Annual Report
2018
Our Strategy is Working
AirBoss of America Corp. is a group of complementary
businesses that use compounding technology and
engineering expertise to create specialized rubber
compounds and rubber-based finished goods. Our products
solve problems, protect people, and help our customers gain
competitive advantage.
WHO WE A R E :
AirBoss
Rubber Solutions
Engineered Products
Third Party Custom
Compounding
Third Party Custom
Compounding – Tolling
SunBoss Chemicals
Chemical Distribution
AirBoss Defense
Defense
AirBoss Flexible Products
Anti-Vibration
Kitchener, ON
Kitchener, ON
Bromont, QC
Auburn Hills, MI
Scotland Neck, NC
Scotland Neck, NC
Landover, MD
Kuala Lumpur,
Malaysia
Acton-Vale, QC
Acton-Vale, QC
TA B l e O f C O n T e n T s
01 Operations
10 letter to shareholders
14 Management’s Discussion and
Analysis of financial Condition
and Results of Operations
27 Management’s Responsibility
for financial Reporting
34 notes to Consolidated financial
statements
28 Auditors’ Report to the shareholders
60 Corporate Information
of AirBoss of America Corp.
30 Consolidated financial statements
AirBoss of America Corp.
We’re very pleased with the performances of
Rubber Solutions and the defense business within
the Engineered Products segment in 2018,
however Flexible Products continued to experience
challenges. We are moving in the right direction in
our ongoing efforts to expand and diversify our
product lines, customer base, and target market
segments, and are fortunate to have dedicated
teams in all of our businesses who are committed
to executing on the growth path we’ve set.
2018 has been a year of massive change.
We have rebuilt and strengthened the
management teams in each of our business
units. We have added experience, creativity
and a sense of urgency to drive both
continuous improvement and continuous
growth. We have created structure and
systems that allow data to flow seamlessly
to leadership, facilitating immediate
response to any variable.
Lisa Swartzman
President, AirBoss of America
Chris Bitsakakis
Chief Operating Officer, AirBoss of America
R U B B E R
S O L U T I O N S
E N G I N E E R E D
P R O D U C T S
Our businesses leverage each other's strengths. Rubber solutions is one of
north America's largest custom rubber compounders, mixing and converting
natural and synthetic rubber polymers into high-performance rubber-based
formulations for dozens of industries. engineered Products is a key supplier of
rubber-based anti-vibration and noise-reduction solutions needed primarily by
sUV, light truck, and minivan OeMs, and a leading global supplier of Chemical,
Biological, Radiological, and nuclear (CBRn) military and first-response personal
protective equipment and portable shelters.
In 2018, in keeping with our strategy, we continued to invest in people, processes, and
systems at all our facilities to maintain our leadership position and build sustainably
profitable growth across our businesses.
A N N U A L R E P O R T
11
R u B B E R SO Lu TI O N S:
Differentiating With
Chemistry & Quality
Rubber Solutions is a leading provider of customized rubber
compounds and calendered and extruded materials.
We serve customers in conveyor belting, track, mining, infrastructure, automotive,
tire manufacturing, and other industries. We manufacture from our flagship facility
in Kitchener, Ontario, as well as in Acton Vale, Quebec, and scotland neck, north
Carolina. Our facilities are highly automated and driven by the AirBoss Operating
system. Precise controls enable us to monitor consistency from batch to batch, pull
data for rapid troubleshooting and process optimization, and continually improve
performance. Our scientific/technical staff is second to none in the industry.
2
AirBoss of America Corp.
DuraBoss
DuraBoss, a recent
AirBoss breakthrough
in tire re-treading
compound, is
formulated for the
severest industrial
applications, such as
open-pit mines and
rock quarries.
DuraBoss outperforms
all other re-tread
compounds worldwide
by a significant margin.
EcoBoss
Over the next few
years, AirBoss Rubber
solutions will introduce
an ecoBoss product
line with more
sustainable raw
materials: devulcanized
compound, reclaimed
compound, non-crude-
oil substitutes, and
fibers from wood
cellulose, hemp,
and pulp.
At AirBoss Rubber Solutions, we are building a culture of
change by embedding continuous-improvement
processes in everything we do. Data is gathered, KPIs are
monitored, and decisions are made based on delivering
better products and better service at tighter tolerances.
Our approach to change management is based on the
principles and disciplines of Tier 1 automotive suppliers
where there is a constant necessity to improve.
Carl Chapman
senior Vice President & General Manager,
AirBoss Rubber solutions
How We Are Driving Growth
In 2018, we continued to invest in our senior
leadership at Rubber solutions and launched the
AirBoss Operating system. We are now better
able to drive performance through our
infrastructure and procedures to improve our
customer's bottom lines. Our key differentiators
are consistent quality, advanced chemistry, and
outstanding customer service. This year, we
pushed further on all three fronts initiating an
approximately $10-million investment in a
dedicated non-black/colour mixing line and a
significant upgrade to our R&D technical centre
at our Kitchener plant, and adding a second
mixing line at our scotland neck plant. We
intend to continue attracting the best scientific
talent in the business while providing our
customers with exceptional lab facilities to
help them maintain their competitive
advantages through continual breakthroughs
in rubber formulation.
A N N U A L R E P O R T
3
E N g I N E E R E D P R O Du CTS:
Adding Value to
Our Rubber
4
AirBoss of America Corp.
In the two markets served by Engineered Products,
anti-vibration and defense, our proprietary rubber
formulations make critical performance differences
in the products we make for our customers.
A N N U A L R E P O R T
5
A N TI -V I B R ATI O N B u SI N E SS:
Designing for the
Next Generation
Our anti-vibration business is a leading supplier of molded
and rubber-to-metal bonded parts, primarily for the North
American SUV, light truck, and minivan markets.
We design and manufacture hundreds of parts used in suspension, chassis and
exhaust, powertrain and drive, and steering applications. We combine the talents of
experienced engineers with advanced molding technologies and rapid prototyping
capabilities to help OeMs improve the comfort of their vehicles. AirBoss quality is
recognized throughout the industry.
6
AirBoss of America Corp.
Induction Bonding
Our induction-bonded
bushings and components
are made faster and at
lower cost than
components produced by
conventional large-
tonnage molded
processes. With
induction bonding, we
have reduced tooling
and capital costs,
lowered scrap rates,
simplified logistics, and
improved manufacturing
efficiencies.
We continue to expand our development
and prototype capabilities, focusing on
drivetrain and chassis applications. Technical
complexity is higher. Per-vehicle content is
improving. We recently completed our first
prototypes of two new coupling products
that we feel have great market potential.
Chris Laycoe
senior Vice President & General Manager,
AirBoss flexible Products
Internal
Compounding
Expertise
Internal compounding
expertise is a
competitive advantage
at flexible Products.
Combining that with
our manufacturing
knowledge, we are
expanding
opportunities outside
traditional passenger
vehicle applications.
These include
commercial and off-
road vehicles and
defense industry
products.
How We Are Driving Growth
To improve profits, we are investing in our
processes, technologies, and market
development. new personnel hired in 2018 are
leveraging their relationships with OeMs not
yet our customers as well as customers in
ancillary transportation-related markets.
In addition, we are hoping to leverage AirBoss’
relationships with the military to explore
possibilities in that sector. We are experts in
the platforms that OeMs are emphasizing:
sUVs, crossovers, pickup trucks, and minivans.
A N N U A L R E P O R T
7
DE F E N SE B u SI N E SS:
A Year of Exceptional
Performance
Military and first-responder forces across the world rely on
AirBoss for personal protective equipment.
Our defense business designs and manufactures world-class CBRn protective gas
masks, filters, power air purifying respirators (PAPRs), gloves, and over boots, as well
as individual isolation systems, fully integrated and scalable decontamination
shelter systems, command-and-control/living/medical shelters, and extreme cold
weather footwear. Our Canadian-based injection-molding operations specialize in
tight-tolerance irregular shapes and difficult-to-inject polymers such as halo-butyls
and fDA-grade silicones. Our landover, Maryland location houses shelter
production and a state-of-the-art gas mask filter R&D and production facility.
8
AirBoss Extreme
Cold Weather
Mukluk
Designed and
developed in Canada,
the extreme Cold
Weather Mukluk
balances weight,
insulation, comfort,
and durability.
Breathable and anti-
microbial, it is the
world’s top extreme-
cold weather
performer.
AirBoss of America Corp.
Low-Burden Mask
The AirBoss Defense
low Burden Mask
(lBM) is part of an
advanced protective
respiration system that
significantly reduces
physical burden for
military and first
responders. Coupled
with AirBoss CBRn
filters, it offers a full
personal protection
solution currently
being adopted in
several nATO
countries.
It is an exciting time for us. On the heels
of releasing our next-generation LBM,
we are preparing to release our next-
generation PAPR that offers technological
advances not yet available in
the marketplace.
Daren Olson
senior Vice President & General Manager,
AirBoss Defense
How We Are Driving Growth
Growth in our defense business relies not only
on our ability to provide world-class protective
products that meet the ongoing challenges of
the modern war fighter and first responder, but
also on the availability of defense budgets to
procure these products. 2018 was a good year
on all counts. As U.s. defense spending
accelerated after several relatively dormant
years, previously delayed awards significantly
increased our production, and several
outstanding tenders were awarded.
Throughout the year, we continued to fill an
important award to supply gas mask filters. We
started deliveries on a new cold weather
footwear program. Additionally, our new low
Burden Mask (lBM) won two large gas mask
awards from the Canadian and Australian
militaries. The breadth and quality of our
defense business product line, and our ongoing
investment in developing new products, should
ensure steady growth in years to come.
A N N U A L R E P O R T
9
2018
To Our Shareholders
Two of our three businesses performed well in 2018 with
our anti-vibration business underperforming in the second
year of disappointing results. Our cash position remained
strong. Our balance sheet, already healthy, was further
improved as we paid down debt from 2017. We are
confident that in all three businesses we are taking the
right steps to drive profitability.
10
AirBoss of America Corp.
To Our Shareholders (cont’d)
Short Term: Investing & Positioning
Our investment in talent paid off in 2018. With new leadership in all three businesses, we further
established the AirBoss Operating System. A "feedback loop" of continuous improvement, the
system measures processes, procedures, and bottom-line results on a daily basis. That same ethos
has been applied to health and safety at all our facilities, and resulted in a significant decline in
recordable incidents.
Rubber Solutions had its second-best year financially in 2018, almost equaling the outstanding
results of 2015. Sales were up by $19.9 million compared to the year prior. Tolling volumes were up
by 101.9%, as were volumes across the majority of the sectors we serve. Mining-related orders
increased significantly.
A $10-million capital investment program was
initiated at Rubber Solutions, beginning with a
major upgrade of our R&D technical centre at our
Kitchener plant. A state-of-the-art non-black/colour
mixing line in Kitchener and a second mixing line
at our Scotland Neck plant will be operational in
the first half of 2019. More efficient colour mixing
capabilities should open further business
opportunities in higher-margin specialty products
such as colour hoses. The new Scotland Neck
mixing line will double capacity there to
approximately 100 million pounds annually.
The R&D technical centre upgrade increases our
advantage over competitors in rubber science.
It will also help us recruit the best talent while
providing our customers with a superb facility for
co-developing new compounds.
In our anti-vibration business, new management hired in 2017 spent 2018 investing in R&D to
develop a number of new products, and in new technologies on the plant floor, including robotics.
We have also hired new personnel able to help expand our relationships with several key OEMs and
manufacturers in ancillary markets, particularly heavy transportation and agriculture.
Our defense business had its second consecutive year of dramatic growth as we continued to
execute on major orders for protective gloves and filters and began delivering on our first order from
a large foreign military for our LBM. Demand remained strong for our PAPRs, overboots and shelter
product lines. Overall demand for our products was driven by a higher U.S. defense budget, which
had been on hold for five years, as well as geopolitical unrest and perceptions of instability.
A N N U A L R E P O R T
11
2018
To Our Shareholders (cont’d)
Importantly, the new LBM won two significant military contracts, from Canada and Australia, which
signaled a switch to our product from that of a competitor. The LBM excels in weight, fit, and
functionality while offering exceptional protection.
Our next-generation fire-retardant glove, to be introduced to the market in 2019, is of interest to
counter-terrorism organizations in addition to our traditional military customers. We continue to invest
in our product development pipeline.
Medium Term: Strengthening & Integrating
We are well positioned with several investments and a number of contracts that will ensure
profitability and growth over the coming years.
The investment in our Rubber Solutions R&D technical centre will pay off in attracting top scientific
talent to the business, which in turn will be attractive to customers in search of competitive
breakthroughs based on advanced rubber formulation. We expect the lab will also enhance the
competitive advantages of our defense and automotive businesses.
Budgeted for late 2019 is the replacement of our largest mixing line at the Kitchener facility. Over the
next two or three years, the new line will lower our conversion costs, improving profitability on high
volume compounds that have traditionally been the foundation of our rubber business.
In our anti-vibration business, to diversify our product line, client base and target market segments,
we have created an aggressive plan to leverage our unique rubber product and process expertise
into non-automotive applications.
Over the next several years, we will also phase in a more advanced ERP system across the
business. In addition to more robust and timely information, the system will provide customers with
improved feedback for real-time fine-tuning of rubber formulations.
12
AirBoss of America Corp.
To Our Shareholders (cont’d)
Long Term: Leading With Science & Service
We have three long-term goals that we believe will drive sustainable growth at AirBoss and improve
profitability across all our businesses:
1
2
3
True Customer Partnership - We intend to continue helping our customers be more
competitive by investing in and refining capabilities that positively affect their bottom lines.
Quality & Service as Differentiators - In all our businesses, we intend to be the highest-
quality producer with the best customer service.
Cutting-Edge Chemistry and Engineering Expertise - Our technical and product design
talent, well equipped, will create ongoing breakthroughs for AirBoss businesses and
our customers.
In closing, we want to thank our shareholders and employees, financial partners, and other service
providers and stakeholders for their continued support.
P.G. Schoch
Chairman and CEO
Lisa Swartzman
President
A N N U A L R E P O R T
13
2018
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of AirBoss of America
Corp. (“AirBoss” or the “Company”) has been prepared as of March 12, 2019 and should be read in conjunction with the
Consolidated Financial Statements and Notes for the year ended December 31, 2018 prepared in accordance with International
Financial Reporting Standards (“IFRS”). All dollar amounts are shown in thousands of US dollars, except per share amounts,
unless otherwise specified. Additional information regarding the Company, including its Annual Information Form, can be found
on SEDAR at www.sedar.com and on the Company’s website at www.airbossofamerica.com.
FORWARD-LOOKING INFORMATION
Certain statements contained or incorporated by reference herein, including those that express management’s expectations or
estimates of future developments or AirBoss’ future performance, constitute “forward-looking looking information” or “forward-looking
statements” within the meaning of applicable securities laws, and can generally be identified by words such as “will”, “may”, “could”,
“expects”, “believes”, “anticipates”, “forecasts”, “plans”, “intends” or similar expressions. These statements are not historical facts
but instead represent management’s expectations, estimates and projections regarding future events and performance.
Statements containing forward-looking information are necessarily based upon a number of opinions, estimates and
assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject
to significant business, economic and competitive risks, uncertainties and contingencies. AirBoss cautions that such forward-
looking information involves known and unknown contingencies, uncertainties and other risks that may cause AirBoss’ actual
financial results, performance or achievements to be materially different from its estimated future results, performance or
achievements expressed or implied by the forward-looking information. Numerous factors could cause actual results to differ
materially from those in the forward-looking information, including without limitation: impact of general economic conditions;
dependence on key customers; cyclical trends in the tire and automotive, construction, mining and retail industries; sufficient
availability of raw materials at economical costs; weather conditions affecting raw materials, production and sales; AirBoss’
ability to maintain existing customers or develop new customers in light of increased competition; AirBoss’ ability to successfully
integrate acquisitions of other businesses and/or companies or to realize on the anticipated benefits thereof; changes in
accounting policies and methods, including uncertainties associated with critical accounting assumptions and estimates;
changes in the value of the Canadian dollar relative to the US dollar; changes in tax laws and potential litigation; ability to
obtain financing on acceptable terms; environmental damage and non-compliance with environmental laws and regulations;
potential product liability and warranty claims and equipment malfunction. This list is not exhaustive of the factors that may affect
any of AirBoss’ forward-looking information.
All of the forward-looking information in this Annual Report is expressly qualified by these cautionary statements. Investors are
cautioned not to put undue reliance on forward-looking information. All subsequent written and oral forward-looking information
attributable to AirBoss or persons acting on its behalf are expressly qualified in their entirety by this notice. Forward-looking
information contained herein is made as of the date of this Annual Report and, whether as a result of new information, future
events or otherwise, AirBoss disclaims any intent or obligation to update publicly the forward-looking information except as
required by applicable laws. Risks and uncertainties about AirBoss’ business are more fully discussed under the heading “Risk
Factors” in our most recent Annual Information Form and are otherwise disclosed in our filings with securities regulatory
authorities which are available on SEDAR at www.sedar.com.
14
AirBoss of America Corp.
