) of this is offset by the foreign exchange transactional impact of intercompany
loans.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for 2019 was $3,783,000 (2.5% of net product sales) down from comprehensive
income of $5,296,000 (3.6% of net product sales) in 2018.
SELECTED ANNUAL INFORMATION
Three year financial summary:
For the years ended December 31,
(In thousands except per share amounts)
Consolidated Statements of Comprehensive Income
2019
2018
2017
Net product sales
$
148,592
$
145,602
$
127,406
Income from operating activities
Net income for the year
Per share - basic & fully diluted
net earnings for the year
7,469
4,749
7,713
3,764
5,973
4,560
$0.42
$0.33
$0.40
Consolidated Statement of Financial Position
2019
2018
2017
Total assets
Total funded debt
Working capital
Net cash generated from (used in) operating activities
Dividends declared and paid
Shareholders' equity
$
$
$
111,402
36,565
20,532
11,707
454
54,730
100,813
31,210
20,152
1,354
452
51,401
85,889
22,552
21,270
7,244
226
46,557
$
$
$
www.hammondmfg.com
Annual Report 2019 11
MANAGEMENT DISCUSSION AND ANALYSIS
CAPITAL RESOURCES AND LIQUIDITY
Net cash generated in operating activities for 2019 was $11,102,000 (net cash generated in 2018 -
$1,354,000). Cash flows from financing activities used $7,363,000 (2018 – generated of $7,851,000).
Cash used in investing activities was $2,893,000 (2018 - $10,614,000).
Trade and other receivables of $19,107,000 at December 31, 2019 have increased 0.3% compared to
the 2018 year-end. Day’s sales outstanding (DSO) calculated at December 31, 2019 was 52.4 compare
to 53.6 days as calculated on December 31, 2018. Our customers continue to push for longer payment
terms. The quality of accounts receivable remains high.
The year-end investment in inventory of $41,426,000 was an increase of 3.1% from the 2018 inventory
value of $40,185,000. Inventory turnover decreased slightly to 2.5 from 2.8 (cost of sales divided by the
twelve month average inventory level). Our value statement of having our standard product on our
shelves combined with the increasing number of stock keeping units makes for a low turn ratio.
Trade and other liabilities increased by $709,000, or 4.5% over 2018 to $16,437,000. Total long-term
debt, lease liabilities and bank indebtedness decreased by $5,042,000 over the prior year to
$26,168,000. IFRS 16 introduced a new liability of $11,812,000 as at December 31, 2019. Our debt-to-
equity ratio at year-end (excluding lease liabilities) was approximately 0.48:1 (2018 - 0.61:1). Debt-to-
equity calculated inclusive of the lease liabilities was 0.69:1.
Total dividends paid in 2019 were $454,000 (2018 - $452,000).
Property, plant, equipment and intangible asset additions excluding right of use assets in 2019 were
$2,949,000 down from $9,738,000 in 2018. The Company spent $201,000 (2018 - $1,557,000) on
building and leasehold improvements. $324,000 (2018 - $73,000) was invested toward replacing
machinery and equipment, $1,761,000 (2018 - $6,906,000) was invested toward machinery and
equipment for capacity growth, $338,000 (2018 - $677,000) was invested in tooling, $244,000 (2018 -
$28,000) was invested in office equipment. In 2018 $434,000 was invested in the upgrade / replacement
of our computer hardware which we run our main ERP system on. $47,000 (2018 – $4,000) was spent
on software and development costs. 2019 spending on product development of $34,000 was up from
$59,000 in 2018.
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 $3,461,500 on eligible spending. As at
December 31, 2019, the Group had received $3,461,500 of this funding (2018 - $3,115,000). This will
be paid back over the next 5 years in $58,000 even monthly installments starting January of 2020.
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, 2019, the
Group has received $1,200,000 of this funding (2018 - $989,000).The remaining $300,000 is due in the
first half of 2020.
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.
www.hammondmfg.com
Annual Report 2019 12
MANAGEMENT DISCUSSION AND ANALYSIS
The contractual obligations of the Company as set out in the 2018 annual report on a demand basis was
as follows.
Contractual obligations
(In thousands)
Thereafter
Total
2023
2021
2020
2019
2022
Long-term debt
$
19,474
$
16,875
$
573
$
547
$
518
$
492
$
469
Capital lease obligations
Operating leases
4,137
8,534
1,080
2,326
911
1,981
913
1,122
920
941
313
808
-
1,356
Total contractual obligations
$
32,145
$
20,281
$
3,465
$
2,582
$
2,379
$
1,613
$
1,825
With the adoption of IFRS 16 Leases, as at January 1, 2019 the Company recognized a Right-of-use
asset value of $8,004,000 and a Lease Liability of $8,004,000 in place of previously recognized operating
leases. No adjustments were made to opening retained earnings. When measuring lease liabilities for
leases that were classified as operating leases, the Company discounted the lease payments using its
incremental borrowing rate at January 1, 2019. The weighted-average rate applied is 5.30%. Further,
as at January 1, 2019 $6,055,000 of property plant & equipment relating to finance leases under IAS
16, along with the corresponding accumulated depreciation of $1,498,000, were re-classed to right-of-
use assets under IFRS 16. The related finance lease obligations of $4,137,000, previously included
within long-term debt, were re-classed to lease liabilities. See note 6, note 8 and note 13.
Based on the foregoing the contractual obligations of the Company as at January 1, 2019 was as follows.
Contractual obligations
(In thousands)
Thereafter
Total
2020
2019
2022
2021
2023
Long-term debt
Lease Liabilities
$
19,474
$
16,875
$
573
$
547
$
518
$
492
$
469
12,141
3,082
2,544
1,806
1,608
945
2,156
Total contractual obligations
$
31,615
$
19,957
$
3,117
$
2,353
$
2,126
$
1,437
$
2,625
As at December 31, 2019 the contractual obligations showing demand loans as current was as follows.
Contractual obligations
(In thousands)
Thereafter
Total
2020
2021
2023
2024
2022
Long-term debt
Lease Liabilities
$
18,640
$
18,640
$
-
$
-
$
-
$
-
$
-
13,532
2,726
2,080
1,948
1,359
868
4,551
Total contractual obligations
$
32,172
$
21,366
$
2,080
$
1,948
$
1,359
$
868
$
4,551
As at December 31, 2019 the contractual obligations based on repayment not being called early.
Contractual obligations
(In thousands)
Total
2023
2020
2021
2022
2024
Thereafter
Long-term debt
Lease Liabilities
$
18,640
$
1,732
$
1,815
$
1,901
$
7,605
$
1,798
$
3,789
13,532
2,726
2,080
1,948
1,359
868
4,551
Total contractual obligations
$
32,172
$
4,458
$
3,895
$
3,849
$
8,964
$
2,666
$
8,340
In addition to the contractual obligations above, the Company has current obligations of $975,000 (2018
- $519,000) against open purchase orders for outstanding capital expenditures. The Company also has
open purchase commitments with RITEC as at December 31, 2019 of $535,000 (2018 - $827,000).
These expenditures should be completed in the first half of 2020.
www.hammondmfg.com
Annual Report 2019 13
MANAGEMENT DISCUSSION AND ANALYSIS
SHARE CAPITAL
As of March 3, 2020, 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
The introduction of IFRS 16 lease accounting has had an impact on the EBITDA calculation below.
Lease expenses in 2018 and earlier were treated as operating expenses and not added back. Under
IFRS 16 the leases are now broken out into a depreciation and interest expense which are added back
in the EBITDA calculation. To assist the reader in understanding the impact of this change we have
broken out the depreciation for Right–of-use assets and also the finance costs associated with this asset
group. Right-of-use asset depreciation added back $1,978,000 and Right-of-use finance costs added
$383,000. Therefore roughly $2,361,000 of the add back increase over 2018 can be attributed to the
adoption of IFRS 16 Leases.
EBITDA for 2019 was $14,102,000. This showed improvement over EBITDA of $9,808,000 achieved in
2018 even if you adjust for the impact of IFRS 16.
