2020
ANNUAL REPORT
Over 100 Years
& Four Generations
Server Racks and Cabinets
Electrical Enclosures
Power Distribution
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
2020 Annual Report
4
5
Report to Shareholders
Management Discussion and Analysis
26 Management’s Responsibility for Financial Reporting
27
32
33
34
35
36
76
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 2020 3
REPORT TO SHAREHOLDERS
Dear fellow shareholders, employees, and stakeholders:
We are pleased to report our 2020 results.
Business levels strengthened toward the end of the year and a number of exceptional events contributed
to an unusually good quarterly profit.
The main contributor was a COVID-19 relief payment under the Canadian Emergency Wage Subsidy
(CEWS) program of $2,308,000. This related to our decision to avoid layoffs during the depths of the
COVID-19 shutdowns and maintain full employment.
We continue to manage for growth during the COVID-19 situation. We are increasing employment and
buying new equipment while operating with an aggressive protocol of COVID defense.
Our outlook for the quarters ahead are for continued growth in North American and European markets
as the markets recover.
We continue to build long term security and success for all our associates and want to express our
appreciation for everyone’s involvement in the year’s success
Sincerely,
Robert F. Hammond
Alex Stirling
Chairman & CEO
CFO
ANNUAL MEETING
The meeting of the Shareholders will be held on
April 26, 2021 at
Hammond Manufacturing Company Limited
394 Edinburgh Rd North, Guelph, Ontario
Commencing at 10:00 a.m.
www.hammondmfg.com
Annual Report 2020 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, 2020. This discussion should be read in conjunction with the Company’s
consolidated financial statements for the year ended December 31, 2020 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 8, 2021.
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 2020 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. The intent is to minimize any disruption to
our European channels due to BREXIT. In October of 2020 the Company officially started utilizing this
entity for business in Europe.
OPERATIONS
Coronavirus (COVID-19) has taken the headlines for 2020. Operations at all our facilities had to react
quickly at the onset of the Pandemic. Procedures, guidelines and physical changes all needed to be
implemented timely to ensure our work places remained safe for our employees. It remains an ongoing
process of review and adjustment as the situation continues to unfold. Our products are deemed
essential so we were able to keep our doors open and production going. At the onset of the crisis we
had a number of employees who had taken leave of absences in order to care for children or parents,
out of precaution due to exposure to family members or in some cases just fear of the situation. In our
main production facilities in Guelph we had experienced as high as a 20% reduction in work force due
to COVID-19 related absences. For the most part most employees are all back at work at this time.
The Company applied for the Canadian Emergency Wage Subsidy (CEWS) to assist with the situation.
At the time of this report the Company had received $2,308,000 in federal assistance for the 2020 year.
This year the Company has successfully renewed the employee association agreement until November
27, 2023 for our Guelph area work force.
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
have begun construction of a water tank system that would allow us to properly sprinkler the facility. The
expected cost for this system for the facility is approximately $1,100,000.
www.hammondmfg.com
Annual Report 2020 6
MANAGEMENT DISCUSSION AND ANALYSIS
QUARTERLY INFORMATION
HAMMOND MANUFACTURING COMPANY LIMITED
Summary of Quarterly Financial Information
(In thousands of Canadian dollars except earnings per share)
Q1
Q2
Q3
Q4
2020
Year-to-date
Total
Net product sales
$39,641
$34,137
$35,581
$38,864
$148,223
Income from operating activities
Net income for the period
Earnings per share
- Basic & diluted
2,284
570
$0.05
2,604
1,810
$0.16
1,314
921
$0.08
5,480
4,423
$0.39
11,682
7,724
$0.68
Net product sales
$38,056
$38,262
$37,229
$35,045
$148,592
Q1
Q2
Q3
Q4
2019
Year-to-date
Total
Income from operating activities
Net income for the period
2,511
1,726
2,010
1,217
1,768
839
1,180
967
Earnings per share
- Basic & diluted
Note: Interim consolidated financial information has not been reviewed by an auditor.
$0.15
$0.07
$0.11
$0.09
7,469
4,749
$0.42
FOURTH QUARTER RESULTS
NET PRODUCT SALES
Overall a strong sales quarter as we returned to levels more in line with pre COVID activity. Net product
sales for the three months ended December 31, 2020 were $38,864,000, up 9.2% compared to net
product sales of $35,581,000 in the third quarter of 2020. North America, which comprises over 91% of
sales, was up just over 9.2% in both the Canadian and the US markets. Our European sales were up
7% over the previous quarter and may have been helped by distributors bolstering there inventories
before the BREXIT transition on January 1, 2021. The foreign exchange impact this quarter lowered
sales by approximately $197,000 as the Canadian dollar continued to strengthen against the USD. Days
of available sales was up 1 day to 63 over last quarter that could add upwards of $600,000 to sales
although the holiday season does make this measurement a bit suspect.
Net product sales for the current quarter were up 10.9% compared to net product sales of $35,045,000
for the three months ended December 31, 2019. The fourth quarter of 2019 was the lowest in 2019 by
over $2,000,000. This quarter was helped by having 63 sale days’ vs 61 sale days in the fourth quarter
of 2019. This could account for approximately $1,200,000 of the additional $3,819,000 in sales. Foreign
exchange compared to the fourth quarter of 2019 also provided currency gain of $272,000 while price
increase are estimated to have a upside of $350,000. The remaining $2,408,000 is all from improved
market conditions and more indicative of what we saw in the first three quarters of 2019.
GROSS PROFIT
Gross profit of $14,641,000 for the fourth quarter of 2020 was 37.7% of net sales compared to 29.8% in
the third quarter of 2020. CEWS lowered reported production expenses in the fourth quarter by
www.hammondmfg.com
Annual Report 2020 7
MANAGEMENT DISCUSSION AND ANALYSIS
$1,850,000. This brings the comparative gross profit to 32.9%. This year some of our major distributors
failed to attain their expected sales milestones for certain rebates. The release of the reserve for these
had an impact on gross profit of approximately $450,000 (or 1.2%). Shop floor production levels were
up this quarter providing improved absorption levels that contributed approximately $350,000 (or 0.9%)
toward the improved gross profit. This year we experienced a pickup in our annual physical inventory
that added approximately $330,000 (or 0.8%) upside to the quarter. Spend relating to COVID-19 safety
measures was approximately $99,000 in this quarter. This cost does not reflect the countless hours of
our team’s time managing the situation.
Gross profits adjusted for CEWS of 32.9% are up from the fourth quarter of 2019 level of 31.1%. Foreign
exchange provided an upside of approximately $270,000 (or 0.7%) while the remainder of the difference
can be attributed to the release of the rebate reserve noted above.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE, RESEARCH AND
DEVELOPMENT (“R&D”) EXPENSES AND LOSS ON DISPOSAL OF PROPERTY, PLANT
AND EQUIPMENT
Fourth quarter selling and distribution, general and administrative, R&D expenses and loss on the
disposal of property plant and equipment of $9,161,000 was 23.6% of net sales for the three months
ended December 31, 2020. This compared with spending of $9,275,000 in the previous quarter that was
26.1% of net sales. Foreign exchange impact lowered expenses by approximately $33,000 compared
to last quarter. The fourth quarter of 2019 saw spending levels of $9,730,000 which was 27.8% of net
sales. Foreign exchange increased the expense levels approximately $46,000 over this comparative
period. The recognition of CEWS lowered expenses in this quarter by $458,000 (or 1.2%).
Selling and distribution spending in the fourth quarter of 2020 was $7,927,000 (20.4% of net product
sales). The impact of CEWS was $356,000 (or 0.9% of net product sales). The prior quarter spend was
$7,865,000 (or 22.4% of net product sales). Net product sales grew 9.2% while expenses only grew
5.1% with the CEWS impact removed. The fixed components of selling and distribution expenses
account for the difference.
Selling and distribution spending in the fourth quarter of 2019 was $8,085,000 (23.1% of net product
sales). Despite sales being up 10.9%, selling and distribution expenses are only up 2.5%. The
restrictions from COVID has reduced the fourth quarter spend of Marketing, Travel and Entertainment
from a 2019 fourth quarter spend of $991,000 to $610,000 in the fourth quarter of 2020. Our insurance
rates for our Canadian distribution center increased significantly in December of last year as the insurer
cited the risk of not having a sprinkler system. The increased cost is approximately $113,000 per quarter.
The additional warehouse space added in the first quarter of this year has also added an additional
$93,000 per quarter.
General and administrative expenses of $1,184,000 included $90,000 upside from CEWS. Spend of
$1,274,000 before CEWS compares to the previous quarter’s spending of $1,281,000. Directors fees
included the annual retainer of $120,000 was paid but offset by a $20,000 reduction in computer related
hardware and $53,000 lower legal and consulting fees.
In the fourth quarter of 2019 general and administrative expenses of $1,550,000 included just over
$200,000 in severance expenses and $32,000 of social benefits related to yearend holiday celebrations
that did not take place in 2020.
This quarter includes Research and development spend of $81,000 was down from the previous quarter
spend of $109,000. CEWS accounts for $12,000 of this drop. The third quarter includes $9,000 spend
www.hammondmfg.com
Annual Report 2020 8
MANAGEMENT DISCUSSION AND ANALYSIS
on computer hardware and $17,000 less spend on CSA approvals. Compared to the fourth quarter 2019
spend of $64,000 this quarter was up $29,000 excluding CEWS. Wages and benefits were up $10,000,
while CSA approval expenses were up $14,000.
This quarter we had a net gain of $31,000 on disposal of property, plant and equipment.
