Growth Through
Innovation
ANNUAL REPORT
AirBoss’ square
foot flagship manufacturing facility is
located on 18 acres in the heart of Kitchener, ON and home
to the Company’s new R&D/Technical Centre.
Ta b l e o f C o n T e n T s
12 airboss Defense Group
32 Consolidated financial statements
01 2019 at-a-Glance
02 sustainability
03 Message to shareholders
08 Rubber solutions
10 engineered Products
14 Management’s Discussion and
analysis of financial Condition
and Results of operations
29 Management’s Responsibility
for financial Reporting
30 auditors’ Report to the shareholders
of airboss of america Corp.
36 notes to Consolidated financial
statements
64 board of Directors
65 Corporate Information
At-a-Glance
2019
In 2019, AirBoss generated record net sales and EBITDA
on the back of stable growth in the Rubber Solutions segment and
improving performance in Engineered Products’ defense business.
2019 highlights
(in Us$ unless otherwise noted)
• net sales of $328.1 million up 3.6% over 2018
• ebITDa of $32.1 million up 25.0% over 2018
• net Income of $10.2 million up 19.7% over 2018
• Declared quarterly dividends of C$0.07 totaling C$0.28 for the year
• $19.5 million capex investment focused on capacity, diversification and innovation
• appointed two new directors with David Camilleri and anita antenucci joining the board
F I N A N C I A l P E R F O R m A N C E G R A P h S
Net Sales
(millions of US$)
Net Sales by Segment
(millions of US$)
$316.6
$328.1
$289.9
$267.6
350
300
250
200
150
100
50
0
350
300
250
200
150
100
50
0
$171.3
$179.5
$164.4
$163.6
$125.4
$104.4
$145.3
$148.6
2016
2017
2018
2019
2016
2017
2018
2019
EBITDA
(millions of US$)
$29.6
$27.7
$25.7
$32.1
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0
RUBBER SOLUTIONS
ENGINEERED PRODUCTS
(through 2019 includes anti-vibration & defense businesses)
Dividend per Share & Payout Ratio
(in Canadian $)
0.30
0.25
0.20
0.15
0.10
0.05
0
$0.24
$0.20
$0.26
$0.28
$0.28
$0.28
59%
48%
30%
34%
33%
40%
70%
60%
50%
40%
30%
20%
10%
0%
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
A N N U A L R E P O R T
11
Sustainability
AirBoss is committed to the principle of environmental stewardship. As such,
AirBoss sources its natural rubber, one of the core constituents for its
compounded products, from sustainable natural sources.
natural Rubber is typically harvested on large, commercial plantations in a process that is very similar to the
sourcing of sap for maple syrup. The natural rubber “sap” is then processed for use in rubber compounding.
In addition to sourcing natural and sustainable raw materials, airboss endeavors to minimize the amount of
scrap rubber produced both internally and by customers by developing methods to reuse any waste, off
cuts and “out-of-spec” product in the production of new compounds. The Company also operates internal
recycling and waste diversion initiatives with the intent of reducing the amount of material sent for landfill.
airboss has collaborated with Tyromer Inc. to implement a first-of-its-kind commercial scrap tire rubber crumb
de-vulcanization system. Historically, scrap vulcanized rubber has been difficult to recycle because of the strong
bonds created during the vulcanization process. Tyromer uses a supercritical carbon dioxide-assisted, thermal-
mechanical extrusion process to convert scrap tire rubber into Tire-Derived Polymer (“TDP”). The process uses
no de-vulcanizing chemicals or chemical solvents and is 99% efficient, making it highly environmentally friendly.
The proprietary process also preserves the recycled product’s ability to form new bonds when it is vulcanized.
The TDP is used in creation of new compounds that include recycled content and perform like new rubber,
rather than simply diverting rubber crumb to lower value applications such as filler for asphalt.
Offering Green Alternatives
E c o B o s s ™
up to
20%
recycled
material
For those tire remanufacturers and their
customers looking to further “green” their
operations, AirBoss now offers EcoBoss, a line
of rubber compounds, for off-the-road
retreading applications that incorporate up to
20% recycled material.
AirBoss’ DuraBoss line of tire retreading
products have developed a reputation for quality
and durability under extreme off-the-road
conditions. When a large mining truck requires a
new set of tires, ordering a new replacement set is
not always the best option. DuraBoss offers tire
remanufacturers an opportunity to retread a tire,
returning it to “near new” specifications at a
fraction of the cost, and with reduced
environmental impact, versus new.
2
message
to Shareholders
At AirBoss, innovation is a core driver for our business. In 2019, we
made significant investments in innovation; opening a new R&D
technical centre for our Rubber Solutions business; rolling out
advanced manufacturing technologies in our anti-vibration
segment; and launching a world class low-burden gas mask for use
in the most challenging chemical, biological, radiological, nuclear
(“CBRN”) environments.
These developments, in combination with
other initiatives we are advancing, will
support our vision to build a strong
leadership position in each of the markets
we serve, with a focus on offering
specialized solutions that both solve a
broader range of increasingly complex
customer challenges and support
improved margins for airboss.
A N N U A L R E P O R T
3
Driving Growth
Two years ago, we began making substantive
changes to the way we conducted business. We
strengthened our executive and operational
management teams and began recruiting
individuals with years of rubber compounding
and processing experience, who also had a track
record of driving growth through product
engineering and development. In parallel, we
focused heavily on implementing “lean” initiatives
designed to drive efficiency, reduce waste and
improve financial performance. In 2019, we
began reaping the benefits of many of these
changes as we saw net
sales and particularly
ebITDa climb to record
levels, reversing the
downward trend in
ebITDa we saw in 2017
and 2018, better
positioning us to
generate long-term
shareholder value.
Building our Rubber
Solutions Core
AirBoss’ Rubber Solutions business
has grown steadily since 2016, with
the number of pounds sold trending
upward ahead of broader industry
levels, at a compound annual rate in
excess of 10%.
even with this strong track record of consistent
progress, we feel there are opportunities to
accelerate both the pace and scale of growth in
the future. In 2019, we embarked on a series of
initiatives to support this objective. We
installed a second mixing line in north
Carolina, doubling our capacity at the scotland
neck facility and ensuring a level of
redundancy to provide seamless customer
support. late in the year, in an effort to
reinforce our reputation for quality and
4
consistency, we upgraded our highest capacity
black rubber compounding line at our flagship
Kitchener plant.
building on our strengths in black rubber, in
2019 we began executing on a strategy to focus
on color and specialty compounding, which
was a gap in our product line that forced our
existing customers to go elsewhere for their
non-black compounding requirements. To better
address these needs we installed a dedicated
white/colour mixer, as well as a small volume
specialty tilt mixer in our Kitchener plant.
being able to produce a broader range of
increasingly specialized compounds means we
can obtain better penetration with both existing
and new customers. our long-term vision for
the Rubber solutions business is to build
defensible leadership positions in certain
specialty niches both in north america and
selected markets internationally, while retaining
our strong position on traditional large-volume
black compounds.
by establishing an enhanced focus on less
commoditized and more specialized compounds,
we can provide greater value to our customers
by leveraging our enhanced scale and raw
material buying power. our goal is to penetrate
the specialty market by offering our customers
competitive prices on advanced compounds
while generating higher margins for airboss. To
aid us in the development of an increasingly
advanced and complex array of compounds, we
inaugurated a new R&D/technical centre. This
dedicated laboratory will help us attract and
retain world-class rubber science talent, better
collaborate with customers and develop
increasingly sophisticated formulations to add to
our growing portfolio of 2,000+ proprietary
compounds. beyond these organic initiatives, we
have significantly accelerated our internal
process to seek out and assess acquisition and
partnership opportunities with both traditional
and specialty compounders.