EBITDA adjusted for transactional impact of foreign exchange lowers the EBITDA in 2019 while it
increases the comparative of 2018. EBITDA and adjusted EBITDA is calculated 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 for the period
Add
Income tax expense
Depreciation and amortization
Right-of-use depreciation
Finance costs on debt
Right-of-use finance costs
Subtotal
EBITDA*
Add:
FX transactional loss (gain)
Adjusted EBITDA *
Years Ended:
December 31,
2019
4,749
Three Months Ended:
December 31,
2018
3,764
December 31,
2019
967
December 31,
2018
274
1,533
3,533
2,537
1,145
605
9,353
14,102
(626)
13,476
1,288
2,794
548
1,141
273
6,044
9,808
1,122
10,930
230
990
690
281
78
2,269
3,236
(357)
2,879
(24)
788
131
541
66
1,502
1,776
675
2,451
* 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
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.
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Annual Report 2019 14
MANAGEMENT DISCUSSION AND ANALYSIS
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 2019 related to this property was $119,000 (2018 - $89,000).
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 (2018 - $170,000) with $70,000 (2018 -
$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 $3,500,000 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. The claim is expected
to be set down for trial sometime in 2020. A trial date has not yet been determined. We have seen
corresponding legal fees in 2018 and 2019.
A third party statement of claim was issued on March 6, 2019, against the Company with respect to an
adjacent property to one of our Waterloo facilities. The claim alleges that contaminants originating from
our property have migrated to the adjoining property owned by the claimants. The amount of the claim
is estimated at $160,000 to $670,000. Our records do not show any spills of chemicals at this location
and 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 condensed consolidated financial statements.
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 9).
Based on this analysis, it is management’s judgment that the reported carrying values of these properties
are reasonable.
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Annual Report 2019 15
MANAGEMENT DISCUSSION AND ANALYSIS
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 net realizable value.
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
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.
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Annual Report 2019 16
MANAGEMENT DISCUSSION AND ANALYSIS
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, 2019 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, 2019.
There has been no change to internal controls in the most recent quarter ended on December 31, 2019
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;
• 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;
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Annual Report 2019 17
MANAGEMENT DISCUSSION AND ANALYSIS
• 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
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.
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Annual Report 2019 18
MANAGEMENT DISCUSSION AND ANALYSIS
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 $661,000 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 16.8% of the Company’s debt financing (excluding Right of use
obligations). 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 between 1.25 to
the high 1.36 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 continue to 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.
Global Political Unrest
Today’s politics can have significant repercussions on doing business. Issues are constantly changing
and management has to assess the potential outcomes of the different issues and be prepared to react
or mitigate anything that would have a negative impact on our business. In 2018 the North American
Trade Agreement was under negotiation and signed November 30, 2018. It is still awaiting ratification
by the parties. US tariffs put in place on steel are still in play despite having the agreement in place.
BREXIT is currently playing out overseas. We have operations in the UK that service the UK and Europe.
The landscape of doing business will more than likely change as a result of the situation although no
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Annual Report 2019 19
MANAGEMENT DISCUSSION AND ANALYSIS
one can determine what the final result will look like. Management have set up a European company in
the Netherlands should it become necessary to have such an entity. Management is closely watching
the situation and is looking at different options for doing business overseas.
More recently the outbreak of the Coronavirus could disrupt supply chains and the market place.
Management is closely monitoring this development and will take appropriate actions to mitigate any
potential impact on the company.
ACCOUNTING POLICY CHANGES
IFRS 16 Leases
On January 13, 2016, the IASB issued IFRS 16 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.
Effective January 1, 2019, the Company adopted IFRS 16 Leases utilizing a modified retrospective
approach. This approach calculates the lease assets and lease liabilities and recognizes an equity
adjustment at January 1, 2019 and does not restate prior-period financial information. The Group record
a right of use asset for the Company’s premises and other leases and a corresponding lease liability.
The previously recorded rent expense is now included in the Statement of Operations as depreciation
and interest expense.
The Company has applied the practical expedient to ‘grandfather’ their previous assessment of which
existing contracts are, or contain, a lease. By applying this expedient the Company has applied IFRS 16
to leases previously identified in accordance with IAS 17 and IFRIC 4 when determining whether an
arrangement contains a lease. This expedient only applies to the identification of leases on the date of
initial application and does not apply if the terms and conditions of the agreement are modified
subsequently.
Automobile leases include residual value guarantees at the end of the lease term. The Company has
assessed the valuation conditions and believes the guarantee will not be required.
The Company has elected to apply the following accounting policy exemptions:
• Short term leases less than 12 months – election available by asset class; and
• Leases of low-value items – under $5,000 – election can be applied on a lease by lease basis.
Short term leases will be expensed as incurred on a straight line basis. The Company leases the trailers
for their trucks on a month by month basis. The monthly expense is approximately $20,000.
Leases of low value will be expensed as incurred on a straight line basis. The Company has a few pieces
of office equipment that fit in this category.
The modified retrospective approach has been applied when implementing this standard.
As a result of adoption, as at January 1, 2019 the Company recognized a Right-of-use asset of
$8,004,000 and a Lease Liability of $8,004,000 in place of previously recognized operating leases. No
adjustments were made to opening retained earnings. When measuring lease liabilities for leases that
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Annual Report 2019 20
MANAGEMENT DISCUSSION AND ANALYSIS
were classified as operating leases, the Company discounted the lease payments using its incremental
borrowing rate at January 1, 2019. The weighted-average rate applied is 5.30%. Further, as at January
1, 2019 $6,055,000 of property plant & equipment relating to finance leases under IAS 16, along with
the corresponding accumulated depreciation of $1,498,000, were re-classed to right-of-use assets under
IFRS 16. The related finance lease obligations of $4,137,000, previously included within long-term debt,
were re-classed to lease liabilities. See note 6, note 8 and note 13.
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 has reviewed its tax positions in its consolidated financial statements for the annual period
beginning on January 1, 2019. The group feels that the tax positions taken are defendable and it is
probable that the tax authorities will accept the uncertain tax treatment.
Future Accounting Changes
At the date of authorization of these financial statements, several new, but not yet effective, Standards
and amendments to existing Standards, and Interpretations have been published by the IASB. None of
these Standards or amendments to existing Standards have been adopted early by the Group.
Management anticipates that all relevant pronouncements will be adopted for the first period beginning
on or after the effective date of the pronouncement. New Standards, amendments and Interpretations
not adopted in the current year have not been disclosed as they are not expected to have a material
impact on the Group’s financial statements.
OUTLOOK FACTORS FOR 2020
Our current market expectation is cautious. BREXIT is now reality but the details and impacts have still
to come. The coronavirus impact is starting to be felt as production delays are interrupting supplies from
Asia. The strong US dollar continues to provide us the opportunity to competitively price our products
and stimulate market share growth.
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 2019 21
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 3, 2020
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Annual Report 2019 22
KPMG LLP
115 King Street South
2nd Floor
Waterloo ON N2J 5A3
Canada
Tel 519-747-8800
Fax 519-747-8830
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Hammond Manufacturing Company Limited
Opinion
We have audited the consolidated financial statements of Hammond Manufacturing
Company Limited (the Entity), which comprise:
the consolidated statements of financial position as at December 31, 2019 and 2018
the consolidated statements of comprehensive income for the years then ended
the consolidated statements of changes in equity for the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the financial statements, including a summary of significant accounting
policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Entity as December 31, 2019
and 2018, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in the
“Auditors’ Responsibilities for the Audit of the Financial Statements” section of our
auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Canada and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
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Annual Report 2019 23
Emphasis of Matter – Change in Accounting Policy
We draw attention to Note 3 (r) to the financial statements which indicates that the Entity
has changed its accounting policy for leases, as a result of the adoption of IFRS 16, Leases,
and has applied that change using the modified retrospective method.
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditors’ report thereon,
included in a document likely to be entitled “Glossy Annual Report”.
Our opinion on the consolidated financial statements does not cover the other information
and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to
read the other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge
obtained in the audit and remain alert for indications that the other information appears to
be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with
the relevant Canadian Securities Commissions as at the date of this auditors’ report. If,
based on the work we have performed on this other information, we conclude that there is
a material misstatement of this other information, we are required to report that fact in the
auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon,
included in a document likely to be entitled “Glossy Annual Report” is expected to be made
available to us after the date of this auditors’ report. If, based on the work we will perform
on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance
for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with International Financial Reporting Standards (IFRS), and for
such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
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Annual Report 2019 24
In preparing the financial statements, management is responsible for assessing the Entity’s
ability to continue as a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends
to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial
reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we
exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management
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Annual Report 2019 25
Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Entity's
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditors’ report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditors’
report. However, future events or conditions may cause the Entity to cease to continue
as a going concern.
