Hammond Power Solutions | Annual Report 2010

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009 (tabular amounts in thousands of dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009 (tabular amounts in thousands of dollars)
7. Bank operating lines of credit:
The Company has a U.S. $40,000,000 revolving credit facility that expires on September 30, 2012, consisting of a U.S. $25,000,000 (or Canadian
dollar equivalent) revolving credit line, and a U.S. $15,000,000 (or Canadian dollar equivalent) delayed draw revolving credit line facility, which
are both unsecured. Interest on the revolving credit lines is dependent on certain financial ratios and ranges from Canadian bank prime rate minus
0.50% to Canadian bank prime rate for the Canadian dollar denominated revolving credit lines or, if designated, the bank’s CDOR rate plus 1.25%
to 1.75% and from U.S. base rate minus 1.00% to U.S. base rate minus 1.50% for the U.S. dollar denominated revolving credit lines or, if designated,
the bank’s LIBOR rate plus 1.25% to 1.75%. As at December 31, 2010, the Canadian dollar equivalent outstanding under the Canadian revolving
credit line and the U.S. revolving credit line was $1,034,000 and $413,000 respectively (2009 – $393,000 and $3,632,000).
Under the terms of the facility, the Company pays an unused line fee at rates ranging from 0.15% to 0.25% calculated monthly in arrears, on
the average daily un-borrowed portion of the credit facility.
8. Long-term debt:
During the year the Company was awarded an unsecured, non-interest bearing credit facility of up to $1,495,000 from the Canadian Federal
Economic Development Agency for Southern Ontario for the expansion of the Guelph manufacturing facility. As at December 31, 2010, $395,000
had been advanced to HPS, which is payable over 5 years in equal monthly installments commencing March 1, 2011.
9. Income taxes:
The Company’s provision for income tax is comprised of the following:
2010 2009
Income taxes based on a combined Canadian federal and
provincial income tax rate of 41.00% (2009 – 42.00%) $ 6,054 $ 6,750
Increase (decrease) in income taxes resulting from:
Reduced rate for active business and manufacturing and processing (1,180) (963)
Lower income tax rate on income of foreign subsidiaries (345) (785)
Foreign exchange translation loss (gain) 466 1,762
Permanent tax differences 118 91
Others (56) (414)
Income tax expense $ 5,057 $ 6,441
The tax effect of temporary differences that give rise to significant portions of the future tax assets and future tax liabilities at December 31 are
presented below:
Current future tax asset:
2010 2009
Inventory provisions $ 278 $ 265
Accounts receivable, allowance for doubtful accounts 23 86
Investment tax credits (1) (3)
Accounts payable and accrued liabilities not currently deductible 27 295
$ 574 $ 643
Current future tax liability:
2010 2009
Deductible subsequent pension contributions $ 120 $ 104
Inventory provision (66) (61)
Investment tax credits 44 19
Unrealized gains on forward contracts 287 133
Accounts receivable, allowance for doubtful accounts – (15)
Accounts payable and accrued liabilities not currently deductible (59) –
Long-term future tax asset:
$ 326 $ 180
Property, plant and equipment – differences in net book value and undepreciated capital cost $ 12 $ 42
Long-term future tax liability:
10. Share capital:
(a)
(b)
Property, plant and equipment – differences in net book value and undepreciated capital cost $ 1,461 $ 1,157
Intangible assets – differences in net book value and undepreciated capital cost 77 86
Accrued liabilities and environmental reserve not currently deductible (73) (86)
$ 1,465 $ 1,157
Authorized:
Unlimited number of special shares, discretionary dividends, non-voting, redeemable and retractable;
Unlimited number of Class A subordinate voting shares;
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. Annual dividends on the Class B common shares may not exceed the annual dividends on the Class A subordinate voting shares.
Issued:
2010 2009
8,804,624 Class A subordinate voting shares (2009 – 8,839,826) $ 12,961 $ 12,952
2,778,300 Class B common shares (2009 – 2,778,300) 7 7
11,582,924 Total Class A and B shares $ 12,968 $ 12,959
During the year, 16,000 (2009 – 6,000) Class A subordinate voting shares were issued upon exercise of stock options, resulting in cash
proceeds of $55,000 (2009 – $36,000) and a transfer of $28,000 (2009 – $20,000) from contributed surplus. Additionally, the Company purchased
and cancelled 51,202 (2009 – 108,174) Class A shares under a normal course issuer bid at a cost of $584,000 (2009 – $915,000) of which
$74,000, $3,000, and $507,000 (2009 – $158,000, $6,000 and $751,000) was applied against share capital, contributed surplus and retained
earnings respectively. The normal course issuer authorized the repurchase of up to 400,000 Class A shares. Shares acquired under the normal course
issuer bid were cancelled upon purchase. The normal course issuer bid expired on July 20, 2010.
(c)
Stock option plan:
The Company uses a stock option plan to attract and retain key employees, officers and directors. The shareholders have approved a maximum of
800,000 Class A subordinate voting shares for issuance under the Stock Option Plan, with the maximum reserved for issuance to any one person
at 5% of the Class A shares outstanding calculated immediately prior to the time of the grant. As per the Stock Option Plan, the Board of Directors
may, at its sole discretion, determine the time during which the Options shall vest and the method of vesting, or that no vesting restriction shall
exist. The stock option exercise price is the price of the Company’s common shares on the Toronto Stock Exchange at closing for the day prior to the
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hammond Power Solutions | Annual Report 41