2021
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
2021 Annual Report
4
5
Report to Shareholders
Management Discussion and Analysis
25 Management’s Responsibility for Financial Reporting
26
31
32
33
34
35
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 2021 3
REPORT TO SHAREHOLDERS
Dear fellow shareholders, employees, and stakeholders:
In general all markets were very strong in 2021.
For us sales were up 28.3% despite a 5.0% drag from the impact of foreign exchange.
Our strong inventory position was used to support this surge in demand.
The high level of market activity has driven up our material and freight costs. We have put through
several price increases in 2021 to help counteract this impact.
We have ramped up our capacities to meet the increase in demand. Our Canadian production work
force has increased by 35% in 2021.
We continue to push to get more output from our existing facilities.
In 2020 we were aided by favourable foreign exchange rates and government assistance that helped
drive our earnings per share up. In 2021 with reduced government assistance and a comparatively
unfavourable foreign exchange impact we were still able to maintain the same earnings per share thanks
to the significant increase in sales.
COVID has become a way of life for us as we continue to follow all prescribed guidance to control the
situation.
Our outlook for the quarters ahead are for continued growth in North American and our European
markets although we do not expect the growth to continue at the rate we have experienced in 2021.
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
May 2, 2022 at
Hammond Manufacturing Company Limited
394 Edinburgh Rd North, Guelph, Ontario
Commencing at 10:00 a.m.
www.hammondmfg.com
Annual Report 2021 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, 2021. This discussion should be read in conjunction with the Company’s
consolidated financial statements for the year ended December 31, 2021 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 7, 2022.
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 2021 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,
the Netherlands and Australia, with agents and distributors located worldwide. The Company also
maintains a 40% ownership share of RITEC Enclosures Inc. (RITEC) located in Taiwan. RITEC
produces a line of small cases for sale through the Hammond Manufacturing Company’s sales channels
and also manages sourcing of die cast and plastic enclosures.
OPERATIONS
In 2020 the world began to experience a global pandemic from COVID-19 or COVID. All markets
fluctuated as it has run its course. In 2020 we saw sales decline as the pandemic took hold at the end
of the first quarter. Business levels had returned to pre-COVID levels in the last quarter of 2020. Our
markets continued to see significant growth throughout 2021. We continue to have high absenteeism
due to COVID related issues. We have added people as fast as we could but this has been a struggle
as the labour market has been very tight. Despite this challenge we have increased our hourly staff level
by almost 35% from the beginning of 2021. This does create a challenge of onboarding and training new
employees. The team has worked hard to do this with as little disruption as possible. We are also starting
to battle physical constraints at some of our operations. The teams in these facilities are working hard
to streamline any areas we can in order to squeeze out all the available capacity.
Production has had a difficult time meeting the demand from the warehouse and we have seen our
finished goods inventory reduce by $2,842,000 while raw materials and work in process has increased
$6,296,000 at December 31,2021 compared to December 31,2020.
In July of 2021 the Company announced its plans to expand operations with the addition of a 96,000
square foot facility. This is a brand-new build and currently is expected to be operational in the first
quarter of 2023. This facility will house a paint line and metal fabrication. The projected budget for the
facility and equipment is approximately $24 million.
Commencing in 2020, the Company applied for the Canadian Emergency Wage Subsidy (CEWS). In
2020 we benefited from $2,308,000 in federal assistance under this program. In 2021 the Company
received an additional $607,000 of assistance in the first quarter of the year.
In 2021 the Company completed a work project to install a sprinkler system at our Guelph area
warehouse. The project cost was $1.1 million and will save us close to $500k in insurance costs per
year going forward.
www.hammondmfg.com
Annual Report 2021 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)
Net product sales
$42,140
$46,502
$46,146
$55,340
$190,128
Q1
Q2
Q3
Q4
2021
Year-to-date
Total
Income from operating activities
Net income for the period
Earnings per share
- Basic & diluted
2,921
1,977
$0.17
3,008
2,197
$0.20
2020
2,597
1,290
$0.11
3,247
2,238
$0.20
11,773
7,702
$0.68
Q1
Q2
Q3
Q4
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
2,284
570
2,604
1,810
1,314
921
Earnings per share
- Basic & diluted
Note: Interim consolidated financial information has not been reviewed by an auditor.
$0.16
$0.05
$0.08
5,480
4,423
$0.39
11,682
7,724
$0.68
FOURTH QUARTER RESULTS
NET PRODUCT SALES
Net product sales for the three months ended December 31, 2021 were $55,340,000, up 19.9%
compared to net product sales of $46,146,000 in the third quarter of 2021. North America, which
comprises over 92% of sales, saw sales in the USA up 23.3% and Canadian sales up 16.2% over the
prior quarter. Our North American markets are currently very strong. Our European sales were down
12.1% over the previous quarter. We do find that the European year-end holidays does limit sales in
December. There was minimal impact from foreign exchange compared to the previous quarter.
Net product sales for the current quarter were up 42.4% compared to net product sales of $38,864,000
for the three months ended December 31, 2020. This quarter was helped by having 64 sale days’ vs 63
sale days in the fourth quarter of 2020. Foreign exchange had a significant impact on the comparative
quarters. If we used the same rates as used in the fourth quarter of 2020, reported sales for this quarter
would be up approximately an additional $2,279,000 and show a quarter over quarter increase of 48.3%
instead of 42.4% noted above. The change in the USD to the CAD dollar was the primary factor of this
impact. In the fourth quarter of 2020 the exchange rate was 1.341 CAD = 1.00 USD compared to the
fourth quarter of 2021 exchange rate of 1.253 CAD = 1.00 USD. We have put several price increases in
throughout 2021 to combat cost increases and it is estimated this had an impact of approximately 5% to
8% of the overall increase.
GROSS PROFIT
Gross profit of $15,477,000 for the fourth quarter of 2021 was 28.0% of net sales compared to 29.8% in
the third quarter of 2021. Material costs continue to be on the rise in this quarter and can account for
approximately 1.4% of the drop in gross profit. We are currently looking at our next price increase to
help cover these cost increases.
www.hammondmfg.com
Annual Report 2021 7
MANAGEMENT DISCUSSION AND ANALYSIS
When we compare gross profit levels between the comparative fourth quarter of 2020 and 2021 we can
see a significant drop from 37.7% to 28.0%. In the fourth quarter of 2020 we recognized a cost saving
of $1,850,000 derived from CEWS. Without the upside from CEWS the gross profit in the fourth quarter
of 2020 would have been 32.9%. As noted earlier if we factor the impact of foreign exchange this
quarter’s gross profit in 2020 terms would be around 30.8%, so we are seeing a drop in margins of
approximately 2.1% due to cost increases. We did put some price increases through in December of
2021 that will help improve gross profit.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES AND
LOSS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
Fourth quarter selling and distribution, general and administrative expenses and gain / loss on the
disposal of property plant and equipment of $12,230,000 was 22.1% of net sales for the three months
ended December 31, 2021. This compared with spending of $11,139,000 in the previous quarter that
was 24.1% of net sales. The fourth quarter of 2020 saw spending levels of $9,161,000 which was 23.6%
of net sales. Foreign exchange decreased the 2021 expense levels approximately $339,000 over the
comparative fourth quarter of 2020. The fourth quarter of 2020 also had savings from CEWS of
$458,000.
Selling and distribution spending in the fourth quarter of 2021 was $10,657,000 (19.3% of net product
sales). The prior quarter spend was $9,694,000 (or 21.0% of net product sales). Net product sales grew
19.9% while expenses only grew 9.9%. The increased sales volume against fixed costs is the primary
cause of this reduction.
Selling and distribution spending in the fourth quarter of 2020 was $8,008,000 (20.6% of net product
sales). The impact of CEWS in 2020 lowered expenses by $368,000 (or 1.0% of net product sales). The
higher sales volume in 2021 combined with fixed costs in this area helped bring down the % as a function
of sales. Selling expense such as travel and marketing have started to increase especially in the USA
as restrictions on travel due to COVID and general sentiment on the fears off COVID are dropping.
Overall these expenses are still down compared to pre-COVID times. Freight expense continues to run
higher than normal this year. Sales are up 42.4% while expenses are up 27.2% with the CEWS impact
removed. Freight and distribution expenses are up 47.2% and we are watching and monitoring the
situation closely.