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
Provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the group Entity to express an opinion on the
financial statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Matthew Betik.
Waterloo, Canada
March 3, 2020
www.hammondmfg.com
Annual Report 2019 26
HAMMOND MANUFACTURING COMPANY LIMITED
Note
2019
2018
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at December 31,
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
Right-of-use assets
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
Current portion of lease liabilities
Total current liabilities
Non-current liabilities:
Employee future benefits
Long-term debt
Lease liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity:
4
5
6
7
8
9
10
11
14
15
16
12
8
16
12
8
15
17
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total equity
Subsequent events
Commitments
Contingency
Total liabilities and equity
12
19
20 & 26
$
719
19,107
-
41,426
1,800
63,052
$
625
19,054
453
40,185
1,312
61,629
31,712
314
14,434
1,044
846
48,350
37,059
284
-
1,044
797
39,184
$
111,402
$
100,813
$
4,393
16,362
181
145
73
18,640
2,726
42,520
$
7,599
15,728
-
124
71
17,955
-
41,477
192
-
10,806
100
3,054
14,152
56,672
10,249
290
2,441
41,750
54,730
209
5,656
-
100
1,970
7,935
49,412
10,249
290
3,407
37,455
51,401
$
111,402
$
100,813
The notes on pages 31 to 67 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2019 27
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars, except earnings per share)
For The Years Ended December 31,
Note
2019
2018
Net product sales
Cost of sales
Gross profit
Selling and distribution
General and administrative
Research and development
(Gain) Loss on disposal of property, plant and equipment
Income from operating activities
Interest expense
Interest expense leases
Foreign exchange gain (loss)
Net finance income (expense)
Share of profit (loss) of equity accounted investees
Share of expenses from investment property
Income before income tax
Income tax expense
Net income for the year
13
13
10
9
21
$ 148,592
$ 145,602
103,064
45,528
32,259
5,486
294
20
7,469
(1,145)
(605)
626
(1,124)
56
(119)
6,282
1,533
4,749
102,176
43,426
30,030
5,341
371
(29)
7,713
(1,414)
-
(1,122)
(2,536)
(36)
(89)
5,052
1,288
3,764
Other comprehensive gain (loss):
Foreign currency translation differences for foreign
operations
(966)
1,532
Other comprehensive income (loss) for the year, net of income
tax
(966) 1,532
Total comprehensive income for the year
$ 3,783
$ 5,296
Earnings per share
Basic earnings per share
Diluted earnings per share
22
22
$ 0.42
$ 0.42
$ 0.33
$ 0.33
The notes on pages 31 to 67 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2019 28
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Changes in Equity
For the years December 31, 2019 and December 31, 2018
(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, 2018
$
10,249
$
290
$
1,875
$
34,143
$
46,557
Net income for the year
Other comprehensive income:
Foreign currency translation differences
Total comprehensive income for the year
Transactions with owners, recorded directly in equity:
Dividends to equity holders
-
-
-
-
-
3,764
3,764
1,532
-
1,532
1,532
3,764
5,296
-
(452)
(452)
-
-
-
Balance at December 31, 2018
$
10,249
$
290
$
3,407
$
37,455
$
51,401
Balance at January 1, 2019
$
10,249
$
290
$
3,407
$
37,455
$
51,401
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
-
-
-
-
-
-
-
-
-
4,749
4,749
(966)
-
(966)
(966)
4,749
3,783
-
(454)
(454)
Balance at December 31, 2019
** Accumulated other comprehensive income (loss)
$
10,249
$
290
$
2,441
$
41,750
$
54,730
The notes on pages 31 to 67 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2019 29
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
For the Years Ended December 31,
2019
2018
Cash flows from operating activities
Net income for the year
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Depreciation of leased assets
Interest expense
Interest expense on leases
Income tax expense
(Gain) Loss 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 operating activities
Interest paid
Income tax paid
Net cash generated (used) from operating activities
Cash flows from financing activities
Bank indebtedness
Payment of long-term debt
Payment of lease liabilities
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 (decrease) in cash
Cash at beginning of year
Foreign exchange gain (loss) on cash and cash
equivalents in a foreign currency
Cash at end of year
$
4,749
$
3,764
3,485
48
2,537
1,145
605
1,533
20
15
(49)
14,088
(1,395)
(436)
(495)
764
12,526
(996)
177
11,707
(3,202)
(1,276)
(3,384)
346
(454)
(7,970)
109
(2,868)
(81)
(2,840)
897
625
2,741
53
548
1,414
-
1,288
(29)
10
(43)
9,746
(5,232)
(2,181)
(117)
2,289
4,505
(1,300)
(1,851)
1,354
1,875
(1,336)
-
7,764
(452)
7,851
44
(10,595)
(63)
(10,614)
(1,409)
1,051
(803)
983
$
719
$
625
The notes on pages 31 to 67 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2019 30
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(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, 2019 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, the Netherlands, 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 3, 2020.
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, Netherlands, Taiwan and Australia are the US dollar, the British pound sterling,
Euro, 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
www.hammondmfg.com
Annual Report 2019 31
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
amount of assets, liabilities, income and expense. Actual results may differ from these
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 expected credit losses (“ECLs”) of accounts
receivable balances based on customer 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) 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.
www.hammondmfg.com
Annual Report 2019 32
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
viii) 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 recorded in the current year.
ix) 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 prior to January 1, 2019 under IAS 17 and IFRIC 4
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) Leases under IFRS 16 from January 1, 2019
The Company exercises judgement as to whether it is likely to extend the term of the lease
when the option is provided. The Company also utilizes a discounted interest rate in the
lease that is readily available or the Groups incremental borrowing rate. The group also
utilizes its best estimate of any costs to dismantle and remove the asset at the end of the
lease.
iv) 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.
v)
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.
www.hammondmfg.com
Annual Report 2019 33
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(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, Hammond Electronics B.V. 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 determines revenue recognition through the following steps: a) identification of
the contract with a customer, b) identification of the performance obligations in the contract, c)
determination of the transaction price, d) allocation of the transaction price to the performance
obligations in the contract and e) recognition of revenue when the Company satisfies a
performance obligation.
The Company principally generates revenue through the manufacturing and sale of industrial
enclosures, electronic enclosures, racks and cabinets, transformers and other products.
Revenue is recognized when control of a product is transferred to a customer. This is generally
at the point in time when product is available for physical delivery, and the customer has legal
title to, physical possession of (or through their carrier), and the risks and rewards of ownership
of the product have transferred; therefore, the customer is able to direct the use of and obtain
substantially all of the benefits of the product. There is only a single performance obligation,
except for where delivery is provided by Hammond after the point of transfer.
Revenue is measured based on the consideration specified in a contract with a customer, net
of variable consideration, including rebates, returns and discounts. Rebates are accrued using
sales data and rebate percentages specific to each customer contract. Accruals for sales returns
are calculated based on the best estimate of the amount of product that will ultimately be
returned by customers. All customer receivables are expected to be paid within one year and
therefore the Company does not adjust for the effects of a financing component.
Contract liabilities are recorded when cash payments are received or due in advance of the
Company’s performance.
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
www.hammondmfg.com
Annual Report 2019 34
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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. Costs include expenditures that are 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
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
For lease classification prior to January 1, 2019 under IAS 17 and IFRIC 4 before the adoption
of IFRS 16, 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.
www.hammondmfg.com
Annual Report 2019 35
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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,
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 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
www.hammondmfg.com
Annual Report 2019 36
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
CGUs that are expected to benefit from the synergies of the business combination. 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.
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 assets and financial liabilities:
Financial assets are initially measured at fair value. On initial recognition, the Company
classifies its financial assets at either amortized cost, fair value through other comprehensive
income or fair value through profit or loss, depending on its business model for managing the
financial assets and the contractual cash flow characteristics of the financial assets. Financial
assets are not reclassified subsequent to their initial recognition, unless the Company changes
its business model for managing financial assets.
A financial asset is measured at amortized cost if it meets both of the following conditions: a)
the asset is held within a business model whose objective is to hold assets to collect contractual
cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amount outstanding.