INCOME FROM OPERATING ACTIVITIES
This quarter income from operating activities was $5,480,000 (14.1% of net product sales), without
CEWS it would have been $3,173,000 (8.2% of net product sales). This is up from the prior quarter of
$1,314,000 (3.7% of net product sales) and up from the 2019 fourth quarter amount of $1,180,000 (3.4%
of net product sales).
INTEREST
Fourth quarter interest expense on bank indebtedness and loans was $225,000 compared to an
expense of $281,000 for the fourth quarter 2019.The comparative loan base has dropped throughout
the year and is down just over $3.4 million from the end on 2019 to 2020.
Interest expense is comprised as follows:
Three Months Ended:
December 31, 2020 December 31, 2019
Long Term debt, excluding capital finance leases
$
204
$
209
Bank indebtedness
Interest expense
Interest expense leases
21
72
$
225
$
281
$
215
$
78
Total Interest and Lease Interest expense
$
440
$
359
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
During the fourth quarter of 2020, the Company recognized a gain on transactional foreign exchange of
$897,000 compared to a gain of $357,000 in the three months ended December 31, 2019. The spot rate
at the opening of the fourth quarter of 2019 was 1.00 USD to 1.3249 CAD. The closing spot rate for
2019 was 1.00 USD to 1.2988 CAD. In 2020 the fourth quarter spot rate opened at 1.00 USD to 1.3396
and closed at 1.00 USD to 1.2732 CAD. The intercompany balance payable to our US entity accounts
for approximately $615,000 of the $897,000 gain in the fourth quarter of 2020 compared to the
intercompany impact gain of approximately $185,000 in the fourth quarter of 2019. 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
Fourth quarter taxes of $1,439,000 is 24.5% of income before taxes. In 2019 the final true up for the
year’s activities combined with a low income before tax provided for tax expense of $230,000 (19.2% of
income before tax).
NET INCOME FOR THE PERIOD
Net income of $4,423,000 (11.4% return on net product sales) was recognized for the fourth quarter
ended December 31, 2020. If we adjust for CEWS net income for the quarter would have been
www.hammondmfg.com
Annual Report 2020 9
MANAGEMENT DISCUSSION AND ANALYSIS
$2,115,000 (5.4% return on net product sales). This is up from a net return of $921,000 (2.6% return on
net product sales) in the previous quarter and up from the net return of $967,000 (2.8% return on net
product sales) recognized in the fourth quarter of 2019.
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
The translation adjustment for the fourth quarter of 2020 was a loss of $1,040,000 compared to a
translation loss of $288,000 in the fourth quarter of 2019. The Canadian dollar strengthening against our
foreign entity currencies provided a negative impact from foreign currency translation.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for the fourth quarter ended December 31, 2020 was $3,383,000 (8.7% of net
product sales) up from the 3 months ended December 31, 2019 of $679,000 (1.9% of net product sales)
and up from the previous quarters total comprehensive income of $504,000 (1.4% of net product sales).
FULL YEAR RESULTS
NET PRODUCT SALES
Net product sales of $148,223,000 in 2020 were flat compared to net sales of $148,592,000 reported in
2019. Foreign exchange had a positive impact on the year over year reporting by approximately
$1,059,000 (0.7%). Pricing is estimated to have had a positive impact of roughly $1,114,000 (0.8%),
therefore sales were actually down 1.5% in constant dollars. 2020 started out strong but fell off in the
second and third quarters, we are attributing this primarily to the fallout from COVID-19. The fourth
quarter returned to sales levels more indicative of the levels seen before COVID-19 hit. Our Canadian
market was down 4.7% while the US was up 2.9% (on a USD basis). Our European markets were down
11.9% with COVID-19 and BREXIT having a negative effect on sales levels in these markets.
GROSS PROFIT
In 2020, gross profit was $49,170,000 or 33.2% of net product sales compared to $45,528,000 or 30.6%
achieved in 2019. If we remove the impact of CEWS ($1,850,000) the gross profit would be 31.9%. The
positive impact of foreign exchange and cost reductions have helped increase the margins over 2019.
Spend relating to COVID-19 safety measures this year is approximately $277,000. This only reflects the
direct expenses and not the time and effort put in by staff members to make manage the situation.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE, RESEARCH AND
DEVELOPMENT (“R&D”) EXPENSES AND LOSS 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 $37,488,000 (25.3% of net product sales) was down 1.5%
compared to the 2019 spend of $38,059,000 (25.6% of net product sales). CEWS provided a cost
reduction of $458,000 (or 0.3% of net product sales). Foreign exchange had the impact of increasing
the reported expense levels in 2020 by approximately $178,000 compared to the cost base in 2019.
Selling and distribution expenses of $31,907,000 decreased $352,000 or 1.1% compared to 2019.
CEWS accounts for $356,000 of this reduction. Foreign exchange had the impact of increasing
comparative costs by $161,000. With the restrictions of COVID-19 we saw our marketing and advertising
expenses drop by $540,000 along with a decline in travel meals and entertainment declined by
$514,000. Representative commissions were also down $130,000. These cost reductions were offset
by the following cost increases. Wages and Salaries were up $346,000. We took some additional
warehousing space this year that increased or cost $430,000 for the space and related expenses. IT
www.hammondmfg.com
Annual Report 2020 10
MANAGEMENT DISCUSSION AND ANALYSIS
related expenses were up $76,000 as we started to upgrade operating systems no longer supported.
Buildings grounds and maintenance also saw an increase of $76,000. The last notable increase in
spending compared to 2019 comes from increased insurance expense on our main distribution
warehouse. The increase of $448,000 is driven by a requirement to now have a sprinkler system in this
facility. The main issue is the facility is serviced by well water so we need to put in a water storage tank
to feed the sprinkler system. We have assigned a contractor to put in a sprinkler system and it should
be completed by late spring of 2021. At this time we should be able to negotiate our insurance rates
back to a more reasonable level.
Our general and administrative expenses of $5,216,000 were down $270,000 or 4.9% compared to 2019
spending levels of $5,486,000. CEWS accounts for $90,000 of this reduction. Foreign exchange had the
impact of increasing comparative costs by $17,000. Wages and related expenses were up $121,000
over 2019 and IT related expenses were up $52,000 as we upgraded our operating systems. The
following are the cost reductions compared to 2019. Severances were down $149,000, legal and
professional fees were down $105,000. Recruitment fees were down $26,000, bad debt expenses were
down 36,000 and finally due to COVID-19 social function expenses were down $36,000.
In 2020 the research and development spending level was up 20.4% to $354,000 over 2019 spending
levels. We were down an employee for the last three quarters of 2019 who was added back in 2020.
This increased expenses by $72,000 with a $12,000 offset from CEWS.
This year we saw a net loss of $11,000 on the disposal of property, plant and equipment. This compares
to a net loss on disposals of $20,000 recognized in 2019.
INCOME FROM OPERATING ACTIVITIES
Overall, 2020 earnings from operating activities of $11,682,000 (7.9% of net product sales). Adjusted
for CEWS we are at 6.3% of net product sales which is up compared to 2019 earnings of $7,469,000
(5.0% of net product sales).
INTEREST
Interest expense on bank indebtedness and loans was $886,000 compared to an expense of $1,145,000
for 2019. The comparative loan base has dropped throughout the year and is down just over $3.4 million
from the end on 2019 to 2020.
The following is a breakdown of the interest expenses.
Interest expense is comprised as follows:
December 31, 2020 December 31, 2019
Long Term debt, excluding capital finance leases
$
747
$
794
Bank indebtedness
Interest expense
139
351
$
886
$
1,145
Interest expense leases
$
737
$
605
Total Interest and Lease Interest expense
$
1,623
$
1,750
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
A $395,000 foreign exchange transactional gain was reported in 2020, compared to a transactional gain
of $626,000 in 2019. The Canadian dollar strengthened against the US dollar throughout 2019. It opened
at $1.00 USD to $1.364 CAD and closed the year at $1.00 USD to $1.2988 CAD. In 2020 the trend
www.hammondmfg.com
Annual Report 2020 11
MANAGEMENT DISCUSSION AND ANALYSIS
reversed and the Canadian dollar weakened against the US dollar right at the start of the year but then
proceeded to strengthen throughout the year and closed at $1.00 US dollar to 1.2732 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 $7.4 million USD and the closing balance was $10.6
million. This year it created transaction gain of approximately $209,000 with the offset going to
translational gains of other foreign operations.
INCOME TAX EXPENSE
2020 tax expenses of $2,575,000 were 25.0% of income before income tax. This compares to a 2019
tax expense of $1,533,000 which was 24.4% of income before income tax.
NET INCOME FOR THE YEAR
Net income for the year ended December 31, 2020 was $7,724,000 (5.2% of net product sales) up
62.6% from the prior year net income of $4,749,000 (3.2% of net product sales). This year’s net income
adjusted to remove the impact of CEWS (after tax impact is $1,731,000) is $5,993,000 (4.0% of net
product sales).
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
During 2020 a loss of $459,000 on translational foreign exchange was recorded compared to a loss of
$966,000 in 2019. The strengthening Canadian dollar caused a decrease in the valuation of our foreign
entities. As noted earlier a large part (approximately $209,000) of this is offset by the foreign exchange
transactional impact of intercompany loans.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for 2020 was $7,265,000 (4.9% of net product sales) this was up from
comprehensive income of $3,783,000 (2.5% of net product sales) in 2019.