MD&A (cont’d)
OVERALL PERFORMANCE
Fourth Quarter and Full Year Highlights
(In US dollars)
• AirBoss Defense, the defense products line of Engineered Products, was awarded four contracts expected to be worth up to
an aggregate amount of $122.0 million to manufacture protective personal equipment for the Canadian, U.S. and Australian
defense forces
• Net debt decreased by $6.4 million
• Earnings of $0.37 per common share outstanding
• Quarterly dividend paid of C$0.07 per common share for a total annual payment of C$0.28
Selected Financial Information
In thousands of US dollars, except share data
For years ended December 31
2018
2017
2016
Financial results:
Net sales
Net income
Net income per share
– Basic
– Diluted
EBITDA1
Net cash from operating activities
Dividends declared per share (CAD$)
Capital additions
Financial position:
Total assets
Term loan and other debt
Shareholders’ equity
Outstanding shares
*23,392,442 at March 12, 2019
1See Non-IFRS Financial Measures
316,603
8,536
289,855
12,632
267,628
13,822
0.37
0.37
25,675
19,867
0.28
8,476
232,528
62,956
121,483
0.55
0.54
27,653
5,811
0.28
7,294
225,948
69,257
117,161
0.60
0.59
29,646
29,740
0.26
6,402
225,118
73,206
109,283
23,392,442
23,091,113
23,074,183
A N N U A L R E P O R T
15
2018
MD&A (cont’d)
1Non-IFRS Financial Measures
This MD&A is based on reported income in accordance with International Financial Reporting Standards (“IFRS”) and on the
following non-IFRS financial measures:
EBITDA
Earnings before interest income, interest expense, income taxes and depreciation and amortization
EBITDA is a non-IFRS financial measure directly derived from the consolidated financial statements but does not have a
standardized meaning prescribed by IFRS and is not necessarily comparable to a similar measure presented by other issuers.
The Company discloses EBITDA, a financial measurement used by interested parties and investors to monitor the ability of an issuer
to generate cash from operations for debt service, financing working capital and capital expenditures and paying dividends. EBITDA
is not a measure of performance under IFRS and should not be considered in isolation or as a substitute for net income under IFRS.
Because EBITDA excludes some, but not all, items that affect net income, EBITDA presented by the Company may not be
comparable to the similarly titled measures of other companies under IFRS.
A reconciliation of net income to EBIDTA is presented below:
In thousands of US dollars
Net Income
Finance costs
Depreciation and amortization of intangible assets
Income tax expense
EBITDA
2018
8,536
2,921
10,966
3,252
25,675
2017
12,632
2,567
10,684
1,770
27,653
2016
13,822
2,830
10,344
2,650
29,646
RESULTS OF OPERATIONS – For years ended December 31, 2018 compared to 2017
NET SALES
Consolidated net sales for the year ended December 31, 2018 increased by 9.2% to $316,603, compared to 2017 and were up
in both segments. In the Engineered Products segment, net sales were higher compared to 2017 in the defense business and
lower in the automotive business, for reasons outlined below.
In thousands of US dollars
Net Sales
Increase $
Increase %
2018
2017
Rubber
Solutions
145,264
125,413
19,851
15.8
Engineered
Products
171,339
164,442
6,897
4.2
Total
316,603
289,855
26,748
9.2
Rubber Solutions
Net sales for the year ended December 31, 2018 increased by 15.8%, to $145,264, from $125,413 in 2017. The growth in net sales
was partly due to an increase of approximately 12.1% in raw material costs that resulted in price increases to customers. In addition,
volume (measured in pounds shipped) increased by 15.1% compared to 2017.
The increase in net sales was reflected across the majority of sectors and primarily in the conveyor belt, mining, track, and off the
road (“OTR”) sectors. These increases were partly offset by softness in the third party automotive and chemical sectors.
Tolling volumes for the year ended December 31, 2018 increased by 101.9%, compared to 2017. The increase in volume was in both
conventional and niche tolling applications. Non-tolling volumes for the year ended December 31, 2018 also increased compared to
2017, up 2.8%. Tolling rates for the year ended December 31, 2018 increased by 11.7% compared to 2017 with increases in niche
applications that were partly offset by decreases in conventional tolling.
Engineered Products
Net sales in the Engineered Products segment increased by 4.2%, to $171,339, from $164,442 in 2017. Increased net sales in the
defense business were partly offset by decreases in the automotive business compared to 2017.
Net sales for the year ended December 31, 2018 in the automotive business decreased by 1.8%, to $129,348 from $131,773 in
2017. The decrease was across most product lines and in particular spring isolators, muffler hangers, and dampers. The decrease
in the spring isolator product was due to the previously disclosed end of a vehicle program. These decreases were partly offset by
increased demand in the bushings and induction bonding product lines.
Net sales for the year ended December 31, 2018 in the defense business increased by 28.5% to $41,991 from $32,669 in
2017. The increased net sales were across most major product lines and primarily in powered air purifying respirators (“PAPRs”),
filters, masks and shelters. These increases were partly offset by lower demand in the gloves product line due to the completion
of a contract with final shipments in Q1 2018.
16
AirBoss of America Corp.
MD&A (cont’d)
GROSS PROFIT
For the year ended December 31, 2018, consolidated gross profit was up by $471 to $44,991. Gross profit as a percentage of
net sales decreased to 14.2% from 15.4%, primarily as a result of higher input costs, particularly with respect to rubber,
maintenance, labour and training and in the case of Engineered Products, lower net sales combined with increased steel costs
as a result of the tariffs introduced by the United States.
In thousands of US dollars
Gross Profit
(Decrease) $
% net of sales
Rubber
Solutions
22,364
19,603
2,761
15.4
15.6
Engineered
Products
22,627
24,917
(2,290)
13.2
15.2
2018
2017
2018
2017
Total
44,991
44,520
471
14.2
15.4
Rubber Solutions
For the year ended December 31, 2018, gross profit for Rubber Solutions was $22,364 (15.4% of net sales), up $2,761
compared to $19,603 (15.6% of net sales) in 2017. The increase was principally due to higher volume, for reasons discussed
above. The increase in gross profit was partly offset by increased maintenance, higher labour costs due in part to provincial
changes to the Ontario Employment Standards, and training costs as a result of the increased volume.
Engineered Products
Gross profit for the year ended December 31, 2018 in the Engineered Products segment was $22,627 (13.2% of net sales), down
$2,290 compared to $24,917 (15.2% of net sales) in 2017. The decrease in gross profit and gross profit as a percentage of net sales
was principally due to lower net sales, unfavourable mix and higher input costs, particularly rubber and steel in the automotive business
that were partly offset by increased net sales in the defense business.
OPERATING EXPENSES
Consolidated operating expenses for the year ended December 31, 2018 increased by $2,731 to $30,282, compared to 2017.
The increase was principally due to foreign exchange losses (compared to a gain in 2017) resulting in an unfavourable net
change of $2,090 and higher administrative costs, partly offset by lower product research costs as a result of higher R&D tax
credits. As a percentage of net sales, operating expenses for the year ended December 31, 2018 increased marginally to 9.6%
from 9.5% in 2017.
In thousands of US dollars
Operating Expenses
Increase (decrease) $
% net of sales
Rubber
Solutions
7,870
8,153
(283)
5.4
6.5
Engineered
Products
16,901
16,918
(17)
9.9
10.3
Corporate
5,511
2,480
3,031
N/A
N/A
2018
2017
2018
2017
Total
30,282
27,551
2,731
9.6
9.5
Rubber Solutions
Rubber Solutions' operating expenses for the year ended December 31, 2018 decreased by 3.5%, to $7,870, compared to $8,153
in 2017. The decrease was principally due to lower administrative costs of $313 and lower product research costs of $113. The
decrease in product research costs was as a result of higher R&D tax credits. This decrease was partially offset by a foreign
exchange loss (compared to a gain in 2017) for an unfavourable net change of $145 compared to 2017.
Engineered Products
Engineered Product's operating expenses for the year ended December 31, 2018 were in line with spending in 2017.
Unallocated Corporate Costs
Unallocated corporate costs for the year ended December 31, 2018 increased by $3,031 from 2017, primarily due to a foreign
exchange loss (compared to a gain in 2017) resulting in an unfavourable net change of $1,803, and a $1,228 increase in
administrative costs. The increase in administrative costs related to higher compensation including onboarding costs for new
management, consulting fees for strategic growth, and professional fees to refine the Company's tax structure in response to
changes in US and Canadian tax legislation.
FINANCE COST
In thousands of US dollars
Finance cost
Increase (decrease) $
% of net sales
Rubber
Solutions
4,583
4,733
(150)
3.2
3.8
Engineered
Products
3
-
3
0.0
0.0
Corporate
(1,665)
(2,166)
501
N/A
N/A
2018
2017
2018
2017
Total
2,921
2,567
354
0.9
0.9
Finance costs in 2018 were $2,921 (2017: $2,567). The increase reflected higher interest rates and a smaller gain on the
interest rate swap agreement, partially offset by the continued reduction of term loan balances.
A N N U A L R E P O R T
17
2018
MD&A (cont’d)
INCOME TAX EXPENSE
For the year ended December 31, 2018, the Company recorded an income tax expense of $3,252 (2017: $1,770) or an effective
income tax rate of 27.6% (12.3% in 2017). The statutory rate in Canada in 2018 was 26.5%.
The Company conducts business in the US and in Canada. Each jurisdiction is subject to different tax rates and the Company’s
effective tax rate varies depending on the mix and volume of business in each jurisdiction, as well as the impact of incentives,
effect of permanent differences and the resolution of prior period tax assessments.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and
Jobs Act (the “Tax Act”) that significantly revised the U.S. tax code by, among other changes, lowering the corporate income tax
rate from 35% to 21%, limiting deductibility of interest expense and performance based incentive compensation and implementing
a modified territorial tax system. Changes introduced by the Tax Act were generally effective as of January 1, 2018. As a Canadian
entity, the Company generally would be classified as a foreign entity (and, therefore, a non-U.S. tax resident) under general
rules of U.S. federal income taxation. However, the Company has subsidiaries subject to U.S. federal income taxation and
therefore the Tax Act impacted our consolidated results during 2017, and is expected to continue to impact our consolidated
results in future periods. The impact to its consolidated statement in 2017 consists of the remeasurement of net deferred tax
liabilities as of the enactment date.
As a result of the reduction in the U.S. corporate tax rate, the Company's U.S. net deferred tax liabilities were remeasured as of
the enactment date of the Tax Act and the Company recognized a benefit of $956 in the provision for income taxes in 2017.
In thousands of US dollars
Expected statutory rate
Foreign rate differential
Effect of permanent differences
Change in tax rates and new legislation
Filing differences
Other
Actual tax
Tax expense
2018
2017
3,124
179
(110)
22
119
(82)
3,252
3,817
(140)
(902)
(956)
(62)
13
1,770
Rate
2018
26.50%
1.52%
(0.93%)
0.19%
1.01%
(0.70%)
27.59%
2017
26.50%
(0.97%)
(6.26%)
(6.64%)
(0.43%)
0.08%
12.28%
NET INCOME AND EARNINGS PER SHARE
Net income in 2018 amounted to $8,536, compared to $12,632 in 2017. The basic and fully diluted net earnings per share were
$0.37 (2017: $0.55) and $0.37 (2017: $0.54) based on basic and fully diluted shares outstanding of 23,345,305 (2017: 23,082,270)
and 23,383,248 (2017: 23,473,897), respectively. The decrease in net income and earnings per share was due to higher operating
expenses and higher income tax rates, as discussed above.
QUARTERLY INFORMATION
In thousands of US dollars
Quarter Ended
2018
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
2017
December 31, 2017
September 30, 2017
June 30, 2017
March 30, 2017
Fourth Quarter 2018 Results
Net Sales
Net Income
Net income per share
Basic
Diluted
76,484
77,773
81,797
80,549
74,214
71,837
73,877
69,927
1,331
1,347
2,660
3,198
3,772
2,804
3,180
2,875
0.06
0.06
0.11
0.14
0.17
0.12
0.14
0.12
0.06
0.06
0.11
0.14
0.16
0.12
0.14
0.12
NET SALES
Consolidated net sales for the three month period ended December 31, 2018 increased by 3.1%, to $76,484, from $74,214 for
the same period in 2017, with increases in Rubber Solutions partially offset by decreases in the Engineered Products segment.
Increased net sales in Engineered Products' automotive business were more than offset by decreases in the defense business
for the three month period ended December 31, 2018 compared to the same period in 2017 for reasons outlined below.
Rubber Solutions
Net sales for the three month period ended December 31, 2018 in Rubber Solutions increased 13.9%, to $35,584, from
$31,235 for the same period in 2017. The growth in net sales was partly due to an increase of approximately 10.3% in raw
material costs that resulted in price increases to customers and a 14.8% increase in volume compared to the same period
in 2017.
The increase in net sales for the three month period ended December 31, 2018 was across the majority of the sectors and
primarily in the conveyor belt, track and OTR segments.
Tolling volumes for the three month period ended December 31, 2018 increased 53.9% compared to the same period in
2017, with increases in both niche and conventional applications. Non-tolling volumes increased 8.4% for the three month
period ended December 31, 2018 compared to the same period in 2017. Tolling rates for the three month period ended
December 31, 2018 were relatively flat.
18
AirBoss of America Corp.
MD&A (cont’d)
Engineered Products
Engineered Products net sales for the three month period ended December 31, 2018 decreased by 4.8% to $40,900
compared to the same period in 2017. A $2,481 decrease in net sales for the defense business was partly offset by a $402
increase in the automotive business.
The decrease in the defense business for the three month period ended December 31, 2018, compared to the same period
in 2017, was largely in the filter product line as a result of increased shipments in the second half of 2017 following the
fulfillment of a previously delayed contract due to customer-specific changes. Net sales were further affected by lower glove,
due to the timing of the completion of a contract discussed above, and shelter shipments. The decrease in the defense
business was partly offset by increased net sales in the automotive business, due to higher demand in the bushings,
grommets and induction bonding product lines. These increases were partly offset by softness in the dampers product line.
GROSS PROFIT
Consolidated gross profit for the three month period ended December 31, 2018 decreased to $10,306 (13.5% of net sales) from
$11,562 (15.6% of net sales) compared to the same period in 2017 as increases in Rubber Solutions were more than offset by
lower gross profit in both businesses of the Engineered Products segment for reasons outlined below.
Rubber Solutions
For the three month period ended December 31, 2018, gross profit at Rubber Solutions was $6,066 (17.0% of net sales),
compared to $5,038 (16.1% of net sales) in the same period in 2017. The increase in gross profit was principally due to
higher volume for the fourth quarter in 2018 compared to the same period in 2017.
Engineered Products
Gross profit for the three month period ended December 31, 2018 at Engineered Products decreased by $2,284 to $4,240
(10.4% of net sales) compared to $6,524 (15.2% of net sales) in 2017. The decrease was mainly due to the decrease in net
sales in the defense business for the reasons discussed above and higher input costs, particularly rubber and steel, in the
automotive business.
OPERATING EXPENSES
Consolidated operating expenses for the three month period ended December 31, 2018 decreased by $62, compared to same period
in 2017. This was primarily due to lower product research costs as a result of higher research tax credits and lower administrative costs
offset by a higher foreign exchange loss.
INCOME TAX EXPENSE
Tax expense for the three month period ended December 31, 2018 increased by $711 compared to the same period in 2017.
The increase was due to a $956 tax benefit recorded in 2017 related to the Tax Act changes noted above.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company expects to fund its 2019 operating cash requirements, including required working capital investments, capital
expenditures and scheduled debt repayments from cash on hand, cash flow from operations and committed borrowing
capacity. The Company’s operating revolving loan facility provides financing up to $60,000 (2017: $60,000). No amount was
drawn against this facility at December 31, 2018.
For the period ended December 31, 2018, $19,867 (2017: $5,811) of cash was provided by operations, $8,235 (2017:
$7,294) was used for investing activities and $11,418 (2017: $8,691) was used in financing activities. Cash and cash
equivalents increased by $114 from $17,748 to $17,862, adjusted for the effect of exchange rate fluctuations on cash held.
Operating activities
For the year ended December 31, 2018, cash provided by operating activities increased by $14,056 compared to 2017. The
increase was due to a $16,890 decrease in cash used for net working capital and higher non-cash expenses of $2,393, which
were partially offset by a $4,096 decrease in net income, increased tax payments of $853 due to higher tax installment
payments, and higher interest payments of $278.
Cash used for working capital for the year ended December 31, 2018 decreased to $236 (2017: $17,126) as a result of the following factors:
• Cash used for accounts receivable was $5,163, of which $6,842 was attributable to Rubber Solutions which was consistent
with higher net sales and a $1,395 decrease due to a decrease in fourth quarter net sales in the defense business within the
Engineered Products segment;
• Cash used for Inventory was $1,400, primarily due to Rubber Solutions building up stock in preparation for high volume
expected in January 2019;
• Cash used for prepaid expenses was $1,621, primarily at Engineered Products due to tooling costs at the automotive
business that the Company expects to recover from customers, and prepayments to purchase raw materials in the Rubber
Solutions segment;
• Cash from accounts payable was $9,433 due to increased raw material purchases and timing of payments; and
• Cash used for other provisions was $1,485, related to the exercise of vested restricted stock units.
A N N U A L R E P O R T
19
2018
MD&A (cont’d)
Investing Activities
Property, Plant and Equipment
For the year ended December 31, 2018, the following investments were made in each segment:
Rubber Solutions made total investments of $4,693. This included $2,345 to replace capital and manufacturing equipment, $1,793
to support growth initiatives, and $555 for operational efficiencies.
Engineered Products invested $2,571. This included: a) investments in the automotive business of $572 to replace existing
machinery and upgrade system requirements, $557 to support growth initiatives, and $114 for operational efficiencies; and b)
investments in the defense business of $903 to support growth initiatives, $343 to replace machinery and equipment and $82 for
operational efficiencies.
Intangible assets
The Company invested $971, made up of $753 of capitalized product development costs and the balance for a new financial reporting
tool and software.