Financial liabilities are initially measured at fair value, net of transaction costs incurred. They
are subsequently carried at amortized cost using the effective interest rate method; any
difference between the proceeds (net of transaction costs) and the redemption value is
recognized as an adjustment to interest expense over the period of the borrowings.
Financial liabilities include bank indebtedness, trade and other payables and long-term debt.
m) Impairment:
i) Financial assets:
ECLs are recognized on all financial assets not carried at fair value through profit or loss.
Expected credit losses are based on the difference between the contractual cash flows due
in accordance with the contract and all the cash flows that the Company expects to receive,
discounted at an approximation of the original effective interest rate.
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Annual Report 2019 37
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
ECLs are recognized in two stages. For credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs are provided for credit losses
that result from default events that are possible within the next 12-months. For those credit
exposures for which there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses expected over the remaining life
of the exposure, irrespective of the timing of the default.
For trade receivables and contract assets, the Company applies a simplified approach in
calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead
recognizes a loss allowance based on lifetime ECL at each reporting date. The Company
has established a provision matrix that is based on its historical credit loss experience,
adjusted for forward looking factors specific to the debtors and the economic environment.
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
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, 2019 and December 31, 2018, 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
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Annual Report 2019 38
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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.
n) 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
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.
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Annual Report 2019 39
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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.
o) Segment reporting:
The continuing operations of the Company are in one operating segment, electrical and
electronic components.
p) Finance costs:
Finance costs consist of interest on borrowings and finance leases.
q) 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.
r) 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.
IFRS 16 Leases
On January 13, 2016, the IASB issued IFRS 16 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.
Effective January 1, 2019, the Company initially applied IFRS 16 Leases utilizing a modified
retrospective approach. Under this approach, the cumulative effective of initial application is
www.hammondmfg.com
Annual Report 2019 40
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
recognized in retained earnings. Accordingly, the comparative information presented for 2018 is
not restated and continues to be reported under IAS 17 and related interpretations. The
disclosure requirements in IFRS 16 have not been applied to comparative information.
On transition, the Company has applied the practical expedient to ‘grandfather’ their previous
assessment of which existing contracts are, or contain, a lease. By applying this expedient the
Company has applied IFRS 16 only to leases previously identified as containing a lease. This
expedient only applies on initial application, and therefore any contracts entered or modified
after January 1, 2019 will be evaluated under IFRS 16.
The Company previously classified leases as operating or finance leases based on its
assessment of whether the lease transferred significantly all of the risk and rewards incidental
to ownership of the underlying asset to the Company. Under IFRS 16, the Company instead
recognizes right-of-use assets and lease liabilities for most of these leases.
On transition, for leases previously classified as operating leases under IAS 17 the Company
recognized a lease liability measured at the present value of the remaining lease payments,
discounted at the Company’s incremental borrowing rate as of January 1, 2019. The Company
elected to measure the right-of-use asset at an amount equal to the lease liability, adjusted for
any prepaid or accrued lease payments.
The Company has tested its right-of-use assets for impairment on the date of transition and
concluded there is no indication of impairment.
At commencement or modification of a contract that contains a lease component, the Company
has elected not to separate non-lease components and account for the lease and associated
non-lease components as a single lease component.
The Company has elected to apply the following accounting practical expedients when applying
IFRS 16 to leases previously classified as operating leases:
- For short term leases less than 12 months, the company did not recognize a right-of-use
asset or lease liability. This election is available by asset class;
- For low-value assets under lease – under $5,000 – the company did not recognize a right-of-
use asset or lease liability. This election can be applied on a lease by lease basis;
- Excluded initial direct costs from the measurement of the right-of-use asset at the date of
initial application; and
- Used hindsight when determining the lease term.
Short term and low-value leases are expensed as incurred on a straight line basis.
For leases previously classified as finance leases under IAS 17, the carrying amount of the right-
of-use asset and lease liability at January 1, 2019 was determined at the carrying amount of the
lease asset and lease liability under IAS 17 immediately before that date.
As a result of adoption, as at January 1, 2019 the Company recognized a Right-of-use asset
of $8,004,000 and a Lease Liability of $8,004,000 in place of previously recognized
operating leases. No adjustments were made to opening retained earnings. When measuring
lease liabilities for leases that were classified as operating leases, the Company discounted the
lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average
rate applied is 5.30%. Further, as at January 1, 2019 $6,055,000 of property plant & equipment
relating to finance leases under IAS 16, along with the corresponding accumulated depreciation
www.hammondmfg.com
Annual Report 2019 41
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
of $1,498,000, were re-classed to right-of-use assets under IFRS 16. The related finance lease
obligations of $4,137,000, previously included within long-term debt, were re-classed to lease
liabilities. See note 6, note 8 and note 13.
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 has reviewed its tax positions in its consolidated financial statements for the annual
period beginning on January 1, 2019. The Company considers tax positions taken are
defendable and it is probable that the tax authorities will accept any uncertain tax treatment.
s) Leases:
The Group has applied IFRS 16 using the modified retrospective approach and therefore the
comparative information has not been restated and continues to be reported under IAS 17 and
IFRIC 4. The details of accounting policies under IAS 17 and IFRIC 4 are disclosed separately.
The policy applicable from January 1, 2019:
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A
contract is, or contains a lease if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. To assess whether a contract conveys
the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS
16.
The policy is applied to contracts entered into, on or after January 1, 2019.
As a Lessee:
At commencement or on modification of a contract that contains a lease component, the Group
allocates the consideration in the contract to each lease component on the basis of its relative
stand-alone prices.
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Annual Report 2019 42
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Group recognizes a right-of-use asset and a lease liability at the lease commencement
date. The right-of-use asset is initially measured at cost, which comprises the initial amount of
the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the
commencement date to the end of the lease term, unless the lease transfers ownership of the
underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset
reflects that the Group will exercise a purchase option. In that case the right-of-use asset will
be depreciated over the useful life of the underlying asset, which is determined on the same
basis as those of property and equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease
liability.
The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the interest rate implicit in the lease or, if that
rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the
Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various
external financing sources and makes certain adjustments to reflect the terms of the lease and
type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
- fixed payments, including in-substance fixed payments;
- variable lease payments that depend on an index or a rate, initially measured using the index
or rate as at the commencement date;
- amounts expected to be payable under a residual value guarantee; and
- the exercise price under a purchase option that the Group is reasonably certain to exercise,
lease payment in an optional renewal period if the Group is reasonably certain to exercise an
extension option, and penalties for early termination of a lease unless the Group is reasonably
certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Group’s estimate of the amount expected to be payable under
a residual value guarantee, if the Group changes its assessment of whether it will exercise a
purchase, extension or termination option or if there is a revised in-substance fixed lease
payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount
of the right-of-use asset has been reduced to zero.
The Group presents right-of-use assets that do not meet the definition of investment property in
‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the statement of
financial position.
www.hammondmfg.com
Annual Report 2019 43
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Short-term leases and leases of low-value assets:
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-
value assets and short-term leases, including IT equipment. The Group recognizes the lease
payments associated with these leases as an expense on a straight-line basis over the lease
term.
t) New standards and interpretations not yet adopted:
At the date of authorization of these financial statements, several new, but not yet effective,
Standards and amendments to existing Standards, and Interpretations have been published by
the IASB. None of these Standards or amendments to existing Standards have been adopted
early by the Group and it is still to be determined if any will have a material impact on the Group’s
financial statements.
Amendments to Hedge Accounting Requirements - IBOR Reform and its Effects on
Financial Reporting (Phase 1)
On September 26, 2019, the IASB issued amendments for some of its requirements for hedge
accounting in IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and
Measurement, as well as the related Standard on disclosures, IFRS 7 Financial Instruments:
Disclosures in relation to Phase 1 of IBOR Reform and its Effects on Financial Reporting project.
The amendments are effective for annual periods beginning on or after January 1, 2020. Early
adoption is permitted.
Amendments to References to the Conceptual Framework in IFRS Standards
On March 29, 2018 the IASB issued a revised version of its Conceptual Framework for Financial
Reporting (the Framework), that underpins IFRS Standards. The IASB also issued Amendments
to References to the Conceptual Framework in IFRS Standards to update references in IFRS
Standards to previous versions of the Conceptual Framework. Both documents are effective
from January 1, 2020 with earlier application permitted.
Definition of a Business (Amendments to IFRS 3)
On October 22, 2018, the IASB issued amendments to IFRS 3 Business Combinations, that
seek to clarify whether a transaction results in an asset or a business acquisition.