General and administrative expenses of $1,573,000 (2.8% of net product sales) in the fourth quarter is
up 9.0% over the previous quarter’s spending of $1,443,000 (3.1% of net product sales). Approximately
$151,000 of the quarter over quarter change can be attributed to our bad debt expense.
In the fourth quarter of 2020 general and administrative expenses were $1,184,000 or $1,274,000 (3.3%
of net product sales) before the impact of CEWS. This quarters spend is up 23.5% compared to the
fourth quarter before the impact of CEWS. 11.8% of the impact came from an increase in our reserve
for bad debts that is a function of our outstanding accounts receivable. Our accounts receivable is up
considerably as a function of the increased sales. The allowance is approximately 1% of the outstanding
accounts receivable balance and this is comparable to other periods. Days sales outstanding at year
end was 47.5 days compared to 44.3 days at the end of 2020.
INCOME FROM OPERATING ACTIVITIES
This quarter income from operating activities was $3,247,000 (5.9% of net product sales). This is up
from the prior quarter of $2,597,000 (5.6% of net product sales) and down from the 2020 fourth quarter
www.hammondmfg.com
Annual Report 2021 8
MANAGEMENT DISCUSSION AND ANALYSIS
amount of $5,480,000 (14.1% of net product sales) without CEWS it would have been $3,173,000 (8.2%
of net product sales).
INTEREST
Fourth quarter interest expense on bank indebtedness and loans was $219,000 compared to an
expense of $249,000 for the fourth quarter 2020.The comparative loan base has dropped throughout
the year and is down just over $2.0 million from the end on 2020 to 2021.
Interest expense is comprised as follows:
Three Months Ended:
December 31, 2021 December 31, 2020
Long Term debt, excluding lease liabilities
$
193
$
214
Bank indebtedness
Interest expense
Interest expense leases
26
35
$
219
$
249
$
165
$
191
Total Interest and Lease interest expense
$
384
$
440
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
During the fourth quarter of 2021, the Company recognized a loss on transactional foreign exchange of
$14,000 compared to a gain of $897,000 in the three months ended December 31, 2020. The spot rate
at the opening of the fourth quarter of 2020 was 1.00 USD to 1.3396 CAD. The closing spot rate for
2020 was 1.00 USD to 1.2732 CAD. In 2021 the fourth quarter spot rate opened at 1.00 USD to 1.268
and closed at 1.00 USD to 1.268 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. 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 $579,000 is 20.6% of income before taxes. This included the years final true up
to bring the overall years tax rate to 24.2% of income before taxes. In 2020 the final true up for the
year’s activities provided for tax expense of $1,439,000 (24.5% of income before tax). The 2020 full year
tax rate was 25.0% of income before taxes.
NET INCOME FOR THE PERIOD
Net income of $2,238,000 (4.0% return on net product sales) was recognized for the fourth quarter
ended December 31, 2021. This is up from a net return of $1,290,000 (2.8% return on net product sales)
in the previous quarter and down from the net return of $4,423,000 (11.4% return on net product sales)
recognized in the fourth quarter of 2020. If we adjust for (remove) CEWS net income for the fourth
quarter of 2020 would have been $2,115,000 (5.4% return on net product sales).
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
The translation adjustment for the fourth quarter of 2021 was a loss of $20,000 compared to a translation
loss of $1,040,000 in the fourth quarter of 2020. In the fourth quarter of 2020 the Canadian dollar
strengthening against our foreign entity currencies provided a negative impact from foreign currency
translation.
www.hammondmfg.com
Annual Report 2021 9
MANAGEMENT DISCUSSION AND ANALYSIS
TOTAL COMPREHENSIVE INCOME
Comprehensive income for the fourth quarter ended December 31, 2021 was $2,218,000 (4.0% of net
product sales) down from the 3 months ended December 31, 2020 of $3,383,000 (8.7% of net product
sales) and up from the previous quarter’s total comprehensive income of $1,973,000 (4.2% of net
product sales).
FULL YEAR RESULTS
NET PRODUCT SALES
2020 started out strong but fell off in the second and third quarters for which, we are attributing primarily
to the fallout from COVID. The fourth quarter of 2020 returned to sales levels more indicative of the
levels seen before COVID hit. In 2021 sales has continued to grow throughout the year Net product
sales of $190,128,000 in 2021 were up 28.3% compared to net sales of $148,223,000 reported in 2020.
Foreign exchange had a negative impact on the year over year reporting by approximately $7,451,000.
If we utilize 2020 exchange rates on 2021 sales, sales would be up an additional 5.0% to 33.3%. Our
Canadian market is up 32.2% over 2020 while the US market is up 33.1% when measured in USD. Due
to the impact of foreign exchange the US sales are up 24.3% when measured in CAD. The rest of the
world activity is up approximately 25.5%. There was little foreign exchange impact in these areas.
GROSS PROFIT
In 2021, gross profit was $56,001,000 or 29.5% of net product sales compared to $49,170,000 or 33.2%
achieved in 2020. If we remove the impact of CEWS in 2020 of ($1,850,000) the gross profit would be
31.9%. If we remove the impact of CEWS in 2021 of ($485,000) the gross profit would be 29.2%. If we
further adjust the 2021 gross profit for the impact of foreign exchange compared to 2020 rates we would
have achieved a 31.9% gross profit level. You can see that without the impact of CEWS or foreign
exchange we have achieved a similar gross profit level. This year we have experienced significant cost
increases. Incoming freight expenses, especially any container freight, doubled in costs throughout the
year, although we are seeing it work its way back down. Steel prices also have increased significantly
throughout the year. The current outlook is that these costs should come down going forward. We have
put through several price increases throughout the year to help offset the cost increases we have been
experiencing. Our markets have been understanding of our price increases as everyone seems to be
experiencing this situation. We continue to monitor our markets and vendors and will react accordingly
to the situation.
Spending related to COVID safety measures this year is approximately $353,000 (2020- $277,000).
2020 only had COVID safety measure in place for the last three quarters of the year. This only reflects
the direct expenses and not the time and effort put in by staff members to manage the situation.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE, AND LOSS ON
DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
Selling and distribution, general and administrative including the net impact of the disposal of property,
plant and equipment of $44,228,000 (23.3% of net product sales) was up 18.0% compared to the 2020
of $37,488,000 (25.3% of net product sales). Year over year sales increase of 28.3% and associated
variable costs that go with this is the driver of the cost increases. Receipt of in CEWS provided a cost
reduction of $458,000 in 2020 and only $122,000 in 2021. (or 0.3% of net product sales). Foreign
exchange had the impact of decreasing the reported expense levels in 2021 compared to 2020 by
approximately $1,126,000.
www.hammondmfg.com
Annual Report 2021 10
MANAGEMENT DISCUSSION AND ANALYSIS
Selling and distribution expenses of $38,460,000 increased $6,199,000 or 19.2% compared to 2020.
Decreases in CEWS assistance accounts for $265,000 of this increase. Foreign exchange had the
impact of decreasing comparative costs by $1,053,000. With the restrictions of COVID we saw our
marketing and advertising expenses decline in 2020 and has only recently started to pick backup.
Shipping and warehousing expenses were up $4,097,000 or 36.1%. As discussed previously, freight
costs have increased significantly.
Our general and administrative expenses of $5,783,000 were up $567,000 or 10.9% compared to 2020
spending levels of $5,216,000. Decreases in CEWS assistance accounts for $71,000 of this increase.
Foreign exchange had the impact of decreasing comparative costs by $73,000. IT related expenses
were up $104,000 as we support the increase in production and sales activity. Severances were up
$80,000, legal and professional fees were up $131,000. Bad debt expenses were up $145,000 as we
increased our reserve as a function of the increase in our accounts receivable levels.
This year we saw a net gain of $15,000 on the disposal of property, plant and equipment. This compares
to a net loss on disposals of $11,000 recognized in 2020.
INCOME FROM OPERATING ACTIVITIES
Overall, 2021 income from operating activities was $11,773,000 (6.2% of net product sales) which is
down compared to 2020 earnings of $11,682,000 (7.9% of net product sales). If we remove the impact
of CEWS from each year, the 2021 results would be 5.9% of net product sales and 2020 would be 6.3%
of net product sales. This result includes the net negative impact of foreign exchange of $6,325,000
compared to the foreign exchange rates in 2020.