2019
that we needed to
better balance the
contribution from the
automotive space by
diversifying into
adjacent sectors with
specific anti-nVH
requirements. on that
basis, we assembled a
team with specific non-
auto engineering, sales and marketing
experience with the goal of developing new
products for the military, heavy truck, bus,
construction, agriculture and recreational vehicle
sectors. We are well positioned to address some
of the technical challenges these sectors are
facing and any resulting products, although
perhaps lower volume than their automotive
counterparts, will involve a higher degree of
technical sophistication and more advanced raw
material inputs, supporting higher margins. In
pursuit of this diversification we will also look at
bolt-on acquisitions that deliver new products
and enhanced technical capabilities or create
opportunities in new sectors.
Diversifying the
Engineered Products
Business
AirBoss’ Engineered Products
business focuses on rubber and
rubber/metal bonded parts for anti-
noise, vibration and harshness
(“NVh”) applications.
Major automakers and Tier I/II part suppliers
comprise approximately 98% of the business,
with 90% going into sUV, pick-up truck and
minivan platforms, currently the most popular
vehicles within the passenger auto space. our
anti-vibration business has experienced a series
of challenges in recent years including tight
competition, compressing margins and, more
recently, tariffs. In 2019, we took a number of
steps to address these challenges and position
the business for long-term growth. following on
the heels of operational and management
changes that began in 2018, we entered into a
dialogue with customers around the profitability
of certain components as well as the treatment
of tariffs. In most cases, we were able to secure
agreements that will offer some relief and better
protect margins going forward.
With our company-wide focus on innovation, we
looked to advanced manufacturing solutions in
2019 installing new molding equipment, which
should significantly reduce cycle times, in
addition to sourcing “lights out” robotic work
cells that will allow us to better allocate labour
costs going forward. finally, we took the decision
A N N U A L R E P O R T
5
Survivability Platform
Establishing a Robust
Survivability Platform
On January 1st, 2020 we announced
the closing of the transaction to form
AirBoss Defense Group (“ADG”),
combining our existing suite of CBRN
wearables and protection products
with Critical Solutions
International, Inc.’s
(“CSI”) route
clearance
solutions.
The transaction
allowed us to realize
some of the value
inherent in our defense
business, while allowing us to retain majority
ownership (55%) in a strong, fully-integrated
survivability solutions platform with the
capabilities and scale to drive further growth
beyond the scope of our traditional finished
rubber products. CsI’s strong sales and marketing
skills and entrenched relationships with militaries
and legislators globally, combined with airboss’
extensive engineering and manufacturing
capabilities, leaves us well positioned to grow in a
period of unprecedented U.s. defense spending
and global instability, including the rapidly
emerging CoVID-19 pandemic.
In 2019, we secured a lightweight molded
overboot contract from the U.s. Department of
Defense valued at up to Us$26.7 million. since
october 2018, we have been awarded nearly
Us$150 million in contracts, including the last
two international tenders for gas masks, and
we continued to actively deliver against these
through the end of 2019 and into the new year.
In the face of the rapidly emerging CoIVD-19
pandemic, we are seeing significant interest in
our protective solutions that support patients,
first responders and medical personnel,
6
including Iso-PoD™, powered air purifying
respirators (“PaPRs”), and decontamination
shelters. aDG was created to allow us to help in
exactly these types of challenging situations
and we continue to position ourselves to help
governments and healthcare providers
safeguard people around the world.
In 2020, aDG is bidding on international
contracts valued at hundreds of millions of
dollars. We are also committed to developing
and/or acquiring innovative new survivability
solutions. as an example, exposure to blast
overpressure is increasingly being recognized as
a contributor to PTsD and driving hundreds of
millions of dollars in treatment costs as well as
raising significant quality of life concerns for
veterans. blast Gauge® is a wearable sensor
that measures exposure to concussive force and
uploads data to a soldier’s file for assessment by
staff physicians. blast Gauge is currently in
advanced testing with the U.s. military and
widespread rollout could translate into a
significant source of recurring revenue for aDG.
We will also continue to identify potential bolt-on
acquisitions that offer new solutions for the
defense and first responder segments that can
further expand our survivability platform.
Committed to Strong
Governance
In the second half of 2019 we welcomed David
Camilleri and anita antenucci as directors, adding
specific rubber, advanced manufacturing and
defense industry expertise, and further
diversifying our board. These appointments will
also bring fresh perspective to bear, particularly as
we work to expand our core Rubber solutions
business, diversify the anti-vibration segment and
leverage the newly formed airboss Defense Group
as a platform for growth.
2019
both our long-serving and new board members
to the evolving strategic direction of airboss.
finally, we want to thank our employees for
their willingness to drive improvement in our
operations, their efforts to get behind growth
initiatives, their commitment to safety and their
hard work in turning vision into reality. Their
efforts drove our progress and the strong
financial performance we delivered in 2019.
as a management team, we feel that airboss is
embarking on an exciting new chapter in its
history; one that will be marked by increased
innovation, accelerated growth and enhanced
value creation for our shareholders. We look
forward to delivering on these objectives into
2020 and beyond.
P.G. Schoch
Chairman and CEO
Chris Bitsakakis
President and COO
We also want to recognize the important and
long-term contribution of bob Hagerman. bob
was a co-founder of airboss and Ceo for more
than 20 years, in addition to serving as a
director for more than 30 years. We owe a
tremendous amount to the work he has done
for the Company and, although we are sad to
see him leave the board, wish him the best in
his retirement.
A Clear Vision for
the Future
airboss has multiple pathways to drive both
near- and longer-term value creation. This
includes leveraging the Us$19.5 million
investment we made in capacity and innovation
in 2019; working to create non-automotive anti-
nVH solutions; fulfilling existing defense
contracts and securing new ones while enhancing
distribution into medical/first responder markets;
and developing new more advanced compounds.
We also intend to explore acquiring both
traditional and specialty compounders to drive
growth in our core Rubber solutions business. In
combination, this range of initiatives is expected
to drive top-line growth, improve margins and
ultimately provide us maximum flexibility in the
allocation of increased capital to growth capex,
stock buybacks or our dividend.
our vision for the future is focused on innovation
and diversification as we work to build on our
traditional compounded black rubber and
finished rubber products focus. We want to
expand our reputation for quality and reliability
and become the supplier of choice for
increasingly sophisticated and less commoditized
specialty products, in segments where we can
build a strong, defensible leadership position.
In closing, we want to thank our shareholders
for their continued support as we work to
transform and grow our business. We also want
to acknowledge the numerous contributions of
A N N U A L R E P O R T
7
Innovation
Rubber Solutions
AirBoss Rubber Solutions is North America’s second largest custom compounder with
more than 450 million pounds of annual capacity. The Company produces more than 2,000
proprietary compounds for predominantly blue-chip customers in the major tire, off-the-road, industrial,
defense, and resource sectors. In 2019, airboss worked to expand its compounding capabilities beyond
its traditional black rubber focus to include a growing array of white, colour and specialty compounds.