SELECTED ANNUAL INFORMATION
Three year financial summary:
For the years ended December 31,
(In thousands except per share amounts)
Consolidated Statements of Comprehensive Income
2020
2019
2018
Net product sales
Income from operating activities
Net income for the year
Per share - basic & fully diluted
net earnings for the year
$
148,223
$
148,592
$
145,602
11,682
7,724
7,469
4,749
7,713
3,764
$0.68
$0.42
$0.33
Consolidated Statement of Financial Position
2020
2019
2018
Total assets
Total funded debt
Working capital
Net cash generated from (used in) operating activities
Dividends declared and paid
Shareholders' equity
$
$
$
120,255
35,715
28,018
15,689
453
61,542
111,402
36,565
20,532
11,707
454
54,730
100,813
31,210
20,152
1,354
452
51,401
$
$
$
www.hammondmfg.com
Annual Report 2020 12
MANAGEMENT DISCUSSION AND ANALYSIS
CAPITAL RESOURCES AND LIQUIDITY
Net cash generated in operating activities for 2020 was $15,689,000 (net cash generated in 2019 -
$11,707,000). Cash flows from financing activities used $7,548,000 (2019 – $7,970,000). Cash used in
investing activities was $5,527,000 (2019 - $2,840,000).
Trade and other receivables of $20,541,000 as at December 31, 2020 have increased 7.5% compared
to the 2019 year end. This includes a receivable for CEWS of $2,308,000. Trade and other receivables
excluding CEWS is $18,233,000 which is down 4.6% compared to 2019 year end. Day’s sales
outstanding (DSO) (excluding CEWS) calculated as at December 31, 2020 was 44.3 compare to 52.4
days as calculated on December 31, 2019. This was unusual for our customer base as we received
payments earlier than normal. We can only assume this was a function of year end and when offices
were going to be closed. We have no reason to expect this level of DSO going forward and would expect
it to return to the low 50’s DSO level going forward. The quality of accounts receivable remains high.
The year-end investment in inventory of $42,062,000 was an increase of 1.5% from the 2019 inventory
value of $41,426,000. Inventory turnover increased slightly to 2.4 from 2.5 (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 $755,000, or 4.6% over 2019 to $17,117,000. Total long-term
debt, lease liabilities and bank indebtedness decreased by $850,000 over the prior year to $35,715,000.
Our debt-to-equity ratio at year-end (excluding lease liabilities) was approximately 0.32:1 (2019 - 0.42:1).
Debt-to-equity calculated inclusive of the lease liabilities was 0.58:1 (2019 – 0.67:1).
Total dividends paid in 2020 were $453,000 (2019 - $454,000).
Property, plant, equipment and intangible asset additions excluding right of use assets in 2020 were
$5,571,000 up from $2,949,000 in 2019. The Company spent $409,000 (2019 - $201,000) on building
and leasehold improvements. $953,000 (2019 - $324,000) was invested toward replacing machinery
and equipment, $3,443,000 (2019 - $1,761,000) was invested toward machinery and equipment for
capacity growth, $639,000 (2019 - $338,000) was invested in tooling, $20,000 (2019 - $244,000) was
invested in office equipment. In 2020 we spent $61,000 on computer hardware. $19,000 (2019–
$47,000) was spent on software and development costs. 2020 spending on product development of
$27,000 was down from $34,000 in 2019.
The overall cash position increased by $2,066,000 in 2020 compared to a cash position increase of
$94,000 in 2019. The unexpected improvement in DSO’s created a surplus of cash on hand.
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, 2020, the Group had received $3,461,500 of this funding (2019 - $3,461,500). In January
of 2020 we began to pay this back over 5 years in $58,000 even monthly installments.
The government funding noted above is contingent on adding new jobs and retaining existing jobs at
our Guelph, Ontario locations. As at the time of this report the Group has met all the requirement and
there are no further requirements to be met.
In January the Company leased an additional 37,000 square feet of warehouse space in Guelph. The
facility is part of an existing leased facility so the lease term was set to match the existing lease and runs
until March 31, 2027. The present value of the lease that was set up as a lease liability and Right-of-use
asset was $1,419,000.
www.hammondmfg.com
Annual Report 2020 13
MANAGEMENT DISCUSSION AND ANALYSIS
In the second quarter we successfully renewed the lease of several of our buildings comprising of
approximately 65,620 sq. ft. The leases will run until December 31, 2025. The present value of the lease
that was setup as a lease liability and Right-of-use asset was $1,642,000.
In the fourth quarter we renewed the lease of several more of our buildings in Canada and the USA of
approximately 60,539 sq. ft. These leases will run until April of 2026 and February of 2026. The present
value of these leases that were setup as a lease liability and Right-of-use asset was $1,533,000.
The Company is in compliance with all the bank covenants, and the credit facilities are well designed to
meet expected on going requirements.
As at December 31, 2020 the contractual obligations showing demand loans as current was as follows.
Contractual obligations
(In thousands)
Current 1-2 Years 2-3 Years 3-4 Years 4-5 Years
After 5
Years
Total
Long-term debt
Lease Liabilities
$
16,942
$
15,086
$
611
$
644
$
601
$
-
$
-
16,084
2,805
2,792
2,218
1,888
1,967
4,414
Total contractual obligations
$
33,026
$
17,891
$
3,403
$
2,862
$
2,489
$
1,967
$
4,414
As at December 31, 2020 the contractual obligations based on repayment not being called early.
Contractual obligations
(In thousands)
Current 1-2 Years 2-3 Years 3-4 Years 4-5 Years
Total
After 5
Years
Long-term debt
Lease Liabilities
$
16,942
$
1,861
$
1,900
$
1,990
$
7,423
$
2,601
$
1,167
16,084
2,805
2,792
2,218
1,888
1,967
4,414
Total contractual obligations
$
33,026
$
4,666
$
4,692
$
4,208
$
9,311
$
4,568
$
5,581
In addition to the contractual obligations above, the Company has current obligations of $3,585,000
(2019 - $975,000) against open purchase orders for outstanding capital expenditures. The Company
also has open purchase commitments with RITEC as at December 31, 2020 of $1,241,000 (2019 -
$535,000). These expenditures should be completed in the first half of 2021.
SHARE CAPITAL
As of March 8, 2021, 8,556,000 Class A subordinate voting shares and 2,778,300 Class B common
shares were issued and outstanding. The Company also has a management share option plan, with no
options currently outstanding.
EBITDA
EBITDA for 2020 was $18,298,000. This showed improvement over EBITDA of $14,202,000 achieved
in 2019.
EBITDA adjusted for transactional impact of foreign exchange lowered the EBITDA in 2020 as it did in
2019. 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)*.
www.hammondmfg.com
Annual Report 2020 14
MANAGEMENT DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars)
Years Ended:
Three Months Ended:
December 31,
2020
7,724
December 31,
2019
4,749
December 31,
2020
4,423
December 31,
2019
967
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)
2,575
3,540
2,836
996
627
10,574
18,298
1,533
3,533
2,537
1,145
605
9,353
14,102
(395)
(626)
1,439
925
740
335
105
3,544
7,967
(897)
7,070
230
990
690
281
78
2,269
3,236
(357)
2,879
Adjusted EBITDA *
17,903
13,476
* 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.
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 2020 related to this property was $141,000 (2019 -
$119,000).
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 remediation plans intent is to
contain and collect any mobile pollutants. It does not include obtaining a record of site condition. The
provision for this activity was increased by $55,000 in 2020 based on the levels of product being removed
from the ground. Our provision covers the next four years activities. The Company’s remaining portion
of environmental remediation costs for this site is $225,000 (2019 - $170,000) with $80,000 (2019 -
$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
www.hammondmfg.com
Annual Report 2020 15
MANAGEMENT DISCUSSION AND ANALYSIS
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 trial for this claim
has been set down for September 2022. We have seen corresponding legal fees in 2019 and 2020.
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 AND JUDGEMENTS
The preparation of financial statements in conformity with IFRS requires management to make estimates
and assumptions that affect the application of accounting policies and the reported amount of assets,
liabilities, income and expense. Actual results may differ from these 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)
Inventory
Inventories are valued at the lower of cost or net realizable value. When necessary, the
write-down of inventory to its net realizable value is recorded as a result of industry
conditions. We have made certain assumptions when determining expected future demand
by utilizing information such as inventory quantities and aging, historical sales of inventory
and general market understanding. Reductions in demand for certain of our inventories or
declining market values, as well as differences between actual results and the assumptions
utilized by us when determining the market value of our inventories, could result in the
recognition of write-down expenses in future periods.
ii) 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.
iii) 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”).
iv) 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
www.hammondmfg.com
Annual Report 2020 16
MANAGEMENT DISCUSSION AND ANALYSIS
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.
v) 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.
vi) 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.
vii) 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.
viii) Property value
Management estimates the value of the investment property to assess if impairment has
occurred. The estimate is made by reviewing local land prices and current sales of similar
properties as well as property tax value assessment.
ix) Environmental remediation:
Management estimates the value to complete the remediation project on the Glen Ewing
Property each year by reviewing the project status and activities still to be completed. Any
changes to the project scope are updated in the cost estimation model and any change in
the required reserve is recorded in the current year.
x) Sales returns:
Management estimates the value of product that will be returned based on a historical
analysis. Any change to the estimate is recorded as a reduction of revenue in the current
period.
xi) Leases under IFRS 16:
For the purpose of valuing leases the Company 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.
www.hammondmfg.com
Annual Report 2020 17
MANAGEMENT DISCUSSION AND ANALYSIS
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:
xii) 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.
xiii) Leases under IFRS 16
The Company exercises judgement as to whether it is likely to extend the term of the lease
when the option is provided.
xiv) 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.
xv) 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.
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
www.hammondmfg.com
Annual Report 2020 18
MANAGEMENT DISCUSSION AND ANALYSIS
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.
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, 2020 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, 2020.