INTEREST
Interest expense on bank indebtedness and loans was $820,000 compared to an expense of $996,000
for 2020. The comparative loan base has dropped throughout the year and is down just over $2.0 million
from the end on 2020 to 2021.
The following is a breakdown of the interest expenses.
Interest expense is comprised as follows:
Long Term debt, excluding lease liabilities
$
749
$
857
December 31, 2021 December 31, 2020
Bank indebtedness
Interest expense
Interest expense leases
71
139
$
820
$
996
$
661
$
627
Total Interest and Lease interest expense
$
1,481
$
1,623
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
A $14,000 foreign exchange transactional loss was reported in 2021, compared to a transactional gain
of $395,000 in 2020. The Canadian dollar strengthened against the US dollar throughout 2020. It opened
at $1.00 USD to $1.2988 CAD and quickly rose to $1.00 USD to $1.40 level and slowly worked its way
back down and closed the year at $1.00 USD to $1.2732 CAD. In 2021 the trend continued and the
Canadian dollar continued to strengthen against the US dollar. It hit $1.00 USD to $1.229 CAD at the
end of the second quarter then slowly came back to close the year at $1.00 US dollar to $1.268 CAD.
www.hammondmfg.com
Annual Report 2021 11
MANAGEMENT DISCUSSION AND ANALYSIS
A large portion of the gain seen in 2020 is from our intercompany receivable. Our Canadian entity has
a payable to our US entity in US dollars. The opening payable was $10.6 million USD and the closing
balance was $5.15 million. This year since the opening and closing rates were so close we did not see
a significant impact. In 2020 it created transaction gain of approximately $209,000 with the offset going
to translational gains of other foreign operations.
INCOME TAX EXPENSE
2021 tax expenses of $2,459,000 were 24.2% of income before income tax. This compares to a 2020
tax expense of $2,575,000 which was 25.0% of income before income tax.
NET INCOME FOR THE YEAR
Net income for the year ended December 31, 2021 was $7,702,000 (4.1% of net product sales)
compared to the prior year net income of $7,724,000 (5.2% of net product sales). This year’s net income
adjusted to remove the impact of CEWS (after tax impact is $460,000) is $7,264,000 (3.8% of net product
sales). This compares to 2020 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 2021 a loss of $99,000 on translational foreign exchange was recorded compared to a loss of
$459,000 in 2020. The strengthening Canadian dollar caused a decrease in the measurement of our
financial assets and liabilities in our foreign entities. As noted earlier a large part of the 2020 loss
(approximately $209,000) of this is offset by the foreign exchange transactional impact of intercompany
loans.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for 2021 was $7,603,000 (4.0% of net product sales) this compared to
comprehensive income of $7,265,000 (4.9% of net product sales) in 2020.
SELECTED ANNUAL INFORMATION
Three year financial summary:
For the years ended December 31,
(In thousands except per share amounts)
Consolidated Statements of Comprehensive Income
2021
2020
2019
Net product sales
Income from operating activities
Net income for the year
Per share - basic & fully diluted
net earnings for the year
$
190,128
$
148,223
$
148,592
11,773
7,702
11,682
7,724
7,469
4,749
$0.68
$0.68
$0.42
Consolidated Statement of Financial Position
2021
2020
2019
Total assets
Total funded debt and lease liabilities
Working capital
Net cash generated from operating activities
Dividends declared and paid
Shareholders' equity
$
$
$
136,976
35,533
32,786
14,923
453
68,692
120,255
35,715
28,018
15,689
453
61,542
111,402
36,565
20,532
11,707
454
54,730
$
$
$
www.hammondmfg.com
Annual Report 2021 12
MANAGEMENT DISCUSSION AND ANALYSIS
CAPITAL RESOURCES AND LIQUIDITY
Net cash generated in operating activities for 2021 was $14,923,000 (net cash generated in 2020 -
$15,689,000). Cash flows from financing activities used $1,959,000 (2020 – $7,548,000). Cash used in
investing activities was $11,544,000 (2020 - $5,527,000).
Trade and other receivables of $27,143,000 as at December 31, 2021 have increased 32.1% compared
to the 2020 year end. 2020 balance includes a receivable for CEWS of $2,308,000. Trade and other
receivables excluding CEWS in 2020 was $18,233,000 which means we are actually up 48.9%
compared to 2020. Day’s sales outstanding (DSO) (excluding CEWS) calculated as at December 31,
2021 was 47.5 compared to 44.3 days as calculated on December 31, 2020. In previous years we have
always sat in the low 50’s DSO so we are pleased with the trend we have been seeing. The quality of
accounts receivable remains high.
The year-end investment in inventory of $45,516,000 was an increase of 8.2% from the 2020 inventory
value of $42,062,000. Inventory turnover increased to 3.3 from 2.4 (cost of sales divided by the twelve
month average inventory level). The increase in sales activities has increased our inventory turnover.
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 $9,812,000, or 57.3% over 2020 to $26,929,000. This increase
is primarily a function of the increased activity levels. Total long-term debt, lease liabilities and bank
indebtedness decreased by $182,000 over the prior year to $35,533,000. Our debt-to-equity ratio at
year-end (excluding lease liabilities) was approximately 0.32:1 (2020 - 0.32:1). Debt-to-equity calculated
inclusive of the lease liabilities was 0.52:1 (2020 – 0.58:1). In December, with rate increases in the
forecast we took the opportunity to lock in $5,660,000 of debt for seven years at 3.83%. It does put us
in a positive cash position but the outlay for our new facility will draw against this early in 2022.
Total dividends paid in 2021 were $453,000 (2020 - $453,000).
Property, plant, equipment and intangible asset additions excluding right of use assets in 2021 were
$11,565,000 up from $5,571,000 in 2020. The Company spent $4,252,000 (2020 - $273,000) on land,
building and leasehold improvements. $452,000 (2020 - $953,000) was invested toward replacing
machinery and equipment, $5,751,000 (2020 - $3,459,000) was invested toward machinery and
equipment for capacity growth, $871,000 (2020 - $759,000) was invested in tooling, $119,000 (2020 -
$20,000) was invested in office equipment. $93,000 (2020– $19,000) was spent on software and
development costs. 2021 spending on product development of $27,000 was level with $27,000 in 2020.
The overall cash position increased by $1,284,000 in 2021 compared to a cash position increase of
$2,066,000 in 2020. As noted earlier the anticipated cash requirements for building our new facility will
draw down the excess cash in early 2022.
There were not any significant or renewed leases made in 2021.
The Company is in compliance with all the bank covenants, and the credit facilities are well designed to
meet expected on going requirements.
www.hammondmfg.com
Annual Report 2021 13
MANAGEMENT DISCUSSION AND ANALYSIS
As at December 31, 2021 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
$
20,676
$
14,551
$
1,393
$
1,379
$
809
$
841
$
1,703
13,862
2,957
2,390
2,030
2,112
1,436
2,937
Total contractual obligations
$
34,538
$
17,508
$
3,783
$
3,409
$
2,921
$
2,277
$
4,640
As at December 31, 2021 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
$
20,676
$
2,621
$
8,370
$
2,570
$
3,405
$
2,007
$
1,703
13,862
2,957
2,391
2,030
2,112
1,436
2,936
Total contractual obligations
$
34,538
$
5,578
$
10,761
$
4,600
$
5,517
$
3,443
$
4,639
In addition to the contractual obligations above, the Company has current obligations of $12,523,000
(2020 - $3,585,000) against open purchase orders for outstanding capital expenditures. $7,051,000 of
this is toward the construction of our new facility in Palmerston Ontario and $3,286,000 is toward
equipment that will go in this new facility. The new facility is scheduled for completion in the first quarter
of 2023.
The Company also has open purchase commitments with RITEC as at December 31, 2021 of
$3,140,000 (2020 - $1,241,000). These expenditures should be completed in the first half of 2022.
SHARE CAPITAL
As of March 7, 2022, 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 2021 was $18,432,000. This showed improvement over EBITDA of $18,298,000 achieved
in 2020.