The amendments apply to businesses acquired in annual reporting periods beginning on or after
January 1, 2020. Earlier application is permitted.
Definition of Material (Amendments to IAS 1 and IAS 8)
On October 31, 2018, the IASB refined its definition of material and removed the definition of
material omissions or misstatements from IAS 8.
The following amendments were to be applied prospectively for annual periods beginning on or
after January 1, 2016, however, on December 17, 2015 the IASB decided to defer the effective
date for these amendments indefinitely. The amendments are effective for annual periods
beginning on or after January 1, 2020. Early adoption is permitted.
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Annual Report 2019 44
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture
On September 11, 2014 the IASB issued Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28). The amendments
were to be applied prospectively for annual periods beginning on or after January 1, 2016,
however, on December 17, 2015 the IASB decided to defer the effective date for these
amendments indefinitely. Adoption is still permitted.
4) Trade and other receivables:
Trade receivables
Employee receivables
Other receivables
Allowance for doubtful accounts
Trade and other receivables
December 31, 2019
December 31, 2018
$ 18,609
27
696
19,332
(225)
$ 19,107
$ 18,095
17
1,220
19,332
(278)
$ 19,054
The Company’s exposure to credit and currency risks, and impairment losses related to trade and
other receivables is disclosed in note 27.
5)
Inventories:
December 31, 2019
December 31, 2018
Raw materials and work-in-process
Finished goods
$ 12,052
29,374
$ 11,791
28,394
Inventories
$ 41,426
$ 40,185
Inventories carried at net realizable value
$ 1,215
$ 1,752
In 2019, raw materials, consumables and changes in finished goods and work in progress
recognized as cost of sales amounted to approximately $103,084,000 (2018 - $102,087,000). In
2019, the write-down of inventories to net realizable value was $396,000 (2018 - $408,000).
www.hammondmfg.com
Annual Report 2019 45
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(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, 2017
$
20,619
$
45,069
$
9,688
$
5,139
$
80,515
Additions
Disposals
Effect of movements in exchange rates
1,557
$
$
(215)
$
3
$
$
$
6,979
(954)
148
$
677
$
-
$
128
$
462
$
20
$
9,675
(1,169)
299
Balance at December 31, 2018
$
21,964
$
51,242
$
10,493
$
5,621
$
89,320
Reclass on Adoption of IFRS 16
$
-
$
(5,834)
$
(221)
$
-
(6,055)
Additions
Disposals
Effect of movements in exchange rates
$
$
$
201
(33)
(2)
$
$
$
2,085
(1,129)
(107)
$
$
$
338
(94)
(78)
$
$
$
244
(3,478)
(12)
$
2,868
(4,734)
(199)
Balance at December 31, 2019
$
22,130
$
46,257
$
10,438
$
2,375
$
81,200
At December 31, 2019, the amount of expenditures recognized in the carrying amount that were in
the course of construction is $9,266 (2018 - $5,200) in land and buildings, $241,388 (2018 -
$536,909) in machinery and equipment, $51,395 (2018 - $70,213) in tooling and $36,671 (2018 -
$nil) in office equipment.
Accumulated depreciation
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
Balance at December 31, 2017
$
6,278
$
31,636
$
7,124
$
4,848
$
49,886
Depreciation for the year
Disposals
Effect of movements in exchange rates
$
612
(206)
3
$
2,172
(948)
118
$
394
-
105
$
111
14
$
3,289
(1,154)
240
Balance at December 31, 2018
$
6,687
$
32,978
$
7,623
$
4,973
$
52,261
Reclass on Adoption of IFRS 16
$
-
$
(1,373)
$
(125)
$
-
(1,498)
Depreciation for the period
Disposals
Effect of movements in exchange rates
$
712
(33)
(2)
$
2,236
(1,007)
(78)
$
351
(87)
(67)
$
186
(3,478)
(8)
$
3,485
(4,605)
(155)
Balance at December 31, 2019
$
7,364
$
32,756
$
7,695
$
1,673
$
49,488
Carrying amounts
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
At December 31, 2017
$
14,341
$
13,433
$
2,564
$
291
$
30,629
At December 31, 2018
$
15,277
$
18,264
$
2,870
$
648
$
37,059
At December 31, 2019
$
14,766
$
13,501
$
2,743
$
702
$
31,712
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Annual Report 2019 46
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Depreciation of $3,485,000 (2018 - $3,289,000) was recorded in the consolidated statement of
comprehensive income (loss) as follows: cost of sales $3,153,000 (2018 – $3,029,000), selling and
distribution $153,000 (2018 – $181,000) and general and administrative $179,000 (2018 – $79,000).
7)
Intangible assets and goodwill:
Cost
Goodwill
Computer
software
Development
costs
Total
Balance at December 31, 2017
$
112
$
2,116
$
241
$
2,469
Additions
Effect of movement in exchange rates
$
-
4
$
4
7
$
59
-
$
63
11
Balance at December 31, 2018
$
116
$
2,127
$
300
$
2,543
Additions
Disposal
Effect of movement in exchange rates
$
-
-
(2)
$
47
(1,187)
(4)
$
34
-
-
$
81
(1,187)
(6)
Balance at December 31, 2019
$
114
$
983
$
334
$
1,431
Amortization
Goodwill
Computer
software
Development
costs
Total
Balance at December 31, 2017
$
-
$
2,010
$
190
$
2,200
Amortization for the year
Effect of movement in exchange rates
-
$
-
$
23
6
$
30
-
$
53
6
Balance at December 31, 2018
$
-
$
2,039
$
220
$
2,259
Amortization for the period
Disposal
Effect of movement in exchange rates
-
$
-
-
$
16
(1,187)
(3)
$
32
-
-
$
48
(1,187)
(3)
Balance at December 31, 2019
$
-
$
865
$
252
$
1,117
Carrying amounts
At December 31, 2017
At December 31, 2018
At December 31, 2019
Goodwill
Computer
software
Development
costs
Total
$
112
$
106
$
51
$
269
$
116
$
88
$
80
$
284
$
114
$
118
$
82
$
314
All the intangible assets have been externally acquired. Amortization expense of $48,000 (2018 -
$53,000) was recorded in the consolidated statement of comprehensive income (loss) as follows:
cost of sales $36,000 (2018 – $53,000) and general and administrative $12,000 (2018 – $nil).
www.hammondmfg.com
Annual Report 2019 47
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(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, 2019.
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 5.5%. 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, 2019 and
December 31, 2018, the assets, including goodwill of $114,000 (2018 - $116,000), of the Company’s
wholly owned subsidiary, Hammond Electronics Limited, were tested and no impairment was found.
8) Leases:
Buildings Machinery
and
equipment
Tooling
Office
equipment
Trucks
and
Vehicles
Total
Balance at December 31, 2018
$
-
$
-
$
-
$
-
$
-
$
-
Reclass on Adoption of IFRS 16
$
-
$
5,834
$
221
$
-
$
-
$
6,055
IFRS 16 Transition January 1, 2019
Additions
Effect of movements in exchange rates
$
6,997
3,659
(74)
$
58
236
8
-
$
-
-
76
$
-
-
$
873
587
(2)
$
8,004
4,482
(68)
Balance at December 31, 2019
$
10,582
$
6,136
$
221
$
76
$
1,458
$
18,473
Accumulated depreciation
Buildings Machinery
and
equipment
Tooling
Office
equipment
Trucks
and
Vehicles
Total
Balance at December 31, 2018
$
-
$
-
$
-
$
-
$
-
$
-
Reclass on Adoption of IFRS 16
$
-
$
1,373
$
125
$
-
$
1,498
Depreciation for the period
Effect of movements in exchange rates
$
1,476
3
$
526
1
$
45
-
$
43
-
$
447
-
$
2,537
4
Balance at December 31, 2019
$
1,479
$
1,900
$
170
$
43
$
447
$
4,039
Carrying amounts
Buildings Machinery
and
equipment
Tooling
Office
equipment
Trucks
and
Vehicles
Total
At December 31, 2018
$
-
$
-
$
-
$
-
$
-
$
-
At December 31, 2019
$
9,103
$
4,236
$
51
$
33
$
1,011
$
14,434
www.hammondmfg.com
Annual Report 2019 48
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Depreciation of $2,537,000 (2018 - $548,000) was recorded in the consolidated statement of
comprehensive income (loss) as follows: cost of sales $1,181,000 (2018 – $548,000), selling and
distribution $1,047,000 (2018 – $nil) and general and administrative $309,000 (2018 – $nil).