2019 highlights
•
•
•
Inaugurated state-of-the-art R&D/Technical Centre in Kitchener, ON
Installed new high-volume black compound mixing line in Kitchener, ON
Installed white/colour and specialty tilt mixing lines in Kitchener, ON
• Doubled black compound mixing capacity in Scotland Neck, NC
• Continued to grow rubber volumes; up more than 10% on a compound
annual basis since 2016
Rubber Solutions
Pounds Sold
0 . 2 %
C A G R 1
2016
2017
2018
2019
Focus on Innovation
In november 2019, airboss inaugurated a new R&D
Technical Centre, housing a laboratory, state-of-the-
art technical and testing equipment and
collaboration space, at its flagship manufacturing
facility in Kitchener, on. The new R&D Technical
Centre will allow for enhanced collaborative
development opportunities with both existing and
future customers and is expected to support
airboss’ reputation for innovation through one of
8
the most advanced rubber compound
development laboratories in north america. It is
also expected to help attract world-class rubber
science talent and a skilled industrial workforce to
the region. The existing laboratory facilities had
been accredited to the internationally recognized
Iso 17025 laboratory standard by the american
association of lab accreditation since 2003.
2019
Expanding into New Specialty Compounds
Installation of the new white/colour mixing line
is allowing AirBoss to diversify beyond its traditional
compounded black rubber offering.
One new emerging opportunity is in the fire
hose space, where products are subjected to
extremes of temperature and pressure and
have to perform when lives are at stake, with
100% reliability. AirBoss’ compounding
expertise means it can help fire hose
manufacturers assemble products that stand
up to some of the harshest conditions
imaginable, setting the standard for durability
and reliability.
leveraging the new R&D Technical Centre,
airboss recently worked with a Us-based fire
hose manufacturer on an experiment designed
to assess construction and cleaning protocols
for fire hoses exposed to toxic industrial
chemicals when deployed in the line of duty.
The post-use cleaning protocols are being
designed to minimize first-responder exposure
to harmful substances following a firefighting
event, when the equipment is returned to the
operational base. The data can also be used to
advance the design of next generation fire-
fighting equipment to help further improve
performance and safety.
A N N U A L R E P O R T
Vision for Growth
airboss is focused on expanding beyond its
traditional black rubber compounding business
by developing defensible leadership positions in
key, higher-margin specialty compounds
through a combination of organic initiatives and
strategic transactions. This approach is expected
to support increased scale that improves raw
material buying power, expansion beyond
airboss’ traditional north american markets and,
ultimately, improved financial performance.
9
Diversification
Engineered Products
AirBoss Engineered Products focuses on anti-noise, vibration and harshness
(“NVh”) solutions, traditionally with a focus on the automotive industry. Today,
approximately 90% of the rubber and hybrid rubber-metal components manufactured find their
way into popular sUV, mini-van and pick-up truck platforms. engineered Products key customers
include oeM’s as well as Tier I and II part-suppliers.
2019 highlights
•
•
Installed new high-efficiency molding equipment in Auburn Hills, MI
Sourced and ordered robotic work cell for Auburn Hills, MI
• Assembled non-automotive products team
• Developing new, more technically advanced solutions for applications in the automotive sector
and adjacent sectors with specific anti-noise, vibration and harshness requirements
Focus on Innovation
In 2019, AirBoss piloted new automated
molding presses at its Auburn Hills, MI facility
with the goal of reducing cycle times and more
effectively managing labour costs. Since their
introduction, these new presses have
increased efficiency by approximately 40%.
AirBoss also sourced and ordered a new
robotic work cell that will also support higher
throughput and better allocation of labour
going forward. This technologically-advanced
new installation will be among the first of its
kind globally and will support advanced
manufacturing operations in 2020 and beyond.
10
2019
moving Products up the Technical Curve
AirBoss Engineered Products is actively working to
develop the next generation of anti-noise,
vibration and harshness solutions.
a hydrobushing is a hybrid rubber/aluminum/
fluid component designed to minimize
vibration in the passenger cabin of luxury
vehicles, but with applications across a range
of vehicles including electric vehicles, heavy
trucks, and construction and agricultural
equipment. adding hydraulic damping to a
component offers an extra layer of isolation,
permits multi-stage damping, and creates a
new higher value solution that airboss can
roll out across a range of market segments
and applications.
As part of the focus on solving increasingly
complex challenges for customers, and its
initiative to strengthen the operational teams in
each of its businesses, AirBoss has recruited
senior engineering talent with specific expertise
in designing and developing hydraulic solutions.
Vision for Growth
airboss is focused on balancing the contribution
from the automotive sector by diversifying into
adjacent sectors with specific anti-nVH and
other molded rubber requirements. Target
markets include military, heavy truck, bus,
construction, agriculture and recreational
vehicles. The Company is looking to advance its
solutions up the technology curve, solving
increasingly complex technical challenges for
customers while generating higher margins for
airboss. Management intends to diversify its
product offering and grow its technical
capabilities through a combination of organic
initiatives and potential “bolt on” transactions.
A N N U A L R E P O R T
11
Survivability
AirBoss Defense Group
AirBoss Defense has a track record of producing innovative wearable and
shelter/isolation products for use in chemical, biological, radioactive, and nuclear
applications that leverage AirBoss’ rubber compounding expertise. Many of these
products have been selected by defense departments and first responder groups both in north
america and internationally. The completion of the transaction to create airboss Defense Group
(“aDG”) has established a broader survivability products platform with the scale, products and
capabilities to grow beyond its traditional finished rubber products focus.
2019 highlights
•
Secured US$26.7 million contract from the U.S. Department of Defense for Molded Overboot product
• Delivered regular shipments against the nearly US$150 million in contracts awarded since
October 2018
• Announced (and subsequently completed) the transaction to merge AirBoss Defense and Critical
Solutions International, Inc. to form ADG
Focus on Innovation
Traumatic brain injury among military personnel,
both due to acute (IED detonation, artillery/
mortar strike) and routine (weapon discharge,
mortar launch) exposure to blast overpressure, is
increasingly being tied to the development of
neurological conditions, including depression
and PTSD, among veterans1. The number of PTSD
disability claims among veterans has grown from
approximately 345,000 in fiscal 2008 to 940,000
cases in mid-20172. With the high cost of
associated treatment and the growing impact on
the quality of life for veterans, ADG is pioneering
an innovative solution.
The Blast Gauge® System is a lightweight
wearable system of sensors that measures
blast overpressure and captures and stores
data for analysis by medical personnel.
The data can then be used to make decisions
around combatant health and readiness,
training regimens and future research
objectives, all with the goal of protecting
current and future generations of active
service personnel.
The Blast Gauge® System is comprised of
small, low-profile sensors that wirelessly
transmit data and offer dashboard analytics.
The system has a one-year field life and is
replaced annually. Blast Gauge® is currently in
late-stage testing with the U.S. Department of
Defense and on acceptance could represent a
source of recurring revenue for ADG.
1 Vyas, et al., Military Medicine, Volume 181, Issue 10, October 2016, pages
2 Leo Shane III, Military Times, July 25, 2017
1240-1247. https://doi.org/10.7205/MILMED-D-15-00585
https://www.militarytimes.com/news/pentagon-congress/2017/07/25/
ptsd-disability-claims-by-vets-tripled-in-the-last-decade/
12
2019
A Strong Survivability Platform
AirBoss Defense’s latest-generation gas mask
offers all the protection of its predecessors but with reduced
breathing resistance and a large anti-ballistic single lens to
maximize field of vision.
Constructed using a proprietary airboss
rubber formulation, the low burden Mask
(“lbM”) offers 24 hours of protection against a
variety of weaponized chemical and biological
threats as well as toxic industrial chemicals.
Key features include:
• lightweight construction
• easy, rapid donning and adjustment
• High-performance face seal and single layer,
shatter-resistant polycarbonate lens
• left, right or dual cannister mount
(40 mm naTo thread)
• Voice amplifier to support clear in-theatre
communication
• Integrated high-flow drinking system
ISO-POD™ allows for the safe transport and
treatment of patients while protecting first
responders and medical personnel.