EBITDA adjusted for transactional impact of foreign exchange slightly increased the EBITDA in 2021
compared to an adjusted EBITDA of 17,903,000 in 2020. 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 2021 14
MANAGEMENT DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars) Years Ended:
Three Months Ended:
December 31,
2021
7,702
December 31,
2020
7,724
December 31,
2021
2,238
December 31,
2020
4,423
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)
2,459
3,971
2,819
820
661
10,730
18,432
2,575
3,540
2,836
996
627
10,574
18,298
14
(395)
579
1,146
716
219
165
2,825
5,063
14
5,077
1,439
925
740
335
105
3,544
7,967
(897)
7,070
Adjusted EBITDA *
18,446
17,903
* 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 2021 related to this property was $139,000 (2020 -
$141,000).
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. Our
provision covers the next four years activities. The Company’s remaining portion of environmental
remediation costs for this site is $225,000 (2020 - $225,000) with $80,000 (2020 - $80,000) presented
as a current liability in the consolidated financial statements.
A statement of claim was issued on June 19, 2013, against the Company with respect to a property once
held by the Company. The claim alleges that contaminants originating from the property once owned by
the Company have migrated to a nearby, but not adjoining property owned by the claimants. The amount
of the claim is not fully known but includes $3,500,000 which is the estimated cost of construction of a
barrier and related expenses. At this point in time, there is no certainty that the contaminants emanated
www.hammondmfg.com
Annual Report 2021 15
MANAGEMENT DISCUSSION AND ANALYSIS
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 2020 and 2021.
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 2021 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:
For the purpose of initial and subsequent measurement of 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 2021 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
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 2021 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, 2021 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, 2021.
There has been no change to internal controls in the most recent quarter ended on December 31, 2021
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 2021 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 2021 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 $872,000 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 4.0% 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.
PANDEMICS
In early 2020, the World Health Organization declared the COVID outbreak a global pandemic. In
response, public and private sectors implemented measures aimed at reducing the transmission of
COVID including travel restrictions, the promotion of social distancing, and the adoption of work-from-
www.hammondmfg.com
Annual Report 2021 21
MANAGEMENT DISCUSSION AND ANALYSIS
home and online continuity plans. Globally, various governments have aided those affected including
individuals and businesses through taxation deferrals, subsidies, and other relief programs which
continued through 2021.
The Company took quick action with a COVID Global Task Force and Action Response Plan and was
able to mitigate the impact of the pandemic on operations. Further, the Company’s products are
considered essential and have not observed a significant decline market activity.
The Company continues to monitor and assess the impact of COVID to the Company’s financial results
and operations. 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.
We continue to monitor the situation and adjust where needed to mitigate the negative impact created
by the pandemic.
ACCOUNTING POLICY CHANGES
The International Accounting Standards Board (IASB) has issued the following Standards,
Interpretations and Amendments to Standards that were adopted by the Group.
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 adopted on January 1, 2021. The impact of adoption of these amendments
did not have an impact on the business.
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 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. In November 2021,
the IASB published the exposure draft Non-current Liabilities with Covenants (proposed
amendments to IAS 1). The exposure draft aims to improve the information an entity provides
when its right to defer settlement of a liability for at least twelve months is subject to compliance
with conditions, in addition to addressing concerns about the classification of such a liability as
current or non-current.
The IASB proposed to defer the effective date of the 2020 amendments to no earlier than
January 1, 2024.
www.hammondmfg.com
Annual Report 2021 22
MANAGEMENT DISCUSSION AND ANALYSIS
Definition of Accounting Estimates (Amendments to IAS8)
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to
IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they
are monetary amounts in the financial statements that are subject to measurement uncertainty.
The amendments also clarify the relationship between accounting policies and accounting
estimates by specifying that a company develops an accounting estimate to achieve the
objective set out by an accounting policy.
The amendments are effective for annual periods beginning on or after January 1, 2023. Early
adoption is permitted.
Disclosure initiative – Accounting Policies (Amendments to IAS 1)
On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial
Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help
companies provide useful accounting policy disclosures.
The key amendments to IAS 1 include a requirement for companies to disclose their material
accounting policies rather than their significant accounting policies; clarifying that accounting
policies related to immaterial transactions, other events or conditions are themselves immaterial
and as such need not be disclosed; and clarifying that not all accounting policies that relate to
material transactions, other events or conditions are themselves material to a company’s
financial statements.
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.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
(Amendments to IAS 12 Income Taxes)
On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The amendments narrow the scope of the initial recognition exemption (IRE) so that it does not
apply to transactions that give rise to equal and offsetting temporary differences. As a result,
companies will need to recognize a deferred tax asset and a deferred tax liability for temporary
differences arising on initial recognition of a lease and a decommissioning provision.
The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier
adoption is permitted.
www.hammondmfg.com
Annual Report 2021 23
MANAGEMENT DISCUSSION AND ANALYSIS
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.
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 2022
The feedback we have from our markets is that we will see growth in the mid-single digit area in 2022.
Our output capacity will be our constraint.
The current outlook for the US dollar is that it will strengthen and this does increase the returns from our
US markets. We continue to competitively price our products and stimulate market share growth.
COVID impact remains an unknown and we monitor and react as best we can as the situation continues
to play out.
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 2021 24
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 7, 2022
www.hammondmfg.com
Annual Report 2021 25
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, 2021 and 2020
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, 2021 and 2020, 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.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
KPMG Canada provides services to KPMG LLP.
www.hammondmfg.com
Annual Report 2021 26
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, 2021.
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 $45,516 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.
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 entitled “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.
www.hammondmfg.com
Annual Report 2021 27
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 and the Annual Report 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.
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.
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.
www.hammondmfg.com
Annual Report 2021 28
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.
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.
www.hammondmfg.com
Annual Report 2021 29
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 7, 2022
www.hammondmfg.com
Annual Report 2021 30
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
As at December 31,
Assets
Current assets:
Note
2021
2020
Cash
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Total current assets
Non-current assets:
Property, plant and equipment
Intangible assets and goodwill
Right-of-use assets
Investment property
Equity investment
Total non-current assets
Total assets
Liabilities
Current liabilities:
Bank indebtedness
Trade and other payables
Income taxes payable
Current portion of provisions
Current portion of employee future benefits
Current portion of long-term debt
Current portion of lease liabilities
Total current liabilities
Non-current liabilities:
Employee future benefits
Long-term debt
Lease liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity:
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
19
20
$
4,069
27,143
76
45,516
1,723
78,527
$
2,785
20,541
-
42,062
1,857
67,245
41,141
428
15,000
1,044
836
58,449
33,637
349
17,116
1,044
864
53,010
$
136,976
$
120,255
$
995
26,929
-
220
89
14,551
2,957
45,741
$
2,689
17,117
1,303
164
63
15,086
2,805
39,227
304
6,125
10,905
145
5,064
22,543
68,284
10,249
290
1,883
56,270
68,692
152
1,856
13,279
145
4,054
19,486
58,713
10,249
290
1,982
49,021
61,542
$
136,976
$
120,255
The notes on pages 35 to 72 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2021 31
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
2021
2020
Net product sales
Cost of sales
Gross profit
Selling and distribution
General and administrative
Loss (gain) on disposal of property, plant and equipment
Income from operating activities
Interest expense
Interest expense leases
Foreign exchange gain (loss)
Net finance expense
Share of profit (loss) of equity accounted investees
Share of expenses from investment property
Income before income tax
Income tax expense
$ 190,128
$ 148,223
134,127
56,001
38,460
5,783
(15)
11,773
(820)
(661)
(14)
99,053
49,170
32,261
5,216
11
11,682
(996)
(627)
395
(1,495)
(1,228)
22
(139)
(14)
(141)
10,161
10,299
2,459
2,575
13
13
10
9
21
Net income for the period
$ 7,702
$ 7,724
Other comprehensive loss:
Foreign currency translation differences for foreign
operations
Other comprehensive loss for the period, net of income tax
(99)
(99)
(459)
(459)
Total comprehensive income for the period
$ 7,603
$ 7,265
Earnings per share
Basic earnings per share
Diluted earnings per share
22
22
$ 0.68
$ 0.68
$ 0.68
$ 0.68
The notes on pages 35 to 72 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2021 32
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Changes in Equity
For the years December 31, 2021 and December 31, 2020
(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, 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
$
10,249
$
290
$
1,982
$
49,021
$
61,542
Balance at January 1, 2021
$
10,249
$
290
$
1,982
$
49,021
$
61,542
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
-
-
-
-
-
-
-
-
7,702
7,702
(99)
-
(99)
(99)
7,702
7,603
-
(453)
(453)
Balance at December 31, 2021
** Accumulated other comprehensive income (loss)
$
10,249
$
290
$
1,883
$
56,270
$
68,692
The notes on pages 35 to 72 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2021 33
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
For The Years ended December 31,
2021
2020
Cash flows from operating activities
Net income for the period
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Depreciation of right-of-use assets
Interest expense
Interest expense on leases
Income tax expense
Loss (gain) on disposal of property, plant and equipment
Provisions and employee future benefits
Equity investments
Change in inventory allowance for lower of cost or market
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 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 used in 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 loss on cash and cash
equivalents in a foreign currency
$
7,702
$
7,724
3,932
39
2,819
820
661
2,459
(15)
234
28
159
18,838
(3,613)
(6,602)
134
9,812
18,569
(820)
(2,826)
14,923
(1,692)
(1,919)
(3,555)
5,660
(453)
(1,959)
21
(11,445)
(120)
(11,544)
1,420
2,785
(136)
3,502
38
2,836
996
627
2,575
11
50
(18)
300
18,641
(904)
(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)
Cash at end of period
$
4,069
$
2,785
The notes on pages 35 to 72 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2021 34
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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, 2021 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 Pandemic:
In early 2020, the World Health Organization declared the COVID outbreak a global pandemic.