Financing activities
The Company’s current credit facilities are comprised of a $60,000 revolving facility, a term loan of $75,000 (consolidating the two
prior outstanding acquisition financing loans with interest at LIBOR plus applicable margins from 175 to 275 basis points, depending
on covenants), and an accordion feature of up to an additional $50,000 of availability, upon the satisfaction of customary conditions
for such features. The revolving credit facility and term debt mature in December 2020.
During the fourth quarter of 2017, certain changes in the calculations for the covenant terms in the credit facilities were amended
on a prospective basis.
Deferred financing fees, less accumulated amortization have been deducted against the term loan for presentation purposes.
The fees are being amortized over 5 years and $307 (2017: $262) has been amortized and is included in finance costs.
Interest expense on the term debt was $2,630 (2017: $2,097).
Commitments and contractual obligations
The Company’s contractual obligations as at December 31, 2018 are summarized below:
Term loan and other debt
Operating leases - equipment
Operating leases - premises
Purchase obligations
Total
2019
3,794
73
1,734
14,879
20,480
2020
59,613
62
1,734
-
61,409
Payments Due In
2022
2023
Thereafter
51
48
1,302
-
1,401
44
40
1,302
-
1,386
-
1
1,635
-
1,636
2021
49
54
1,698
-
1,801
Total
63,551
278
9,405
14,879
88,113
The Company has inventory purchase commitments at the end of 2018 for its Rubber Solutions and Engineered Products
segments of $9,213 and $5,666 (2017: $5,382 and $5,430) respectively. The increase in Rubber Solutions was a result of the
Company's efforts to secure raw materials in an environment of rising prices and/or constrained global supply. The increase in
Engineered Products was due to increase demand in certain product lines in the defense business.
Government assistance
During 2018, Rubber Solutions recognized grants of $135 (2017: $106). Engineered Products did not recognize grants in 2018 or 2017.
Scientific research and investment tax credits of $780 (2017: $335) were recognized in 2018; research and development costs were
reduced accordingly. No reduction to capital assets was recognized in respect of provincial tax credits (2017: $165).
Dividends
A quarterly dividend of $0.07 per share was declared on November 7, 2018 and paid on January 15, 2019. Total dividends declared
during the year were $0.28 per common share compared to $0.28 per common share in 2017.
Outstanding shares
As at December 31, 2018 the Company had 23,392,442 common shares outstanding.
TRANSACTIONS WITH RELATED PARTIES
Included in the operating lease commitments was a rental agreement for corporate office space between the Company and a
company controlled by the CEO and Chairman of the Company. The monthly lease rate approximates fair market rental value.
During the year, the Company paid rent for the corporate office of CAD $180 (2017: CAD $180).
During the year, the Company paid fees for the use of a facility in South Carolina of approximately $26 (2017: $14) to a company
in which the CEO and Chairman is an officer.
20
AirBoss of America Corp.
MD&A (cont’d)
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Key management includes directors (executive and non-executive), CEO, President, CFO, COO and senior management. The
compensation expense to key management for employee services is shown below:
December 31
In thousands of US dollars
Salaries and other short term benefits
Pension/Post-employment benefits
Share-based payment expense
2018
3,378
-
633
4,011
2017
2,397
24
839
3,260
The amounts disclosed in this table are the amounts recognized as operating expenses for accounting purposes during the
period and do not necessarily represent amounts receivable or received in cash.
The Company previously maintained an unfunded supplementary employment retirement plan for an executive (“executive
supplemental plan”) and an insurance policy to cover the obligation, in event of the executive’s death. The executive
supplemental plan was a non-registered plan. During 2017, in advance of the retirement of the executive covered by the
Supplemental Plan, the Company reached an agreement with the executive to convert the defined benefit pension promise
provided for under the Supplemental Plan into a notional defined contribution account balance of value that was equal to the
December 31, 2016 defined benefit balance sheet liability of $1,223 effective January 1, 2017. This notional defined contribution
account balance was credited with interest at an agreed rate of 3.75% per annum, until it was paid out. During 2017, the defined
contribution amount of $1,247, which includes interest of $11 and foreign exchange of $13, was paid to the executive, eliminating
the liability in full.
Key management own 26.4% of the outstanding common shares as at December 31, 2018.
During 2014, the Company provided a share purchase loan of CAD $1,000 to the President to purchase common shares of
the Company. The loan to the President is due upon the earlier of the disposition date of all or proportionate to any part of the
pledged securities or November 24, 2019. During the fourth quarter of 2016, the Company provided a share purchase loan of
CAD $250 to the Chief Financial Officer. The loan to the CFO is due upon the earlier of the disposition date of all or proportionate
to any part of the pledged securities or December 20, 2021. During the first quarter of 2018, the Company provided a share
purchase loan of CAD $500 to the Chief Operating Officer. The loan to the COO is due upon the earlier of the disposition date
of all or proportionate to any part of the pledged securities or March 28, 2023. All share purchase loans bear interest at 1%
annually with full recourse and interest is due and payable semi-annually. In total, 161,300 shares of the Company having a
fair value of $1,035 were pledged as collateral on these three loans. At December 31, 2018, the promissory notes of $1,284,
including accrued interest of $1, were included in other assets. During the year, interest of $11 (2017 $11) was paid.
NEW STANDARDS ADOPTED
IFRS 15 - Revenue from Contracts with Customers (“IFRS 15”)
The Company adopted IFRS 15 using the full retrospective approach. The adoption of the standard did not result in any
restatement of previously reported results and did not have a material impact on the consolidated financial statements. The
Company’s revenue recognition accounting policy has been updated accordingly as described in note 2 (h).
IFRS 9 - Financial Instruments (“IFRS 9")
The adoption of IFRS 9 did not have a material impact on the consolidated financial statements. The Company’s accounting
policies on financial instruments have been updated accordingly as described in note 2 (b).
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. Financial assets are not reclassified subsequent to their initial
recognition unless the Company identifies changes in its business model in managing financial assets.
The following table summarizes the classification impacts upon adoption of IFRS 9:
Asset/Liability
Cash and cash equivalents
Trade and other receivables
Share purchase loans
Trade and other payables
Interest rate swap
Foreign exchange hedge
Loans and borrowings
Classification under IAS 39
Fair value through profit and loss
Loans and receivables
Loans and receivables
Other financial liabilities
Fair value through profit and loss
Fair value through profit and loss
Other financial liabilities
Classification under IFRS 9
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Fair value through profit and loss
Amortized cost
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking expected credit loss "ECL" model. The new
impairment model is applied, at each period end date, to financial assets measured at amortized cost or those measured at
fair value through other comprehensive income, except for investments in equity instruments. The Company adopted the
practical expedient to determine the ECL on trade and other receivables using a provision matrix based on historical credit loss
experiences to estimate lifetime ECL. The provision matrix applied did not have a material impact on trade and other receivables
of the Company.
A N N U A L R E P O R T
21
2018
MD&A (cont’d)
FUTURE ACCOUNTING STANDARDS
IFRS 16 - Leases (”IFRS 16")
In January 2016, the IASB issued the final publication of IFRS 16, superseding IAS 17, Leases and IFRIC 4, Determining
Whether an Arrangement Contains a Lease. The standard introduces a single-lessee accounting model and requires a lessee
to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments.
The Company intends to adopt IFRS 16 in its financial statements for the annual period beginning on January 1, 2019, using
the modified retrospective approach. The modified retrospective approach applies the requirements of the standard
retrospectively with cumulative effects of initial application recorded in opening retained earnings as at December 31, 2018,
and no restatement of the comparative period. Under the modified retrospective approach, the Company chose to measure all
right-of-use assets retrospectively as if the standard had been applied since lease commencement dates.
The impact of adoption will result in the recognition of right-of-use assets estimated in the range of $7 million to $9 million, with
corresponding lease liabilities in the same range. The adoption of IFRS 16 will also result in a decrease in operating rent
expense, and increases in finance and depreciation expenses recognized in the consolidated statement of profit.
CRITICAL ACCOUNTING ESTIMATES
The Company’s preparation of financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, net sales and expenses. The Company’s estimates are based upon historical experience
and on various other assumptions that are believed to be reasonable under the circumstances. The results of the Company’s
ongoing evaluation of these estimates form the basis for making judgments about the carrying value of assets and liabilities
and the reported amounts for net sales and expenses. Actual results may differ from these estimates under different
assumptions. These estimates and assumptions are affected by management’s application of accounting policies.
The Company’s critical accounting policies are those that affect our Consolidated Financial Statements materially and involve
a significant level of judgment by the Company. A summary of the significant accounting policies, including critical accounting
policies, is set forth in Note 3 to the Consolidated Financial Statements. The Company’s critical accounting estimates include
valuation of accounts receivable and inventory, valuation of goodwill and other long-lived assets, accounting for income taxes,
and government assistance.
Valuation of Accounts receivable
As at December 31, 2018, Engineered Products' automotive business recorded a $281 allowance for impairment and Rubber
Solutions recorded a $118 allowance for impairment.
Valuation of inventory
The majority of the Company’s products are manufactured against orders and inventory on hand is primarily raw materials or
finished goods awaiting shipment or customer release.
A provision for obsolete inventory is established based on materials on hand that can no longer be used for customer orders
based on a review of historical and forecasted sales, as well as a technical review to see if such materials can be reworked.
Management reviews the carrying cost of its inventory to ensure it is measured at the lower of cost and net realizable value by
examining current replacement cost and the quoted pricing to customers over the estimated time frame to consume the
inventory on hand and irrevocable commitments.
The Company’s provision for obsolete inventory and the write-down of inventory to net realizable value may require an
adjustment should any of the above factors change.
At December 31, 2018, a reserve for impaired inventory in Rubber Solutions represents $1,773 (2017: $1,509). Engineered
Products maintains a provision of $489 (2017: $125) in the defense business and $593 (2017: $706) for the automotive business.
Valuation of Goodwill
The Company reviews and evaluates goodwill for impairment when an indicator of impairment exists in the associated cash
generating units, but at least on an annual basis. In determining whether impairment has occurred in one of the Company’s cash
generating units, management compares the cash generating unit’s carrying value to its recoverable amount based on value in
use. Value in use was determined by the future cash flows generated from the continuing use of the unit. The calculations are most
sensitive to the discount rate and growth rate. Determination of growth rate is based on a number of assumptions arising from the
most current financial performance of each cash generating unit, the upcoming annual budget for each reporting unit and the
historical variability of earnings. Other factors, such as any foreign exchange volatility and volatility in world markets for rubber and
carbon black can also materially alter our expectations. Accordingly, management’s judgment is required to determine whether
these factors at any one point in time and in light of business initiatives, suggest a major change, positive or negative, to the
prospects of the business and, therefore, to the valuation of goodwill. No impairment charge was required in 2018 or 2017.
22
AirBoss of America Corp.
MD&A (cont’d)
Other Long-lived Assets
The Company reviews and evaluates long-lived assets for impairment when events or changes in economic and other
circumstances indicate that the carrying value of such assets may not be fully recoverable. The net recoverable value of an
asset, or cash generating unit, is calculated as the higher of an asset’s or cash generating unit’s fair value less costs to sell
and its value in use. Future net cash flows are developed using assumptions that reflect the planned course of action for an
asset given management’s best estimate of the most probable set of economic conditions. Inherent in these assumptions are
significant risks and uncertainties. In the view of management, there are no indicators of impairment based on assumptions
which they believe to be reasonable and no impairment charge was recorded in 2018 or 2017.
Accounting for Income Taxes
The provision for income taxes is calculated based on the expected tax treatment of transactions recorded in the Consolidated
Financial Statements. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for
the current year and future tax liabilities and assets for the future tax consequences of events that have been recognized in the
Consolidated Financial Statements or tax returns. In determining both the current and deferred components of income taxes, the
Company interprets tax legislation in a variety of jurisdictions, as well as makes assumptions about the expected timing of the reversal
of deferred tax assets and liabilities and recognition of deferred tax assets is based on a probable criteria. If its interpretations differ
from those of tax authorities or if the timing of reversals is not as anticipated, the provision or relief for income taxes could increase
or decrease in future periods. Additional information regarding our accounting for income taxes is contained in Note 14 to the
Consolidated Financial Statements. Deferred tax assets have been recorded relating to loss carry-forward amounts as management
believes it is more likely than not that these will be used before expiration.
Government Assistance
Management evaluates its best estimates of the amount of government grants recoverable at each reporting date as an offset
against the related expense or capital expenditure, under the terms of agreements or based on its interpretation of existing
government programs. If its interpretations differ from those of the relevant tax authorities or program administrators, the amount
recoverable may increase or decrease in future periods.
FINANCIAL INSTRUMENTS
Foreign exchange hedge
At December 31, 2018, the Company had contracts to sell USD $25,427 in 2019 for Canadian dollars ("CAD") $33,601. The fair
value of these contracts, representing a loss of $797 was included in trade and other payables, including derivatives (2017: gain
of $252 was included in trade and other receivables, including derivatives) on the statement of financial position. The change in
fair value was recorded on the statement of income as a loss.
Interest rate swap
During the first quarter of 2017, the Company entered into an interest rate swap agreement for a notional amount of $35 million
($30.8 million as at December 31, 2018) amortizing down to $24.3 million at maturity. Swap interest is calculated and settled
on a monthly basis based on the difference between the floating rate of USD LIBOR and the fixed rate of 1.69%. The swap
agreement matures on December 10, 2020.
During 2018, the net interest income of the swap agreement was $77 (2017: expense of $195).
For the year ended December 31, 2018, the fair value of this agreement, representing a gain of $434 (2017: gain of $275), is
recorded on the statement of financial position included in loans and borrowings. The change in fair value is recorded on the
statement of income as finance costs.
The Company has entered into this interest rate swap agreement in order to fix the interest rate on a portion of its term loan
and it does not intend to hold for trading or speculation purposes.
RISK FACTORS
Impact of Economic Cycle
The demand for the Company’s products can vary in accordance with general economic cycles and the economic conditions of
the industry sectors that are served by the Company. In addition, a number of such industry sectors are cyclical in nature. The
Company is particularly sensitive to trends in the automotive, tire, energy generation, construction, mining and transportation
industries because these industries are significant markets for the Company’s business and are highly cyclical. In a severe
economic slowdown, prices for coal, copper and other mined materials may fall, affecting demand for conveyor belting, off-road
retread tires and other rubber products manufactured by our customers from rubber compounds manufactured by the Rubber
Solutions segment. The global automotive industry is also cyclical, with the potential for regional differences in timing of expansion
and contraction. A significant decline in automobile production volumes for the North American market from current levels could
have a material adverse effect on the profitability of our Engineered Products segment. In the defense business line of Engineered
Products, the timing and size of orders from government defense departments worldwide is highly dependent on the political
climate in the applicable jurisdiction, the broader geopolitical climate and their impact on defense budgeting and spending and a
significant decline in defense budget and spending from current levels could have a material adverse effect on the profitability of
our Engineered Product segment.
A N N U A L R E P O R T
23
2018
MD&A (cont’d)
Political Uncertainty and Policy Change
Certain of the business sectors in which we and our customers operate, particularly in the automotive and defense businesses, are
highly globalized industries. Election of protectionist governments or implementation of protectionist trade policies could negatively
impact the movement of goods, services and people across borders, including within North America. Uncertainty created by rapidly
changing political circumstances may impact our ability to plan effectively for our businesses over the short- and medium-terms,
until such time as policy changes or new laws, if any, are implemented. For example, such uncertainty may affect plans relating to
establishing operations in new locations (directly or through joint ventures) or potential acquisitions. A material variation between
our planning assumptions and actual outcomes could have a material adverse effect on our profitability and financial condition.
Dependence on Key Customers and Contracts
From time to time, a significant portion of the Company’s sales for a given period may be represented by a relatively small
number of customers. Net sales from one customer represent approximately 8% (2017: 9%) of consolidated net sales in 2018.
Five customers represented 33% (2017: 29%) of consolidated net sales in 2018. While the Company continues to work on
diversification of its customer base in all segments, there is no assurance of continued success and shifts in market share
away from these top customers could adversely impact our profitability.
Raw Materials and Inventory
The Company depends on various outside sources of supply for raw materials used in the production of its products, the price
and availability of which are subject to market conditions. As a result, any shortage of such raw materials could potentially
delay delivery of our products or supplies, increase our costs and decrease our profitability. The Company maintains multiple
supply sources in different areas of the world to mitigate the risk of shortages or price increases experienced in certain, but not
all, markets. However, there can be no assurance that such multiple supply sources can be maintained in the future and multiple
sources cannot overcome a global shortage in a particular raw material, should one occur.
Historically, raw material markets have been extremely volatile with key materials doubling or halving in price within a relatively
short period, and the Company does not expect such volatility to cease. Excess inventory or shortages of raw material could
prove costly to the Company in these markets.
The Company does not have long-term supply contracts with its suppliers and purchases most raw materials on a purchase
order basis. The price of many raw materials, such as, natural rubber, carbon black and synthetic rubber, ethylene propylene
diene monomer (“EPDM”), steel and silicone is directly or indirectly affected by factors such as exchange rates and the price
of oil and, in the case of natural rubber, weather conditions that impact harvest seasons. Although the Company attempts to
pass price changes in raw materials on to its customers, it may not always be able to adjust its prices, especially in the short-
term, to recover the costs of increased raw material prices. Conversely, if raw material prices decrease significantly and rapidly,
the Company may be at risk to recover the cost of any inventory purchased based on demand at higher prices.