There has been no change to internal controls in the most recent quarter ended on December 31, 2020
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;
www.hammondmfg.com
Annual Report 2020 19
MANAGEMENT DISCUSSION AND ANALYSIS
• 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;
• 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;
• Pandemics
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
www.hammondmfg.com
Annual Report 2020 20
MANAGEMENT DISCUSSION AND ANALYSIS
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.
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 on income from operations of $696,000 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 11.8% 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
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.
BREXIT is currently playing out overseas. We have operations in the UK that service the UK and Europe.
The landscape of doing business has changed as a result of the situation although no one can determine
what the final result will look like. Management have set up and is utilizing a European company in the
Netherlands so that we have representation within the European Union. Management is closely watching
the situation and is looking at different options for doing business overseas as the situation evolves.
www.hammondmfg.com
Annual Report 2020 21
MANAGEMENT DISCUSSION AND ANALYSIS
PANDEMICS
In 2020 a global pandemic started. The outbreak of the COVID-19 has disrupted our workforce, supply
chains and the market place.
Our products are utilized in many essential services so we have been able to keep our operations going.
The first quarter sales activity did not see much impact from the outbreak as major actions only started
in early March. We did see market activity drop in the second and third quarter and have attributed this
to COVID-19’s impact on markets. In the fourth quarter we did see sales activities increase back to pre-
pandemic levels despite the ongoing situation. We do not have an estimate of a future market outlook
as these are unprecedented times. We are hopeful the impact will be short and businesses will get back
to a new normal before too long. We will take cost control measures to best mitigate the impacts.
We have engaged our supply chain from the onset of the pandemic warnings and to date we have not
experienced any major disruption in production caused by COVID-19 related shortages.
We have adopted all the prescribed health and safety recommendations from Health Canada and have
some employees working from home where possible.
Initially we had a number of employees who had taken leave of absences in order to care for children or
parents, out of precaution due to exposure to family members or in some cases just fear of the situation.
In our main production facilities in Guelph we had experienced as high as a 20% reduction in work force
due to COVID-19 related absences. This was at the initial onset of the stay at home initiative. At this
time most of our work force has returned with some still out with child care issues. We have been able
to meet production demand with the utilization of overtime. As the bulk of our product is standard
inventory we do have a buffer to work with. We promote all the recommended actions of Health Canada
such as social distancing, a regiment of cleaning individual work stations and general work areas on a
regular basis. We encourage employees who are not feeling well for any reason to stay at home until
their symptoms clear. We have plans in place should an employee test positive with COVID-19.
Financially we are still in a stable condition. We have had customers request extended terms but have
resisted at this time. We do have financing available if we are forced to stretch things for a short time.
We do have capital equipment on order with cash requirements of approximately $3.6 million over the
next three to six months.
We have applied for and subsequently received CEWS as this was available to the Company based on
program criteria.
We continue to monitor the situation and adjust where needed to mitigate the negative impact created
by the pandemic.
ACCOUNTING POLICY CHANGES
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 were adopted on January 1, 2020. There was no material impact from the
adoption of these amendments on the consolidated financial statements.
www.hammondmfg.com
Annual Report 2020 22
MANAGEMENT DISCUSSION AND ANALYSIS
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. The amendments were adopted
on January 1, 2020. There was no material impact from the adoption of these amendments on
the consolidated financial statements.
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 were adopted on January 1, 2020. There was no material impact from the
adoption of these amendments on the consolidated financial statements.
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 were adopted on January 1, 2020.
Early adoption is permitted. There was no material impact from the adoption of these
amendments on the consolidated financial statements.
Covid-19-Related Rent Concessions (Amendment to IFRS 16)
On May 28, 2020, the IASB issued Covid-19-Related Rent Concessions (Amendment to IFRS
16). The amendments exempt lessees from having to consider individual lease contracts to
determine whether rent concessions occurring as a direct consequence of the COVID-19
pandemic are lease modifications and allows lessees to account for such rent concessions as if
they were not lease modifications.
The amendments have been adopted and did not have an impact on the consolidated financial
statements.
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.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial
Statements, to clarify the classification of liabilities as current or non-current. On July 15, 2020
the IASB issued an amendment to defer the effective date by one year. The amendments
removed the requirement for a right to defer settlement or roll over of a liability for at least twelve
months to be unconditional. Instead such a right must have substance and exist at the end of
the reporting period.
www.hammondmfg.com
Annual Report 2020 23
MANAGEMENT DISCUSSION AND ANALYSIS
The amendments are effective for annual periods beginning on or after January 1, 2023. Early
adoption is permitted
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
On May 14, 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended
Use (Amendments to IAS 16). The amendments clarify that proceeds from selling items before
the related item of Property, Plant and Equipment is available for use should be recognised in
profit or loss, together with the cost of producing those items.
The amendments are effective for annual periods beginning on or after January 1, 2022. Early
adoption is permitted.
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
On May 14, 2020, the IASB issued Onerous Contracts – Cost of Fulfilling a Contract
(Amendments to IAS 37). This amendment clarifies which costs are included as a cost of fulfilling
a contract when determining whether a contract is onerous.
The amendments are effective for annual periods beginning on or after January 1, 2022 and
apply to contracts existing at the date when the amendments are first applied. Early adoption is
permitted.
Annual Improvements to IFRS Standards 2018–2020
On May 14, 2020, the IASB issued Annual Improvements to IFRS Standards 2018–2020.
The amendments are effective for annual periods beginning on or after January 1, 2022. Early
adoption is permitted.
IFRS 9 Financial Instruments
Clarifies which fees are included for the purpose of performing the ‘10 per cent test’ for
derecognition of financial liabilities.
IFRS 16 Leases
Removes the illustration of payments from the lessor relating to leasehold improvements.
The impact of adoption of these improvements is not expected to have an impact on the
business.
Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS
4 and IFRS 16)
On August 27, 2020, the IASB finalized its response to the ongoing reform of inter-bank offered
rates and other interest rate benchmarks by issuing a package of amendments to IFRS
Standards.
The amendments are effective for annual periods beginning on or after January 1, 2021. Earlier
application is permitted. The impact of adoption of these amendments is not expected to have
an impact on the business.
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,
www.hammondmfg.com
Annual Report 2020 24
MANAGEMENT DISCUSSION AND ANALYSIS
however, on December 17, 2015 the IASB decided to defer the effective date for these
amendments indefinitely. Adoption is still permitted. The impact of adoption of these
amendments is not expected to have an impact on the business.
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 2021
Our current market expectation remains cautious. The coronavirus impact continues to play out with
unknown consequences. The US dollar has weakened and this does lower the returns from our US
markets as we continue 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.
www.hammondmfg.com
Annual Report 2020 25
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 8, 2021
www.hammondmfg.com
Annual Report 2020 26
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 Company), which comprise:
the consolidated statements of financial position as at December 31, 2020 and 2019
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 consolidated financial statements, including a summary of significant
accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects,
the consolidated financial position of the Company as December 31, 2020 and 2019, 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 Company 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.
© 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
www.hammondmfg.com
Annual Report 2020 27
Key Audit Matter
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements for the year ended December 31, 2020.
These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
We have determined the matters described below to be the key audit matters to be
communicated in our auditors’ report.
Evaluation of the write-down of inventory for excess or obsolescence
Description of the matter
We draw attention to notes 2(d)(i), 3(c) and 5 to the financial statements. The Company
has inventory with a carrying value of $42,062 thousand. Inventory is valued at the lower of
cost or net realizable value. When necessary, the Company will write-down inventory to its
net realizable value. The determination of net realizable value requires the Entity to make
certain assumptions including forecasted demand.
Why the matter is a key audit matter
We identified the evaluation of the write-down of inventory for excess and obsolescence as
a key audit matter. There is a high degree of estimation uncertainty as well as complexity in
predicting forecasted demand. Significant auditor judgement was required to evaluate the
results of our audit procedures due to the estimation uncertainty associated with the
determination of net realizable value.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the
following:
We evaluated the Entity’s ability to accurately forecast demand by comparing the Entity’s
prior year expectations of forecasted demand to actual sales data, inventory usage, and
publicly available industry outlook reports.
We performed sensitivity analyses over the forecasted demand to assess the impact on the
Entity’s determination of net realizable value.
www.hammondmfg.com
Annual Report 2020 28
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 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 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.
In preparing the financial statements, management is responsible for assessing the
Company’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 Company or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Company’s financial
reporting process.
www.hammondmfg.com
Annual Report 2020 29
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the 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 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 Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
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 Company'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 Company 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.
www.hammondmfg.com
Annual Report 2020 30
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.
Determine, from the matters communicated with those charged with governance, those
matters that were of most significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe these matters in
our auditors’ report unless law or regulation precludes public disclosure about the matter
or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our auditors’ report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such
communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Matthew Betik.