In response, public and private sectors implemented measures aimed at reducing the
transmission of COVID including travel restrictions, the promotion of social distancing, and the
adoption of work-from-home and online continuity plans. Globally, various governments have
aided those affected including individuals and businesses through taxation deferrals, subsidies,
and other relief programs which continued through 2021.
The Company took quick action with a COVID Global Task Force and Action Response Plan
and was able to mitigate the impact of the pandemic on operations. Further, the Company’s
products are considered essential and have not observed a significant decline market activity.
The Company continues to monitor and assess the impact of COVID to the Company’s financial
results and operations. 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 7, 2022.
b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis.
www.hammondmfg.com
Annual Report 2021 35
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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
income which is included in accumulated other
recognized in other comprehensive
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 2021 36
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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 2021 37
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
xi) Leases:
For the purpose of initial and subsequent measurement of leases the Company utilizes a
discount rate in the lease that is readily available or the Group’s 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
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 2021 38
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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 2021 39
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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
Straight-Line Method
Buildings
Office equipment
Machinery and equipment
Tooling general use
Tooling specific part
20 to 40 years
4 to 10 years
4 to 10 years
4 to 10 years
Based on anticipated life unit 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
Straight-Line Method
5 years
5 years
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 2021 40
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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 2021 41
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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 2021 42
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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, 2021 and December 31, 2020, 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 2021 43
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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 2021 44
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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 2021 45
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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.
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.
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 adopted on January 1, 2021. The impact of adoption of these amendments
did not have an impact on the business.
www.hammondmfg.com
Annual Report 2021 46
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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. In November 2021,
the IASB published the exposure draft Non-current Liabilities with Covenants (proposed
amendments to IAS 1). The exposure draft aims to improve the information an entity provides
when its right to defer settlement of a liability for at least twelve months is subject to compliance
with conditions, in addition to addressing concerns about the classification of such a liability as
current or non-current.
The IASB proposed to defer the effective date of the 2020 amendments to no earlier than
January 1, 2024.
Definition of Accounting Estimates (Amendments to IAS8)
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to
IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they
are monetary amounts in the financial statements that are subject to measurement uncertainty.
The amendments also clarify the relationship between accounting policies and accounting
estimates by specifying that a company develops an accounting estimate to achieve the
objective set out by an accounting policy.
The amendments are effective for annual periods beginning on or after January 1, 2023. Early
adoption is permitted.
Disclosure initiative – Accounting Policies (Amendments to IAS 1)
On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial
Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help
companies provide useful accounting policy disclosures.
The key amendments to IAS 1 include a requirement for companies to disclose their material
accounting policies rather than their significant accounting policies; clarifying that accounting
policies related to immaterial transactions, other events or conditions are themselves immaterial
and as such need not be disclosed; and clarifying that not all accounting policies that relate to
material transactions, other events or conditions are themselves material to a company’s
financial statements.
The amendments are effective for annual periods beginning on or after January 1, 2023. Early
adoption is permitted.
www.hammondmfg.com
Annual Report 2021 47
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
(Amendments to IAS 12 Income Taxes)
On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The amendments narrow the scope of the initial recognition exemption so that it does not apply
to transactions that give rise to equal and offsetting temporary differences. As a result,
companies will need to recognize a deferred tax asset and a deferred tax liability for temporary
differences arising on initial recognition of a lease and a decommissioning provision.
The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier
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.
www.hammondmfg.com
Annual Report 2021 48
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
4) Trade and other receivables:
Trade receivables
Employee receivables
Other receivables
Estimated credit losses
Trade and other receivables
December 31, 2021
December 31, 2020
$ 27,214
13
232
27,459
(316)
$ 27,143
$ 17,707
18
2,987
20,712
(171)
$ 20,541
Other receivables in 2021 includes $nil from the Canada Emergency Wage Subsidy (“CEWS”) grant
(2020 - $2,308,000). 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, 2021
December 31, 2020
$ 18,928
26,588
$ 45,516
$ 12,632
29,430
$ 42,062
Inventories carried at net realizable value
$ 2,090
$ 1,803
In 2021, raw materials, consumables and changes in finished goods and work in progress
recognized as cost of sales amounted to approximately $133,968,000 (2020 - $98,753,000). In
2021, the write-down of inventories to net realizable value net of recovery was $159,000 (2020 -
$300,000).
www.hammondmfg.com
Annual Report 2021 49
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
6) Property, plant and equipment:
Cost
Land and
buildings
Balance at December 31, 2019
$
22,130
Machinery
and
equipment
$
46,257
Tooling
Office
equipment
Total
$
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
Additions
Disposals
Effect of movements in exchange rates
$
4,252
(6)
1
$
6,203
(664)
(8)
871
$
-
(12)
$
119
(34)
(4)
$
11,445
(704)
(23)
Balance at December 31, 2021
$
26,610
$
54,995
$
11,968
$
2,504
$
96,077
At December 31, 2021, the amount of expenditures recognized in the carrying amount that were in
the course of construction was $2,222,000 (2020 - $47,785) in land and buildings, $1,441,000 (2020
- $601,396) in machinery and equipment, $255,000 (2020 - $162,599) in tooling and $82,000 (2020
- $60,016) in office equipment.
Accumulated depreciation
Land and
buildings
Balance at December 31, 2019
$
7,364
Machinery
and
equipment
$
32,756
Tooling
Office
equipment
Total
$
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
Depreciation for the period
Disposals
Effect of movements in exchange rates
$
756
(4)
(1)
$
2,561
(662)
(5)
$
415
-
(12)
$
200
(32)
(2)
$
3,932
(698)
(20)
Balance at December 31, 2021
$
8,793
$
35,776
$
8,331
$
2,036
$
54,936
Carrying amounts
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
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
At December 31, 2021
$
17,817
$
19,219
$
3,637
$
468
$
41,141
www.hammondmfg.com
Annual Report 2021 50
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Depreciation of $3,932,000 (2020 - $3,502,000) was recorded in the consolidated statement of
comprehensive income as follows: cost of sales $3,497,000 (2020 – $3,144,000), selling and
distribution $311,000 (2020 – $193,000) and general and administrative $124,000 (2020 –
$165,000).