AirBoss’ LBM has won the last two international
tenders for gas masks and ADG is actively
submitting the LBM to new requests-for-
proposals globally, leveraging ADG’s enhanced
sales and marketing know-how.
Vision for Growth
The aDG transaction has created a dedicated
survivability platform offering solutions that
protect soldiers in a variety of field conditions and
first responders dealing with scenarios ranging
from chemical spills and disease epidemics all the
way to a full-scale nuclear event. aDG intends to
grow through a combination of internal product
development and/or acquisitions, leveraging the
broader capabilities of a fully-integrated platform
to effectively market its products to a global
audience. aDG is currently submitting to RfPs on
hundreds of millions of dollars in defense
contracts globally.
A N N U A L R E P O R T
13
2019
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 10, 2020 and should be read in conjunction with the
Consolidated Financial Statements and Notes for the year ended December 31, 2019 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 Interim 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 Interim 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
Highlights for the 4th Quarter and Fiscal Year
(In US dollars)
• Grew net sales by 12.1% and 3.6% for the fourth quarter and 2019 fiscal year periods, respectively, versus the comparable
periods in 2018;
• Increased consolidated EBITDA by 54.1% to $8.8 million in the fourth quarter of 2019 vs $5.7 million in 2018, and by 25.0%
to $32.1 million in 2019 vs $25.7 million in 2018;
• Grew EPS by 83.3% to $0.11 in the fourth quarter of 2019 (2018 - $0.06), and by 18.9% to $0.44 for the full year period ($0.37 - 2018);
• Paid a quarterly dividend of C$0.07 per common share for a total annual payment of C$0.28;
• Awarded a contract by the U.S. Department of Defense to manufacture up to 600,000 pairs of molded CBRN lightweight
overboots (“MALO”) valued at up to $26.7 million;
• Invested $19.5 million during 2019 on capital expenditures related to growth initiatives and equipment upgrades across the
organization, in addition to a new research and development facility at the Kitchener, Ontario plant;
• Announced the appointments of Anita Antenucci and David Camilleri to the Board of Directors; and
• Closed the merger between AirBoss' defense business and Critical Solutions International, Inc. on January 1, 2020.
Selected Financial Information
In thousands of US dollars, except share data
For years ended December 31
2019
2018
2017
Financial results:
Net sales
Net income
Net income per share
– Basic
– Diluted
EBITDA1
Net cash from operating activities
Dividends declared per share (CAD$)
Capital additions1
Financial position:
Total assets
Term loan and other debt2
Shareholders’ equity
Outstanding shares*
*23,392,442 at March 10, 2020
328,126
10,219
316,603
8,536
289,855
12,632
0.44
0.44
32,082
11,706
0.28
26,700
249,664
74,144
125,979
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
23,392,442
23,392,442
23,091,113
1Capital additions includes $7,219 of leased assets.
2Term loan and other debt as at December 31, 2019, includes $14,542 of lease liabilities (see Significant Accounting Policies)
3See Non-IFRS Financial Measures
A N N U A L R E P O R T
15
2019
MD&A (cont’d)
3Non-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 EBITDA is presented below:
In thousands of US dollars
Net Income
Finance costs
Depreciation, amortization, and impairment
Income tax expense
EBITDA
2019
10,219
3,831
13,716
4,316
32,082
2018
8,536
2,921
10,966
3,252
25,675
2017
12,632
2,567
10,684
1,770
27,653
OVERVIEW
To support longer-term growth, AirBoss invested in a series of key strategic initiatives across the business in 2019 with a dual
focus on innovation and diversification. Capital expenditures for 2019 were $19.5 million dollars (excluding leases). Capital
expenditures are expected to decrease closer to historical levels in 2020. In light of the emerging Coronavirus (COVID-19)
outbreak, AirBoss has taken steps, including risk mitigation plans within the Company’s supply chain, intended to reduce any
potential impact to its business and that of customers, by identifying alternative raw material sources both domestically and
internationally.
For the Rubber Solutions segment, areas of investment in 2019 include new mixing lines in Kitchener, ON and Scotland Neck,
NC that, in addition to increasing annual capacity by 20 and 50 million pounds, respectively, will support production of a broader
array of compounded products (white and color), as well as provide enhanced flexibility in attracting and fulfilling new business.
The Company also recently brought online a new “tilt” mixer, which should support the production of increasingly specialized,
higher margin compounds, further diversifying the AirBoss’ offering and enhancing penetration with both existing and new
customers. In Kitchener, AirBoss has finished upgrading its office and laboratory facilities to support enhanced collaboration with
customers and better reflect the Company’s focus on innovative R&D and proprietary technical solutions.
Within the Engineered Products segment, management is continuing to address key challenges in the anti-vibration business
directly, with the near-term focus on driving margins through better cost management, improved pricing strategies and
investments in advanced manufacturing, including piloting new presses and sourcing and ordering a new robotic work cell
expected to come online in the first half of 2020. In addition, the recently strengthened sales and marketing team is working to
both increase penetration with existing customers as well as target new ones, including major automakers and Tier I and II parts
suppliers. Over the medium and longer-term, the team is focused on launching new products that diversify initially into
opportunities adjacent to the automotive space, such as trucking, buses, construction and motorcycles/ATVs, but increasingly
across a range of sectors where anti-noise, vibration and harshness solutions are required including, renewable energy, marine,
rail and appliances.
In May 2019, AirBoss announced a transaction to create AirBoss Defense Group (“ADG”) through the merger of the AirBoss
defense business with privately-owned Critical Solutions International. While management believes there are numerous synergies
associated with transaction, most important is the creation of a strong platform with the scale, capabilities and flexibility to act
on an array of growth opportunities, both organic and transactional. AirBoss’ defense business continues to identify and submit
to tenders internationally, cumulatively valued at hundreds of millions of dollars. The transaction closed immediately subsequent
to year-end on January 1, 2020. In the near-term, ADG remains focused on fulfilling the contracts secured in 2018 and 2019,
including the recent MALO contract award from the U.S. Department of Defense. ADG is also working to advance next-generation
products like Blast Gauge® and a new version of the low-burden mask through development and testing.
As part of its go-forward strategy for the Company, management is focused on four core priorities:
1. Growing the core Rubber Solutions segment by positioning it as a specialty supplier of choice in the consolidating North
American market, with a growing focus on building defensible leadership positions in selected compounds;
2. Leveraging ADG’s enhanced scale and capabilities to pursue an array of growth and value-creation opportunities in the
broader survivability solutions segment serving both defense and first responder markets;
3. Driving improved performance from the anti-vibration business through a combination of disciplined cost containment,
client relationship expansion, new product development and sector diversification; and
4. Targeting additional acquisition opportunities across the business with a focus on adding new compounds and products,
technical capabilities, and geographic reach into selected North American and international markets.
AirBoss continues to generate meaningful returns to shareholders through a stable quarterly dividend, while driving improved
profitability and simultaneously investing in core areas of the business to expand a solid foundation that will support long-term growth.
16
AirBoss of America Corp.
MD&A (cont’d)
RESULTS OF OPERATIONS – For years ended December 31, 2019 compared to 2018
NET SALES
Consolidated net sales for the year ended December 31, 2019 increased by 3.6% to $328,126, compared with 2018 and were
up in both segments. In the Engineered Products segment, net sales were higher in the defense business and lower in the anti-
vibration business compared with 2018, for the reasons outlined below.
