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WE STRENGTHEN OUR THROUGH WHAT WE DO FUTURE Annual Report 2013 TODAY

SECTION TITLE The theme is simple. We took charge of our future a long time ago. When the rest of the world was slowing, HPS was growing. We continued to execute our plan of growth and expansion desp

To the rescue. In the province of Alberta, Canada, the primary supply and service hub for Canadas crude oil, June 2122, 2013 will long be remembered by Calgarians as a disaster unprecedented in the pr

Our Vision 2 Our Values To be the leader in our industry by delivering Lead times as defined by our customers A broad range of competitive products Quality and service excellence in all that we

Strategic Areas of Focus 3 Superior Service Package Industry leading field and customer service support. A total solutions provider with multiple channels to market. Product Reliability Quality Ma

4 Working to meet the need. At the end of the day, it is the oil industry that is attracting people and driving the unrivalled economic growth for parts of Canada and the United States. For many year

5 Supplying the demand. The global data center construction market is experiencing growth which directly relates to HPS growth. Data centers across the globe are experiencing a number of regulatory r

Diversified Industries The diversification of the industries HPS supports continues to be our defining quality. Custom or standard, large power products or small control transformers, HPS delivers you

HPS has invested heavily in support of providing products for new technologies. Construction A growing industry. Analysts indicate that there will be a resurgence of new construction investment in N

Diversified Markets Global Presence Guelph, ON Canada Granby, QC Canada Compton, CA U.S. Baraboo, WI U.S. 2 Monterrey, NL Mexico Responding to global market changes, HPS anticipates and adapts to th

Marnate, VA Italy Meledo, VI Italy Erragadda, HYD India 9 Europe Acquisition and integration of Marnate with our existing Italian operation supports our global growth strategies and doubles our pro

Diversified Product Technology Control Transformer 10 Distribution Transformer Distribution transformers account for more than 50 of HPS sales. These transformers step higher voltage levels on the

Power Transformer HPS manufactures transformers to withstand some of the harshest outdoor environments. HPS power transformers can be found on one of the largest and deepest oildrilling platforms of i

FACTS AND FIGURES Dividend per Share in dollars Book Value per Share in dollars 0.10 0.13 0.15 0.18 0.20 6.57 7.45 7.89 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 8

250,000 230,000 210,000 190,000 170,000 150,000 130,000 110,000 90,000 70,000 Consolidated Sales in thousands of dollars 86,566 76,170 73,408 81,349 131,978 160,606 226,358 221,323

Fellow Shareholders, As we have reported over the last three quarters of 2013, Hammond Power Solutions HPS has come through one of the most challenging years since the recession started in 2008. A nu

In addition to of the economic challenges in North America we also faced unexpected conditions that impacted our international operations. The European economy overall remained very slow while countri

R E V I E W O F O P E R AT I O N S WELL POSITIONED FOR THE FUTURE FOCUS ON PRODUCT DEVELOPMENT Our major projects include expanding our large power transformer capabilities and competitiveness, a Nor

deceleration of growth in the Middle East, Africa, and other parts of Asia, and rolling power shortages across the country hurt industrial activity and output at the same time. In the face of these ch

R E V I E W O F O P E R AT I O N S 18 With operations now in North America, Europe, and India we are positioning HPS as one of the few custom transformer manufacturers that are capable of serving th

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S Hammond Power Solutions Inc. HPS or the Company is a North American leader in the design and manufacture of custom electrical e

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S in equity and cash flows for the years ended December 31, 2013 and December 31, 2012, and Notes thereto, have been prepared usi

D O L L A R S I N T H O U S A N D S U N L E S S O T H E R W I S E S TAT E D term dilutive effects on financial results. We remain attentive to our strategies to grow market share and will continue to

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S competitive leadtimes and product breadth will result in sales growth through existing and new customer sales. The Company is s

D O L L A R S I N T H O U S A N D S U N L E S S O T H E R W I S E S TAT E D it remains very cognizant of prudent general and administrative expense management. Earnings from operations Earnings from

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S Summary of quarterly financial information unaudited Fiscal 2013 Quarters Sales Net earnings Net earnings per share basic Net