The following table approximates the financial impact (assuming changes are not passed along to its customers) on the
Company of a 10% increase in the cost of its most critical raw materials based upon purchases made in the respective years:
$Millions
Natural and synthetic rubber
Steel
Carbon black
EPDM
Silicone
Earnings before tax
2018
(2.98)
(3.00)
(1.71)
(0.34)
(0.82)
(8.85)
2017
(2.66)
(2.66)
(1.17)
(0.78)
(0.83)
(8.10)
Competition and Price Pressure
The Company competes directly against major North American and international companies in the custom rubber compounding,
automotive and industrial rubber product market segments. Some of these companies have strong established competitive
positions in these markets, including having a direct local presence in international markets where the Company does not, and
may be sheltered by domestic tariffs. In the case of rubber compounding, the industry leader may have greater resources,
both financial and technical, than the Company and has long-standing relationships with some of the Company’s prospective
customers using well-established marketing and distribution networks. Furthermore, the customers of several industry sectors
are price sensitive and thus, certain of the more commodity-like products in our businesses can be affected by severe price
pressure, which in turn could adversely impact our profitability in those areas.
Contract-related Risks
Contracts from many of our customers, particularly in the rubber compounding and automotive business, consist of individual
purchase orders or blanket orders under umbrella supply agreements. In these cases, there is no obligation on any customer
to continue to issue individual purchase orders and most umbrella supply agreements do not impose minimum purchase
requirements and also permit the customer to terminate blanket orders at any time. The termination of blanket orders could
result in the Company incurring various pre-production, engineering and other costs that we may not recover from our customer
and which could have an adverse impact on our profitability. In addition, it is difficult to predict accurately when opportunities
to win contract awards for defense products from Canadian, United States or other foreign governments will arise and how long
the contract tender to award and subsequent commencement of production process will take. A prolonged tender process
without a corresponding award could also result in the Company incurring various pre-production, engineering and other costs
that we may not recover and which could have an adverse impact on our profitability.
24
AirBoss of America Corp.
MD&A (cont’d)
Currency Exposure
The Company has net sales and expenses denominated in both Canadian (“CAD”) and US (“USD”) dollars. In addition, the cost
to the Company of certain key raw materials and other expense items and the competitiveness of prices charged by the
Company for its products will be indirectly affected by currency fluctuations. Changes in the value of the Canadian dollar relative
to the US dollar could have a material positive or adverse effect on the Company’s results of operations.
The Company reviews its currency exposure positions from time to time and reacts accordingly by increasing or decreasing
the proportion of operating or term loan borrowings denominated in CAD funds as a natural balance sheet hedge or establishing
forward contracts to purchase CAD funds to manage its foreign exchange risk related to cash-flows. However, there is no
assurance that such strategies will be successful or cost effective and the profitability of the Company’s business could be
adversely affected by currency fluctuations. The following table approximates the following impact on the Company of a $0.10
decrease in the value of one CAD dollar in the Company’s USD functional currency (million):
$Millions
Sales (1)
Purchases (2)
Earnings before tax
2018
(2.9)
6.1
2017
(2.8)
4.8
(1) Based upon Canadian dollar-denominated sales
(2) Based upon Canadian dollar-denominated debt repayments, purchases and expenses
Health, Safety and the Environmental
The Company’s operations are subject to extensive health, safety and environmental (HSE) regulations by federal, provincial,
state and local authorities. The Company employs individuals who undertake manufacturing activity and handle various
substances in its manufacturing process, the nature of which may expose the Company to risks of causing or being deemed liable
for injury or environmental or other damages. The Company regularly assesses its policies and procedures relating to workplace
safety in its production facilities. While its use of potentially hazardous materials is limited, the Company ensures that its
operations are conducted in a manner that minimizes such risks and maintains insurance coverage considered reasonable by
management. To date, no regulatory authority has required the Company to pay any material fines or remediation expenses in
connection with any alleged violation of HSE regulations. However, there can be no assurance that future personal injury or
environmental damage will not occur or that personal injury or environmental damage due to prior or present practices will not
result in future liabilities. While management believes that the Company is in substantial compliance with all material HSE
government requirements relating to its operations, changes in government laws and regulations are ongoing and may make
HSE compliance increasingly expensive. It is not possible to predict future costs, which may be incurred to meet such obligations.
Product Liability and Warranty Claims
As a manufacturer of rubber-based and other products, the Company faces a risk of product liability and warranty claims from its
direct customers and, in some cases, from end-users of its products. Although the Company carries commercial general liability
insurance of the types, and in the amounts it believes to be reasonable by industry standards, any claim which is successful and
is not covered by insurance or which exceeds the policy limit could have a material adverse effect on the Company.
Capacity and Equipment
Our rubber compounding facilities have an annual capacity to process approximately 400 million turn pounds.
The Company remains committed to continuous maintenance and upgrading of its equipment. Critical equipment remains not only
in a high state of repair, but is also technologically up to date so that the Company is able to ensure the reliability of supply to its
customers at competitive prices and at a high quality standard.
The Company has also made investments in capacity and efficiency in its Acton Vale operations. In recent years, the Company
purchased molds and injection molding equipment to enhance its presence in protective products, such as CBRN protective gloves,
defense footwear and gas masks. The acquisition of Flexible and IRT increased the number of rubber injection molding presses
and other types of manufacturing and testing equipment. Should additional equipment be required to fulfill any substantial increases
in sales, the Company expects that it can be readily sourced in the market, however any material failure of our equipment or inability
to purchase additional required equipment could have a material adverse effect on the Company.
Production Disruptions
Our production facilities, and those of our subcontractors, are subject to risk of shut-down caused by fire, natural disaster or other
catastrophic event, labour conflicts or other forces or events beyond our control, or could result from a disruption of supply of source
materials from suppliers and sub-suppliers. Any prolonged shut-down of one or more of our production facilities or that of our
subcontractors could result in a materially negative impact on our profitability.
A N N U A L R E P O R T
25
2018
MD&A (cont’d)
Acquisitions and Integration
As part of our growth strategy, we will continue to pursue acquisitions in areas we have identified as consistent with such strategy.
However, there can be no assurance that we will identify suitable targets for acquisition or be able to acquire suitable targets
successfully. In addition, there is also a risk that the Company may not be able to successfully integrate any acquisition or achieve
all or any of the anticipated synergies of such acquisitions or to do so within the anticipated timelines, any of which could adversely
impact our profitability and financial condition.
Key Personnel
The Company’s future success largely depends on its ability to recruit, retain and develop qualified managers and other key
personnel. If key persons leave the Company and successors cannot be recruited or if the Company is unable to attract qualified
personnel, this could have a negative impact on our profitability and financial condition.
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the fiscal year of the Company, an evaluation was carried out under the supervision of and with the participation
of the Company’s management, including our CEO and CFO, of the effectiveness of our disclosure controls and procedures. Based
on that evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were
effective as of December 31, 2018, the end of the period covered by management’s discussion and analysis, to ensure that material
information relating to the Company and its consolidated subsidiaries would be made known to them by officers within those entities.
The Company’s CEO and its CFO are responsible for establishing and maintaining the Company’s disclosure controls and
procedures. The Disclosure Committee, composed of senior managers of the Company, assists the CEO and CFO in evaluating
the information and appropriateness of material subject to public disclosure.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the most recent period, there have been no changes in the Company’s existing policies and procedures and other
processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management has designed internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the
reliability of the Company’s financial reporting and its compliance with IFRS in its consolidated financial statements. The
CEO/Chairman and the CFO have supervised management in the evaluation of the design and effectiveness of the Company’s
internal controls over financial reporting as at December 31, 2018 and believe the design and effectiveness of the internal
controls to be effective.
OUTLOOK
The Company is starting to see accelerated improvements from the ramp up of the AirBoss Operating System, particularly in
Rubber Solutions. Management will continue to focus on scaling and increasing the pace of these improvements across the
business and anticipates this will offset continued volatility with respect to raw material pricing and other input costs. While there
has been some relief, uncertainty in global trading relationships resulting from the current tariff environment and the
corresponding impact on some of our customers’ confidence in their future demand continues, particularly in the automotive
business within Engineered Products. Despite these headwinds, the current pipeline remains solid and broad-based across our
business segments and among the sectors we serve. The recently announced awards at AirBoss Defense, the defense products
line of the Engineered Products segment, are particularly encouraging.
In the Rubber Solutions segment, operational improvement initiatives have started to result in meaningful gains and we are
entering 2019 with a robust pipeline of diversified business. Management expects that the combination of this pipeline and the
traction from the operational improvements will continue to deliver strong results in 2019. The Company's strategic focus
remains on maintaining its leadership position as a rubber-based solutions provider to its broad customer base while also
continuing to increase and expand the breadth of its portfolio of higher margin compounds. In support of this, the Company
recently announced expansion plans to add a second mixing line in its Scotland Neck, NC facility as well as a dedicated white
and colour mixing line and a significant enhancement of its R&D and laboratory capabilities in its flagship Kitchener, ON facility.
Once fully operational, these investments in mixing assets are expected to increase operational efficiencies and profitability
particularly in our growing white and colour portfolio.
In the Engineered Products’ automotive business, the implementation of the operational and commercial initiatives introduced
in 2018 in conjunction with aggressive continuous improvement initiatives are anticipated to lead to improved results as 2019
progresses. Management is confident that the automotive business' strong leadership in sales and business development,
engineering, and operations will enable it to increasingly win shares of new platforms going forward. In addition, the Company
is making some inroads and will continue to pursue its strategy of diversifying its anti-vibration and noise abatement solutions
into ancillary markets. The defense business is expected to continue performing strongly in 2019 across its suite of products,
anchored by the four previously announced contracts as well as securing additional awards for the future, although there is some
uncertainty as to the timing and size of orders under existing contracts and new tenders.
With its enhanced senior management team across all businesses and an experienced and dedicated workforce, the Company
is committed to delivering predictable and sustainable growth, quality, customer satisfaction and profitability. Combined with its
strong balance sheet the Company is well positioned to achieve this goal through organic and in-organic growth opportunities.
26
AirBoss of America Corp.
Management’s Responsibility for Financial Reporting
The accompanying consolidated financial statements of AirBoss of America Corp. and all the information in the annual report
are the responsibility of management and have been approved by the Board of Directors. The financial statements have been
prepared by management, in accordance with IFRS. When alternate accounting methods exist, management has chosen
those it deems most appropriate in the circumstances. Financial statements are not precise since they include certain amounts
based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that
the financial statements are presented fairly, in all material respects. Management has prepared the financial information
presented in this annual report and has ensured that it is consistent with that presented in the financial statements.
AirBoss of America Corp. maintains systems of internal accounting and administrative controls consistent with reasonable
cost. Such systems are designed to provide reasonable assurance that the financial information is relevant, reliable and
accurate and the Company’s assets are appropriately accounted for and adequately safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for reviewing and approving
the financial statements. The Board carries out this responsibility principally through its Audit Committee.
The Audit Committee is appointed by the Board and all members are outside directors. The Committee meets periodically
with management, as well as the external auditors, to discuss internal controls over the financial reporting process, auditing
matters and financial reporting issues, to satisfy itself that each party is properly discharging its responsibilities and to review
the annual report, the financial statements and the external auditors’ report. The Committee reports its findings to the Board
for consideration when approving the financial statements for issuance to the shareholders. The Committee also considers
the engagement or re-appointment of the external auditors for review by the Board and approval by the shareholders.
KPMG LLP, the Company’s external auditors, who are appointed by the shareholders, audited the consolidated financial
statements as of and for the years ended December 31, 2018 and December 31, 2017 in accordance with Canadian
generally accepted auditing standards to enable them to express to the shareholders their opinion on the consolidated
financial statements. KPMG LLP has full and free access to the Audit Committee.
March 12, 2019
P. Gren Schoch
Chairman & Chief Executive Officer
Daniel Gagnon
Chief Financial Officer
A N N U A L R E P O R T
27
2018
Independent Auditors’ Report
the consolidated statements of financial position as at December 31, 2018 and December 31, 2017
To the Shareholders of AirBoss of America Corp.
Opinion
We have audited the consolidated financial statements of AirBoss of America Corp. (the Entity), which comprise:
•
• the consolidated statements of profit and other 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 Entity as at December 31, 2018 and December 31, 2017, and its consolidated financial performance and its consolidated
cash flows for the year 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 Entity 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.
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 likely to be
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.
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 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.
The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled
“Annual Report” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will
perform on this other information, we conclude that there is a material misstatement of this other information, we are required
to report that fact to those charged with governance.
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 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 Entity’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 Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
28
AirBoss of America Corp.
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.
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 Entity'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 Entity'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 Entity 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.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is William J. Stephen.
Vaughan, Canada
March 12, 2019
A N N U A L R E P O R T
29
2018
Consolidated Statement of Financial Position
In thousands of US dollars
Note
December 31, 2018
December 31, 2017
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables, including derivatives
Prepaid expenses
Inventories
Current income taxes receivable
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Loans and borrowings
Trade and other payables, including derivatives
Provisions
Total current liabilities
Non-current liabilities
Loans and borrowings
Employee benefits
Provisions
Deferred income tax liabilities
Total non-current liabilities
Total liabilities
EQUITY
Share capital
Contributed surplus
Retained earnings
Total equity
Total liabilities and equity
4,9
5
14
8
6
7
8
10
11
10
17
11
14
12
12
17,862
56,346
4,806
39,691
2,216
734
121,655
59,243
50,634
996
110,873
232,528
3,794
41,561
174
45,529
59,162
474
580
5,300
65,516
17,748
51,778
3,205
38,291
1,104
-
112,126
59,591
52,782
1,449
113,822
225,948
6,398
31,942
1,242
39,582
62,859
560
639
5,147
69,205
111,045
108,787
39,579
1,157
80,747
121,483
232,528
37,860
2,067
77,234
117,161
225,948
The notes on pages 34 to 59 are an integral part of these consolidated financial statements.
On behalf of the Board
P.G. Schoch
Director
30
Robert L. McLeish
Director
AirBoss of America Corp.
Consolidated Statement of Profit and Comprehensive income
For the year ended December 31
In thousands of US dollars
Note
2018
2017
Net Sales
Cost of sales
Gross profit
General and administrative expenses
Selling and marketing expenses
Research and development expenses
Other income (expenses)
Operating expenses
Results from operating activities
Finance costs
Profit before income tax
Income tax expense
Profit and total comprehensive income for the year
Earnings per share
Basic
Diluted
5
3
15
10,17
14
13
13
316,603
(271,612)
44,991
(22,230)
(5,343)
(1,555)
(1,154)
(30,282)
14,709
(2,921)
11,788
(3,252)
8,536
0.37
0.37
289,855
(245,335)
44,520
(20,644)
(5,149)
(2,153)
395
(27,551)
16,969
(2,567)
14,402
(1,770)
12,632
0.55
0.54
The notes on pages 34 to 59 are an integral part of these consolidated financial statements.
A N N U A L R E P O R T
31
2018
Consolidated Statement of Changes in Equity
In thousands of US dollars
Attributable to equity holders of the Company
Share
Capital
Contributed
Surplus
Retained
Earnings
Total
Balance at January 1, 2017
37,826
1,899
69,558
109,283
Total comprehensive income for the year
Profit for the year
Contributions by and distributions to owners
Stock options expensed
Share options exercised
Share repurchases
Share options forfeited
Dividends to equity holders
Total contributions by and distributions to owners
-
-
52
(18)
-
-
34
-
12,632
12,632
337
(109)
-
(60)
-
168
-
-
-
-
(4,956)
(4,956)
337
(57)
(18)
(60)
(4,956)
(4,754)
Balance at December 31, 2017
37,860
2,067
77,234
117,161
In thousands of US dollars
Attributable to equity holders of the Company
Share
Capital
Contributed
Surplus
Retained
Earnings
Total
Balance at January 1, 2018
37,860
2,067
77,234
117,161
Total comprehensive income for the year
Profit for the year
Contributions by and distributions to owners
Stock options expensed
Share options exercised
Share options forfeited
Share repurchases
Dividends to equity holders
Total contributions by and distributions to owners
-
-
8,536
8,536
-
1,786
-
(67)
-
1,719
206
(852)
(12)
(252)
-
(910)
-
-
-
-
(5,023)
(5,023)
206
934
(12)
(319)
(5,023)
(4,214)
Balance at December 31, 2018
39,579
1,157
80,747
121,483
The notes on pages 34 to 59 are an integral part of these consolidated financial statements.
32
Note
December 31, 2018
December 31, 2017
8,536
12,632
AirBoss of America Corp.
Consolidated Statement of Cash Flows
For the year ended December 31
In thousands of US dollars
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortization of intangible assets
Finance costs
Unrealized foreign exchange losses
Share-based payment expense
SRED tax credits
Current income tax expense
Deferred income tax recovery
Other
Change in inventories
Change in trade and other receivables
Change in prepaid expenses
Change in trade and other payables
Change in provisions
Net change in non-cash or working capital balances
Interest paid
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings
Exercise of stock options (net of withholding taxes)
Repayment of share purchase loan
Share purchase loans
Share repurchases
Interest received on share purchase loan
Dividends paid
Net cash used in financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at January 1
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at December 31
6
7
10,17
11,12
15
14
14
17
6
7
8
8
12
7,847
3,119
2,921
891
668
(780)
3,014
238
(84)
26,370
(1,400)
(5,163)
(1,621)
9,433
(1,485)
(236)
(2,814)
(3,453)
19,867
(7,264)
(971)
(8,235)
(6,591)
934
-
(392)
(319)
11
(5,061)
(11,418)
214
17,748
(100)
17,862
The notes on pages 34 to 59 are an integral part of these consolidated financial statements.