In thousands of US dollars
Net Sales
Increase $
Increase %
2019
2018
Rubber
Solutions
148,582
145,264
3,318
2.3
Engineered
Products
179,544
171,339
8,205
4.8
Total
328,126
316,603
11,523
3.6
Rubber Solutions
Net sales for the year ended December 31, 2019 increased by 2.3%, to $148,582, from $145,264 in 2018. The increase in net sales
was principally due to an 8.4% increase in volume (measured in pounds shipped). This increase was partly offset by an approximate
3.0% decrease in raw material prices, where the savings were passed on to customers.
The increase in net sales was reflected across a number of sectors and primarily in the mining, tolling and defense sectors. These
increases were partly offset by softness in the track and chemical sectors.
Tolling volumes for the year ended December 31, 2019 increased by 24.7%, compared with 2018. The increase in volume was in
conventional applications while niche applications were flat. Non-tolling volumes for the year ended December 31, 2019 also increased
compared with 2018, up 3.8%.
Engineered Products
Net sales in the Engineered Products segment increased by 4.8%, to $179,544, from $171,339 in 2018. Increased net sales in the
defense business were partly offset by decreases in the anti-vibration business compared to 2018.
Net sales in the anti-vibration business for the year ended December 31, 2019 decreased by 3.4%, to $124,887 from $129,348 in
2018. The decrease was due to lower demand across most product lines and in particular dampers, bushings and muffler hangers.
Net sales for the year ended December 31, 2019 in the defense business increased by 30.2% to $54,657 from $41,991 in 2018.
The increased net sales were in the gloves, masks and boots product lines. These increases were partly offset by lower demand
in the shelters, filters and powered air purifying respirators (“PAPRs”) product lines.
GROSS PROFIT
For the year ended December 31, 2019, consolidated gross profit was up by $3,763 to $48,754. Gross profit as a percentage
of net sales increased to 14.9% from 14.2%, primarily as a result of increased volumes in the Rubber Solutions segment and
the defense business within the Engineered Products segment, for reasons discussed above.
In thousands of US dollars
Gross Profit
Increase $
% net of sales
Rubber
Solutions
25,718
22,364
3,354
17.3
15.4
Engineered
Products
23,036
22,627
409
12.8
13.2
2019
2018
2019
2018
Total
48,754
44,991
3,763
14.9
14.2
Rubber Solutions
For the year ended December 31, 2019, gross profit for Rubber Solutions was $25,718 (17.3% of net sales), up $3,354 compared
to $22,364 (15.4% of net sales) in 2018. The increase was principally due to higher volume, for reasons discussed above.
Engineered Products
Gross profit for the year ended December 31, 2019 in the Engineered Products segment was $23,036 (12.8% of net sales), up $409
compared with $22,627 (13.2% of net sales) in 2018. The increase in gross profit was principally due to higher net sales and a favorable
product mix in the defense business within the Engineered Products segment. This increase was partly offset by lower net sales in
the anti-vibration business for reasons discussed above which also negatively impacted gross profit as a percentage of net sales for
the segment.
A N N U A L R E P O R T
17
2019
MD&A (cont’d)
OPERATING EXPENSES
Consolidated operating expenses for the year ended December 31, 2019 increased by $106 to $30,388 compared with 2018.
The increase was primarily due to higher administration costs which include fees related to the merger of AirBoss Defense with
Critical Solutions International, Inc., resulting in the creation of AirBoss Defense Group (the "ADG transaction") on January 1,
2020. In addition, compensation costs, professional fees, office expenses and discretionary spending), and higher research and
development ("R&D") further increased operating expenses. These increases were partly offset by foreign exchange gains
(compared to losses in 2018) resulting in a favorable net change of $2,453 and an insurance settlement associated with a fire
that occurred at the plant in Scotland Neck, North Carolina, which further reduced costs. As a percentage of net sales, operating
expenses for the year ended December 31, 2019 decreased marginally to 9.3% from 9.6% in 2018.
In thousands of US dollars
Operating Expenses
Increase (decrease) $
% net of sales
Rubber
Solutions
8,204
7,870
334
5.5
5.4
Engineered
Products
18,358
16,901
1,457
10.2
9.9
2019
2018
2019
2018
Corporate
3,826
5,511
(1,685)
N/A
N/A
Total
30,388
30,282
106
9.3
9.6
Rubber Solutions
Rubber Solutions' operating expenses for the year ended December 31, 2019 increased by 4.2%, to $8,204, compared with
$7,870 in 2018. The increase was primarily due to higher compensation costs. This increase was partially offset by an insurance
payout related to a January 2019 fire at the Scotland Neck, North Carolina facility. The Company recorded an impairment charge
of $366 related to assets lost or damaged in the fire and received payments of $1,159 to cover expenses and damage to assets
and $128 to cover business interruption losses. The Company moved quickly to minimize interruption to its customers and
production at the Scotland Neck facility resumed in February 2019.
Engineered Products
Engineered Product's operating expenses for the year ended December 31, 2019 increased by 8.6% to $18,358. The increase was
primarily due to higher administration and R&D costs.
Unallocated Corporate Costs
Unallocated corporate costs for the year ended December 31, 2019 decreased by $1,685 from 2018, primarily due to a foreign
exchange gain (compared to a loss in 2018) resulting in a favorable net change of $2,240, partially offset by higher
administration costs. Increased administration costs relate to $1,401 (2018: $390) of professional fees associated with the
ADG transaction, partially offset by lower compensation costs.
FINANCE COST
In thousands of US dollars
Finance cost
Increase (decrease) $
% of net sales
Rubber
Solutions
4,356
4,583
(227)
2.9
3.2
Engineered
Products
388
3
385
0.2
0.0
Corporate
(913)
(1,665)
752
N/A
N/A
2019
2018
2019
2018
Total
3,831
2,921
910
1.2
0.9
Finance costs in 2019 were $3,831 (2018: $2,921). The increase was primarily due to an unrealized mark-to-market loss on
an interest rate swap (compared to a gain in 2018) and the inclusion of interest expense from leases primarily related to the
adoption of IFRS 16 (discussed below in Significant Accounting Policies), offset by lower interest expense on the term loan.
18
AirBoss of America Corp.
MD&A (cont’d)
INCOME TAX EXPENSE
For the year ended December 31, 2019, the Company recorded an income tax expense of $4,316 (2018: $3,252) or an effective
income tax rate of 29.7% (27.6% in 2018). The statutory rate in 2019 was 26.5% (2018: 26.5%). The effective tax rate increased
primarily due to professional fees associated with the ADG transaction that are not deductible for current year tax purposes.
In thousands of US dollars
Expected statutory rate
Foreign rate differential
Effect of permanent differences
Change in tax rates and new legislation
Filing differences
Deductible temporary differences not recognized
Other
Effective tax rate
Tax expense
2019
2018
3,852
456
(286)
26
(100)
667
(299)
4,316
3,124
179
(110)
22
119
-
(82)
3,252
Rate
2019
26.50%
3.14%
(1.97%)
0.18%
(0.69%)
4.59%
(2.06%)
29.69%
2018
26.50%
1.52%
(0.93%)
0.19%
1.01%
0.00%
(0.70%)
27.59%
NET INCOME AND EARNINGS PER SHARE
Net income in 2019 amounted to $10,219, compared with $8,536 in 2018. The basic and fully diluted net earnings per share were
$0.44 (2018: $0.37) and $0.44 (2018: $0.37) based on basic and fully diluted shares outstanding of 23,392,442 (2018: 23,345,305)
and 23,445,894 (2018: 23,383,248), respectively. The increase in net income and earnings per share was due to higher gross profit
offset by higher finance costs and income tax expense, as discussed above.