D O L L A R S I N T H O U S A N D S U N L E S S O T H E R W I S E S TAT E D Sales for the quarter ended December 31, 2013 were 62,804 a slight increase of 271 or 0.4 from the comparative quarter last

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S 26 Note 11 in the Notes to Consolidated Financial Statements contained in our 2013 Annual Report. Cash used in investing activ

D O L L A R S I N T H O U S A N D S U N L E S S O T H E R W I S E S TAT E D Class A Shares representing 0.57 of the 8,806,624 Class A Shares outstanding as of March 9, 2012, by way of a normal course

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S accordance with the COSO Framework and has carried out retesting in 2013, which was completed in the fourth quarter. As of Dece

D O L L A R S I N T H O U S A N D S U N L E S S O T H E R W I S E S TAT E D Risks and uncertainties As with most businesses, HPS is subject to a number of market place, industry and economic related

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S GlobalNorth American economy Given the negative economic environment, particularly in Europe and North America, we are focusing

D O L L A R S I N T H O U S A N D S U N L E S S O T H E R W I S E S TAT E D financial asset or liability. In 2013 the IASB issued under IFRS 9 a more principles based general hedging model that align

2 0 1 3 M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S Strategic direction and outlook As evidenced in the 2013 Annual Report, HPS continues to expand in Canada, the U.S., Europe and

Selected Annual and Quarterly Information tabular amounts in thousands of dollars Annual Information 2009 Sales Earnings from operations EBITDA Net earnings for the year Total assets Total liabilitie

2013 Management Report and Independent Auditors Report Managements Responsibility for Financial Statements The Consolidated Financial Statements are the responsibility of the management of Hammond Pow

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Consolidated Statements of Financial Position in thousands of dollars As at December 31, 2013 December 31, 2012 Assets Current assets Cas

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Consolidated Statements of Earnings Years ended December 31, 2013 and 2012 in thousands of dollars, except share amounts 2013 Sales Cost of

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Consolidated Statements of Comprehensive Income Years ended December 31, 2013 and 2012 in thousands of dollars 2013 Net earnings Other comp

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Consolidated Statements of Changes in Equity Years ended December 31, 2013 and 2012 in thousands of dollars SHARE CAPITAL CONTRIBUTED SURPLU

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Consolidated Statements of Cash Flows Years ended December 31, 2013 and 2012 in thousands of dollars 2013 Cash flows from operating activit

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 1. Reporting entity Hammond Power Solu

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars d Use of estimates and judgments The p

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 3. Summary of significant accounting p

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars iv Derivative financial instruments Fro

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars g Research and development expenses Re

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars l Sharebased payment transactions The

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars r Earnings per share The Group present

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Consolidated financial statements In Ma

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Offsetting financial assets and liabili

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 5. Inventories December 31, 2013 Raw m

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 7. Investment in properties The Group

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Goodwill Opening balance Additions thro

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 11. Longterm debt Term loans denominat

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 12. Commitments and contingencies Comm

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Unrecognized deferred tax liabilities A

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Movement in temporary differences durin

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars c Stock option plan The Company uses a

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Terms and conditions of the stock optio

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 15. Earnings per share The computation

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Information about the Groups defined be

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Note Purchase of goods and services i

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 21. Change in noncash operating workin

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 23. Financial instruments Fair value T

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Currency risk The Company operates inte

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars Credit risk The carrying amount of fina

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 24. Capital risk management The Groups

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars The acquisition was accounted for using

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2013 and 2012 tabular amounts in thousands of dollars 26. Determination of fair values A num

W O R L D W I D E L O C AT I O N S Hammond Power Solutions Inc. Canada Corporate Head Office 595 Southgate Drive Guelph, Ontario N1G 3W6 Phone 519 8222441 15 Industrial Road Walkerton, Ontario N0G 2V

Corporate Officers and Directors William G. Hammond Chairman and Chief Executive Officer Stock Exchange Listing Toronto Stock Exchange TSX Trading Symbol HPS.A Chris R. Huether Corporate Secretary

T H E F U T U R E I S B R I G H T. HAMMONDPOWERSOLUTIONS.COM

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