Total Lease obligations:
Total Leases
Less current portion due in the next 12 months
December 31,
2019
13,532
2,726
January 1,
2019
12,141
3,082
December 31,
2018
4,137
1,081
Non-current leases
$ 10,806
$ 9,059
$ 3,056
The Group leases warehouse and factory facilities. These leases typically run for a period of 5 years
with an option to renew the lease after that date. Lease payments generally are renegotiated every
five years to reflect market rentals an office and production building,
The warehouse and factory leases were entered into many years ago as combined leases of land
and buildings. Previously, these were classified as operating leases under IAS 17
The group leases automobiles with a typical lease period of 3 years. The company provides for a
guaranteed residual value when the vehicle is turned in.
The groups fleet trucks a generally leased for a five year term after which they are turned in. The
lease rates for the trucks are a fixed rate plus a variable charge per kilometer driven. The variable
charge is excluded from the initial measurement of the lease liability and asset. The variable charge
is expensed in the month it is incurred.
The group has a lease in which has not yet commenced. It is for the remaining space available in
one of our existing leased warehouse facilities. The group should take possession in the first quarter
of 2020 and the estimated value is $1,415,000.
The lease liabilities are secured by the related underlying assets. Future minimum lease payments
at December 31, 2019 were as follows:
Minimum lease payments due
Current 1-2 Years 2-3 Years 3-4 Years 4-5 Years
After 5
Years
Total
December 31, 2019
Lease Payments
Finance Charge
Net Present Value
December 31, 2018
Lease Payments
Finance Charge
Net Present Value
3,241
(515)
2,726
1,219
(138)
1,081
2,563
(483)
2,080
1,011
(100)
911
Lease payments not recognized as a liability:
2,342
(394)
1,948
1,673
(314)
1,359
1,128
(260)
868
5,320
(769)
4,551
16,267
(2,735)
13,532
978
(66)
912
950
(30)
920
315
(2)
313
-
-
-
4,473
(336)
4,137
The group has elected not to recognize a lease liability for short term leases (leases with an expected
term of 12 months or less) or for leases of low value assets. Payments made under such leases are
www.hammondmfg.com
Annual Report 2019 49
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
expensed on a straight-line basis. In addition, certain variable lease payments are not permitted to
be recognized as lease liabilities and are expensed as incurred.
The expense relating to payments not included in the measurement of the lease liability is as follows:
Short Term leases
Leases of low values
Variable lease payments
Total
9)
Investment property:
December 31, 2019
$ 239
7
-
$ 246
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, 2018. No
independent valuation has been performed. The property is currently vacant and no income is being
derived from it. The Company’s direct operating expense in 2019 related to the property was
$119,000 (2018- $89,000).
10) Equity investment:
RITEC Enclosures Inc.
December 31, 2017
Equity in 2018 earnings
December 31, 2018
Equity in 2019 earnings
December 31, 2019
Total
$ 754
43
$ 797
49
$ 846
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 2019 50
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
For the years ended December 31,
2019
2018
RITEC Enclosures Inc.
Share of profit
Foreign exchange gain (loss)
Income tax expense
Equity investment earnings
Share of profit
$
58
$
2
(6)
(3)
41
-
$
49
$
43
$
58
$
2
Profit (Loss) in inventory movement
(2)
(38)
Share of profit (loss) of equity accounted investees
$
56
$
(36)
RITEC Enclosures Inc.
Assets
Liabilities
Revenues
Profit (after tax)
11) Bank indebtedness:
December 31, 2019 December 31, 2018
3,148
$
$
3,692
2,157
4,769
123
1,756
3,269
108
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 on each of the entities’ lines of credit.
Canadian entities CAD
GBP
UK entity
Bank indebtedness
December 31, 2019
December 31, 2018
Local currency
$ 4,000
£ 229
CAD
$ 4,000
393
$ 4,393
Local currency
$ 7,243
£ 204
CAD
$ 7,243
356
$ 7,599
Interest was payable at the rate of bank prime plus 50 basis points through August of 2018 and
subsequently at the rate of bank prime plus 25 basis points (2018 ending - bank prime plus 25 basis
points).
www.hammondmfg.com
Annual Report 2019 51
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
12) Long term debt:
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.
Demand term loan amortized over 7 years drawn in CAD funds at a fixed
interest rate of 4.43% through December 2025, secured by the assets
of HMCL. Monthly blended installments of $70 CAD.
Demand term loan amortized over 7 years drawn in CAD funds at a fixed
interest rate of 4.0% through December 2025, secured by the assets of
HMCL. Monthly blended installments of $26 CAD.
Interest free term loan of $385 CAD made in 2015, $1,150 CAD in 2016,
$958 CAD in 2017, $624 CAD in 2018 and $346 CAD in 2019 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
Less current portion of long-term debt
Non-current long-term debt
December 31,
December 31,
2019
2018
$ 1,830
$ 1,963
1,404
1,438
6,391
6,560
4,349
4,988
1,682
1,925
2,984
$ 18,640
18,640
$
-
2,600
$ 19,474
16,874
$ 2,600
The FEDEV interest free loan has all been classified as current. The company had breached its
covenant with FEDDEV by issuing dividends greater than $226,000 in a year. Subsequent to year
end the company has received a waiver from FEDDEV for the breach and has also amended the
agreement to allow dividends of up to $500,000 per year.
Prior to the adoption of IFRS 16 on January 1, 2019 Finance lease obligations were grouped with
long term debt. The following is the breakdown for December 31, 2018:
December 31, 2018
Long Term Debt
Finance Lease obligations
Total
less current portion
Non-current
19,474
16,874
2,600
4,137
1,081
3,056
Total
23,611
17,955
5,656
www.hammondmfg.com
Annual Report 2019 52
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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:
2020
2021
2022
2023
2024
Thereafter
13) Interest expense
$
1,732
1,815
1,901
7,605
1,798
3,789
$
18,640
December 31,
2019
December 31,
2018
Long Term debt, excluding capital finance leases
$
794
$
791
Bank indebtedness
Interest expense
351
350
$
1,145
$
1,141
Interest expense leases
$
605
$
273
Total Interest and Lease Interest expense
$
1,750
$
1,414
Reconciliation of movements of liabilities to cash flows arising from financing activities:
Bank
indebtedness
Finance Lease
Obligations
Long-term
debt
Lease
Liabilities
Total
Balance at December 31, 2018
$
-
$ 4,137
$ 19,474
$ 7,599
31,210
Adoption of IFRS 16 January 1, 2019
12,141
(4,137)
-
-
8,004
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of lease liabilities
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
-
(3,384)
-
(3,384)
605
605
-
-
-
-
-
-
Non-cash added liabilities
Foreign exchange impact
Balance at December 31, 2019
4,170
-
$ 13,532
-
-
$
-
346
-
(1,276)
(930)
794
(645)
(53)
96
-
-
$ 18,640
-
-
(3,202)
(3,202)
351
(351)
-
-
-
(4)
$ 4,393
346
(3,384)
(4,478)
(7,516)
1,750
(996)
(53)
701
4,170
(4)
$ 36,565
www.hammondmfg.com
Annual Report 2019 53
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
14) Trade and other payables:
Trade payables
Non-trade payables and accrued expenses
December 31, 2019
December 31, 2018
$ 6,577
9,785
$ 16,362
$ 4,902
10,826
$ 15,728
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed
in note 26.
15) Provisions:
Environmental
remediation
Sales returns
Total
Balance at December 31, 2017
$ 170
$ 45
$ 215
Provisions made during the year
Provisions used during the year
-
-
621
(612)
621
(612)
Balance at December 31, 2018
$ 170
$ 54
$ 224
Provisions made during the year
Provisions used during the year
-
-
773
(752)
773
(752)
Balance at December 31 , 2019
$ 170
$ 75
$ 245
Non-current
Current
100
70
-
75
100
145
Balance at December 31 , 2019
$ 170
$ 75
$ 245
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 four years which in turn has pushed the remediation plan out four 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 (2018 - $170,000)
with $70,000 (2018 - $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.
www.hammondmfg.com
Annual Report 2019 54
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
16) 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
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% (2018 – 3.5%) per annum health cost increase and a discount rate of 6.0% (2018 – 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 $17,000 (2018 - $19,000). Changes in assumptions resulted in nominal
gains/losses which have been included in general and administrative expense.