Waterloo, Canada
March 8, 2021
www.hammondmfg.com
Annual Report 2020 31
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at December 31,
Assets
Current assets:
Note
2020
2019
Cash
Trade and other receivables
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:
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total equity
Commitments
Contingency
Total liabilities and equity
4
5
6
7
8
9
10
11
14
15
16
12
8
16
12
8
15
17
18
$
2,785
20,541
42,062
1,857
67,245
$
719
19,107
41,426
1,800
63,052
33,637
349
17,116
1,044
864
53,010
31,712
314
14,434
1,044
846
48,350
$
120,255
$
111,402
$
2,689
17,117
1,303
164
63
15,086
2,805
39,227
$
4,393
16,362
181
145
73
18,640
2,726
42,520
152
1,856
13,279
145
4,054
19,486
58,713
10,249
290
1,982
49,021
61,542
192
-
10,806
100
3,054
14,152
56,672
10,249
290
2,441
41,750
54,730
19
20 & 26
$
120,255
$
111,402
The notes on pages 36 to 73 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2020 32
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
2020
2019
Net product sales
Cost of sales
Gross profit
Selling and distribution
General and administrative
Research and development
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
$ 148,223
$ 148,592
99,053
49,170
31,907
5,216
354
11
11,682
(996)
(627)
395
(1,228)
(14)
(141)
10,299
2,575
103,064
45,528
32,259
5,486
294
20
7,469
(1,145)
(605)
626
(1,124)
56
(119)
6,282
1,533
13
13
10
9
21
Net income for the period
$
7,724
$
4,749
Other comprehensive gain (loss):
Foreign currency translation differences for foreign
operations
Other comprehensive income (loss) for the period, net of income
tax
(459)
(459)
(966)
(966)
Total comprehensive income for the period
$ 7,265
$ 3,783
Earnings per share
Basic earnings per share
Diluted earnings per share
22
22
$ 0.68
$ 0.68
$ 0.42
$ 0.42
The notes on pages 36 to 73 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2020 33
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Changes in Equity
For the years December 31, 2020 and Decemeber 31, 2019
(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, 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
$
10,249
$
290
$
2,441
$
41,750
$
54,730
Balance at January 1, 2020
$
10,249
$
290
$
2,441
$
41,750
$
54,730
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
-
-
-
-
-
-
-
-
7,724
7,724
(459)
-
(459)
(459)
7,724
7,265
-
(453)
(453)
Balance at December 31, 2020
** Accumulated other comprehensive income (loss)
$
10,249
$
290
$
1,982
$
49,021
$
61,542
The notes on pages 36 to 73 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2020 34
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
For The Years Ended December 31,
2020
2019
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
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 in cash
Cash at beginning of period
Foreign exchange gain (loss) on cash and cash
equivalents in a foreign currency
$
7,724
$
4,749
3,502
38
2,836
996
627
2,575
11
50
(18)
18,341
(604)
(1,523)
(58)
775
16,931
(799)
(443)
15,689
(1,704)
(1,861)
(3,530)
-
(453)
(7,548)
44
(5,500)
(71)
(5,527)
2,614
719
(548)
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
(803)
Cash at end of period
$
2,785
$
719
The notes on pages 36 to 73 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2020 35
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
1)
Introduction:
a) 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, 2020 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.
b) COVID-19 Pandemic:
In early 2020, COVID-19 quickly spread in multiple countries and was declared a pandemic by
the World Health Organization in Mid-March of 2020. The pandemic and resulting economic
contraction made an impact in all markets. The Company’s products are considered essential
and we have not seen any significant decline in our market activity. The Company took quick
action with our COVID-19 Global Task Force and Action Response Plan. Public and private
sector regulations included setting policies, and other measures aimed at reducing the
transmission of COVID-19, travel restrictions, the promotion of social distancing, and the
adoption of work-from-home and online continuity plans by companies and various institutions.
Globally, various governments have provided assistance to those affected including individuals
and businesses through a number of taxation deferral, subsidy, and other relief programs. The
full extent and impact of the COVID-19 pandemic is unknown and at this stage it is very difficult
to project what will occur. Potential adverse impacts of the pandemic include, but are not limited
to: the risk of material reduction in demand for our products, a delay in collection of accounts
receivables which may lead to increased allowance provisions; the risk of suppliers and/or
customers having financial difficulties up to and including entering restructuring proceedings,
insolvency proceedings and/or ceasing operations, difficulties in delivering products to
customers due to supply chain disruptions; and higher capital costs for servicing or paying debt
as it comes due.
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 8, 2021.
b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis.
www.hammondmfg.com
Annual Report 2020 36
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
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)
Inventory
Inventories are valued at the lower of cost or net realizable value. When necessary, the
write-down of inventory to its net realizable value is recorded as a result of industry
conditions. We have made certain assumptions including expected forecasted demand by
utilizing information such as inventory quantities and aging, historical sales of inventory and
general market understanding. Reductions in demand for certain of our inventories or
declining market values, as well as differences between actual results and the assumptions
utilized by us when determining the market value of our inventories, could result in the
recognition of write-down expenses in future periods.
ii) 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.
www.hammondmfg.com
Annual Report 2020 37
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
iii) 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”).
iv) 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.
v) 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.
vi) 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.
vii) 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.
viii) Property value
Management estimates the value of the investment property to assess if impairment has
occurred. The estimate is made by reviewing local land prices and current sales of similar
properties as well as property tax value assessment.
ix) Environmental remediation:
Management estimates the value to complete the remediation project on the Glen Ewing
Property each year by reviewing the project status and activities still to be completed. Any
changes to the project scope are updated in the cost estimation model and any change in
the required reserve is recorded in the current year.
x) Sales returns:
Management estimates the value of product that will be returned based on a historical
analysis. Any change to the estimate is recorded as a reduction of revenue in the current
period.
www.hammondmfg.com
Annual Report 2020 38
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
xi) Leases under IFRS 16:
For the purpose of valuing leases the Company 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.
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) Leases under IFRS 16
The Company exercises judgement as to whether it is likely to extend the term of the lease
when the option is provided.
iii) Impairment tests
Management exercises judgment to determine whether there are factors that would indicate
that an asset or a CGU is impaired. The determination of CGUs is also based on
management’s judgment and is an assessment of the smallest group of assets that generate
cash inflows independently of other assets. Factors considered include whether an active
market exists for the output produced by the asset or group of assets as well as how
management monitors and makes decisions about the Company’s operations.
iv) Intangible assets
Management exercises judgment to determine whether identifiable intangible assets were
acquired in a business combination, separate from goodwill and whether they will provide
future economic benefits to the Company.
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
www.hammondmfg.com
Annual Report 2020 39
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
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
www.hammondmfg.com
Annual Report 2020 40
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
Depreciation methods, useful lives and residual values are reviewed at each financial year-end
and adjusted, if appropriate.
f)
Intangible assets other than goodwill:
Intangible assets have been externally acquired. Intangible assets are stated at cost less
accumulated amortization. Intangible assets with a finite life are amortized using the straight-
line method at rates calculated to amortize the cost of these assets over their estimated useful
lives.
The amortization rates based on the estimated useful lives for the current and comparative
periods are as follows:
Asset
Computer software
Development costs
Rate
20%
20%
Amortization methods, useful lives and residual values are reviewed at each financial year-end
and adjusted, if appropriate.
g)
Investments measured using equity method:
The Company uses the equity method as a basis of accounting for investments in companies
over which it exercises significant influence or joint control. Under the equity method, the
Company records these investments initially at cost and the carrying values are adjusted
thereafter to include the Company's pro rata share of post-acquisition earnings of the investees,
computed by the consolidation method. The adjustments are included in the determination of
www.hammondmfg.com
Annual Report 2020 41
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
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
www.hammondmfg.com
Annual Report 2020 42
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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.
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
www.hammondmfg.com
Annual Report 2020 43
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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, 2020 and December 31, 2019, and concluded there was no impairment.
The Group’s corporate assets do not generate separate cash inflows. If there is an indication
that a corporate asset may be impaired, then the recoverable amount is determined for the
CGU to which the corporate asset is allocated.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying
amount of any goodwill allocated to the units, and then to reduce the carrying amounts of
the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment loss
had been recognized.
Goodwill that forms part of the carrying amount of an investment in an associate is not
recognized separately, and therefore is not tested for impairment separately. Instead, the
entire amount of the investment in an associate is tested for impairment as a single asset
when there is objective evidence that the investment in an associate may be impaired.
www.hammondmfg.com
Annual Report 2020 44
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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.
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
www.hammondmfg.com
Annual Report 2020 45
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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) Leases:
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.
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.
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
www.hammondmfg.com
Annual Report 2020 46
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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.
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.
s) New standards and interpretations adopted:
The International Accounting Standards Board (IASB) has issued the following Standards,
Interpretations and Amendments to Standards that were adopted by the Group.
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.
www.hammondmfg.com
Annual Report 2020 47
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The amendments were adopted on January 1, 2020. There was no material impact from the
adoption of these amendments on the consolidated financial statements.
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. The amendments were adopted
on January 1, 2020. There was no material impact from the adoption of these amendments on
the consolidated financial statements.
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 were adopted on January 1, 2020. There was no material impact from the
adoption of these amendments on the consolidated financial statements.
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 were adopted on January 1, 2020.
Early adoption is permitted. There was no material impact from the adoption of these
amendments on the consolidated financial statements.
Covid-19-Related Rent Concessions (Amendment to IFRS 16)
On May 28, 2020, the IASB issued Covid-19-Related Rent Concessions (Amendment to IFRS
16). The amendments exempt lessees from having to consider individual lease contracts to
determine whether rent concessions occurring as a direct consequence of the COVID-19
pandemic are lease modifications and allows lessees to account for such rent concessions as if
they were not lease modifications.
The amendments have been adopted and did not have an impact on the consolidated financial
statements.
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.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial
Statements, to clarify the classification of liabilities as current or non-current. On July 15, 2020
the IASB issued an amendment to defer the effective date by one year. The amendments
www.hammondmfg.com
Annual Report 2020 48
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
removed the requirement for a right to defer settlement or roll over of a liability for at least twelve
months to be unconditional. Instead such a right must have substance and exist at the end of
the reporting period.
The amendments are effective for annual periods beginning on or after January 1, 2023. Early
adoption is permitted
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
On May 14, 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended
Use (Amendments to IAS 16). The amendments clarify that proceeds from selling items before
the related item of Property, Plant and Equipment is available for use should be recognised in
profit or loss, together with the cost of producing those items.
The amendments are effective for annual periods beginning on or after January 1, 2022. Early
adoption is permitted.