QUARTERLY INFORMATION
In thousands of US dollars
Quarter Ended
2019
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
2018
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
Fourth Quarter 2019 Results
Net Sales
Net Income
Net income per share
Basic
Diluted
85,762
77,173
82,616
82,575
76,484
77,773
81,797
80,549
2,457
1,525
3,311
2,926
1,331
1,347
2,660
3,198
0.11
0.07
0.14
0.13
0.06
0.06
0.11
0.14
0.11
0.07
0.14
0.12
0.06
0.06
0.11
0.14
NET SALES
Consolidated net sales for the three-month period ended December 31, 2019 increased by 12.1% to $85,762, from $76,484 for
the same period in 2018, with increases in Engineered Products' defense business partially offset by decreases in Rubber
Solutions and Engineered Products' anti-vibration business, for the reasons outlined below.
Rubber Solutions
While overall volume increased 10.0%, net sales for the three-month period ended December 31, 2019 in the Rubber
Solutions segment decreased 1.9% to $34,904, from $35,584 for the same period in 2018. The decrease in net sales was
reflective of an approximate 6.7% decrease in raw material prices where the savings were passed on to customers. In
addition, a higher product sales mix in tolling versus non-tolling applications, discussed below, further negatively impacted
the net sales growth. In tolling applications, the Company only realizes net sales on the provision of compounding services
for customer-supplied material, versus non-tolling where AirBoss also supplies the raw material input that are reflected in
net sales.
The decrease in net sales for the three-month period ended December 31, 2019 was primarily in the conveyor belt and track
sectors and partly offset by the mining sector.
Tolling volumes for the three-month period ended December 31, 2019 increased by 49.4% compared with 2018. The
increase in volume was in conventional applications which were partly offset by decreases in niche applications. Non-
tolling volumes for the three-month period ended December 31, 2019 increased marginally compared to 2018, up 0.7%.
A N N U A L R E P O R T
19
2019
MD&A (cont’d)
Engineered Products
Engineered Products net sales for the three-month period ended December 31, 2019 increased by 24.3% to $50,858
compared with the same period in 2018. An $11,425 increase in net sales for the defense business was partly offset by a
$1,467 decrease in the anti-vibration business for the reasons discussed below.
The increase in the defense business for the three-month period ended December 31, 2019, compared with the same period
in 2018, was across most product lines and primarily in the masks, boots and gloves product lines. These increases were
partly offset by lower net sales in the anti-vibration business due to lower demand across the majority of product lines and
in particular the muffler hangers, bushings and spring insulator product lines.
GROSS PROFIT
Consolidated gross profit for the three-month period ended December 31, 2019 increased to $13,246 (15.4% of net sales) from
$10,306 (13.5% of net sales) in the same period in 2018 with increases in Rubber Solutions and Engineered Products' defense
business partially offset by decreases in Engineered Products' anti-vibration business.
Rubber Solutions
For the three-month period ended December 31, 2019, gross profit at Rubber Solutions was $6,103 (17.5% of net sales),
compared with $6,066 (17.0% of net sales) in the same period in 2018. The increase in gross profit was principally due to
higher volume for the fourth quarter in 2019 compared with the same period in 2018.
Engineered Products
Gross profit at Engineered Products for the three-month period ended December 31, 2019 increased by $2,903 to $7,143
(14.0% of net sales) compared with $4,240 (10.4% of net sales) in 2018. The increase was mainly due to the increased net
sales in the defense business, for the reasons discussed above, and a favorable product mix, which was partly offset by lower
net sales in the anti-vibration business within the Engineered Products segment.
OPERATING EXPENSES
Consolidated operating expenses for the three-month period ended December 31, 2019 increased by $803, compared with the same
period in 2018. The increase was primarily related to higher administration costs (related to professional fees for the ADG transaction,
and higher compensation expenses) and higher R&D costs. The increase was partially offset by a foreign exchange gain (compared
to a loss in 2018) resulting in a favorable net change of $1,340.
INCOME TAX EXPENSE
Tax expense for the three-month period ended December 31, 2019 increased by $1,169 compared to the same period in 2018.
Income tax expense increased due to professional fees associated with the ADG transaction that are not deductible for current
year tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company expects to fund its 2020 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 (2018: $60,000). No amount was
drawn against this facility as at December 31, 2019.
For the period ended December 31, 2019, $11,706 (2018: $19,867) of cash was provided by operations, $19,481 (2018:
$8,235) was used for investing activities and $9,996 (2018: $11,418) was used in financing activities. Cash and cash
equivalents decreased by $17,741 from $17,862 to $121, adjusted for the effect of exchange rate fluctuations on cash held.
Operating activities
For the year ended December 31, 2019, cash provided by operating activities decreased by $8,161 compared to 2018. The
decrease was due to a $11,337 increase in cash used for net working capital, increased tax payments of $774 due to higher
tax installment payments, and higher interest payments of $280 which were partially offset by a $1,683 increase in net income
and higher non-cash expenses of $2,547.
Cash used for working capital for the year ended December 31, 2019 increased to $11,573 (2018: $236) as a result of the
following factors:
• Cash used for accounts receivable was $11,597, of which $10,011 was attributable to the timing of large shipments made
by Engineered Products' defense business in December 2019, and $1,643 from Engineered Products' anti-vibration business
related to delayed payments by customers;
• Cash used for Inventory was $1,893, of which $1,540 was attributable to Engineered Products' anti-vibration business due
to production expected in Q1 2020, and $1,362 to Engineered Products' defense business related to upcoming contract
deliveries, partially offset by a $1,008 decrease at Rubber Solutions due to inventory returning to historical levels, as 2018
levels were to service a higher than normal volume of activity in January 2019; and
• Cash used for prepaid expenses was $286, with the increase over the prior year primarily related to insurance premiums;
• Cash from accounts payable was $2,336 of which $1,177 was attributable to Engineered Products' defense business related
to increased production, $1,235 from Engineered Products' anti-vibration business related to increased inventory, and $1,522
at the corporate level related to increased compensation and accrued professional fees on the ADG transaction. These
increases were partially offset by a $1,598 decrease at Rubber Solutions related to reduced raw material purchases.
20
AirBoss of America Corp.
MD&A (cont’d)
Investing Activities
Property, Plant and Equipment
For the year ended December 31, 2019, the following investments were made in each segment:
Rubber Solutions made investments of $12,690. This included $2,529 to support growth initiatives, $1,347 to replace equipment
damaged in the fire that occurred at the Scotland Neck, North Carolina facility in January 2019, $2,155 for the new R&D laboratory
facility in Kitchener, Ontario, $445 on cost savings initiatives, and the remaining spend was to replace or upgrade existing property,
plant and equipment.
Engineered Products made investments of $4,571. This included $2,259 to support growth initiatives, $1,117 on cost savings
initiatives, and the remaining spend was to replace or upgrade existing property, plant and equipment.
Intangible assets
The Company invested $2,220, made up of $928 of product development costs for the defense business and the balance for new
financial reporting and productivity 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 January 2021.
In March 2019 the calculation of one of the loan covenants on the Company's credit facilities was amended on a prospective basis.
In December 2019 the maturity of the credit facilities was extended from December 2020 to January 2021. In January 2020 the
Company signed an amended and restated credit agreement in connection with the merger between AirBoss' defense business
and Critical Solutions International, Inc. The amended and restated credit agreement matures in January 2023 and otherwise
carries similar terms as the existing credit agreement.
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 $306 (2018: $307) has been amortized and is included in finance costs.
Interest expense on the term debt was $2,581 (2018: $2,630).
