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)
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations are as follows (weighted-average assumptions
as of December 31):
Weighted average assumptions used to determine benefit obligations for years beginning:
2010 2009
Discount rate 5.25% 5.50%
Weighted average assumptions used to determine net periodic benefit cost for years ending:
Discount rate 5.50% 6.25%
Expected long-term rate of return on plan assets 6.75% 6.50%
The Company’s plan assets as at December 31 are invested as follows:
2010 2009
Equity securities 24% 20%
Debt securities 74% 78%
Real estate 2% 2%
The Company’s net pension plan expense is as follows:
100% 100%
2010 2009
Interest cost $ 51 $ 59
Expected return on plan assets (36) (39)
Amortization of net actuarial loss 7 4
Amortization of prior service costs – 1
Net pension plan expense $ 22 $ 25
13. Supplemental cash flow information:
2010 2009
Cash paid for interest $ 44 $ 123
Cash paid for income taxes $ 4,553 $ 8,626
14. Change in non-cash operating working capital:
2010 2009
Accounts receivable $ (4,381) $ 13,479
Income taxes recoverable 818 (2,087)
Inventories (813) 8,181
Prepaid expenses (407) (119)
Accounts payable and accrued liabilities 4,386 (7,178)
Income taxes payable 133 (1,096)
$ (264) $ 11,180
15. Segment disclosures:
The Company operates in a single operating segment, being a manufacturer of transformers.
The Company and its subsidiaries operate in Canada, the United States and Mexico. Inter-segment sales are made at fair market value.
Geographic segments 2010 2009
Sales:
Canada:
Sales to customers $ 72,429 $ 74,680
Inter-segment sales 57,007 56,620
United States and Mexico:
Sales to customers 118,175 120,757
Inter-segment sales 9,779 9,508
Eliminations (66,786) (66,128)
Earnings before other expenses and income taxes:
$ 190,604 $ 195,437
Canada $ 7,969 $ 6,997
United States and Mexico 7,008 11,946
Property, plant and equipment – net:
Goodwill:
$ 14,977 $ 18,943
Canada $ 20,752 $ 19,924
United States 856 985
Mexico 5,684 5,543
$ 27,292 $ 26,452
Canada $ 2,180 $ 2,180
16. Financial instruments:
Fair value:
The fair value of the Company’s financial instruments measured at fair value has been segregated into three levels. Fair value of assets and liabilities
included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Fair value of assets and liabilities
included in Level 2 include valuations using inputs other than quoted prices for which all significant outputs are observable, either directly or
indirectly. Fair value of assets and liabilities included in Level 3 valuations are based on inputs that are unobservable and significant to the overall
fair value measurement.
The Company has no financial instruments measured at fair value included in Level 1 or Level 3. Financial instruments measured at fair value
included in Level 2 at December 31, 2010 consist of copper forward contracts with a fair value of $1,192,000. At December 31, 2009, financial
instruments included in Level 2 consisted of foreign exchange forward contracts and copper forward contracts with a combined fair value of
$455,000.
The carrying values of cash and cash equivalents, accounts receivable, bank operating lines of credit and accounts payable and accrued
liabilities approximate their fair value due to the relatively short period to maturity of the instruments. The carrying value of long-term debt, which is
non-interest bearing, approximates its fair value due to the low market interest rates that accompany comparable instruments.
Derivative instruments:
From time to time the Company enters into forward foreign exchange contracts in order to reduce the Company’s exposure to changes in the
exchange rate of the U.S. dollar as compared to the Canadian dollar. At December 31, 2010, the Company had no outstanding forward foreign
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hammond Power Solutions | Annual Report 45