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
On May 14, 2020, the IASB issued Onerous Contracts – Cost of Fulfilling a Contract
(Amendments to IAS 37). This amendment clarifies which costs are included as a cost of fulfilling
a contract when determining whether a contract is onerous.
The amendments are effective for annual periods beginning on or after January 1, 2022 and
apply to contracts existing at the date when the amendments are first applied. Early adoption is
permitted.
Annual Improvements to IFRS Standards 2018–2020
On May 14, 2020, the IASB issued Annual Improvements to IFRS Standards 2018–2020.
The amendments are effective for annual periods beginning on or after January 1, 2022. Early
adoption is permitted.
IFRS 9 Financial Instruments
Clarifies which fees are included for the purpose of performing the ‘10 per cent test’ for
derecognition of financial liabilities.
IFRS 16 Leases
Removes the illustration of payments from the lessor relating to leasehold improvements.
The impact of adoption of these improvements is not expected to have an impact on the
business.
Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS
4 and IFRS 16)
On August 27, 2020, the IASB finalized its response to the ongoing reform of inter-bank offered
rates and other interest rate benchmarks by issuing a package of amendments to IFRS
Standards.
The amendments are effective for annual periods beginning on or after January 1, 2021. Earlier
application is permitted. The impact of adoption of these amendments is not expected to have
an impact on the business.
www.hammondmfg.com
Annual Report 2020 49
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(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. The impact of adoption of these
amendments is not expected to have an impact on the business.
4) Trade and other receivables:
Trade receivables
Employee receivables
Other receivables
Estimated credit losses
Trade and other receivables
December 31, 2020
December 31, 2019
$ 17,707
18
2,987
20,712
(171)
$ 20,541
$ 18,609
27
696
19,332
(225)
$ 19,107
Other receivables in 2020 includes $2,308,000 from the Canada Emergency Wage Subsidy
(“CEWS”) grant. See note 23.
The Company’s exposure to credit and currency risks, and impairment losses related to trade and
other receivables is disclosed in note 26.
5)
Inventories:
Raw materials and work-in-process
Finished goods
Inventories
December 31, 2020
December 31, 2019
$ 12,632
29,430
$ 42,062
$ 12,052
29,374
$ 41,426
Inventories carried at net realizable value
$ 1,803
$ 1,344
In 2020, raw materials, consumables and changes in finished goods and work in progress
recognized as cost of sales amounted to approximately $98,753,000 (2019 - $102,954,000). In
2020, the write-down of inventories to net realizable value net of recovery was $300,000 (2019 -
$110,000).
www.hammondmfg.com
Annual Report 2020 50
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(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, 2018
$
21,964
$
51,242
$
10,493
$
5,621
$
89,320
Reclass on Adoption of IFRS 16
Additions
Disposals
Effect of movements in exchange rates
-
201
(33)
(2)
(5,834)
(221)
-
2,085
(1,129)
(107)
338
(94)
(78)
244
(3,478)
(12)
(6,055)
2,868
(4,734)
(199)
Balance at December 31, 2019
$
22,130
$
46,257
$
10,438
$
2,375
$
81,200
Additions
Disposals
Effect of movements in exchange rates
$
273
(41)
1
$
4,412
(1,192)
(13)
$
759
(70)
(18)
$
56
(6)
(2)
$
5,500
(1,309)
(32)
Balance at December 31, 2020
$
22,363
$
49,464
$
11,109
$
2,423
$
85,359
At December 31, 2020, the amount of expenditures recognized in the carrying amount that were in
the course of construction was $47,785 (2019 - $9,266) in land and buildings, $601,396 (2019 -
$241,388) in machinery and equipment, $162,599 (2019 - $51,395) in tooling and $60,016 (2019 -
$36,671) in office equipment.
Accumulated depreciation
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
Balance at December 31, 2018
$
6,687
$
32,978
$
7,623
$
4,973
$
52,261
Reclass on Adoption of IFRS 16
Depreciation for the period
Disposals
Effect of movements in exchange rates
-
712
(33)
(2)
(1,373)
(125)
-
2,236
(1,007)
(78)
351
(87)
(67)
186
(3,478)
(8)
(1,498)
3,485
(4,605)
(155)
Balance at December 31, 2019
$
7,364
$
32,756
$
7,695
$
1,673
$
49,488
Depreciation for the period
Disposals
Effect of movements in exchange rates
$
718
(41)
1
$
2,263
(1,114)
(23)
$
317
(70)
(14)
$
204
(6)
(1)
$
3,502
(1,231)
(37)
Balance at December 31, 2020
$
8,042
$
33,882
$
7,928
$
1,870
$
51,722
www.hammondmfg.com
Annual Report 2020 51
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Carrying amounts
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
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
At December 31, 2020
$
14,321
$
15,582
$
3,181
$
553
$
33,637
Depreciation of $3,502,000 (2019 - $3,485,000) was recorded in the consolidated statement of
comprehensive income (loss) as follows: cost of sales $3,144,000 (2019 – $3,153,000), selling and
distribution $193,000 (2019 – $153,000) and general and administrative $165,000 (2019 –
$179,000).
7)
Intangible assets and goodwill:
Cost
Goodwill
Computer
software
Development
costs
Total
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
Additions
Disposal
Effect of movement in exchange rates
-
$
-
2
$
44
(16)
(1)
$
27
-
-
$
71
(16)
1
Balance at December 31, 2020
$
116
$
1,010
$
361
$
1,487
Amortization
Goodwill
Computer
software
Development
costs
Total
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
Amortization for the period
Disposal
Effect of movement in exchange rates
$
-
-
-
$
11
(16)
(1)
$
27
-
-
$
38
(16)
(1)
Balance at December 31, 2020
$
-
$
859
$
279
$
1,138
www.hammondmfg.com
Annual Report 2020 52
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Carrying amounts
At December 31, 2018
At December 31, 2019
At December 31, 2020
Goodwill
Computer
software
Development
costs
Total
$
116
$
88
$
80
$
284
$
114
$
118
$
82
$
314
$
116
$
151
$
82
$
349
All the intangible assets have been externally acquired. Amortization expense of $38,000 (2019 -
$48,000) was recorded in the consolidated statement of comprehensive income (loss) as follows:
cost of sales $4,000 (2019 – $36,000), selling and distribution $7,000 (2019 – $nil) and general and
administrative $27,000 (2019 – $12,000).
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, 2020.
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 9.0%. The cash flow
model also incorporated growth rates in the range of 2% – 4% 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, 2020 and
December 31, 2019, the assets, including goodwill of $116,000 (2019 - $114,000), of the Company’s
wholly owned subsidiary, Hammond Electronics Limited, were tested and no impairment was found.
8) Leases:
Right-of-use assets
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
Additions for the period
Disposals
Effect of movements in exchange rates
$
4,751
-
(30)
-
$
-
-
$
-
-
6
19
$
-
-
$
765
(332)
(3)
$
5,535
(332)
(27)
Balance at December 31, 2020
$
15,303
$
6,142
$
221
$
95
$
1,888
$
23,649
www.hammondmfg.com
Annual Report 2020 53
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
Depreciation for the period
Effect of movements in exchange rates
1,476
3
526
1
125
45
-
-
43
-
1,498
2,537
4
447
-
Balance at December 31, 2019
$
1,479
$
1,900
$
170
$
43
$
447
$
4,039
Depreciation for the period
Disposals
Effect of movements in exchange rates
$
1,734
-
(11)
$
541
-
2
$
46
-
-
$
42
-
-
$
473
(332)
(1)
$
2,836
(332)
(10)
Balance at December 31, 2020
$
3,202
$
2,443
$
216
$
85
$
587
$
6,533
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
At December 31, 2020
$
12,101
$
3,699
$
5
$
10
$
1,301
$
17,116
Depreciation of $2,836,000 (2019 - $2,537,000) was recorded in the consolidated statement of
comprehensive income (loss) as follows: cost of sales $1,209,000 (2019 – $1,181,000), selling and
distribution $1,287,000 (2019 – $1,047,000) and general and administrative $340,000 (2019 –
$309,000).
Total Lease obligations:
Total Leases
Less current portion due in the next 12 months
Non-current leases
December 31,
December 31,
2020
$ 16,084
2019
$ 13,532
2,805
2,726
$ 13,279
$ 10,806
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 current market rates of office and production buildings.
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 Group’s fleet trucks are 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.
www.hammondmfg.com
Annual Report 2020 54
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The lease liabilities are secured by the related underlying assets. Future minimum lease payments
at December 31, 2020 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, 2020
Lease Payments
Finance Charge
Net Present Value
December 31, 2019
Lease Payments
Finance Charge
Net Present Value
$
$
3,479
(674)
2,805
$
$
3,350
(558)
2,792
$
$
2,667
(449)
2,218
$
$
2,252
(364)
1,888
$
$
2,249
(282)
1,967
$
$
5,027
(613)
4,414
$
$
19,024
(2,940)
16,084
$
$
3,241
(515)
2,726
$
$
2,563
(483)
2,080
$
$
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
Lease payments not recognized as a liability:
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
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:
Year to date
Short Term leases
Leases of low values
Variable lease payments
Total
9)
Investment property:
December 31, 2020 December 31, 2019
$ 239
7
71
$ 317
$ 241
7
83
$ 331
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, 2019. 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 2020 related to the property was
$141,000 (2019- $119,000).
www.hammondmfg.com
Annual Report 2020 55
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
10) Equity investment:
RITEC Enclosures Inc.
December 31, 2018
Equity in 2019 earnings
December 31, 2019
Equity in 2020 earnings
December 31, 2020
Total
$ 797
49
$ 846
18
$ 864
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.