Post employment health benefits
December 31, 2019 December 31, 2018
$ 23
$ 25
Employee health benefits while on disability
240
257
Total employee future benefits
Post employment
health benefits
Balance at December 31, 2017
$ 20
$ 265
Employee health
benefits while on
disability
$ 270
Provisions made during the year
Provisions used during the year
9
(6)
50
(63)
$ 280
Total
$ 290
59
(69)
Balance at December 31, 2018
$ 23
$ 257
$ 280
Provisions made during the period
Provisions used during the period
9
(7)
37
(54)
46
(61)
Balance at December 31, 2019
$ 25
$ 240
$ 265
Non-current
Current
18
7
174
66
192
73
Balance at December 31, 2019
$ 25
$ 240
$ 265
www.hammondmfg.com
Annual Report 2019 55
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
17) Deferred tax assets and liabilities:
Unrecognized deferred tax liabilities:
At December 31, 2019, temporary differences of $20,555,000 (2018 - $19,900,000) 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:
December 31, 2019
December 31, 2018
Deferred tax assets
Investment property
Inventories
Loans and borrowings
Provisions
Other
Total deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Total deferred tax liabilities
Net tax liabilities
18) Share capital:
a) Authorized:
$ 8 $ 8
434 391
591 995
176 95
173
1,382
1,489
-
(4,436) (3,459)
(4,436) (3,459)
$ (3,054) $ (1,970)
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 2019 56
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
b)
Issued:
8,556,000 Class A shares (2018 - 8,556,000)
2,778,300 Class B shares (2018 - 2,778,300)
$
10,242
7
$
10,242
7
$
10,249
$
10,249
December 31, 2019 December 31, 2018
No shares were issued in 2019 or in 2018.
c) Dividends:
The following dividends were declared and paid by the Company:
Special cash dividends of $0.04 per Class A subordinate voting share were declared and paid
in 2019 (2018 – $0.04) and special cash dividends of $0.04 per Class B common share were
declared and paid in 2019 (2018 – $0.04).
Total dividends declared and paid in 2019 were $454,000 (2018 - $452,000).
19) Commitments:
The Company has contractual obligations for outstanding capital expenditures of $759,000 (2018 -
$519,000). These expenditures should be completed in the first half of 2020.
20) Contingency:
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 $3,500,000 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. The claim is expected to be set down for trial sometime in 2020. A trial date
has not yet been determined.
A third party statement of claim was issued on March 6, 2019, against the Company with respect
to an adjacent property to one of our Waterloo facilities. The claim alleges that contaminants
originating from our property have migrated to the adjoining property owned by the claimants. The
amount of the claim is estimated at $160,000 to $670,000. Our records do not show any spills of
chemicals at this location and 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 condensed
consolidated financial statements.
www.hammondmfg.com
Annual Report 2019 57
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
21) Income tax expense:
Current tax expense
$ 449 $ 603
December 31, 2019 December 31, 2018
Deferred tax expense:
Origination and reversal of temporary differences
Total income tax expense
Net income for the year
Total income tax expense
Income before income tax
1,084 685
$ 1,533
$ 1,288
2019
2018
$ 4,749
1,533
$ 6,282
$ 3,764
1,288
$ 5,052
Income tax using the Company’s domestic tax rate
26.50% 1,665
26.50% 1,339
Reduced rate for active business and manufacturing
and processing
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Other
22) Earnings per share:
(60)
(110)
42
(42)
(66)
29
(4)
24.40% $ 1,533
28
25.49% $ 1,288
The computations for basic and diluted earnings per share are as follows:
Net income for the year
Average number of common shares outstanding:
Basic and Diluted
Earnings per share:
Basic
Diluted
December 31,2019
$ 4,749
December 31,2018
$ 3,764
11,334,300
11,334,300
$ 0.42
0.42
$ 0.33
0.33
No share options to purchase common shares were outstanding as at December 31, 2019 or
December 31, 2018.
23) 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
2019
$ 43,790
4,670
2,510
1,489
$ 52,459
2019
$ 38,541
10,799
2,930
189
$ 52,459
2018
$ 44,912
4,908
2,536
1,349
$ 53,705
2018
$ 40,421
10,115
2,938
231
$ 53,705
www.hammondmfg.com
Annual Report 2019 58
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
24) Management share option plan:
As at December 31, 2019, the Company has a stock-based compensation plan, which is described
below. No options were granted through December 31, 2019 or in 2018 and no stock options were
outstanding as of January 1, 2018, 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.
25) 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
values due to the relatively short periods to maturity of the instruments.
The market values of financial assets and liabilities together with the carrying amounts shown in the
statements of financial position are as follows:
Assets carried at amortized cost
Cash
Trade and other receivables
Liabilities carried at amortized cost
Bank indebtedness
Trade and other payables
Term loans
Lease obligations
December 31, 2019
Carrying
amount
Fair value
December 31, 2018
Carrying
amount
Fair value
$ 719
19,107
$ 19,826
$ 719
19,107
$ 19,826
$ 625
19,054
$ 19,679
$ 625
19,054
$ 19,679
$ 4,393
16,362
18,640
13,532
$ 52,927
$ 4,393
16,362
18,240
13,385
$ 52,380
$ 7,599
15,728
19,474
4,137
$ 46,938
$ 7,599
15,728
18,892
4,025
$ 46,244
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, 2019
December 31, 2018
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
4.0%
4.3%
4.4%
4.5%
4.6%
4.6%
To
5.0%
5.4%
5.5%
5.5%
5.6%
5.6%
From
4.0%
4.5%
4.6%
4.7%
4.9%
5.1%
To
5.0%
5.6%
5.7%
5.7%
5.9%
6.1%
Rates fluctuate depending on currency and jurisdiction.
www.hammondmfg.com
Annual Report 2019 59
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
26) 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
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.
www.hammondmfg.com
Annual Report 2019 60
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
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
expected credit losses that could arise from the failure or inability of customers to make
payments when due. This allowance is determined based on historical data of payment statistics
for similar financial assets and historical credit losses, adjusted for forward looking factors,
specific to the debtor and the economic environment.
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, 2019
December 31, 2018
Cash and receivables:
Cash
Trade and other receivables
$ 719
19,107
$ 19,826
$ 625
19,054
$ 19,679
The maximum exposure to credit risk for cash and receivables at the reporting date by
geographic region was:
December 31, 2019
December 31, 2018
Cash and receivables:
Canada
US
UK
Australia
$ 10,955
7,681
1,064
126
$ 19,826
$ 10,727
7,652
1,190
110
$ 19,679
www.hammondmfg.com
Annual Report 2019 61
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The following table reflects the net details of trade receivables as at December 31, 2019 and
December 31, 2018:
December 31, 2019
December 31, 2018
Gross
Impairment
Carrying
value
Gross
Impairment
Carrying
value
Aging of trade receivables:
1 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
$ 8,722
7,698
1,665
524
-
$
-
-
225
$ 8,722 $ 8,764
7,245
1,733
353
7,698
1,665
299
-
$
-
-
278
$ 8,764
7,245
1,733
75
Trade receivables
$ 18,609
$
225
$ 18,384 $ 18,095
$
278
$ 17,817
The following table provides the roll forward of the allowance for doubtful accounts:
Allowance for doubtful accounts, beginning of year
December 31, 2019 December 31, 2018
155
$
$
278
Accounts provided for in the period
Amounts written off during the period
27
(80)
131
(8)
Allowance for doubtful accounts
$
225
$
278
Allowance for doubtful accounts as % of net
trade receivable
1.2%
1.5%
The following table provides the net details of trade and other receivables:
Net trade receivable
Employee receivables
Other receivable
December 31, 2019 December 31, 2018
$
18,384
27
696
$
17,817
17
1,220
Trade and other receivables
$
19,107
$
19,054
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
25 basis points (2018 - bank prime plus 25 basis points). The Company had available unused
credit facilities in the amount of $11,122,000 at December 31, 2019 (2018 - $7,901,000) to meet
fluctuations in working capital requirements.