A N N U A L R E P O R T
7,379
3,305
2,567
71
897
(181)
3,109
(1,339)
(367)
28,073
(5,911)
(9,096)
713
(2,243)
(589)
(17,126)
(2,536)
(2,600)
5,811
(5,540)
(1,754)
(7,294)
(4,005)
-
193
-
(18)
12
(4,873)
(8,691)
(10,174)
27,971
(49)
17,748
33
2018
Notes to Consolidated Financial Statements ("CFS")
For the years ended December 31, 2018 and 2017
(Amounts in thousands of US dollars, except per share amounts, unless otherwise specified)
NOTE 1 REPORTING ENTITY
AirBoss of America Corp. is a public company listed on the Toronto Stock Exchange, incorporated and domiciled in Ontario.
Its registered office is located at 16441 Yonge Street, Newmarket, Ontario, Canada. AirBoss of America Corp. and its
subsidiaries are together referred to, in these consolidated financial statements, as the "Company” or "AirBoss". The Company
has operations in Canada and the US and is involved primarily in the manufacture of high quality rubber-based products to
resource, military, automotive and industrial markets (see Note 18).
Subsidiaries are consolidated based on control which is assessed on whether the Company has power over an investee,
exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.
List of Subsidiaries
Set out below is a list of operating subsidiaries of the Company.
Operating Subsidiaries
AirBoss of America Corp.
Jurisdiction
Ontario
AirBoss Rubber Compounding (NC) Inc.
North Carolina
AirBoss Engineered Products Inc.
SunBoss Chemicals Corp.
AirBoss Flexible Products Co.
Immediate Response Technologies, LLC
Quebec
Ontario
Michigan
Delaware
Ownership % (2018 & 2017)
100%
100%
100%
100%
100%
100%
AirBoss, through its Rubber Solutions segment, is engaged in custom rubber compounding, supplying mixed rubber for use in
mining, transportation, industrial rubber products, military, automotive, conveyor belting, oil and gas and other products, primarily
in North America. The Rubber Solutions segment also operates our industrial products business, which as well as custom
rubber compounding, develops and manufactures calendered, extruded and molded products for a broad range of applications
and industries, out of Acton Vale, Quebec. SunBoss Chemicals Corp. sources chemicals used in the rubber compounding
business for both internal consumption and external sales to customers who mix compounds internally, and its financial results
are included in the financial disclosure provided in respect of the Rubber Solutions segment.
The Engineered Products segment operates a defense products line out of Acton Vale, Quebec, Bromont, Quebec and
Landover, Maryland, USA and an automotive products business out of Auburn Hills, Michigan. AirBoss Engineered Products
Inc. /AirBoss Produits d’Ingénierie Inc. (“AEP”) and Immediate Response Technologies, LLC (“IRT”) collectively operate our
defense business (under the trade name “AirBoss Defense”). AirBoss Defense is a leader in the development, manufacture and
sale of Chemical, Biological, Radiological and Nuclear (“CBRN”) protective equipment and related products for military, first
response and healthcare applications. AirBoss Flexible Products Co. operates our automotive business and is a leading
manufacturer and supplier of innovative and cost-effective anti-vibration and noise dampening solutions primarily to the North
American automotive market. Our automotive business designs, engineers and manufactures rubber, synthetic rubber and
rubber-to-metal bonded products that are used to eliminate or control undesired vibration and noise, to enhance interior comfort,
increase the durability of a vehicle and improve the overall experience of a vehicle’s passengers.
34
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 2 BASIS OF PREPARATION
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
The Consolidated financial statements were authorized for issue by the Board of Directors on March 12, 2019.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following material items
in the statement of financial position:
• certain property, plant and equipment was re-measured at fair value on the adoption of IFRS
• forward contracts are measured at fair value
• liabilities for cash settled share-based payment arrangements are initially and thereafter measured at fair value
• equity settled share based payment arrangements are measured at fair value at the grant date
• recognition of future income taxes on foreign exchange differences where the currency of the tax basis on non-monetary
assets and liabilities differ from the functional currency
• the employee benefit liability is recognized as the net total of the plan assets, at fair value, less the present value of the defined
benefit obligation
(c) Functional and presentation currency
These consolidated financial statements are presented in US dollars (“USD”), which is the Company’s functional currency. All
financial information presented in USD has been rounded to the nearest thousand, except where otherwise indicated.
(d) Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. Significant areas requiring the use of estimates include valuation of accounts receivable, inventory,
intangibles, accounting for income taxes, share-based payments, measurement of post-retirement benefits and fair value of
assets acquired through business combination. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any future periods affected.
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts
recognized in the consolidated financial statements is included in the following notes:
Note 4 – trade and other receivables
Note 5 – inventories
Note 7 – intangible assets
Note 14 – income taxes
Note 15 – government assistance
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment
within the next financial year are included in the following notes:
Note 7 – intangible assets - key assumptions used in value-in-use calculations;
Note 11 – provisions;
Note 12 – capital and other components of equity;
Note 14 – income taxes;
Note 16 – commitments and contingencies; and
Note 17 – post retirement benefits.
A N N U A L R E P O R T
35
2018
Notes to CFS (cont’d)
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements.
(a) Foreign currency
(i) Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are
presented in USD, which is the Company's functional and presentation currency.
(ii) Foreign currency transactions
Transactions in foreign currencies are translated to functional currencies at exchange rates at the dates of the transactions, or
valuation where items are re-measured. Monetary assets and liabilities denominated in a currency other than the functional
currency are translated to the functional currency at the exchange rate at the reporting date. The foreign currency gain or loss on
the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities are
recognized in profit or loss on the income statement. 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. Foreign exchange gains and losses are presented
on a net basis in the income statement within other income (expense).
(b) Financial instruments
(i) Financial assets and liabilities
The Company recognizes financial assets and financial liabilities initially at fair value and subsequently measures these at
either fair value or amortized cost based on the following classifications:
Fair value through profit or loss (FVTPL):
Financial assets and financial liabilities purchased or incurred, respectively, with the intention of generating earnings in the
near term, and derivatives other than cash flow hedges, are classified as FVTPL. This category includes derivative assets and
derivative liabilities that do not qualify for hedge accounting. For items classified as FVTPL, the Company initially recognizes
such financial assets on the consolidated statement of financial position at fair value and recognizes subsequent changes in
the consolidated statements of profit. Transaction costs incurred are expensed in the consolidated statement of profit. The
Company does not currently hold any liabilities designated as FVTPL.
Fair value through other comprehensive income (FVTOCI):
This category includes the Company’s investments in equity securities. Subsequent to initial recognition, they are measured
at fair value on the consolidated statement of financial position and changes therein are recognized in other comprehensive
income. When an investment is derecognized, the accumulated gain or loss in other comprehensive income is transferred to
the statement of profit.
Amortized cost:
The Company classifies financial assets held to collect contractual cash flows at amortized cost, including cash and cash
equivalents, trade and other receivables, and share purchase loans. The Company initially recognizes the carrying amount of
such assets on the consolidated statements of financial position at fair value plus directly attributable transaction costs, and
subsequently measures these at amortized cost using the effective interest rate method, less any impairment losses.
Financial liabilities that are not classified as FVTPL include trade and other payables and long-term debt. These financial
liabilities are recorded at amortized cost on the consolidated statement of financial position.
(ii) Impairment of financial assets
The Company uses the forward looking “expected credit loss” model to determine the allowance for impairment as it relates to
trade and other receivables. The Company’s allowance is determined by historical experiences, and considers factors including
the aging of the balances, the customer’s credit worthiness, and updates based on the current economic conditions, expectation
of bankruptcies, and the political and economic volatility in the markets/location of customers.
(iii) Dercognition
The Company derecognizes a financial asset when the contractual rights to the cash flows and benefits from the asset expire
or are settled. The difference between the carrying amount of the financial asset and the sum of consideration received and
receivable is recognized in the consolidated statements of profit.
Financial liabilities are derecognized when obligations under the contract expire, are discharged or cancelled. The difference
between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in the
consolidated statements of profit.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when and only
when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset
and settle the liability simultaneously.
36
AirBoss of America Corp.
Notes to CFS (cont’d)
(iv) Derivative financial instruments
The Company holds stand-alone derivative financial instruments to reduce its foreign currency risk exposures. Such derivatives
are recognized initially at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial
recognition, derivatives are measured at fair value and changes therein are recognized immediately in the consolidated statements
of profit.
(c) Property, plant and equipment
(i) Recognition and measurement
Land and buildings comprise mainly manufacturing facilities and offices. Items of property, plant and equipment are measured
at historical cost (net of government grants) less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is 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 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. Cost also includes transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases
of property, plant and equipment. 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.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment and are recognized net within other income in profit or loss.
(ii) Subsequent costs
The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item or
recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is
derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
(iii) Depreciation
Land is not depreciated. For other property, plant and equipment, depreciation is calculated over the depreciable amount,
which is the cost of an asset, revalued amount or other amount substituted for cost, less its residual value.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each component of property,
plant and equipment, with certain manufacturing equipment being depreciated on a units of production basis since this most
closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as follows:
• buildings
• plant and manufacturing equipment
• vehicles
•
furniture, office, lab and computer equipment
15-40 years
5-15 years
3-5 years
3-5 years
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
A N N U A L R E P O R T
37
2018
Notes to CFS (cont’d)
(d) Intangible assets
(i) Goodwill
Goodwill that arises upon the acquisition of a business is included in intangible assets. At initial recognition, goodwill is measured
as the excess of purchase price over the fair value of identifiable net assets.
In respect of acquisitions prior to January 1, 2010, goodwill is included on the basis of its deemed cost, the amount recorded
prior to the transition to IFRS.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. Goodwill is tested at least annually for impairment.
Impairment losses on goodwill are not reversed. Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit
from the business combination in which the goodwill arose, identified according to operating segment.
(ii) Customer Relationships
Customer Relationships that arise upon the acquisition of a business are included in intangible assets. At initial recognition,
customer relationships are measured at fair value based on total sales to customers, estimating an annual attrition rate and
future growth based on current market conditions and historical data.
(iii) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognized in profit or loss as incurred.
Investment tax credits and other related government assistance are recorded as a reduction of R&D department costs.
Investment tax credits related to capital assets reduce property, plant and equipment accordingly.
Development activities involve a plan or design for the production of new or substantially improved products and processes.
Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically
and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to
complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour,
overhead costs that are directly attributable to preparing the asset for its intended use and borrowing costs on qualifying assets.
Other development expenditure is recognized in profit or loss as incurred.
Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses.
(iv) Other intangible assets
Other intangible assets, such as software, that are acquired or developed by the Company and have finite useful lives, are
measured at cost less accumulated amortization and accumulated impairment losses. Costs associated with annual licenses
and maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly
attributable to the design and testing of identifiable and unique software products controlled by the Company are recognized
as intangible assets when there is an ability to use the software product and it can be demonstrated how the software product
will generate probable future economic benefits.
Directly attributable costs that are capitalized as part of the software product include the incremental software development or
contracted employee costs. Other development expenditures that do not meet these criteria are recognized as an expense as
incurred.
(v) Subsequent expenditures
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset
to which it relates. All other expenditures, including expenditures on internally generated goodwill and intellectual property, are
recognized in profit or loss as incurred.
(vi) Amortization
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other
than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption
of the future economic benefits embodied in the asset. Amortization is calculated over the cost of the asset, or other amount
substituted for cost, less its residual value.
The estimated useful lives for the current and comparative periods are as follows:
• software
• capitalized development costs
• customer relationships
5 years
3-5 years
10 years
38
AirBoss of America Corp.
Notes to CFS (cont’d)
(e) Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average
cost principle and includes 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,
cost includes 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 to sell. Impairment
charges are recorded against cost of sales, when it is determined the net realizable value is less than cost.
(f) Employee benefits
(i) Other long-term employee benefits
The Company provides certain employees with post retirement life insurance benefits that are unfunded. The expected costs of
these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit
pension plans. These obligations are valued annually by independent qualified actuaries. The Company’s net obligation in
respect of long-term employee benefits, other than pension plans, is the amount of future benefits that employees have earned
in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The discount
rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the
Company’s obligations. Any actuarial gains and losses are recognized in other comprehensive income and retained earnings in
the period in which they arise.
(ii) Defined Contribution Plan
US operating subsidiaries of Airboss maintain 401(k) defined contribution plans for their respective employees. The Company and
its Canadian operating subsidiaries maintain registered and unregistered defined contribution plans for their employees.
Contributions to these plans are expensed as incurred.
(iii) Multi-Employer Pension Plan
The Company contributes to the Steel Workers Pension Trust, a defined benefit multi-employer pension plan (MEPP) under
the terms of collective-bargaining agreements that cover its union-represented employees in the State of Michigan. Defined
benefit MEPPs are accounted for as defined contribution plans as adequate information to account for the Company's
participation in the plan is not available due to the size and number of contributing employees in the plan. The risks of
participating in a MEPP are different from participation in a single-employer plan in the following aspects:
(a) Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other
(b)
(c)
participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
If the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay those
plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
(iv) Bonus Plan
The Company recognizes a liability for unpaid bonuses and an expense for all bonuses, based on a formula that takes into
consideration the profit attributable to the Company’s shareholders, after certain adjustments. The Company recognizes a
provision where contractually obliged or where there is a past practice that has created a constructive obligation.
(v) Defined Benefit plan
The Company provided designated employees with defined post-employment benefits based upon their years of service. A
defined benefit plan is a post-employment benefit plan other than a defined contribution plan. These benefits are accrued by
the Company and remain unfunded unless certain events occur. The Company’s net obligation, in respect of defined benefit
pension plans, is calculated by estimating 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. The fair value of any plan assets (if
any) are deducted. The discount rate is the yield at the reporting date on high-quality corporate bonds that have maturity dates
approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits
are expected to be paid.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The Company recognize all actuarial gains and losses arising from defined benefit plans immediately in other comprehensive
income and reports them in retained earnings.
Settlements are approved by the Board of Directors and any difference between the final cash settlement and the Company’s
net obligation, are recognized at that time as a gain or loss to the current Statement of Income.
(g) Provisions
Provisions for environmental restoration and legal claims are recognized when: the Company has a present legal or constructive
obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the
amount has been reliably estimated.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as
finance cost.
A N N U A L R E P O R T
39
2018
Notes to CFS (cont’d)
(h) Net Sales:
(i) Goods Sold
Net sales from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received
or receivable, net of returns, trade discounts and volume rebates. Net sales for production of finished goods is recognized at
the point in time control of the goods is transferred to the customer. Control of finished goods production transfers upon shipment
to, or receipt by, customers depending on the terms of the contract. Generally, the buyer has no right of return except if the
product did not comply with the agreed upon specifications.
(ii) Services
Net sales for tolling services is recognized over time as value is added to the raw materials which are controlled and provided
by the customer.
(i) Government grants
An unconditional government grant is recognized as a reduction of the cost of the asset acquired or expenses incurred when
the grant becomes receivable.
(j) Lease payments
Payments made under operating leases are recognized in profit or loss, on a straight-line basis, over the term of the lease.
Lease incentives received are recognized as an integral part of the total lease expense over the term of the lease.
(k) Finance income and finance costs
Finance income comprises interest income on funds invested and changes in the fair value of financial assets at fair value
through profit or loss. Interest income is recognized, as it accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of
financial assets at fair value through profit or loss, impairment losses recognized on financial assets and the financing
component of employee benefits. Borrowing costs that are not directly attributable to the acquisition, construction or production
of a qualifying asset are recognized in profit or loss using the effective interest method.
(l) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except
to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or
substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. Current tax also
includes any tax arising from dividends.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects
neither accounting nor taxable profit or loss and differences relating to investments in subsidiaries and jointly controlled entities
to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized
for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current
tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis, or their tax assets and liabilities
will be realized simultaneously.
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.
In determining the amount of current and deferred tax, the Company takes into account the impact of uncertain tax positions
and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve
a series of judgments about future events. New information may become available that causes the Company to change its
judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period
that such a determination is made.
(m) Segment reporting
Segment results that are reported to the Company’s CEO (the chief operating decision maker) include items directly attributable
to a segment as well as those that can be allocated on a reasonable basis. Operating segments are aggregated if they are
similar and demonstrate similar economic characteristics. Unallocated items comprise mainly corporate assets (primarily the
Company’s headquarters), and head office expenses.
40
AirBoss of America Corp.
Notes to CFS (cont’d)
(n) Share-based payments
In 2015, the shareholders approved the Company’s 2015 Omnibus Incentive Plan (“Omnibus Plan”). The Omnibus Plan is a share-
based compensation plan, under which the entity receives services from directors, employees and certain advisors as consideration
for equity instruments of the Company. The fair value of the services received in exchange for the grant of the equity awards is
recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the awards granted.
Under the Omnibus Plan, the Company can issue restricted stock units, performance share units, deferred share units and stock
options pursuant to the terms and conditions of the Omnibus Plan and the related award agreements entered into thereunder.
Non-market vesting conditions are included in assumptions about the number of equity awards that are expected to vest. The
total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are
to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of equity awards that are
expected to vest based on the non-market vesting conditions. It recognizes the impact of the revision to original estimates, if
any, in the income statement, with a corresponding adjustment to equity. Unless net settled, when options are exercised the
Company issues new shares. The proceeds received, together with the amount recorded in contributed surplus, are credited
to share capital when the options are exercised. The beneficiary can elect to convert the fair value of the vested options to the
market value of shares on a cash-less basis on the exercise date. Liabilities related to performance share units are settled
through cash payment, and liabilities related to deferred share units are settled through the issuance of shares, or equivalent
cash value, at the Company’s sole discretion
The dilutive effect of outstanding equity awards is reflected as additional share dilution in the computation of diluted earnings per share.