For the years ended December 31,
2020
2019
Share of profit (loss)
Foreign exchange gain (loss)
Income tax expense
Equity investment earnings
Share of profit
$
(25)
$
58
32
11
(6)
(3)
$
18
$
49
$
(25)
$
58
Profit (loss) in inventory movement
11
(2)
Share of profit (loss) of equity accounted investees
$
(14)
$
56
Assets
Liabilities
Revenues
Profit (loss) (after tax)
11) Bank indebtedness:
December 31, 2020 December 31, 2019
3,692
$
$
3,149
1,638
3,665
2,157
4,769
$
(63)
$
145
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
UK entity
GBP
Bank indebtedness
December 31, 2020
December 31, 2019
Local currency
$ 2,500
£ 109
CAD
$ 2,500
189
$ 2,689
Local currency
$ 4,000
£ 229
CAD
$ 4,000
393
$ 4,393
www.hammondmfg.com
Annual Report 2020 56
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Interest was payable at the rate of bank prime plus 25 basis points through October of 2019 and
then decreased to a rate of bank prime until August of 2020 when it was increased to bank prime
plus 50 basis points. In December of 2020 it was then lowered to a rate of bank prime plus 25 basis
points.
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,
2020
2019
$ 1,762
$ 1,830
1,378
1,404
6,245
6,391
3,690
4,349
1,431
1,682
2,436
$ 16,942
15,081
2,984
$ 18,640
18,640
$ 1,861
$
-
In 2019 the FEDEV interest free loan was all classified as current as the Company had breached its
covenant with FEDDEV by issuing dividends greater than $226,000 in a year. In January of 2020
the Company received a waiver from FEDDEV for the breach and has also amended the agreement
to allow dividends of up to $500,000 per year.
www.hammondmfg.com
Annual Report 2020 57
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(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:
2021
2022
2023
2024
2025
Thereafter
13) Interest expense
$
1,861
1,900
7,621
1,792
2,601
1,167
$
16,942
December 31,
2020
December 31,
2019
Long Term debt, excluding lease liabilities
$
857
$
794
Bank indebtedness
Interest expense
Interest expense leases
139
351
$
996
$
1,145
$
627
$
605
Total Interest and Lease interest expense
$
1,623
$
1,750
Reconciliation of movements of liabilities to cash flows arising from financing activities:
Lease
Liabilities
Long-term
debt
Bank
indebtedness
Total
Balance at December 31, 2019
$ 13,532
$ 18,640
$ 4,393
$ 36,565
Changes from financing cash flows
Repayment of lease liabilities
Repayment of borrowings
Total changes from financing cash flows
Liability related
Interest expense
Interest paid
Total liability-related other changes
(3,530)
-
(3,530)
627
-
627
-
(1,861)
(1,861)
857
(660)
197
Non-cash added liabilities
Foreign exchange impact
Balance at December 31, 2020
5,535
(80)
$ 16,084
-
(34)
$ 16,942
-
(1,704)
(1,704)
139
(139)
-
-
-
$ 2,689
(3,530)
(3,565)
(7,095)
1,623
(799)
824
5,535
(114)
$ 35,715
14) Trade and other payables:
Trade payables
Non-trade payables and accrued expenses
December 31, 2020
December 31, 2019
$ 6,996
10,121
$ 17,117
$ 6,577
9,785
$ 16,362
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed
in note 26.
www.hammondmfg.com
Annual Report 2020 58
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
15) Provisions:
Environmental
remediation
Sales returns
Total
Balance at December 31, 2018
$ 170
$ 54
$ 224
Provisions made during the year
Provisions used during the year
43
(43)
773
(752)
816
(795)
Balance at December 31, 2019
$ 170
$ 75
$ 245
Provisions made during the period
Provisions used during the period
103
(48)
868
(859)
971
(907)
Balance at December 31, 2020
$ 225
$ 84
$ 309
Non-current
Current
145
80
-
84
145
164
Balance at December 31, 2020
$ 225
$ 84
$ 309
The provision for environmental remediation is based on the estimated costs to setup and extract
any free flowing contamination from the Glen Ewing Property. The anticipated costs are based on
an external consultant’s remediation plan, discounted for expected timing of expenditures. The
current estimate assumes the containment plan will be completed by 2024. 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. 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 $225,000 (2019 - $170,000) with $80,000 (2019 -
$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.
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.
www.hammondmfg.com
Annual Report 2020 59
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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% (2019 – 3.5%) per annum health cost increase and a discount rate of 5.0% (2019 – 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 $15,000 (2019 - $17,000). Changes in assumptions resulted in nominal
gains/losses which have been included in general and administrative expense.
December 31, 2020 December 31, 2019
$ 25
$ 15
Post employment health benefits
Employee health benefits while on disability
Total employee future benefits
Post employment
health benefits
Balance at December 31, 2018
$ 23
200
$ 215
Employee health
benefits while on
disability
$ 257
Provisions made during the period
Provisions used during the period
9
(7)
37
(54)
240
$ 265
Total
$ 280
46
(61)
Balance at December 31, 2019
$ 25
$ 240
$ 265
Provisions made during the period
Provisions used during the period
-
(10)
40
(80)
40
(90)
Balance at December 31, 2020
$ 15
$ 200
$ 215
Non-current
Current
9
6
143
57
152
63
Balance at December 31, 2020
$ 15
$ 200
$ 215
17) Deferred tax assets and liabilities:
Unrecognized deferred tax liabilities:
At December 31, 2020, temporary differences of $21,446,000 (2019 - $20,555,000) 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.
www.hammondmfg.com
Annual Report 2020 60
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Recognized deferred tax liabilities:
Deferred tax assets and liabilities are attributable to the following:
Deferred tax assets
Investment property
Inventories
Loans and borrowings
Provisions
Other
Total deferred tax assets
Deferred tax liabilities
Other
Property, plant and equipment
Total deferred tax liabilities
December 31, 2020
December 31, 2019
$ 8 $ 8
555 434
412 591
181 176
- 173
1,382
1,156
(30)
(5,180) (4,436)
(5,210) (4,436)
-
Net deferred tax liabilities
$ (4,054) $ (3,054)
18) Share capital:
a) Authorized:
Unlimited number of Class A subordinate voting shares, no par value.
Unlimited number of Class B common shares with four votes per share, convertible into Class
A subordinate voting shares on a one-for-one basis, no par value. Annual dividends on the Class
B common shares may not exceed the annual dividends on the Class A subordinate voting
shares.
Unlimited number of Class YA non-voting, no par value, redeemable, retractable shares entitled
to non-cumulative discretionary dividends. No dividends shall be declared or paid on the Class
YA shares unless the same dividend is simultaneously declared and paid on the Class YB
shares.
Unlimited number of Class YB non-voting, no par value, redeemable, retractable shares entitled
to non-cumulative discretionary dividends. No dividends shall be declared or paid on the Class
YB shares unless the same dividend is simultaneously declared and paid on the Class YA
shares.
b)
Issued:
8,556,000 Class A shares (2019 - 8,556,000)
2,778,300 Class B shares (2019 - 2,778,300)
$
10,242
7
$
10,242
7
$
10,249
$
10,249
December 31, 2020 December 31, 2019
No shares were issued in 2020 or in 2019.
www.hammondmfg.com
Annual Report 2020 61
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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 2020 (2019 – $0.04) and special cash dividends of $0.04 per Class B common share were
declared and paid in 2020 (2019 – $0.04).
Total dividends declared and paid in 2020 were $453,000 (2019 - $454,000).
19) Commitments:
The Company has contractual obligations for outstanding capital expenditures of $3,622,000 (2019
- $759,000). These expenditures should be completed by the third quarter of 2021.
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 set to go to trial in September of 2022.
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 2020 62
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
21) Income tax expense:
Current tax expense
$ 1,575
$ 449
December 31, 2020 December 31, 2019
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
1,000 1,084
$ 2,575
$ 1,533
2020
2019
$ 7,724
2,575
$ 10,299
$ 4,749
1,533
$ 6,282
Income tax using the Company’s domestic tax rate
26.50% 2,729
26.50% 1,665
Reduced rate for active business and manufacturing
and processing
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Other
22) Earnings per share:
(130)
(45)
69
(60)
(110)
42
(48)
25.00% $ 2,575
(4)
24.40% $ 1,533
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 31,2020
$ 7,724
December 31,2019
$ 4,749
11,334,300
11,334,300
$ 0.68
0.68
$ 0.42
0.42
No share options to purchase common shares were outstanding as at December 31, 2020 or
December 31, 2019.
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
2020
$ 42,208
4,645
2,572
1,440
$ 50,865
2020
$ 36,940
10,655
3,091
179
$ 50,865
2019
$ 43,790
4,670
2,510
1,489
$ 52,459
2019
$ 38,541
10,799
2,930
189
$ 52,459
www.hammondmfg.com
Annual Report 2020 63
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Government subsidy:
In response to the COVID-19 pandemic a wage subsidy was made available to the Company for its
operations in Canada (the CEWS program). If a company met a certain level of sales reduction
criteria they would be eligible for a wage subsidy for the employees that they kept employed. The
company met the required criteria to apply for a subsidy of $2,308,000 for the calendar year of 2020.
The Company has recognized this grant as a reduction in related wages and salaries expenses. In
the above chart, Cost of Sales was reduced by $1,850,000, Selling and distribution was reduced by
$356,000, General and administrative expenses was reduced by $90,000 and Research and
development was reduced by $12,000.