7)
Intangible assets and goodwill:
Cost
Balance at December 31, 2019
Additions
Disposal
Effect of movement in exchange rates
Goodwill
$
114
$
-
-
2
Computer
software
983
$
Development
costs
334
$
$
44
(16)
(1)
$
27
-
-
Total
$
1,431
$
71
(16)
1
Balance at December 31, 2020
$
116
$
1,010
$
361
$
1,487
Additions
Effect of movement in exchange rates
-
$
(2)
$
93
(1)
$
27
-
$
120
(3)
Balance at December 31, 2021
$
114
$
1,102
$
388
$
1,604
Amortization
Goodwill
Balance at December 31, 2019
$
-
Computer
software
865
$
Development
costs
252
$
Total
$
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
Amortization for the period
Effect of movement in exchange rates
-
$
-
$
11
(1)
$
28
$
39
(1)
Balance at December 31, 2021
$
-
$
869
$
307
$
1,176
Carrying amounts
At December 31, 2019
At December 31, 2020
At December 31, 2021
Goodwill
Computer
software
Development
costs
Total
$
114
$
118
$
82
$
314
$
116
$
151
$
82
$
349
$
114
$
233
$
81
$
428
All the intangible assets have been externally acquired. Amortization expense of $39,000 (2020 -
$38,000) was recorded in the consolidated statement of comprehensive income as follows: cost of
sales $3,000 (2020 – $4,000), selling and distribution $29,000 (2020 - $27,000) and general and
administrative $7,000 (2020 – $7,000).
Impairment testing for CGUs:
www.hammondmfg.com
Annual Report 2021 51
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Company has defined its CGUs as each individual legal entity since 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, 2021.
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, 2021 and
December 31, 2020, the assets, including goodwill of $114,000 (2020 - $116,000), of the Company’s
wholly owned subsidiary, Hammond Electronics Limited, were tested and no impairment was found.
8) Leases:
Right-of-use assets
Balance at December 31, 2019
Buildings Machinery
and
equipment
$
10,582
6,136
$
Tooling
Office
equipment
$
221
$
76
Trucks
and
Vehicles
$
1,458
Total
$
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
Additions for the period
Disposals
Effect of movements in exchange rates
-
$
-
(65)
$
219
-
(10)
-
$
-
-
9
$
(87)
-
$
528
(298)
(3)
$
756
(385)
(78)
Balance at December 31, 2021
$
15,238
$
6,351
$
221
$
17
$
2,115
$
23,942
Accumulated depreciation
Balance at December 31, 2019
Buildings Machinery
and
equipment
$
1,900
1,479
$
Tooling
Office
equipment
$
170
$
43
Trucks
and
Vehicles
$
447
Total
$
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
Depreciation for the period
Disposals
Effect of movements in exchange rates
$
1,734
$
-
$
(12)
$
541
$
-
$
(2)
$
5
$
-
$
-
$
10
$
(87)
$
-
$
$
$
529
(298)
(11)
$
$
$
2,819
(385)
(25)
Balance at December 31, 2021
$
4,924
$
2,982
$
221
$
8
$
807
$
8,942
www.hammondmfg.com
Annual Report 2021 52
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Carrying amounts
Buildings Machinery
and
equipment
Tooling
Office
equipment
Trucks
and
Vehicles
Total
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
At December 31, 2021
$
10,314
$
3,369
$
-
$
9
$
1,308
$
15,000
Depreciation of $2,819,000 (2020 - $2,836,000) was recorded in the consolidated statement of
comprehensive income as follows: cost of sales $1,198,000 (2020 – $1,209,000), selling and
distribution $1,603,000 (2020 – $1,287,000) and general and administrative $18,000 (2020 –
$340,000).
Total Lease obligations:
Total Leases
Less current portion due in the next 12 months
Non-current leases
December 31,
December 31,
2021
$ 13,862
2020
$ 16,084
2,957
2,805
$ 10,905
$ 13,279
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.
The lease liabilities are secured by the related underlying assets. Future minimum lease payments
at December 31, 2021 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, 2021
Lease Payments
Finance Charge
Net Present Value
December 31, 2020
Lease Payments
Finance Charge
Net Present Value
$
$
3,515
(558)
2,957
$
$
2,833
(443)
2,390
$
$
2,382
(352)
2,030
$
$
2,377
(265)
2,112
$
$
1,620
(184)
1,436
$
$
3,317
(380)
2,937
$
$
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
$
$
16,044
(2,182)
13,862
$
$
19,024
(2,940)
16,084
www.hammondmfg.com
Annual Report 2021 53
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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, 2021 December 31, 2020
$ 241
7
83
$ 331
$ 321
-
67
$ 388
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, 2020. 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 2021 related to the property was
$139,000 (2020- $141,000).
www.hammondmfg.com
Annual Report 2021 54
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
10) Equity investment:
RITEC Enclosures Inc.
December 31, 2019
Equity in 2020 earnings
December 31, 2020
Equity in 2021 loss
December 31, 2021
Total
$ 846
18
$ 864
(28)
$ 836
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,
2021
2020
Share of loss
Foreign exchange gain (loss)
Income tax recovery
$
(27)
$
(25)
(1)
-
32
11
Equity investment earnings (loss)
$
(28)
$
18
Share of profit
Profit in inventory movement
$
(27)
$
(25)
49
11
Share of profit (loss) of equity accounted investees
$
22
$
(14)
RITEC Enclosures Inc.
Assets
Liabilities
Revenues
Profit (loss) (after tax)
11) Bank indebtedness:
December 31, 2021 December 31, 2020
3,149
$
$
3,104
1,661
3,172
1,638
3,665
$
(67)
$
(63)
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.
www.hammondmfg.com
Annual Report 2021 55
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Canadian entities CAD
UK entity
GBP
Bank indebtedness
December 31, 2021
December 31, 2020
Local currency
$ 795
£ 116
CAD
$ 795
200
$ 995
Local currency
$ 2,500
£ 109
CAD
$ 2,500
189
$ 2,689
Interest was payable at the 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 and held throughout 2021.
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.
Term loan amortized over 7 years drawn in CAD funds at a fixed
interest rate of 3.83% through November 2028, secured by the
assets of HMCL. Monthly blended installments of $77 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,
2021
2020
$ 1,703
$ 1,762
1,335
1,378
6,034
6,245
2,982
3,690
1,165
1,431
5,601
-
1,856
$ 20,676
14,551
$ 6,125
2,436
$ 16,942
15,086
$ 1,856
www.hammondmfg.com
Annual Report 2021 56
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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:
2022
2023
2024
2025
2026
Thereafter
13) Interest expense
$
2,621
8,370
2,570
3,405
2,007
1,703
$
20,676
December 31,
2021
December 31,
2020
Long Term debt, excluding lease liabilities
$
749
$
857
Bank indebtedness
Interest expense
Interest expense leases
71
139
$
820
$
996
$
661
$
627
Total Interest and Lease interest expense
$
1,481
$
1,623
Reconciliation of movements of liabilities to cash flows arising from financing activities:
Lease
Liabilities
Long-term
debt
Bank
indebtedness
Total
Balance at December 31, 2020
$ 16,084
$ 16,942
$ 2,689
$ 35,715
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of lease liabilities
Repayment of borrowings
Total changes from financing cash flows
Liability related
Interest expense
Interest paid
Total liability-related other changes
-
(3,555)
-
(3,555)
661
-
661
Non-cash added liabilities
Foreign exchange impact
Balance at December 31, 2021
756
(84)
$ 13,862
5,660
-
(1,919)
3,741
749
(749)
-
-
(7)
$ 20,676
-
-
(1,692)
(1,692)
71
(71)
-
5,660
(3,555)
(3,611)
(1,506)
1,481
(820)
661
-
(2)
$ 995
756
(93)
$ 35,533
14) Trade and other payables:
Trade payables
Non-trade payables and accrued expenses
December 31, 2021
December 31, 2020
$ 10,224
16,705
$ 26,929
$ 6,996
10,121
$ 17,117
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 2021 57
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
15) Provisions:
Environmental
remediation
Sales returns
Total
Balance at December 31, 2019
$ 170
$ 75
$ 245
Provisions made during the year
Provisions used during the year
103
(48)
868
(859)
971
(907)
Balance at December 31, 2020
$ 225
$ 84
$ 309
Provisions made during the period
Provisions used during the period
97
(97)
1,561
(1,505)
1,658
(1,602)
Balance at December 31, 2021
$ 225
$ 140
$ 365
Non-current
Current
145
80
-
140
145
220
Balance at December 31, 2021
$ 225
$ 140
$ 365
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 2025. 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 (2020 - $225,000) with $80,000 (2020 -
$80,000) 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.
www.hammondmfg.com
Annual Report 2021 58
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(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% (2020 – 3.5%) per annum health cost increase and a discount rate of 4.0% (2020 – 5.0%)
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 $21,500 (2020 - $15,000). Changes in assumptions resulted in nominal
gains/losses which have been included in general and administrative expense.