(o) New Standards adopted
IFRS 15 - Revenue from Contracts with Customers (“IFRS 15”)
The Company adopted IFRS 15 using the full retrospective approach. The adoption of the standard did not result in any
restatement of previously reported results and did not have a material impact on the consolidated financial statements. The
Company’s revenue recognition accounting policy has been updated accordingly as described in note 2 (h).
IFRS 9 - Financial Instruments (“IFRS 9")
The adoption of IFRS 9 did not have a material impact on the consolidated financial statements. The Company’s accounting
policies on financial instruments have been updated accordingly as described in note 2 (b).
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. Financial assets are not reclassified subsequent to their initial
recognition unless the Company identifies changes in its business model in managing financial assets.
The following table summarizes the classification impacts upon adoption of IFRS 9:
Asset/Liability
Cash and cash equivalents
Trade and other receivables
Share purchase loans
Trade and other payables
Interest rate swap
Foreign exchange hedge
Loans and borrowings
Classification under IAS 39
Fair value through profit and loss
Loans and receivables
Loans and receivables
Other financial liabilities
Fair value through profit and loss
Fair value through profit and loss
Other financial liabilities
Classification under IFRS 9
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Fair value through profit and loss
Amortized cost
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking expected credit loss "ECL" model. The new
impairment model is applied, at each period end date, to financial assets measured at amortized cost or those measured at
fair value through other comprehensive income, except for investments in equity instruments. The Company adopted the
practical expedient to determine the ECL on trade and other receivables using a provision matrix based on historical credit loss
experiences to estimate lifetime ECL. The provision matrix applied did not have a material impact on trade and other receivables
of the Company.
(p) Future Accounting Standards
IFRS 16 - Leases (”IFRS 16")
In January 2016, the IASB issued the final publication of IFRS 16, superseding IAS 17, Leases and IFRIC 4, Determining
Whether an Arrangement Contains a Lease. The standard introduces a single-lessee accounting model and requires a lessee
to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments.
The Company intends to adopt IFRS 16 in its financial statements for the annual period beginning on January 1, 2019, using
the modified retrospective approach. The modified retrospective approach applies the requirements of the standard
retrospectively with cumulative effects of initial application recorded in opening retained earnings as at December 31, 2018,
and no restatement of the comparative period. Under the modified retrospective approach, the Company chose to measure all
right-of-use assets retrospectively as if the standard had been applied since lease commencement dates.
The impact of adoption will result in the recognition of right-of-use assets estimated in the range of $7 million to $9 million, with
corresponding lease liabilities in the same range. The adoption of IFRS 16 will also result in a decrease in operating rent
expense, and increases in finance and depreciation expenses recognized in the consolidated statement of profit.
A N N U A L R E P O R T
41
2018
Notes to CFS (cont’d)
NOTE 4 TRADE AND OTHER RECEIVABLES
December 31
In thousands of US dollars
Trade receivables
Less: allowance for impairment
Other receivables
Impairment losses
The aging of trade receivables at the reporting date was:
December 31
In thousands of US dollars
Within terms
Past due 0-30 days
Past due 31-120 days
Gross
41,196
10,756
3,906
55,858
The continuity of the allowance for impairment was:
In thousands of US dollars
Balance at January 1
Impairment loss recognized
Collected
Balance at December 31
NOTE 5 INVENTORIES
December 31
In thousands of US dollars
Raw materials and consumables
Work in progress
Finished goods
Inventory in transit
Provisions
2018
55,858
(399)
55,459
887
56,346
2017
50,870
(185)
50,685
1,093
51,778
2018
2017
Impairment
Gross
Impairment
-
-
(399)
(399)
39,387
8,935
2,548
50,870
2018
(185)
(361)
147
(399)
2018
28,769
3,142
9,848
787
42,546
(2,855)
39,691
-
-
(185)
(185)
2017
(95)
(90)
-
(185)
2017
26,663
3,657
8,299
2,012
40,631
(2,340)
38,291
An inventory charge of $515 (2017: charge of $1,154) was included in cost of sales.
42
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Balance at December 31, 2018
19,419
In thousands of US dollars
Cost or deemed cost
Balance at January 1, 2017
Additions
Disposals
Transfers
Balance at December 31, 2017
Additions
Disposals
Transfers
Accumulated depreciation
Balance at January 1, 2017
Depreciation for the year
Disposals
Balance at December 31, 2017
Depreciation for the year
Disposals
Balance at December 31, 2018
Carrying amounts
In thousands of US dollars
At December 31, 2017
At December 31, 2018
Land and
buildings
Plant and
equipment
Furniture
and equipment
Under
construction
17,936
346
-
508
18,790
138
-
491
5,349
975
-
6,324
990
-
7,314
76,559
490
(654)
1,995
78,390
1,030
(772)
4,164
82,812
30,178
6,261
(724)
35,715
6,703
(766)
41,652
1,709
75
-
29
1,813
233
(7)
162
2,201
1,339
143
-
1,482
154
(7)
1,629
2,022
4,629
-
(2,532)
4,119
6,104
-
(4,817)
5,406
-
-
-
-
-
-
-
Land and
buildings
12,466
12,105
Plant and
equipment
Furniture
and equipment
Under
construction
42,675
41,160
331
572
4,119
5,406
Total
98,226
5,540
(654)
-
103,112
7,505
(779)
-
109,838
36,866
7,379
(724)
43,521
7,847
(773)
50,595
Total
59,591
59,243
Depreciation expense of $7,625 (2017: $7,192) was charged to costs of sales, $108 (2017: $62) was charged to general and
administrative expense and $114 (2017: $125) was charged to research and development expenses.
Government assistance grants relating to capital assets were $nil in 2018 (2017: $165); land and buildings and property, plant
and equipment were adjusted accordingly.
A N N U A L R E P O R T
43
2018
Notes to CFS (cont’d)
NOTE 7 INTANGIBLE ASSETS
In thousands of US dollars
Cost
Balance at January 1, 2017
Purchases
Balance at December 31, 2017
Purchases
Balance at December 31, 2018
Amortization
Balance at January 1, 2017
Amortization for the year
Balance at December 31, 2017
Amortization for the year
Balance at December 31, 2018
Carrying amounts
At December 31, 2017
At December 31, 2018
Customer
Relationships
28,250
-
28,250
-
28,250
6,962
2,825
9,787
2,825
12,612
18,463
15,638
Goodwill
32,225
-
32,225
-
32,225
-
-
-
-
-
32,225
32,225
Software and
Development
costs
4,092
1,754
5,846
971
6,817
3,272
480
3,752
294
4,046
2,094
2,771
Total
64,567
1,754
66,321
971
67,292
10,234
3,305
13,539
3,119
16,658
52,782
50,634
Amortization expense of $3,119 (2017: $3,305) was charged to general and administrative expense. Remaining amortization
for customer relationships acquired is 4.8 to 6.5 years.
Goodwill
December 31
In thousands of US dollars
Defense
Automotive
Indefinite-life intangible assets – customer relationships
December 31
In thousands of US dollars
Defense
Automotive
2018
22,160
10,065
32,225
2018
7,963
7,675
15,638
2017
22,160
10,065
32,225
2017
9,188
9,275
18,463
Impairment
Goodwill is allocated to those Cash Generating Units that are expected to benefit from synergies of the related business combination
and represent the lowest level within the Company at which management monitors goodwill. As at December 31, 2018 and December
31, 2017, there was no goodwill impairment.
Recoverable amount
Recoverable amount was based on value in use. Value in use was determined by discounting the future cash flows generated
from the continuing use of the unit.
Key assumptions used in value-in-use calculations
The calculations of value in use for the Cash Generating Units are most sensitive to the following assumptions:
• Discount rate used 9.8%
• Growth rate of 2-5% for operating expenses used in the budget
• Projected sales used to extrapolate cash flows beyond the budget date
Cash flows were projected based on past experience, actual operating results and the business plan for a 1 year period. Cash
flows for a further four year period were extrapolated using projected sales and a growth rate of 2-5% for operating expenses.
Net sales and margins in the business plan were budgeted based on discussions with customers, contracts on-hand and
industry information, past experience and trends, as well as initiatives. The anticipated annual net sales have been based on
expected growth levels (net of the inflationary effect of rising raw material prices).
The values assigned to the key assumptions represent management’s assessment of future trends in the rubber, engineered
products industries and are based on both external sources and internal sources (historical data).
44
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 8 OTHER ASSETS
In thousands of US dollars
Balance at January 1, 2017
Accrued interest
Interest paid
Repayment of loan
Effect of movements in exchange rates
Balance at December 31, 2017
Accrued interest
Interest received
New loan issuances (note 19)
Effect of movements in exchange rates
Balance at December 31, 2018
Less: current portion
Share purchase
loan
10% equity
investment
Other
1,119
11
(11)
(193)
71
997
12
(11)
392
(106)
1,284
(734)
550
313
-
-
-
-
313
-
-
-
-
313
-
313
133
-
-
-
6
139
-
-
-
(6)
133
-
133
Total
1,565
11
(11)
(193)
77
1,449
12
(11)
392
(112)
1,730
(734)
996
NOTE 9 DERIVATIVES NOT DESIGNATED IN A FORMAL HEDGING RELATIONSHIP
Foreign exchange hedge
At December 31, 2018, the Company had contracts to sell USD $25,427 in 2019 for Canadian dollars ("CAD") $33,601. The
fair value of these contracts, representing a loss of $797 was included in trade and other payables, including derivatives (2017:
gain of $252 was included in trade and other receivables, including derivatives) on the statement of financial position. The
change in fair value was recorded on the statement of income as a loss.
Interest rate swap
During the first quarter of 2017, the Company entered into an interest rate swap agreement for a notional amount of $35 million
($30.8 million as at December 31, 2018) amortizing down to $24.3 million at maturity. Swap interest is calculated and settled on
a monthly basis based on the difference between the floating rate of USD LIBOR and the fixed rate of 1.69%. The swap agreement
matures on December 10, 2020.
During 2018, the net interest income of the swap agreement was $77 (2017: expense of $195).
For the year ended December 31, 2018, the fair value of this agreement, representing a gain of $434 (2017: gain of $275), is
recorded on the statement of financial position included in loans and borrowings. The change in fair value is recorded on the
statement of income as finance costs.
The Company has entered into this interest rate swap agreement in order to fix the interest rate on a portion of its term loan and
it does not intend to hold for trading or speculation purposes.
NOTE 10 LOANS AND BORROWINGS
December 31
In thousands of US dollars
Non-current
Term debt
Less: deferred financing
Current
Term debt
December 31
In thousands of US dollars
CAD $5,000 term debt, bearing interest at 5.25%, five year term, amortized over 20 years,
with principal and interest payable quarterly. Repaid October 2018.
$75,000 term debt, bearing interest at LIBOR plus applicable margins from 75 to 175
basis points depending on covenants, five year term, amortized by specific installments of
principal plus interest payable quarterly and the balance repayable in December 2020.
Finance lease bearing interest at 4.93%, maturing October 2023.
Subtotal
Less principal due within one year
Less deferred financing
A N N U A L R E P O R T
2018
2017
59,757
(595)
59,162
63,761
(902)
62,859
3,794
6,398
2018
2017
-
2,923
63,316
235
63,551
(3,794)
59,757
(595)
59,162
67,236
-
70,159
(6,398)
63,761
(902)
62,859
45
2018
Notes to CFS (cont’d)
The Company’s current credit facilities are comprised of a $60,000 revolving facility, a term loan of $75,000 (consolidating the
two prior outstanding acquisition financing loans with interest at LIBOR plus applicable margins from 175 to 275 basis points,
depending on covenants), and an accordion feature of up to an additional $50,000 of availability, upon the satisfaction of
customary conditions for such features. The revolving credit facility and term debt mature in December 2020.
During the fourth quarter of 2017, certain changes in the calculations for the covenant terms in the credit facilities were amended
on a prospective basis.
Deferred financing fees, less accumulated amortization have been deducted against the term loan for presentation purposes.
The fees are being amortized over 5 years and $307 (2017: $262) has been amortized and is included in finance costs.
Interest expense on the term debt was $2,630 (2017: $2,097).
Principal repayments on the loans and borrowings are as follows:
2019
In thousands of US dollars
Total
2020
Term debt and finance lease
63,551
3,794
59,613
2021
49
2022
51
2023
44
In 2018 and 2017, under the Company’s current credit facilities, the revolving facility consisted of $30,000 US Revolving Credit
facility and a $30,000 US equivalent Canadian Revolving Credit Facility. $60,000 of this facility is unused as at December 31, 2018.
All obligations under the current credit facility and related loan documentation are secured by a first charge against all of the
Company’s present and after acquired property in favor of the lenders.
At December 31, 2018 the Company is not in default, nor has it breached any terms of the credit agreement relating to the current
credit facilities.
The contractual re-pricing dates at the end of the reporting period are as follows:
December 31
In thousands of US dollars
Less than 1 year
1 to 5 years
2018
3,794
59,162
62,956
2017
6,398
62,859
69,257
The carrying amount and fair value of the borrowings are as follows:
In thousands of US dollars
Term debt and finance lease
Carrying amount
Fair value
2018
62,956
2017
69,257
2018
63,838
2017
69,968
The fair value of current borrowings approximate the carrying amount, as the impact of discounting at current market rates will
not have a material impact. The fair values are based on cash-flows discounted using a rate based on the borrowing rate of
4.21% (2017: 3.47%) for the term loan and the capital lease and nil (2017: 4.82%) for CAD fixed rate term loan.
NOTE 11 PROVISIONS
In thousands of US dollars
Balance at January 1, 2017
Provisions accrued during the year
Payments during the year
Amortization during the year
Foreign exchange
Balance at December 31, 2017
Less amount due within one year
Provisions accrued during the year
Payments during the year
Forfeitures during the year
Amortization during the year
Foreign exchange
Balance at December 31, 2018
Less amount due within one year
46
Site
restoration
Restricted
stock units
Performance
awards and
Deferred
stock units
Lease
incentives
74
-
-
-
-
74
-
74
-
-
-
-
-
74
-
74
1,337
329
(549)
-
85
1,202
(1,202)
-
316
(1,485)
-
-
(33)
-
-
-
105
240
-
-
21
366
-
366
184
-
(26)
-
(43)
481
(120)
361
265
-
-
(26)
-
239
(40)
199
-
-
-
(40)
-
199
(54)
145
Total
1,781
569
(549)
(26)
106
1,881
(1,242)
639
500
(1,485)
(26)
(40)
(76)
754
(174)
580
AirBoss of America Corp.
Notes to CFS (cont’d)
Restricted Stock Units
Pursuant to the Omnibus Incentive Plan, the Company issued to certain executives an aggregate of 150,000 restricted stock
units. Each restricted stock unit entitles the holder to receive on vesting, at the sole discretion of the Company, either one common
share or a cash payment equal to the fair market value of a common share as of the vesting date. The restricted stock units vest
three years following the grant date and have no performance requirements.
Restricted stock units
December 31, 2018
December 31, 2017
January 1
Forfeitures
Exercised
Balance
150,000
-
(150,000)
-
224,000
(15,000)
(59,000)
150,000
During 2018 and 2017, no restricted stock units were issued. In 2018, no restricted stock units were forfeited, 150,000 fully
vested restricted stock units were exercised for $1,485 in cash (2017: 15,000 forfeited and 59,000 units exercised for $549).
At December 31, 2018 the Company has recognized as employee costs $316 (2017: $329) related to the plan.
Performance Awards
The Company has issued certain executives with an aggregate of 114,908 performance awards pursuant to the terms and
conditions of the Omnibus Plan. Each performance award entitles the holder to receive on vesting a cash payment equal to the
product of (a) the fair market value of a common share as of the vesting date and (b) a performance factor between 0.5 and 2.0,
based on the level of achievement of predetermined performance objectives over the vesting period generally. The performance
awards vest three years following the grant date.
Performance stock units
December 31, 2018
December 31, 2017
January 1
New issuances
Forfeitures
Balance
93,333
29,933
(8,358)
114,908
50,680
55,830
(13,177)
93,333
During 2018, the Company recognized as employee costs $87 (2017: $95) related to the plan.
Deferred Stock Units
The Company has issued deferred stock units (“DSUs”) to non-executive directors pursuant to the terms and conditions of the
Omnibus Plan. Each vested DSU entitles the holder to receive, on redemption, either: (a) one common share; (b) a cash payment
equal to the fair market value of a common share as of the redemption date; or (c) a combination of both cash and common shares,
at the sole discretion of the Company. The redemption of a DSU occurs only following the termination of a holder’s service as
director and will occur on either: (a) a date selected by a recipient following the termination of their services as a director (which
can be no earlier than 10 days, and no later than one year, after the service termination date); or (b) a date selected by the Company
following the death of the recipient while still serving as director (which can be no later than 90 days following the death of the
recipient). Under the terms of compensation for independent directors of the Company approved by the Compensation Committee
and Board in 2016, commencing with the second quarter of 2016 and for each subsequent quarter while he or she remains a
director, each independent director is to be granted a number of DSUs having a fair market value equal to CAD $6.25. The fair
market value of each DSU is equal to the volume-weighted average trading price of a Common Share on the TSX for the 5 trading
days preceding the relevant grant date. In addition to this fixed amount of DSUs, independent directors are able to elect to be paid
all or a portion of all other director’s fees in DSUs in lieu of cash, using the same calculation of fair market value as for the fixed
amount of DSUs, to be granted on a quarterly basis. All DSUs issued to independent directors vest three months following the
relevant grant date. The compensation expense is accrued over the vesting period with a corresponding increase in liabilities in the
amount which represents the fair value of the amount payable to the independent director in respect of the DSUs.