24) Management share option plan:
As at December 31, 2020, the Company has a stock-based compensation plan, which is described
below. No options were granted through December 31, 2020 or in 2019 and no stock options were
outstanding as of January 1, 2019, 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, 2020
Carrying
amount
Fair value
December 31, 2019
Carrying
amount
Fair value
$ 2,785
20,541
$ 23,326
$ 2,785
20,541
$ 23,326
$ 719
19,107
$ 19,826
$ 719
19,107
$ 19,826
$ 2,689
17,117
16,942
16,084
$ 52,832
$ 2,689
17,117
17,437
16,090
$ 53,333
$ 4,393
16,362
18,640
13,532
$ 52,927
$ 4,393
16,362
18,240
13,385
$ 52,380
www.hammondmfg.com
Annual Report 2020 64
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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, 2020
December 31, 2019
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
2.75%
2.85%
2.95%
3.05%
3.25%
3.50%
To
3.75%
3.85%
3.95%
4.05%
4.25%
4.50%
From
3.95%
4.30%
4.35%
4.50%
4.55%
4.60%
To
4.95%
5.40%
5.45%
5.50%
5.55%
5.60%
Rates fluctuate depending on currency and jurisdiction.
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.
www.hammondmfg.com
Annual Report 2020 65
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Credit risk:
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s
receivables from customers. The carrying amount of financial assets represents the maximum
credit risk exposure.
Trade and other receivables:
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. However, management also considers the demographics of the Group’s customer
base, including the default risk of the industry and country in which customers operate, as these
factors may have an influence on credit risk.
The Group has established a credit policy under which each new customer is analyzed
individually for creditworthiness before the Group’s standard payment and delivery terms and
conditions are offered. The Group’s review includes external ratings, when available, and in
some cases bank references. Purchase limits are established for each customer, which
represents the maximum open amount without requiring approval from management.
Customers that fail to meet the Group’s benchmark creditworthiness may transact with the
Group only on a prepayment basis.
In monitoring customer credit risk, customers are grouped according to their credit
characteristics, including whether they are an individual or legal entity, whether they are a
wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and
existence of previous financial difficulties. Trade and other receivables relate mainly to the
Group’s wholesale customers. Customers that are graded as “high risk” are placed on a
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:
Cash and receivables:
Cash
Trade and other receivables
December 31, 2020
December 31, 2019
$ 2,785
20,541
$ 23,326
$ 719
19,107
$ 19,826
www.hammondmfg.com
Annual Report 2020 66
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The maximum exposure to credit risk for cash and receivables at the reporting date by
geographic region was:
December 31, 2020
December 31, 2019
Cash and receivables:
Canada
US
UK
Australia
$ 15,203
6,611
1,368
144
$ 23,326
$ 10,955
7,681
1,064
126
$ 19,826
The following table reflects the net details of trade receivables as at December 31, 2020 and
December 31, 2019:
December 31, 2020
December 31, 2019
Gross
Impairment
Carrying
value
Gross
Impairment
Carrying
value
Aging of trade receivables:
1 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
$ 9,230
6,746
1,490
241
$
-
-
-
171
$ 9,230 $ 8,722
7,698
1,665
524
6,746
1,490
70
$
-
-
-
225
$ 8,722
7,698
1,665
299
Trade receivables
$ 17,707
$
171
$ 17,536 $ 18,609
$
225
$ 18,384
The following table provides the roll forward of the allowance for doubtful accounts:
Allowance for doubtful accounts, beginning of year
December 31, 2020 December 31, 2019
278
$
$
225
Accounts provided for in the period
Amounts written off during the period
(13)
(41)
27
(80)
Allowance for doubtful accounts
$
171
$
225
Allowance for doubtful accounts as % of net
trade receivable
1.0%
1.2%
The following table provides the net details of trade and other receivables:
Net trade receivable
Employee receivables
Other receivable
December 31, 2020 December 31, 2019
$
17,536
18
2,987
$
18,384
27
696
Trade and other receivables
$
20,541
$
19,107
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
www.hammondmfg.com
Annual Report 2020 67
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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 (2019 - bank prime plus 25 basis points). The Company had available unused
credit facilities in the amount of $12,832,000 at December 31, 2020 (2019 - $11,122,000) to
meet fluctuations in working capital requirements.
The Group has established a $nil (2019 - $16,200,000) lease line to finance new equipment
purchases of which it has available $nil (2019 - $6,500,000).
The Group has available a $3,000,000 Revolving Capital Loan facility (2019 - $3,000,000) to
assist in financing a maximum of 80% of new equipment purchases.
The Group has available a $7,000,000 Non-Revolving Capital Loan facility (2019 - $nil) 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, 2020, the group had received $3,461,500 of this funding (2019 -
$3,461,500). 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.
Repayment of this loan is over five years and started in January of 2020. As at December 31,
2020 the present value of the funding is $2,435,618 (2019 – 2,986,315).
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, 2020, 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, 2020
Carrying
amount
Contractual
cash flows
2021
2022
2023 to
2024
Thereafter
Non-derivative financial liabilities
Term loans
Lease obligations
$ 16,942 $ (17,232) $(15,202) $ (696) $ (1,334)
16,084
(19,023) (3,479) (3,350) (4,919) (7,275)
$ -
Trade and other payables 17,117
Bank indebtedness
(17,117) (17,117)
2,689 (2,689) (2,689)
- - -
- - -
Total
$ 52,832 $ (56,061) $(38,487) $ (4,046) $ (6,253) $ (7,275)
www.hammondmfg.com
Annual Report 2020 68
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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)
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
Accounts payable
Dec 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019
Australia
Europe
New Zealand
Taiwan
UK
US
AUD
EURO
NZD
TWD
GBP
USD
Currency
76
180
30
23
595
5,806
26
94
52
107
658
5,678
(3)
-
-
-
(550)
(2,086)
(2)
(17)
-
(244)
(427)
(2,266)
Long-term debt
Dec 31, 2020 Dec 31, 2019
Lease Liabilities
Dec 31, 2020 Dec 31, 2019
UK
US
GBP
USD
-
(1,378)
(183)
(3,581)
(2,048)
(2,656)
(2,095)
(278)
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 2020 would
have increased net product sales by $628,000 (2019 - $610,000) and increased income
from operations by $695,000 (2019 - $661,000). Inversely, a one cent increase in the
Canadian dollar against the US dollar in 2020 would have had the equal but opposite effect.
www.hammondmfg.com
Annual Report 2020 69
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
This analysis assumes that all other variables remain constant. As noted, the Company
does deal in other currencies but the level of impact of these currencies would not be
significant.
Interest rate risk:
Interest rate risk arises from the possibility that the cash flows related to a financial instrument
would fluctuate as a result of changes in market interest rates. The Group is exposed to financial
risk that arises from the interest rate differentials between the market interest rate and the rates
on its cash, bank indebtedness, and its float rate term loans. Changes in variable interest rates
could cause unanticipated fluctuations in the Group’s operating results.
Sensitivity Analysis:
A one percent increase in the variable rates charged on ending 2020 bank indebtedness
would increase annual interest expense by $27,000 (2019 - $44,000). This analysis
assumes that all other variables remain constant. Inversely, a one percent decrease in the
variable rates charged on ending 2020 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
www.hammondmfg.com
Annual Report 2020 70
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
the business unit to which they relate, with summaries submitted to the Audit Committee and
senior management of the Group.
Capital management:
In order to manage capital, the Group regularly identifies and assesses risks that threaten the
ability to meet the Company’s capital management objectives, and determines the appropriate
strategy to mitigate these risks.
The Group’s objectives when managing capital are to:
• maintain financial flexibility in order to preserve its ability to meet financial obligations
•
deploy capital to provide an appropriate investment return to its shareholders
• maintain capital structure that allows multiple financing options to the Group should a
financing need arise.
The Group defines its capital as follows:
•
•
•
shareholders’ equity
long-term debt, including the current portion
cash and cash equivalents and short-term borrowings
The Group is subject to externally imposed capital requirements through the covenants of its
facility arrangements with the bank. The covenants measure Debt to Total Net Worth, Debt
Service Ratio and Current Ratio. With the exception in 2019 described in note 12 the Group is
in compliance with its covenants at December 31, 2020 and has been in compliance with its
covenants through 2019 and 2020. There were no changes to the Group’s approach to capital
management during 2020. Neither the Company, nor any of its subsidiaries, is subject to
externally imposed capital requirements.
www.hammondmfg.com
Annual Report 2020 71
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
Year ended:
December 31, 2020
December 31, 2019
Net product sales:
Canada:
US:
Sales to customers
$ 55,383
$ 58,242
Sales to customers
81,074
77,318
All other countries:
Sales to customers
Net product sales
Non-current assets:
Canada:
11,766
$ 148,223
13,032
$ 148,592
Non-current assets
$ 46,175
$ 42,429
US:
Non-current assets
All other countries:
Non-current assets
Non-current assets
Total
28) Related party transactions:
2,776
4,059
1,560
4,361
$ 53,010
$ 48,350
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, 2020
December 31, 2019
Salaries and short-term employee benefits
$ 801
$ 770
b) The Company purchased $2,334,000 of product from RITEC in 2020 (2019 - $3,390,000). The
Company sold $4,000 of product to RITEC in 2020 (2019 - $33,600). 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, 2020
were $1,000 (2019 - $4,663) while payables were $40,300 (2019 - $11,497). 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.
www.hammondmfg.com
Annual Report 2020 72
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
(tabular amounts (except share amounts) in thousands of Canadian dollars)
d) Consolidated entities:
HAMMOND MANUFACTURING COMPANY LIMITED
Country of
% Ownership interest
incorporation December 31,
2020
December 31,
2019
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
100
100
100
100
The year end for each of the entities listed in the table above is December 31.
www.hammondmfg.com
Annual Report 2020 73
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
www.hammondmfg.com
Annual Report 2020 74
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
Wise & Co., 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 - AnnualReport