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Yes Were different, and we know it. Annual Report 2012

Your industry Specials or standards, large power products or small control transformers, HPS delivers you the right transformer at the right time a total solution provider. Our customized, designed p

Our business When the rest of the world was slowing, HPS was growing. We continued to execute our plan of growth and expansion despite what the world thought. Why are we different We are different bec

Our strengths cts, M rodu P we know S DIVERkeITY ar ts, Peop le 1200 Worldwide Employees 12 Manufacturing Facilities 8 Regional Warehouses 7 Core Product Types Customized Products T INNOVAp ION a

Milestones Acquisition of PanElectro Technic Enterprises Private Limited PETE HPS completed the acquisition of PETE located in India. The purchase of PETE expands HPS global presence and provides a pl

Global Growth and Diversity 37.1 Total Sales 18 Sales Growth 11 Sales Growth 56.4 Total Sales Industrial equipment and expansion Expansion of distributor network allows for growth in the construct

3.4 Total Sales 19 Growth Benefitting from the expansion and moderization of industrial and public infrastructure 3.1 Total Sales An investment in our global people power is an integral part of the

Diversity of product Control Transformer A variety of HPS control transformers are the source of power to pizza ovens manufactured by the worlds largest producer. HPS control transformers keep things

Diversity of technology Cast Resin Cast Coil transformers are engineered to handle unusually high impact and short circuit loads. Power Transformer HPS manufactures transformers to withstand some of

Industry leading field and customer service support. A total solutions provider with multiple channels to market. HPS continues to develop strategic supply line partnerships to meet the growth project

Key figures 2012 was a very successful year despite the global economic challenges faced both by our Company and the electrical industry. Our strong performance underscores our operational effectivene

Good News from 2012 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 57 34,742 19,816 19,500 15,538 24,352 2008 2009 2010 2011 2012 in thousands of dollars Earnings before inter

86Share Dividend per in dollars Book Value per Share in dollars 0.10 0.13 0.15 0.18 5.91 6.57 7.45 7.89 8.54 2009 70,000 65,000 60,000 55,000 50,000 45,000 2010 2011 2012 2008

Our results Fellow Shareholders, Hammond Power Solutions Inc. HPS is pleased to report the financial results for 2012. We take great pride in the significant accomplishments that we have made. Amid co

Sales Growth Increased Profits Global Expansion Employee Engagement The Company is confident with the state of the business, which is evidenced by the Board of Directors recent announcement increasin

Opportunity FOCUS ON GROWTH AND EXPANSION Against the back drop of a slowing global economy, HPS continued to execute its plan of growing its market share in North America as well as expand its base o

and industrial production will drive tremendous growth opportunities for HPS. Europe has been a bigger than expected challenge. Parts of Europe have been mired in recession since 2008 and the ongoing

another successful Year 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 MANAGEMENTS DISCUSSION AND ANALYSIS Hammond Power Solutions Inc. HPS or the Company is a North A

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 decisions about the Company and to measure its operational results. A reconciliation of EBITDA to earnings from operations

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 18 Canadian Sales Growth HPS will continue to develop and expand its market share growth through our U.S. and Canadian dis

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 evidenced by overall increased quotation and order booking activities. The Companys strategies relating to its expertise in

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 fixed costs associated with the expansion are dilutive to our net gross margin rates. As sales grow, the favourable impact

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 its utilization of copper forwards contracts at the end of the second quarter of 2011 and let the remaining copper forward

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 Historically, the first quarter of the Companys fiscal year has had lower revenues due to a general decline in activity in

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 December 31 2012, a decrease of 5,066 as compared to a balance of 6,218 as at December 31, 2011, primarily reflecting acqui

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 its plant capacity expansion projects for planned growth from future business development. Additional details of our change

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 Internal controls over financial reporting Management is responsible for establishing and maintaining adequate internal con

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 and engineered to order capabilities and quality. The acquisition also supports HPS global growth strategies and product of

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 is a buyer of raw materials priced in U.S. dollars and essentially has all of its sales in Canada. The Company had also les

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 values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these e

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 The Group does not expect IFRS 13 to have a material impact on the financial statements. Employee benefits In June 2011, th