Commitments and contractual obligations
The Company’s contractual obligations as at December 31, 2019 are summarized below:
Term loan
Lease liabilities
Purchase obligations
Total
2019
3,769
1,589
10,770
16,128
2020
56,250
1,634
-
57,884
2021
-
1,328
-
1,328
Payments Due In
2022
2023
Thereafter
-
1,358
-
1,358
-
1,345
-
1,345
-
7,288
-
7,288
Total
60,019
14,542
10,770
85,331
The Company has inventory purchase commitments at December 31, 2019 for its Rubber Solutions and Engineered Products
segments of $8,195 and $2,575 (2018: $9,213 and $5,666) respectively. Rubber Solutions decreased their commitment for natural
rubber purchases based on market pricing. The purchase commitments for Engineered Products decreased because their 2018
commitments included a ramp-up for contract delivery.
Government assistance
During 2019, Rubber Solutions recognized grants of $118 (2018: $135). Engineered Products did not recognize grants in 2019 or 2018.
Scientific research and investment tax credits of $537 were recognized in 2019 (2018: $780); research and development costs were
reduced accordingly. No reduction to capital assets was recognized in respect of provincial tax credits (2018: nil).
Dividends
A quarterly dividend of $0.07 per share was declared on November 5, 2019 and paid on January 15, 2020. Total dividends declared
during the year were $0.28 per common share compared to $0.28 per common share in 2018.
Outstanding shares
As at December 31, 2019 the Company had 23,392,442 common shares outstanding.
TRANSACTIONS WITH RELATED PARTIES
During the year, the Company paid rent for the corporate office of CAD $180 (2018: CAD $180) to a company controlled by
the CEO and Chairman of the Company.
During the year, the Company paid fees for the use of a facility in South Carolina of approximately $28 (2018: $26) to a company
in which the CEO and Chairman is an officer.
A N N U A L R E P O R T
21
2019
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
Share-based payment expense
2019
4,154
352
4,506
2018
3,378
633
4,011
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.
Key management own 26.3% of the outstanding common shares as at December 31, 2019 (2018: 26.4%).
During 2014, the Company provided a share purchase loan of CAD $1,000 to the Vice-Chair to purchase common shares of
the Company that was repaid in November 2019. In December 2016, the Company provided a share purchase loan of CAD
$250 to the Chief Financial Officer. In March 2018, the Company provided a share purchase loan of CAD $500 to the President
and Chief Operating Officer. On June 28, 2019, the Company provided share purchase loans of CAD $300 to the Executive
Vice President, Corporate and General Counsel; CAD $92 to the President and Chief Operating Officer; and CAD $100 to the
Vice President Human Resources. All loans are due upon the earlier of the disposition date of all or proportionate to any part
of the pledged securities or the fifth anniversary of the issuance date. All share purchase loans issued prior to 2019 bear interest
at 1% annually and all subsequent loans share purchase loans bear interest at 2% annually. In all cases, loans are full recourse
and interest is due and payable semi-annually. In total, 120,185 shares of the Company having a fair value of $812 were
pledged as collateral on these loans. At December 31, 2019, the loan receivables of $961, including accrued interest of $5, were
included in other assets. During the year, interest of $9 (2018: $11) was paid.
NEW STANDARDS ADOPTED
The Company has adopted IFRS 16, Leases ("IFRS 16") effective January 1, 2019.
IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Company, as a lessee, has
recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation
to make lease payments.
The Company has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial
application is recognized in retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2018
has not been restated. The details of the changes in accounting policies are disclosed below.
Definition of a lease
Previously, the Company determined at contract inception whether an arrangement was or contained a lease under IFRIC 4
Determining Whether an Arrangement contains a Lease. The Company now assesses whether a contract is or contains a
lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right
to control the use of an identified asset for a period of time in exchange for consideration.
As a lessee
The Company leases buildings, vehicles and equipment. As a lessee, the Company previously classified leases as operating
or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Company recognizes right-of-use assets and lease liabilities for most leases. However, the
Company has elected not to recognize right-of-use assets and lease liabilities for some leases of low-value assets. The
Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease
term. The Company presents right-of-use assets in the same line item as it presents underlying assets of the same nature that
it owns. The carrying amounts of right-of-use assets are as below.
In thousands of US dollars
Balance at January 1, 2019
Balance at December 31, 2019
Equipment
342
909
Property
7,020
12,215
Vehicles
125
110
Total
7,487
13,234
The Company presents lease liabilities in "loans and borrowings" in the statement of financial position.
22
AirBoss of America Corp.
MD&A (cont’d)
Significant accounting policies
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for
certain remeasurements of the lease liability. When a right-of-use asset meets the definition of investment property, it is presented
in investment property. The right-of-use asset is initially measured at cost, and subsequently measured at fair value, in accordance
with the Company’s accounting policies.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental
borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is
remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate
of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether
a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
The Company applied judgment to determine the lease term for a lease contract running month-to-month, which significantly
affects the amount of lease liability and right-of-use asset recognized.
Transition
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of
the remaining lease payments, discounted at the Company’s incremental borrowing rate as at January 1, 2019. Right-of-use
assets are measured at their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using
the Company’s incremental borrowing rate at the date of initial application adjusted by the amount of any prepaid or accrued
lease payments.
The Company used the following practical expedients and exemptions when applying IFRS 16 to leases previously classified as
operating leases under IAS 17.
– Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than a 12-month term or of low-value;
– Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease; and
– Grandfathered the definition of leases for existing contracts at the date of initial application.
Impact on financial statements
Impact of transition
On transition to IFRS 16, the Company recognized additional right-of-use assets and additional lease liabilities, recognizing the
difference in retained earnings. The impact on transition is summarized below.
In thousands of US dollars
Right-of-use assets
Deferred tax asset
Write-off accrued rent
Lease liabilities
Retained earnings
When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments
using its incremental borrowing rate at January 1, 2019. The weighted average rate applied was 4.6%.
January 1, 2019
7,244
285
(199)
8,632
(904)
In thousands of US dollars
Operating lease commitment at December 31, 2018
Discounted using the incremental borrowing rate at January 1, 2019
Recognition exemption for leases of low-value assets
Recognition exemption for leases with less than 12 months of lease term at transition
Finance lease liabilities recognized at December 31, 2018
Lease liabilities recognized at January 1, 2019
January 1, 2019
9,683
8,638
(1)
(5)
8,632
235
8,867
Impact on the period
As at December 31, 2019, the Company recognized $13,234 of right-of-use assets and $14,542 of lease liabilities. In relation to
these leases the Company has recognized depreciation and interest costs. During the period, the Company recognized $1,471
of depreciation charges and $449 of interest costs.
A N N U A L R E P O R T
23
2019
MD&A (cont’d)
FUTURE ACCOUNTING STANDARDS
Amendments to IFRS 9, Financial Instruments (“IFRS 9”) and IAS 39, Financial Instruments: Recognition and
Measurement (“IAS 39”)
On September 26, 2019, the IASB issued amendments for some of its requirements for hedge accounting in IFRS 9, Financial
Instruments and IAS 39, Financial Instruments: Recognition and Measurement, as well as the related standards on disclosures,
IFRS 7, Financial Instruments: Disclosures. The amendments are effective from January 1, 2020. The amendments modify
some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by interest rate
benchmark reform in the following areas:
- the ‘highly’ probable requirement,
- prospective assessments,
- retrospective assessments (for IAS 39), and
- eligibility of risk components.
The adoption of amendments to IFRS 9 and IAS 39 are not expected to have a material impact on the consolidated financial
statements.
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, 2019, Engineered Products' anti-vibration business recorded a $225 allowance for impairment and Rubber
Solutions recorded a $256 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, 2019, a reserve for impaired inventory in Rubber Solutions represents $2,231 (2018: $1,773). Engineered
Products maintains a provision of $795 (2018: $489) in the defense business and $564 (2018: $593) for the anti-vibration
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 2019 or 2018.