Deferred stock units
January 1
New issuances
Balance
December 31, 2018
December 31, 2017
30,005
13,083
43,088
11,428
18,577
30,005
At December 31, 2018, independent directors held 43,088 DSUs. During 2018, 13,083 DSUs were issued. During 2018, the
Company recognized as employee costs $71 (2017: $145) related to DSUs issued under the Omnibus Plan.
A N N U A L R E P O R T
47
2018
Notes to CFS (cont’d)
NOTE 12 CAPITAL AND OTHER COMPONENTS OF EQUITY
Share Capital and Contributed Surplus
Share Capital: Authorized - Unlimited number of Class A shares without par value designated as common shares.
Unlimited number of Class B preference shares without par value and issuable in series subject to the filing or articles of
amendment. The directors may fix, from time to time before such issue, the number of shares that is to comprise each series
and the designations, rights, privileges, restrictions and conditions attaching to each series.
Under the Omnibus plan, a maximum of 10% of issued and outstanding shares are available for issuance under any type of
share-based compensation plan. As at December 31, 2018, 1,661,976 shares are available (2017: 1,524,111).
Issued share capital is as follows:
In thousands of shares
January 1
Exercise of share options
Share repurchase
December 31
2018
23,091
342
(41)
23,392
2017
23,074
19
(2)
23,091
Issuance of common shares
During 2018, 495,000 options (2017: 62,500) were exercised resulting in the issuance of 341,949 (2017: 19,030) common
shares.
During the fourth quarter of 2017, the Company commenced a normal course issuer bid ("NCIB") to purchase up to 1,359,443
of its common shares, representing approximately 10% of the Company's public float. The Company purchased 40,620 (2017:
2,100) shares under its NCIB in 2018.
Capital and other components of equity
Contributed surplus
Contributed surplus is comprised of the difference between the book value per share and the purchase price paid for shares
acquired for cancellation by the Company and stock-based compensation of employees and non-employees.
Stock Options
The term of an option shall not exceed 10 years from the date of grant. Options granted to directors and officers of the Company,
which were outstanding at December 31, 2018, are as follows:
Range of exercise
price ($CAD)
10.98
11.56
12.05
12.26
15.40
16.69
17.86
Options
outstanding
Quantity
Weighted
average
contract life
Options
exercisable
Quantity
33,200
31,685
240,000
62,007
50,000
87,380
15,000
519,272
3.87
4.22
1.00
3.22
1.25
2.25
2.00
9,500
6,200
240,000
27,600
46,900
60,200
11,300
401,700
Options granted and outstanding:
A summary of the status of the Company’s stock option plan as of December 31, 2018 and 2017 and changes during the years
then ended, is presented below:
2018
Weighted average
exercise price
($CAD)
9.86
11.56
6.35
13.31
13.25
Quantity
988,710
38,109
(495,000)
(12,547)
519,272
2017
Weighted average
exercise price
($CAD)
9.57
11.96
6.92
12.45
9.86
Quantity
986,400
142,796
(62,500)
(77,986)
988,710
Outstanding beginning of year
Granted
Exercised
Forfeited
Outstanding end of year
48
AirBoss of America Corp.
Notes to CFS (cont’d)
Inputs for measurement of grant date fair values
The grant date fair value of all options were measured based on the Black-Scholes model. Expected volatility is estimated by
considering historic average share price volatility. The inputs used in the measurement of the fair values at grant date of the
share-based payment plans are the following:
Fair value of share options and assumptions
In Canadian dollars
March 2018
November 2017
March 2017
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected annual dividend rate
Risk-free interest rate (based on government bonds)
The stock options issued vest as follows:
$ 3.11
$ 12.08
$ 11.56
31.8%
5 years
2.3%
2.1%
$ 2.26
$ 10.50
$ 10.98
32.0%
5 years
2.7%
1.7%
Vested at December 31, 2018
2019
2020
2021
2022
Stock option expense
$ 2.35
$ 11.08
$ 12.26
34.2%
5 years
2.5%
1.2%
Quantity
401,700
60,000
37,280
18,507
1,785
519,272
During 2018, the Company recognized as employee costs $194 (2017: $277) relating to option grants in general and
administrative expenses of the statement of income.
Dividends
Dividends on common shares were paid to shareholders of record quarterly in 2018 and in 2017 as follows:
Shareholder of record at:
$CAD/share
Date Paid
$CAD/share
Date Paid
2018
2017
March 31
June 30
September 30
December 31
April 16, 2018
0.07
0.07
July 16, 2018
0.07 October 15, 2018
January 15, 2019
0.07
0.28
0.07
0.07
0.07
0.07
0.28
April 14, 2017
July 14, 2017
October 13, 2017
January 15, 2018
The dividend payable at December 31, 2018 was $1,200 (2017: $1,288).
A N N U A L R E P O R T
49
2018
Notes to CFS (cont’d)
NOTE 13 EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted earnings per share:
December 31
In thousands of US dollars except per share amounts
Numerator for basic and diluted earnings per share:
Net income
Denominator for basic and diluted earnings per share:
Basic weighted average number of shares outstanding
Dilution effect of stock options
Dilution of effect of restricted share units
Dilution of effect of deferred stock units
Diluted weighted average number of shares outstanding
Net income per share:
Basic
Diluted
2018
8,536
23,345
6
-
32
23,383
0.37
0.37
2017
12,632
23,082
242
136
13
23,473
0.55
0.54
As of December 31, 2018, 214,387 options (2017: 220,510) were excluded from the diluted weighted average number of
common shares calculation as their effect would have been anti-dilutive.
The average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options was based
on quoted market prices for the period during which the options were outstanding.
NOTE 14 INCOME TAXES
The provision for income taxes differs from the amount computed by applying the Canadian statutory income tax rate to income
before income taxes for the following reasons:
December 31
In thousands of US dollars
Combined federal and provincial statutory income tax
Foreign tax differential
Effect of permanent differences
Change in tax rates and new legislation
Difference arising on filing and assessments
Other
Total expense
The components of the provision for income taxes are as follows:
Current
Deferred
Total
2018
3,124
179
(110)
22
119
(82)
3,252
3,014
238
3,252
2017
3,817
(140)
(902)
(956)
(62)
13
1,770
3,109
(1,339)
1,770
The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities
are as follows:
December 31
In thousands of US dollars
Deferred income tax assets:
Non-capital income tax loss carry-forwards
Deferred income tax deductions relating to long-term liabilities
Equity Compensation
Alternative minimum tax
Capital assets
Other
Deferred income tax liabilities:
Deferred income tax deductions relating to long-term liabilities
Financing fees
Capital assets
Net deferred income tax liabilities
50
2018
2,116
126
175
97
156
242
2,912
(6)
(70)
(8,136)
(8,212)
(5,300)
2017
1,844
141
475
97
167
13
2,737
(21)
(49)
(7,814)
(7,884)
(5,147)
AirBoss of America Corp.
Notes to CFS (cont’d)
In assessing the valuation of deferred income tax assets, management considers whether it is more likely than not that some
portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is
dependent upon the generation of deferred taxable income during the period in which the temporary differences are deductible.
Management considers the scheduled reversals of deferred income tax liabilities, the character of the income tax asset and
the tax planning strategies in making this assessment. Management would not recognize deferred income tax assets if the more
likely than not realization criterion is not met.
The Company has $2,018 (2017: $1,789) available to offset deferred income taxes in the US and has recognized a related
deferred income tax asset of $2,018 (2017: $1,789).
The aggregate amount of taxable temporary differences associated with investments in subsidiaries, branches and associated
and interests in joint ventures, for which no deferred tax liabilities have been recognized, is $43,687 (2017: $42,968).
Deferred tax assets have not been recognized in respect of capital losses because it is not probable that future capital gains
will be available against the capital losses.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and
Jobs Act (the “Tax Act”) that significantly revises the U.S. tax code generally effective January 1, 2018 by, among other changes,
lowering the corporate income tax rate from 35% to 21%, limiting deductibility of interest expense and performance based
incentive compensation and implementing a modified territorial tax system. As a Canadian entity, the Company generally would
be classified as a foreign entity (and, therefore, a non-U.S. tax resident) under general rules of U.S. federal income taxation.
However, the Company has subsidiaries subject to U.S. federal income taxation and therefore the Tax Act impacted our
consolidated results during 2017, and is expected to continue to impact our consolidated results in future periods. The impact
to its consolidated statement in 2017 consists of the remeasurement of net deferred tax liabilities as of the enactment date.
As a result of the reduction in the U.S. corporate tax rate, it remeasured our U.S. net deferred tax liabilities as of the enactment
date and recognized a benefit of $956 in the provision for income taxes in 2017, which is a reduction in net deferred tax liabilities
as of December 31, 2017.
NOTE 15 GOVERNMENT ASSISTANCE
During 2018, Rubber Solutions recognized grants of $135 (2017: $106). Engineered Products did not recognize grants in 2018 or 2017.
Scientific research and investment tax credits of $780 (2017: $335) were recognized in 2018; research and development costs were
reduced accordingly. No reduction to capital assets was recognized in respect of provincial tax credits (2017: $165).
NOTE 16 COMMITMENTS AND CONTINGENCIES
Commitments
The Company is committed, under non-cancellable operating lease agreements, to minimum rentals for equipment and
premises as follows:
In thousands of US dollars
Equipment
Premises
2019
2020
2021
2022
2023
Thereafter
Total
73
62
54
48
40
1
278
1,734
1,734
1,698
1,302
1,302
1,635
9,405
Total
1,807
1,796
1,752
1,350
1,342
1,636
9,683
Litigation
No legal provisions are recognized at December 31, 2018 and 2017.
NOTE 17 POST RETIREMENT BENEFITS
The Company provides post retirement life insurance benefits to eligible retirees (“other benefit plan”). The post-retirement life
insurance benefits under the other benefit plan are for non-unionized and unionized employees of AirBoss Engineered Products
Inc., which are unfunded defined benefit plans covering life insurance.
The methods of accounting, assumptions and frequency of valuations for the other benefit plan are similar to those used for
defined benefit pension schemes. This plan is funded through proceeds from an insurance policy. Total estimated contribution
to this plan for the next fiscal year is $19. This plan is unfunded as such there is no plan asset to be disclosed. At December
31, 2018, the weighted average duration of the defined benefit obligation was 12 years (2017: 12 years).
The Company previously maintained an unfunded supplementary employment retirement plan for an executive (“executive
supplemental plan”) and an insurance policy to cover the obligation, in event of the executive’s death. The executive
supplemental plan was a non-registered plan. During 2017, in advance of the retirement of the executive covered by the
Supplemental Plan, the Company reached an agreement with the executive to convert the defined benefit pension promise
provided for under the Supplemental Plan into a notional defined contribution account balance of value that was equal to the
December 31, 2016 defined benefit balance sheet liability of $1,223 effective January 1, 2017. This notional defined contribution
account balance was credited with interest at an agreed rate of 3.75% per annum, until it was paid out. During 2017, the defined
contribution amount of $1,247, which includes interest of $11 and foreign exchange of $13, was paid to the executive, eliminating
the liability in full.
A N N U A L R E P O R T
51
2018
Notes to CFS (cont’d)
This benefit plan exposes the Company to actuarial risks, such as interest rate risk and longevity risk.
December 31
In thousands of US dollars
Statement of Financial Position obligations for:
Other benefit plan
Income statement charge for:
Executive supplemental plan
Other benefit plan
December 31
In thousands of US dollars
Present value of unfunded obligation
and Liability in the Statement of
Financial Position
Movement in the defined benefit
obligation is as follows:
At January 1
Current service cost
Interest cost
Benefit payment
Actuarial gain
Exchange differences
At December 31
The amounts recognized in the income
statement are as follows:
Post-retirement benefits expense
Interest cost
Exchange differences
Expense (recovery)
2018
474
474
-
(78)
(78)
2017
560
560
24
22
46
Executive
Supplemental Plan
Other
benefit plan
2018
2017
2018
2017
-
-
-
-
-
-
-
-
-
-
-
-
-
1,223
-
11
(1,247)
-
13
-
-
11
13
24
474
560
2
17
(45)
(17)
(43)
474
(52)
17
(43)
(78)
560
507
-
18
-
-
35
560
(31)
18
35
22
The current service charge was included in “general and administrative expense” and the interest cost is included in “finance
costs” in the income statement.
December 31
In thousands of US dollars
The principal actuarial valuation
assumptions used were as follows:
Discount rate
Mortality
Other
benefit plan
2018
2017
3.60%
3.00%
CPM
mortality table
projected
with scale MI-
2017 for the
private sector
CPM
mortality table
projected
with scale B
for the
private sector
Retirement age:
Percentage of members with spouses
at retirement
N/A
N/A
The sensitivity of the executive supplemental plan to changes in assumptions is set out below. The sensitivity analysis was
performed by recalculating the defined benefit obligation and the current service cost at the same valuation date, but only
changing the assumption for which the sensitivity was required. This obligation was then used to calculate the difference against
the actual amount established as at December 31, 2016. The effect of a variation in a particular assumption on the change in
obligation has been calculated without changing any other assumption; in reality, changes in one factor may result in changes in
another (e.g. due to correlations between economic assumptions), which may magnify or counteract the sensitivities.
The sensitivity of the “other benefit plan” to changes in assumptions is set out below. The sensitivity analysis was
performed by changing each assumption individually. If actual changes occur, some of these assumptions are likely to be
correlated and result in a combined impact.
52
AirBoss of America Corp.
Notes to CFS (cont’d)
Fiscal Year ending December 31
Effect of an increase of 1%
Post-employment benefit obligation
Effect of a decrease in 1%
Post-employment benefit obligation
Mortality Sensitivity Analysis
Effect of an increase of 10% on mortality rates
Post-employment benefit obligation
Effect of a decrease of 10% on mortality rates
Post-employment benefit obligation
Defined Contribution Plan
2018
(48)
60
5
(6)
2017
(58)
73
9
(10)
AirBoss Flexible Products Co. (“Flexible”) maintains a 401(k) defined contribution plan for its employees. Total contributions and
expense to this plan during 2018 were $362 (2017: $373).
Immediate Response Technologies, LLC maintains a 401(k) defined contribution plan for its employees. Total contributions
and expense to this plan during 2018 were $88 (2017: $53).
AirBoss Rubber Compounding (NC) Inc. maintains a 401(k) plan for its employees. Total contributions and expense to this
plan during 2018 were $45 (2017: $41).
AirBoss of America Corp. maintains a registered retirement savings plan defined contribution plan for all of their employees.
Total contribution and expense to this plan for 2018 were $281 (2017: $298).
AirBoss Engineered Products Inc. employees are covered under various registered and unregistered defined contribution
plans. Total contribution and expense to these plans for 2018 were $159 (2017: $147).
Multi-Employer Pension Plan
Flexible contributes to the Steel Workers Pension Trust, a multi-employer defined benefit pension plan under the terms of
collective-bargaining agreements that cover its union-represented employees in the State of Michigan. The risks of participating
in a multi-employer plan are different from participation in a single-employer plan in the following aspects:
(a) Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other
(b)
(c)
participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
If the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay those plans
an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
During 2018, the Company made contributions of $284 (2017: $279) to the multi-employer pension plan. The unfunded vested
benefit ratio was 8.2% at December 31, 2018 (2017: 15.6%). The Steel Workers Pension Trust was in a net deficit at December
31, 2018 and the Company’s portion of the deficit was unknown. The collective bargaining agreement requires that the Company
contributes $0.40 for each hour worked by eligible employees during the preceding wage month.
A N N U A L R E P O R T
53
2018
Notes to CFS (cont’d)
NOTE 18 SEGMENTED INFORMATION
The Company has two reportable segments, as described below, which are the Company’s strategic business units. The
strategic business units offer different products and services and are managed separately because they require different
technology and marketing strategies. For each of the strategic business units, the Company’s CEO reviews internal
management reports on at least a quarterly basis. The following summary describes the operations in each of the Company’s
reportable segments:
• Rubber Solutions. Includes manufacturing and distribution of rubber compounds and distribution of rubber compounding
related chemicals.
• Engineered Products. Includes the manufacture and distribution of personal protection and safety products primarily for
CBRN hazards and semi-finished rubber related products, and includes the manufacture and distribution of anti-vibration and
noise dampening automotive parts
• Corporate. Includes corporate activities and certain unallocated costs.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit
before income tax, as included in the internal management reports that are reviewed by the Company’s CEO/Chairman and President.
Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the
results of certain segments relative to other entities that operate within these industries. Transfer pricing is based on third-party rates.
Inter-company amounts, which represent items purchased from different segments, have been presented within the segment disclosure
and are eliminated to arrive at the consolidated amounts.
The Company operates primarily within North America with respect to its rubber compound and automotive products and globally with
respect to its rubber protective products and has production facilities in Canada and the United States.
For the year ended
December 31
Rubber
Solutions
Engineered
Products
Unallocated
Corporate Costs
Total
In thousands of US dollars
2018
2017
2018
2017
2018
2017
2018
2017
Segment net sales
Inter-segment net sales
184,065
(38,801)
153,608
(28,195)
172,077
(738)
164,706
(264)
External net sales
145,264
125,413
171,339
164,442
-
-
-
-
-
-
356,142
(39,539)
318,314
(28,459)
316,603
289,855
Depreciation and
amortization
Finance cost
Reportable segment profit
(loss) before income tax
Income tax expense
(recovery)
Net Income
5,186
4,583
5,174
4,733
5,710
5,466
70
44
10,966
10,684
3
-
(1,665)
(2,166)
2,921
2,567
9,910
6,715
5,723
8,000
(3,845)
(313)
11,788
14,402
5,126
4,784
2,249
4,466
1,457
4,266
1,228
6,772
(3,331)
(1,707)
(514)
1,394
3,252
8,536
1,770
12,632
Reportable segment assets
97,263
91,079
122,395
123,689
12,870
11,180
232,528
225,948
Reportable segment liabilities
26,802
18,193
15,902
14,975
68,341
75,619
111,045
108,787
Capital expenditures
4,693
3,637
3,553
2,700
230
957
8,476
7,294
54
AirBoss of America Corp.