The Group has established a $16,200,000 (2018 - $13,500,000) lease line to finance new
equipment purchases of which it has available $6,500,000 (2018 - $1,248,000).
www.hammondmfg.com
Annual Report 2019 62
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Group has available a $3,000,000 Capital Loan facility (2018 - $5,500,000) to assist in
financing a maximum of 80% of new equipment purchases.
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 $3,461,500 on eligible
spending. As at December 31, 2019, the group had received $3,461,500 of this funding (2018 -
$3,115,000). The present value of this funding $2,646,385 was set up as long term debt and
$815,115 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, 2019,
the Group had received $1,200,000 (2018 - $989,000) of this funding and has a receivable for
an additional $300,000 based on the eligible spending to date. The $1,500,000 has been offset
to property, plant and equipment.
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, 2019, 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, 2019
Carrying
amount
Contractual
cash flows
2020
2021
2022 to
2023
Thereafter
Non-derivative financial liabilities
Term loans
Lease obligations
$ 18,640 $ (19,059) $(19,059)
13,532
(16,218) (3,221) (2,551) (3,997) (6,449)
$ -
$ -
$ -
Trade and other payables 16,362
Bank indebtedness
(16,362) (16,362)
4,393 (4,393) (4,393)
- - -
- - -
Total
$ 52,927 $ (56,032) $(43,035) $ (2,551) $ (3,997) $ (6,449)
December 31, 2018
Carrying
amount
Contractual
cash flows
2019
2020
2021 to
2022
Thereafter
Non-derivative financial liabilities
$ 19,474 $ (19,989) $(16,874) $ (623) $ (1,246) $ (1,246)
Term loans
Finance lease obligations 4,137 (4,473) (1,218) (1,011) (1,929) (315)
Trade and other payables 15,728
Bank indebtedness
(15,728) (15,728)
7,599 (7,599) (7,599)
- - -
- - -
Total
$ 46,938 $ (47,789) $(41,419) $ (1,634) $ (3,175) $ (1,561)
www.hammondmfg.com
Annual Report 2019 63
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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.
The following chart depicts the foreign currency positions.
Currency
Accounts receivable
Dec 31, 2019 Dec 31, 2018
Accounts payable
Dec 31, 2019 Dec 31, 2018
Australia
Europe
New Zealand
Taiwan
UK
US
AUD
EURO
NZD
TWD
GBP
USD
Currency
26
94
52
107
658
5,678
40
33
78
182
748
5,523
(2)
(17)
-
(244)
(427)
(2,266)
(3)
(33)
-
(198)
(405)
(1,937)
Long-term debt
Dec 31, 2019 Dec 31, 2018
Lease Liabilities
Dec 31, 2019 Dec 31, 2018
UK
US
GBP
USD
(183)
(3,581)
(92)
(4,354)
(2,095)
(278)
(274)
(497)
Long-term debt and lease liabilities denominated in foreign currencies 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 2019 would
have increased net product sales by $610,000 (2018 - $629,000) and increased income
from operations by $661,000 (2018 - $679,000). Inversely, a one cent increase in the
Canadian dollar against the US dollar in 20198 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.
www.hammondmfg.com
Annual Report 2019 64
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Sensitivity Analysis:
A one percent increase in the variable rates charged on ending 2019 bank indebtedness
would increase annual interest expense by $44,000 (2018 - $76,000). This analysis
assumes that all other variables remain constant. Inversely, a one percent decrease in the
variable rates charged on ending 2019 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
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.
www.hammondmfg.com
Annual Report 2019 65
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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, 2019 and has been in compliance with its covenants through 2018 and 2019. There were
no changes to the Group’s approach to capital management during 2019. Neither the Company,
nor any of its subsidiaries, is subject to externally imposed capital requirements.
27) 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
Net product sales:
Canada:
Year ended:
December 31, 2019
December 31, 2018
Sales to customers
$ 58,242
$ 55,434
US:
Sales to customers
All other countries:
Sales to customers
Net product sales
Non-current assets:
Canada:
77,318
13,032
77,160
13,008
$ 148,592
$ 145,602
Non-current assets
$ 42,429
$ 37,425
US:
Non-current assets
All other countries:
Non-current assets
Non-current assets
Total
1,560
4,361
1,128
631
$ 48,350
$ 39,184
www.hammondmfg.com
Annual Report 2019 66
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
(tabular amounts (except share amounts) in thousands of Canadian dollars)
28) Related party transactions:
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, 2019
December 31, 2018
Salaries and short-term employee benefits
$ 770
$ 716
b) The Company purchased $3,390,000 of product from RITEC in 2019 (2018 - $3,870,000). The
Company sold $33,600 of product to RITEC in 2019 (2018 - $13,990). 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, 2019
were $4,663 (2018 - $8,111) while payables were $11,497 (2018 - $8,840). 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.
d) Consolidated entities:
HAMMOND MANUFACTURING COMPANY LIMITED
Country of
incorporation
% Ownership interest
December 31,
2019
December 31,
2018
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
Hammond Electronics B.V.*
UK
Taiwan
Netherlands
Hammond Manufacturing Company Inc. US
Subsidiaries of above:
Hammond Holdings Inc.
Paulding Electrical Products, Inc
US
US
* started March 7, 2019
100
100
100
100
100
100
100
100
100
100
100
100
N/A
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 2019 67
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Annual Report 2019 68
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Annual Report 2019 69
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www.hammondmfg.com
Annual Report 2019 70
Through
the Years
Hammond Rack and
Cabinet Division
celebrates 85 years.
2019
2017
Hammond
Celebrates 100
Years in Business
Guelph Operations
Expands with an
additional state-of-the-art
Manufacturing Facility.
2016
2000
Dry-Type Transformer Business
split off under new company,
Hammond Power Solutions.
Shares of Hammond power
solutions distributed as a
separate public company
Hammond goes
Public on Toronto
Stock Exchange
1986
1980’s
Hammond expands to the
UK opening in Basingstoke
Hammond
Manufacturing
re-branded to
current identify
1976
1955
New Factory built
on Speedvale/
Edinburgh Road
Added NEMA
Enclosures
1950
1930
Transition into
manufacture of
Transformers, Wire
Wound Resistors
and Broadcast
Racks/Cabinets
Hammond O.S. & Son -
built radios, amplifiers, and
battery eliminators
1927
Backyard Workshop - Charging
batteries, installing antennas,
custom machining
1917
Corporate Directory
1-877-535-3282 (Canada) | 1-800-526-2266 (USA) | www.hammondmfg.com | @hammondmfg
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 Marriage & Family Therapist
Officer & Director, Eramosa Group Ltd.
Officers / Senior Management
Robert F. Hammond
Chairman and CEO
Alexander Stirling
Secretary and CFO
Ray Shatzel
Vice-President, Electronic Sales
Ross N. Hammond
Assistant Secretary
*Michael Fricker
CFO of Qvella Corporation and Reunion Foods Inc.
*William Wiener
Chairman of the Board 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.
Auditors
KPMG LLP
RSM, UK
Bentleys SA Audit Partnership
Legal Counsel
Borden Ladner Gervais
Transfer Agent and Registrar
Computershare Investor
Services Inc.
*Members of the Audit Committee and Compensation Committee
Stock Listing
Toronto Stock Exchange
Symbol: HMM.A
Bankers
HSBC
Head Office
Hammond
Manufacturing
394 Edinburgh Rd N,
Guelph, ON, N1H 1E5
P. (519) 822 2960
F. (519) 822 0715
ir@hammfg.com
Québec
Les Fabrications
Hammond
(Québec) Inc.
985 Rue Bergar,
Laval, QC, H7L 4Z6
P. (450) 975 1884
F. (450) 975 2098
sales@hammfg.com
USA
Hammond
Manufacturing
Company Inc.
475 Cayuga Rd,
Cheektowaga, NY
14225
P. (716) 630 7030
F. (716) 630 7042
sales@hammfg.com
Australia
Hammond
Electronics Pty. Ltd.
11-13 Port Rd,
Queenstown
SA 5014
P. +61 8 8240 2244
F. +61 8 8240 2255
australia@hammfg.com
United Kingdom
Hammond
Electronics Ltd.
1 Onslow Close,
Kingsland Business Park,
Basingstoke, Hampshire,
RG24 8QL, England
P. +44 1256 812812
F. +44 1256 332249
sales@hammond-electronics.co.uk
HM- 2020 -18AnnualReport