December 31, 2021 December 31, 2020
$ 15
$ 70
Post employment health benefits
Employee health benefits while on disability
Total employee future benefits
Post employment
health benefits
Balance at December 31, 2019
$ 25
323
$ 393
Employee health
benefits while on
disability
$ 240
Provisions made during the year
Provisions used during the year
-
(10)
40
(80)
200
$ 215
Total
$ 265
40
(90)
Balance at December 31, 2020
$ 15
$ 200
$ 215
Provisions made during the period
Provisions used during the period
59
(4)
179
(56)
238
(60)
Balance at December 31, 2021
$ 70
$ 323
$ 393
Non-current
Current
66
4
238
85
304
89
Balance at December 31, 2021
$ 70
$ 323
$ 393
17) Deferred tax assets and liabilities:
Unrecognized deferred tax liabilities:
At December 31, 2021, temporary differences of $23,547,000 (2020 - $21,446,000) 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 2021 59
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Recognized deferred tax liabilities:
Deferred tax assets and liabilities are attributable to the following:
December 31, 2021
December 31, 2020
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
$ 8 $ 8
570 555
233 412
288 181
60
1,159
1,156
-
(28) (30)
(6,195) (5,180)
(6,223) (5,210)
Net deferred tax liabilities
$ (5,064) $ (4,054)
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 (2020 - 8,556,000)
2,778,300 Class B shares (2020 - 2,778,300)
$
10,242
7
$
10,242
7
$
10,249
$
10,249
December 31, 2021 December 31, 2020
No shares were issued in 2021 or in 2020.
www.hammondmfg.com
Annual Report 2021 60
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
c) Dividends:
The following dividends were declared and paid by the Company:
Cash dividends of $0.04 per Class A subordinate voting share were declared and paid in 2021
(2020 – $0.04) and cash dividends of $0.04 per Class B common share were declared and paid
in 2021 (2020 – $0.04).
Total dividends declared and paid in 2021 were $453,000 (2020 - $453,000).
19) Commitments:
The Company has contractual obligations for outstanding capital expenditures of $12,523,000 (2020
- $3,622,000). These expenditures are primarily for a new facility and related equipment the
Company is building in Palmerston, Ontario.
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 2021 61
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
21) Income tax expense:
Current tax expense
$ 1,449
$ 1,575
December 31, 2021 December 31, 2020
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
1,010 1,000
$ 2,459
$ 2,575
2021
2020
$ 7,702
2,459
$ 10,161
$ 7,724
2,575
$ 10,299
Income tax using the Company’s domestic tax rate
26.50% 2,693
26.50% 2,729
Reduced rate for active business and manufacturing
and processing
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Other
22) Earnings per share:
(109)
(122)
21
(130)
(45)
69
(24)
24.20% $ 2,459
(48)
25.00% $ 2,575
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 31,2021
$ 7,702
December 31,2020
$ 7,724
11,334,300
11,334,300
$ 0.68
0.68
$ 0.68
0.68
No share options to purchase common shares were outstanding as at December 31, 2021 or
December 31, 2020.
www.hammondmfg.com
Annual Report 2021 62
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
Government subsidy:
2021
$ 52,548
5,354
3,171
1,589
$ 62,662
2021
$ 47,397
12,156
3,109
$ 62,662
2020
$ 42,208
4,645
2,572
1,440
$ 50,865
2020
$ 36,940
10,834
3,091
$ 50,865
In response to the COVID 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 $607,000 (2020 - $2,308,000). 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 $485,000 (2020 - $1,850,000), Selling and distribution
was reduced by $103,000 (2020 - $368,000), General and administrative expenses was reduced by
$19,000 (2020 - $90,000).
24) Management share option plan:
As at December 31, 2021, the Company has a stock-based compensation plan, which is described
below. No options were granted through December 31, 2021 or in 2020 and no stock options were
outstanding as of January 1, 2020, 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.
www.hammondmfg.com
Annual Report 2021 63
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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
December 31, 2021
Carrying
amount
Fair value
December 31, 2020
Carrying
amount
Fair value
$ 4,069
27,143
$ 31,212
$ 4,069
27,143
$ 31,212
$ 2,785
20,541
$ 23,326
$ 2,785
20,541
$ 23,326
$ 995
26,929
20,676
$ 48,600
$ 995
26,929
20,365
$ 48,289
$ 2,689
17,117
16,942
$ 36,748
$ 2,689
17,117
17,437
$ 37,243
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, 2021
December 31, 2020
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
2.55%
2.95%
3.00%
3.25%
3.45%
3.80%
To
3.55%
3.95%
4.00%
4.25%
4.45%
4.80%
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%
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.
www.hammondmfg.com
Annual Report 2021 64
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Risk management framework:
The Board of Directors has overall responsibility for the oversight of the Group’s risk
management framework. The Board is responsible for monitoring the Group’s risk management
policies.
The Group’s risk management policies are established to identify and analyze the risks faced
by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to
limits. Risk management policies and systems are reviewed regularly to reflect changes in
market conditions and the Group’s activities. The Group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations.
The Group’s Audit Committee oversees how management monitors compliance with the
Group’s risk management policies and procedures, and reviews the adequacy of the risk
management framework in relation to the risks faced by the Group. The Group’s Audit
Committee is assisted in its oversight role by the corporate finance group. The corporate finance
group undertakes both regular and ad hoc reviews of risk management controls and procedures,
the results of which are reported to the Audit Committee.
Credit risk:
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s
receivables from customers. The carrying amount of financial assets represents the maximum
credit risk exposure.
Trade and other receivables:
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. However, management also considers the demographics of the Group’s customer
base, including the default risk of the industry and country in which customers operate, as these
factors may have an influence on credit risk.
The Group has established a credit policy under which each new customer is analyzed
individually for creditworthiness before the Group’s standard payment and delivery terms and
conditions are offered. The Group’s review includes external ratings, when available, and in
some cases bank references. Purchase limits are established for each customer, which
represents the maximum open amount without requiring approval from management.
Customers that fail to meet the Group’s benchmark creditworthiness may transact with the
Group only on a prepayment basis.
In monitoring customer credit risk, customers are grouped according to their credit
characteristics, including whether they are an individual or legal entity, whether they are a
wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and
existence of previous financial difficulties. Trade and other receivables relate mainly to the
Group’s wholesale customers. Customers that are graded as “high risk” are placed on a
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.
www.hammondmfg.com
Annual Report 2021 65
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
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, 2021
December 31, 2020
$ 4,069
27,143
$ 31,212
$ 2,785
20,541
$ 23,326
The maximum exposure to credit risk for cash and receivables at the reporting date by
geographic region was:
December 31, 2021
December 31, 2020
Cash and receivables:
Canada
US
UK
Australia
$ 15,306
14,068
1,631
207
$ 31,212
$ 15,203
6,611
1,368
144
$ 23,326
The following table reflects the net details of trade receivables as at December 31, 2021 and
December 31, 2020:
December 31, 2021
December 31, 2020
Gross
Impairment
Carrying
value
Gross
Impairment
Carrying
value
Aging of trade receivables:
1 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
$ 14,157
10,259
2,128
670
$ $ 14,157
-
10,259
-
2,128
-
354
316
$ 9,230
6,746
1,490
241
-
$
-
-
171
$ 9,230
6,746
1,490
70
Trade receivables
$ 27,214
$
316
$ 26,898
$ 17,707
$
171
$ 17,536
www.hammondmfg.com
Annual Report 2021 66
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The following table provides the roll forward of the allowance for doubtful accounts:
Allowance for doubtful accounts, beginning of year
December 31, 2021 December 31, 2020
225
$
$
171
Accounts provided for in the period
Amounts written off during the period
145
-
(13)
(41)
Allowance for doubtful accounts
$
316
$
171
Allowance for doubtful accounts as % of net
trade receivable
1.2%
1.0%
The following table provides the net details of trade and other receivables:
Net trade receivable
Employee receivables
Other receivable
December 31, 2021 December 31, 2020
$
26,898
13
232
$
17,536
18
2,987
Trade and other receivables
$
27,143
$
20,541
Liquidity risk:
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial
asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group uses planning tools to identify future cash flow requirements.