Selected Annual and Quarterly Information tabular amounts in thousands of dollars Annual Information 2008 Sales Earnings from operations EBITDA Net earnings for the year Total assets Total liabilitie

our markets HAMMOND POWER SOLUTIONS ANNUAL REPORT 31

2012 Management Report and Independent Auditors Report Managements Responsibility for Financial Statements The Consolidated Financial Statements are the responsibility of the management of Hammond Pow

Consolidated Statements of Financial Position in thousands of dollars As at December 31, 2012 December 31, 2011 Assets Current assets Cash and cash equivalents Accounts receivable note 4 Inventorie

Consolidated Statements of Earnings Years ended December 31, 2012 and 2011 in thousands of dollars, except share amounts 2012 Sales Cost of sales Gross margin Selling and distribution General and adm

Consolidated Statements of Comprehensive Income Years ended December 31, 2012 and 2011 in thousands of dollars 2012 Net earnings Other comprehensive income Foreign currency translation differences fo

Consolidated Statements of Changes in Equity Years ended December 31, 2012 and 2011 in thousands of dollars SHARE CAPITAL CONTRIBUTED SURPLUS AOCI RETAINED EARNINGS NONCONTROLLING INTEREST TOTAL SHARE

Consolidated Statements of Cash Flows Years ended December 31, 2012 and 2011 in thousands of dollars 2012 Cash flows from operating activities Net earnings Adjustments for Amortization of property, p

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 1. Reporting entity Hammond Power Solutions Inc. HPS or the Company is a cor

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 3. Summary of significant accounting policies The accounting policies set ou

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars iv Derivative financial instruments From time to time, the Group is party to

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars g Research and development expenses Research expenses are recognized as expe

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars l Sharebased payment transactions The Group has a stockbased compensation pl

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars r Earnings per share The Group presents basic and diluted earnings per share

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Employee benefits In June 2011, the IASB issued an amended version of IAS 19,

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 6. Property, plant and equipment Cost Balance at January 1, 2011 Additions A

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 7. Investment in properties The Companys proportionate share 50 of the asset

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 8. Intangible assets and goodwill Intangible assets Cost Balance at January

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 9. Impairment testing for cashgenerating units The Company has defined its c

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 11. Longterm debt Term loans denominated in Euros are secured by a first pri

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 12. Commitments The Company has entered into various noncancellable operatin

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Unrecognized deferred tax liabilities At December 31, 2011 temporary differen

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Movement in temporary differences during the year Balance December 31, 2011 R

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars The following dividends were declared and paid by the Company December 31, 20

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Terms and conditions of the stock option plan All options are to be settled b

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 15. Earnings per share The computations for basic and diluted earnings per s

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars In addition, the Group maintains a contributory, defined benefit pension plan

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Actuarial assumptions Principal actuarial assumptions at the reporting date e

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Warranties The provision for warranties relates mainly to transformers sold d

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 20. Change in noncash operating working capital 2012 Accounts receivable Inv

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 22. Financial instruments Fair value The fair value of the Groups financial

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Currency risk The Company operates internationally and is exposed to foreign

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars Credit risk The carrying amount of financial assets representing the maximum

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 23. Capital risk management The Groups objective is to maintain a strong cap

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars The acquisition was accounted for using the purchase method whereby identifie

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars The acquisition was accounted for using the purchase method whereby identifie

Notes to Consolidated Financial Statements Years ended December 31, 2012 and 2011 tabular amounts in thousands of dollars 26. Subsequent events Acquisition On February 12, 2013, Hammond Power Soluti

our locations Mexico Canada India Italy Italy HAMMOND POWER SOLUTIONS ANNUAL REPORT 67

Hammond Power Solutions Inc. Canada Corporate Head Office 595 Southgate Drive Guelph, Ontario N1G 3W6 Phone 519 8222441 15 Industrial Road Walkerton, Ontario N0G 2V0 Phone 519 8813552 10 Tawse Place G

Corporate Officers and Directors William G. Hammond Chairman and Chief Executive Officer Corporate Head Office 595 Southgate Drive Guelph, Ontario Canada N1G 3W6 Chris R. Huether Corporate Secretar

HAMMONDPOWERSOLUTIONS.COM

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