Notes to CFS (cont’d)
Geographical segments
The Rubber Solutions and Engineered Products segments operate manufacturing facilities and sales offices in the US and
Canada, selling primarily in North American markets.
In presenting information on the basis of geographical segments, segment net sales are based on the geographical location
of customers. Segment assets are based on the geographical location of the assets.
Non-current assets include property, plant and equipment, software, goodwill, future income taxes and other assets.
December 31, 2018
December 31, 2017
In thousands of US dollars
Net sales
Non-current assets
Net sales
Non-current assets
Canada
United States
Other countries
47,209
227,311
42,083
316,603
44,314
66,559
-
110,873
45,361
213,633
30,861
289,855
45,450
68,372
-
113,822
Major customers
Net sales from one customer represent approximately 8% (2017: 9%) of consolidated net sales in 2018. Five customers
represented 33% (2017: 29%) of consolidated net sales in 2018.
Major Products
In thousands of US dollars
Rubber Solutions
Tolling
Industrial
Mixing
Engineered Products
Industrial
Defense
2018
2017
7,484
30,945
106,835
145,264
129,348
41,991
171,339
316,603
7,624
31,286
86,503
125,413
131,773
32,669
164,442
289,855
NOTE 19 RELATED PARTIES
Related Party Transactions
Included in the operating lease commitments was a rental agreement for corporate office space between the Company and a
company controlled by the CEO and Chairman of the Company. The monthly lease rate approximates fair market rental value.
During the year, the Company paid rent for the corporate office of CAD $180 (2017: CAD $180).
During the year, the Company paid fees for the use of a facility in South Carolina of approximately $26 (2017: $14) to a company
in which the CEO and Chairman is an officer.
A N N U A L R E P O R T
55
2018
Notes to CFS (cont’d)
Transactions with key management personnel
Key management includes directors, CEO, President, COO, CFO, and senior management. The compensation expense to key
management for employee services is shown below:
December 31
In thousands of US dollars
Salaries and other short term benefits
Pension/Post-employment benefits
Share-based payment expense
2018
3,378
-
633
4,011
2017
2,397
24
839
3,260
The amounts disclosed in this table are the amounts recognized as operating expenses for accounting purposes during the
period and do not necessarily represent amounts receivable or received in cash. During 2017, an executive was paid $1,247
in advance of retirement relating to the executive supplemental plan. See Note 17 - Post Retirement Benefits.
Key management own 26.4% of the outstanding common shares as at December 31, 2018.
During 2014, the Company provided a share purchase loan of CAD $1,000 to the President to purchase common shares of
the Company. The loan to the President is due upon the earlier of the disposition date of all or proportionate to any part of the
pledged securities or November 24, 2019. During the fourth quarter of 2016, the Company provided a share purchase loan of
CAD $250 to the Chief Financial Officer. The loan to the CFO is due upon the earlier of the disposition date of all or proportionate
to any part of the pledged securities or December 20, 2021. During the first quarter of 2018, the Company provided a share
purchase loan of CAD $500 to the Chief Operating Officer. The loan to the COO is due upon the earlier of the disposition date
of all or proportionate to any part of the pledged securities or March 28, 2023. All share purchase loans bear interest at 1%
annually with full recourse and interest is due and payable semi-annually. In total, 161,300 shares of the Company having a
fair value of $1,035 were pledged as collateral on these three loans. At December 31, 2018, the promissory notes of $1,284,
including accrued interest of $1, were included in other assets. During the year, interest of $11 (2017 $11) was paid.
NOTE 20 FINANCIAL INSTRUMENTS
Financial risk management
The Company's activities result in exposure to a variety of financial risks, including risks related to commodity prices, currency
fluctuation, interest rates, credit and liquidity.
Market Risk
Commodity prices and supplies
The Company’s financial performance depends on certain outside sources for raw materials, including carbon black, synthetic
and natural rubber, ethylene propylene diene monomer (“EPDM”), steel and silicone used in the production of its products, the
price and availability of which are subject to fluctuations from such factors as weather, exchange rates and the price of oil,
changes in industry production capacity, changes in world inventory levels and other factors beyond the Company's control.
The Company manages its commodity price and supply risk by matching purchase commitments to its customers’ requirements
during term of the price quote, generally ranging from 1 to 3 months and maintains supply sources in different areas of the world.
The Company does not enter into commodity contracts other than to meet the Company’s expected usage and sale
requirements; such contracts are not settled net.
The following table approximates the financial impact, (assuming changes are not passed along to its customers), on the
Company of a 10% increase in the cost of its most critical raw materials based upon purchases made in the respective years:
Earnings before tax
2018
2017
(2.98)
(3.00)
(1.71)
(0.34)
(0.82)
(8.85)
(2.66)
(2.66)
(1.17)
(0.78)
(0.83)
(8.10)
$Millions
Natural and synthetic rubber
Steel
Carbon black
EPDM
Silicone
56
AirBoss of America Corp.
Notes to CFS (cont’d)
A small portion of the Company's products are sold at prices denominated in CAD dollars or based on prevailing CAD dollar
prices; most of the raw material purchases are denominated in US dollars and a significant portion of its operational costs and
expenses are incurred in Canadian dollars. Therefore, an increase in the value of the US dollar relative to the Canadian dollar
decreases the net sales in US dollar terms realized by the Company from sales made in Canadian dollars, partially offset by
lower Canadian dollar operational costs/expenses, which decreases operating margin and the cash flow available to fund
operations. The net Canadian monetary assets of its Canadian operations represent a currency risk as the balances are re-
measured at the month end spot rate creating an unrealized exchange gain or loss.
The Company manages its currency risk relating to monetary assets and liabilities denominated in Canadian dollars by
increasing or decreasing the proportion of operating or term loan denominated in Canadian funds or forward currency contracts.
The Rubber Solution segment’s profit and loss is somewhat naturally hedged in that sales denominated in US dollars offset
US dollar expenses and debt service costs.
The following table approximates the following impact on the Company of a $0.10 decrease in the value of one Canadian dollar
in US currency:
$Millions
Sales (1)
Purchases (2)
Earnings before tax
2018
2017
(2.9)
6.1
(2.8)
4.8
(1) Based upon Canadian dollar-denominated sales
(2) Based upon Canadian dollar-denominated debt repayments, purchases and expenses
Interest Rate Risk
The Company’s interest rate risk mainly arises from the interest rate impact on cash and floating rate debt. Canadian dollar
borrowings are on a fixed rate basis. The US dollar borrowings are on a variable rate basis. The Company has no formal policy to
manage a certain proportion of borrowings on a fixed rate basis.
During the first quarter of 2017, the Company entered into an interest rate swap agreement for a notional amount of $35 million
($30.8 million as at December 31, 2018) amortizing down to $24.3 million at maturity. Swap interest is calculated and settled on a
monthly basis based on the difference between the floating rate of USD LIBOR and the fixed rate of 1.69%. The swap agreement
matures on December 10, 2020.
During 2018, the net interest income of the swap agreement was $77 (2017: expense of $195).
For the year ended December 31, 2018, the fair value of this agreement, representing a gain of $434 (2017: gain of $275), is
recorded on the statement of financial position included in loans and borrowings. The change in fair value is recorded on the
statement of income as finance costs.
The Company has entered into this interest rate swap agreement in order to fix the interest rate on a portion of its term loan and is
not intended for trading or speculation purposes.
At the reporting date, the interest profile of the Company’s interest-bearing financial instruments was:
December 31
In thousands of US dollars
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial liabilities
Total
2018
2017
1,284
(235)
(63,750)
(62,701)
997
(2,923)
(66,833)
(68,759)
Fair value sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates for the year would have increased or decreased net income and equity by:
In thousands of US dollars
2018
Variable rate instruments
2017
Variable rate instruments
This analysis assumes that all other variables, in particular foreign exchange rates, remain constant.
A N N U A L R E P O R T
Net income and equity
100bp increase
100bp decrease
(191)
(178)
191
276
57
2018
Notes to CFS (cont’d)
Credit Risk
The Company held cash and cash equivalents of $17,862 at December 31, 2018 (2017: $17,748), which represents its maximum
credit exposure on these assets. The cash and cash equivalents are held with bank and financial institution counterparties,
which are rated A- to AA-, based on Standard and Poor’s ratings.
The Company sells its products to a variety of customers under various payment terms in the normal course of its operations
and therefore is exposed to credit risks. The Company’s exposure to credit risk is influenced by general economic conditions,
the default risk of the industry and the relative concentration of business. A majority of the Company’s trade receivables are
derived from sales to distributors and manufacturers who have been transacting with the Company for over five years. In
monitoring credit risk, the Company considers industry, volume and aging trends, maturity and other relevant factors. The
Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when
deemed necessary. Purchase limits established for certain accounts represent the maximum open balance permitted without
approval from the CEO. The Company maintains reserves for potential credit losses relating to specific exposures, and any
such losses to date have been within management’s expectations. Net sales from one customer represent approximately 8%
(2017: 9%) of consolidated net sales in 2018. Five customers represented 33% (2017: 29%) of consolidated net sales in 2018.The
loss of any such customers or the delay or cancellation of any orders under certain high-volume contracts could have a significant
impact on the Company.
The Company believes that its five significant customers are credit worthy and has not recorded a provision for credit risk relating
to these accounts.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’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 normal and stressed conditions.
The Company manages liquidity by maintaining adequate cash balances, having appropriate lines of credit available and
monitoring cash requirements to meet expected operational expenses, including debt service and capital requirements. In
addition, the Company maintains a facility permitting the Company an accordion feature of up to an additional US $50,000
availability, upon the satisfaction of customary conditions for such features. At year end, the Company had cash of $17,862 and
unused revolving credit facilities of $60,000 (2017: cash of $17,748 and unused facility of $60,000).
Fair value of financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, share purchase loans, convertible
promissory note, demand loan, accounts payable and accrued liabilities, interest rate swap, term loan and other debt and foreign
exchange hedges. The fair values of cash and cash equivalents, accounts receivable, share purchase loans, convertible promissory
note, demand loan, accounts payable and accrued liabilities, interest rate swap and foreign exchange hedges, as recorded in the
consolidated balance sheets approximate their carrying amounts due to the short term maturities of these instruments. The fair value
of the long term loan has been discounted using current market interest rates.
The carrying value and fair value are as follows:
December 31, 2018
In thousands of US dollars
Cash and cash equivalents
Trade and other accounts receivable
Share Purchase loans
Total financial assets
Trade and other payables
Interest rate swap
Foreign Exchange Hedge
Loans and borrowings
Total financial liabilities
Amortized
cost
Fair value
through profit
and loss
17,862
56,346
1,284
75,492
40,764
-
-
63,390
104,154
-
-
-
-
-
(434)
797
-
363
Total
carrying
amount
17,862
56,346
1,284
75,492
40,764
(434)
797
63,390
104,517
Total fair
value
17,862
56,346
1,284
75,492
40,764
(434)
797
63,838
104,965
58
AirBoss of America Corp.
Notes to CFS (cont’d)
December 31, 2017
In thousands of US dollars
Cash and cash equivalents
Trade and other accounts receivable
Share Purchase loans
Total financial assets
Trade and other payables
Interest rate swap
Foreign Exchange Hedge
Loans and borrowings
Total financial liabilities
Amortized
cost
Fair value
through profit
and loss
17,748
51,526
997
70,271
31,942
-
-
69,532
101,474
-
-
-
-
-
(275)
(252)
-
(527)
Total
carrying
amount
17,748
51,526
997
70,271
31,942
(275)
(252)
69,532
100,947
Total fair
value
17,748
51,526
997
70,271
31,942
(275)
(252)
69,968
101,383
The fair value of the share purchase loans and long term loan has been based on market interest rate (level 2) in 2018 and 2017.
The Company has not disclosed the fair values for financial instruments (trade and other accounts receivable and other liabilities)
as their carrying amounts approximate their fair values (level 3). There were no reclassifications between classes of financial assets
and financial liabilities in 2018 and 2017. There were no transfers between levels of the fair value hierarchy in 2018 and 2017.
Capital Management
The Company has defined its capital as follows:
December 31
In thousands of US dollars
Cash and cash equivalents
Term loan and other debt
Net debt
Shareholders’ equity
2018
(17,862)
62,956
45,094
121,483
166,577
2017
(17,748)
69,257
51,509
117,161
168,670
The Company's business is cyclical and it experiences significant changes in cash flow over the business cycle. In addition, the
Company's financial performance can be materially influenced by changes in the relative value of the Canadian and US dollar.
The Company's fundamental objective in managing capital is to ensure adequate liquidity and financial flexibility at all times, but
particularly at the bottom of the business cycle and in a strong Canadian dollar environment. The Company constantly monitors
and assesses its financial performance in order to ensure that its net debt levels are prudent, taking into account the anticipated
direction of the business cycle. When reviewing financing decisions, the Company considers the impact of debt and equity
financing on its existing and future shareholders.
The Company has established a $60,000 committed revolving line of credit that provides liquidity and flexibility when capital
markets are restricted.
Key management currently own 26.4% or 6,178,454 shares of the Company. Each director is required to hold shares having a
value equal to three times their annual retainer fee in order to align objectives with that of shareholders. There is no plan to extend
availability of options beyond key management and senior employees. The Company has a dividend policy to provide an
additional return to shareholders; the decision to pay dividends is reviewed quarterly.
During the fourth quarter of 2017, the Company commenced a normal course issuer bid ("NCIB") to purchase up to 1,359,443
of its common shares, representing approximately 10% of the Company's public float. The Company purchased 40,620 (2017:
2,100) shares under its NCIB in 2018.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
NOTE 21 RECLASSIFICATION OF COMPARATIVE AMOUNTS
Certain comparative amounts for the prior period have been reclassified to conform to current period presentation. Such reclassifications
had no effect on net income or shareholders' equity.
A N N U A L R E P O R T
59
2018
Corporate Information
Board of Directors
Solicitors
Mary Matthews, CPA, CA, ICD.D. (1) (2) (3)
Toronto, Ontario
Davies Ward Phillips & Vineberg LLP
Toronto, Ontario
Brian A. Robbins (1)
President and CEO, Exco Technologies Limited
Aurora, Ontario
P. Grenville Schoch
Chairman and CEO, AirBoss of America Corp.
Aurora, Ontario
Alan J. D. Watson (2) (3)
Sydney, Australia
Robert Hagerman
Aurora, Ontario
Robert L. McLeish (1) (2) (3)
Aurora, Ontario
Port Carling, Ontario
Auditors
KPMG LLP
Toronto, Ontario
Transfer Agent And Registrar
Computershare Investor Services, Inc.
Toronto, Ontario
Stock Symbol Toronto Stock Exchange: BOS
Web Site Address: www.airbossofamerica.com
Email Address: info@airbossofamerica.com
Our Annual Meeting is Thursday, May 9, 2019
at 4:30 pm at Magna Golf Club,
14780 Leslie Street, Aurora, Ontario
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of Corporate Governance Committee
60
AirBoss of America Corp.
Corporate Information
CORPORATE OFFICE
AirBoss of America Corp.
16441 Yonge Street
Newmarket, Ontario, Canada L3X 2G8
Telephone: 905-751-1188
Facsimile: 905-751-1101
Chairman and CEO:
P. G. (Gren) Schoch
President:
Lisa Swartzman
Chief Financial Officer:
Daniel Gagnon
Chief Operating Officer:
Chris Bitsakakis
SUBSIDIARIES AND DIVISIONS
AirBoss Rubber Compounding
(a division of AirBoss of America Corp.)
101 Glasgow Street
Kitchener, Ontario, Canada N2G 4X8
Telephone: 519-576-5565
Facsimile: 519-576-1315
President:
Chris Bitsakakis
AirBoss Rubber Compounding (NC), Inc.
500 AirBoss Parkway
Scotland Neck, North Carolina, U.S.A. 27874
Telephone: 252-826-4919
Facsimile: 252-826-4994
AirBoss Technical Center
Venture IV Building of the Venture Center
1730 Varsity Drive
Raleigh, NC, U.S.A. 27606
Telephone: 919-488-5580
Facsimile: 919-488-5585
AirBoss Produits d'Ingénierie Inc./
AirBoss Engineered Products Inc.
970 rue Landry
Acton-Vale, Quebec, Canada J0H 1A0
Telephone: 450-546-2776
Facsimile: 450-546-3735
President:
Tom Ripley
AirBoss-Defense
(a division of Airboss Engineered Products Inc.)
3341 75th Avenue, Suite GG
Landover, MD, U.S.A. 20785
Telephone: 301-352-8800
Facsimile: 240-582-6366
AirBoss-Defense Research Center
28A Boul. de l’Aeroport
Bromont, Quebec, Canada J2L 1S6
Telephone: 450-534-9979
Facsimile: 450-534-4951
AirBoss Flexible Products Co.
2600 Auburn Ct.
Auburn Hills, Michigan, U.S.A. 48326
Telephone: 248-852-5500
Facsimile: 248-852-8620
President:
Bradley Berghouse
A N N U A L R E P O R T
Paper is FSC® Certified, Rainforest Alliance Certified™
and 10% Post-Consumer recycled content & fibre.
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