The Group has established a $20,000,000 (2020 – $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 (2020 - bank prime plus 25 basis points). The Company had
available unused credit facilities in the amount of $19,519,000 at December 31, 2021 (2020 -
$12,832,000) to meet fluctuations in working capital requirements.
The Group has established a $10,000,000 (2020 - $nil) line of credit to finance new equipment
purchases of which it has available $4,340,000 (2020 - $nil).
In 2020 the Group had revolving and non-revolving capital loan facilities of $3,000,000 and
$7,000,000 respectively. These facilities were terminated in the year and replaced with the
lease line described above.
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, 2021, the Group had received $3,461,500 of this funding (2020
- $3,461,500). The present value of this funding of $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,
2021 the present value of the funding is $1,855,591 (2020 – $2,435,618).
www.hammondmfg.com
Annual Report 2021 67
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The interest free loan and grant noted above are contingent on adding new jobs and retaining
existing jobs at its Guelph, Ontario locations. As at December 31, 2021, 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, 2021
Carrying
amount
Contractual
cash flows
2022
2023
2024 to
2025
Thereafter
Non-derivative financial liabilities
Term loans
Lease obligations
$ 20,676 $ (23,113) $(16,335) $ (1,619) $ (2,466) $ (2,693)
(16,044) (3,515) (2,833) (4,759) (4,937)
13,862
Trade and other payables 26,929
Bank indebtedness
(26,929) (26,929)
995 (995) (995)
- - -
- - -
Total
$ 62,462 $ (67,081) $(47,774) $ (4,452) $ (7,225) $ (7,630)
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)
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.
www.hammondmfg.com
Annual Report 2021 68
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The following chart depicts the foreign currency positions.
Currency
Accounts receivable
Dec 31, 2021 Dec 31, 2020
Accounts payable
Dec 31, 2021 Dec 31, 2020
Australia
Europe
New Zealand
Taiwan
UK
US
AUD
EURO
NZD
TWD
GBP
USD
Currency
45
195
67
575
569
9,609
76
180
30
23
595
5,806
(17)
(15)
-
(847)
(856)
(2,454)
(3)
-
-
-
(550)
(2,086)
Long-term debt
Dec 31, 2021 Dec 31, 2020
Lease Liabilities
Dec 31, 2021 Dec 31, 2020
UK
US
GBP
USD
-
(1,343)
-
(1,378)
(1,976)
(1,829)
(2,048)
(2,656)
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 2021 would
have increased net product sales by $833,000 (2020 - $628,000) and increased income
from operations by $872,000 (2020 - $695,000). Inversely, a one cent increase in the
Canadian dollar against the US dollar in 2021 would have had the equal but opposite effect.
This analysis assumes that all other variables remain constant. As noted, the Company
does deal in other currencies but the level of impact of these currencies would not be
significant.
Interest rate risk:
Interest rate risk arises from the possibility that the cash flows related to a financial instrument
would fluctuate as a result of changes in market interest rates. The Group is exposed to financial
risk that arises from the interest rate differentials between the market interest rate and the rates
on its cash, bank indebtedness, and its float rate term loans. Changes in variable interest rates
could cause unanticipated fluctuations in the Group’s operating results.
Sensitivity Analysis:
A one percent increase in the variable rates charged on ending 2021 bank indebtedness
would increase annual interest expense by $10,000 (2020 - $27,000). This analysis
assumes that all other variables remain constant. Inversely, a one percent decrease in the
variable rates charged on ending 2021 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.
www.hammondmfg.com
Annual Report 2021 69
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Group’s objective is to manage operational risk so as to balance the avoidance of financial
losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control
procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address
operational risk is assigned to senior management within each business unit. This responsibility
is supported by the development of overall Group standards for the management of operational
risk in the following areas:
•
•
•
•
•
•
•
•
•
•
requirements for appropriate segregation of duties, including the independent
authorization of transactions
requirements for the reconciliation and monitoring of transactions
compliance with regulatory and other legal requirements
documentation of controls and procedures
requirements for the periodic assessment of operational risks faced, and the adequacy
of controls and procedures to address the risks identified
requirements for the reporting of operational losses and proposed remedial action
development of contingency plans
training and professional development
ethical and business standards
risk mitigation, including insurance when this is effective.
Compliance with Group standards is supported by a program of periodic reviews undertaken by
the corporate finance group. The results of the reviews are discussed with the management of
the business unit to which they relate, with summaries submitted to the Audit Committee and
senior management of the Group.
Capital management:
In order to manage capital, the Group regularly identifies and assesses risks that threaten the
ability to meet the Company’s capital management objectives, and determines the appropriate
strategy to mitigate these risks.
The Group’s objectives when managing capital are to:
• maintain financial flexibility in order to preserve its ability to meet financial obligations
•
deploy capital to provide an appropriate investment return to its shareholders
• maintain capital structure that allows multiple financing options to the Group should a
financing need arise.
The Group defines its capital as follows:
•
•
•
shareholders’ equity
long-term debt, including the current portion
cash and cash equivalents and short-term borrowings
The Group is subject to externally imposed capital requirements through the covenants of its
facility arrangements with the bank. The covenants measure Debt to Total Net Worth, Debt
Service Ratio and Current Ratio. The Group is in compliance with its covenants at December
31, 2021 and has been in compliance with its covenants through 2020 and 2021. There were
www.hammondmfg.com
Annual Report 2021 70
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
no changes to the Group’s approach to capital management during 2021. Neither the Company,
nor any of its subsidiaries, is subject to externally imposed capital requirements.
27) Segment disclosures:
The continuing operations of the Company are in one operating segment, electrical and electronic
components.
The Company and its subsidiaries operate in Canada, the US, the UK and Australia.
Geographic segments
Year ended:
December 31, 2021
December 31, 2020
Net product sales:
Canada:
Sales to customers
US:
Sales to customers
All other countries:
Sales to customers
Net product sales
Non-current assets:
Canada:
Non-current assets
US:
Non-current assets
All other countries:
Non-current assets
$ 73,249
$ 55,383
102,127
81,074
14,752
$ 190,128
11,766
$ 148,223
$ 52,030
$ 46,175
2,432
3,987
2,776
4,059
Total
Non-current assets
$ 58,449
$ 53,010
28) Related party transactions:
a) Key management includes the Company’s directors and members of the executive
management team. Compensation awarded to key management included:
Years ended:
December 31, 2021
December 31, 2020
Salaries and short-term employee benefits
$ 816
$ 801
b) The Company purchased $2,993,000 of product from RITEC in 2021 (2020 - $2,334,000). The
Company sold $29,000 of product to RITEC in 2021 (2020 - $4,000). 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, 2021
were $26,000 (2020 - $1,000) while payables were $11,000 (2020 - $40,300). 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.
www.hammondmfg.com
Annual Report 2021 71
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
(tabular amounts (except share amounts) in thousands of Canadian dollars)
c) The Chairman of the Corporation, Robert Frederick Hammond, through direct and indirect
ownership of Class A and Class B voting shares effectively controls the Company.
d) Consolidated entities:
HAMMOND MANUFACTURING COMPANY LIMITED
Country of
% Ownership interest
incorporation December 31,
2021
December 31,
2020
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
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 2021 72
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
www.hammondmfg.com
Annual Report 2021 73
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
www.hammondmfg.com
Annual Report 2021 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
CFO & Director for Odd Burger Corporation
*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
Ross N. Hammond
Assistant Secretary
*Michael Fricker
CFO of Qvella Corporation and Reunion Foods Inc.
Director of Odd Burger Corporation
*William Wiener
Chairman of the Board of 35 Oak Holdings Ltd.
Sarah Hansen
Profit Centre Manager for Riptide Fulfillment Corporation in Calgary
Director of Eramosa Group Ltd.
Director of DKH Engineering Services Inc.
Stock Listing
Toronto Stock Exchange
Symbol: HMM.A
Bankers
HSBC
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
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- 2021- AnnualReport