24
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 2019 or 2018.
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 when
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, 2019, the Company had contracts to sell USD $19,715 from January 2020 to November 2020 for Canadian
dollars ("CAD") $26,200. The fair value of these contracts, representing an unrealized gain of $457, are included in trade and
other receivables, including derivatives on the statement of financial position. The unrealized changes in fair value, representing
a gain of $1,254 (2018: loss of $1,049), are recorded on the statement of profit as other income (expense).
Interest rate swap
In 2017, the Company entered into an interest rate swap agreement for a notional amount of $35,000 ($28,000 and $30,800
as at December 31, 2019 and December 31, 2018, respectively) amortizing down to $24,267 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 2019, the interest income of the swap agreement was $179 (2018: $77).
At December 31, 2019, the fair value of this agreement, representing a loss of $19 (2018: gain of $434), is included in loans
and borrowings on the statement of financial position. The change in the fair value, representing a loss of $453 (2018: gain of
$169), is recorded on the statement of profit as finance costs.
The Company entered into this interest rate swap agreement in order to fix the interest rate on a portion of its term loan and
does not hold it for trading or speculative 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, defense, 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. At AirBoss Defense
Group, 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 AirBoss Defense Group.
A N N U A L R E P O R T
25
2019
MD&A (cont’d)
Political Uncertainty and Policy Change
Certain of the business sectors in which we and our customers operate, particularly in the anti-vibration 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 9% (2018: 8%) of consolidated net sales in 2019.
Five customers represented 31% (2018: 33%) of consolidated net sales in 2019. 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
2019
(3.38)
(3.24)
(1.84)
(0.42)
(0.86)
(9.74)
2018
(2.98)
(3.00)
(1.71)
(0.34)
(0.82)
(8.85)
Competition and Price Pressure
The Company competes directly against major North American and international companies in the custom rubber compounding,
anti-vibration 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 anti-vibration businesses, 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.
26
AirBoss of America Corp.
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
2019
(2.4)
6.8
2018
(2.9)
6.1
(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.
Impacts of Global Health Situations
Global health situations can have an impact on the Company’s operations. It is currently too early to accurately project any impact
that COVID-19 (Coronavirus) may have, since the duration and scope of the outbreak is not yet known with any certainty. However,
if the outbreak continues for an extended period of time, AirBoss may experience supply chain disruptions, in particular given
production delays in Asia, a decline in sales activities, and reductions in operations and workforce.
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 450 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 made regular investments in capacity and efficiency across its operations and 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
27
2019
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, 2019, 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, 2019 and believe¬ the design and effectiveness of the internal
controls to be effective.
28
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, 2019 and December 31, 2018 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 10, 2020
P. Gren Schoch
Chairman & Chief Executive Officer
Daniel Gagnon
Chief Financial Officer
A N N U A L R E P O R T
29
2019
Independent Auditors’ Report
the consolidated statements of financial position as at December 31, 2019 and December 31, 2018
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, 2019 and December 31, 2018, and its consolidated financial performance and its consolidated
cash flows for the years 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.
30
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 10, 2020
A N N U A L R E P O R T
31
2019
Consolidated Statement of Financial Position
In thousands of US dollars
Note
December 31, 2019
December 31, 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables, including derivatives
Prepaid expenses
Inventories
Current income taxes receivable
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred Income tax assets
Other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Loans and borrowings
Trade and other payables, including derivatives
Provisions
Current taxes payable
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
6
7
14
8
10
9
11
14
10
17
11
14
12
12
121
68,890
4,689
41,996
1,611
117,307
80,169
49,935
846
1,407
132,357
249,664
5,358
43,590
103
753
49,804
68,786
510
626
3,959
73,881
17,862
57,080
4,806
39,691
2,216
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
123,685
111,045
39,579
1,262
85,138
125,979
249,664
39,579
1,157
80,747
121,483
232,528
The notes on pages 36 to 63 are an integral part of these consolidated financial statements.
Commitments (note 16), Subsequent events (note 22).
On behalf of the Board
P.G. Schoch
Director
32
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
2019
2018
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
328,126
(279,372)
48,754
(25,016)
(5,294)
(1,907)
1,829
(30,388)
18,366
(3,831)
14,535
(4,316)
10,219
0.44
0.44
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
The notes on pages 36 to 63 are an integral part of these consolidated financial statements.
A N N U A L R E P O R T
33
2019
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, 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 repurchases
Share options forfeited
Dividends to equity holders
Total contributions by and distributions to owners
-
-
8,536
8,536
-
1,786
(67)
-
-
1,719
206
(852)
(252)
(12)
-
(910)
-
-
-
-
(5,023)
(5,023)
206
934
(319)
(12)
(5,023)
(4,214)
Balance at December 31, 2018
39,579
1,157
80,747
121,483
In thousands of US dollars
Balance at January 1, 2019
Impact of change in accounting policy (note 3)
Adjusted balance at January 1, 2019
Profit and total comprehensive income for the period
Contributions by and distributions to owners
Stock options expensed
Share options forfeited
Dividends to equity holders
Total contributions by and distributions to owners
Attributable to equity holders of the Company
Share
Capital
39,579
-
39,579
-
-
-
-
-
Contributed
Surplus
Retained
Earnings
1,157
-
1,157
-
170
(65)
-
105
80,747
(904)
79,843
10,219
-
-
(4,924)
(4,924)
Total
121,483
(904)
120,579
10,219
170
(65)
(4,924)
(4,819)
Balance at December 31, 2019
39,579
1,262
85,138
125,979
The notes on pages 36 to 63 are an integral part of these consolidated financial statements.
34
Note
December 31, 2019
December 31, 2018
10,219
8,536
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
Impairment of assets
Finance costs
Unrealized foreign exchange losses (gains)
Share-based payment expense
SRED tax credits
Current income tax expense (recovery)
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
Principal payments for lease liabilities
Payment of debt refinancing fees
Exercise of stock options (net of withholding taxes)
Repayment of share purchase loan
Issuance of 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
10,415
2,935
366
3,831
(1,327)
386
(537)
6,272
(1,956)
(4)
30,600
(1,893)
(11,597)
(286)
2,336
(133)
(11,573)
(3,094)
(4,227)
11,706
(17,261)
(2,220)
(19,481)
(3,750)
(1,614)
(128)
-
764
(364)
-
9
(4,913)
(9,996)
(17,771)
17,862
30
121
The notes on pages 36 to 63 are an integral part of these consolidated financial statements.
A N N U A L R E P O R T
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)
(6,584)
(7)
-
934
-
(392)
(319)
11
(5,061)
(11,418)
214
17,748
(100)
17,862
35
2019
Notes to Consolidated Financial Statements ("CFS")
For the years ended December 31, 2019 and 2018
(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 Rubber Compounding (NC) Inc.
AirBoss Engineered Products Inc.
SunBoss Chemicals Corp.
AirBoss Flexible Products Co.
Immediate Response Technologies, LLC
Jurisdiction
North Carolina
Quebec
Ontario
Michigan
Delaware
Ownership % (2019 & 2018)
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 anti-vibration 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.
36
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 10, 2020.
(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 3 and 21 – leases
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
37
2019
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.
38
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
39
2019
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
40
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
41
2019
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
During 2018 payments made under operating leases were recognized in profit or loss, on a straight-line basis, over the term
of the lease. Lease incentives received were recognized as an integral part of the total lease expense over the term of the lease.
The Company has adopted IFRS 16, Leases ("IFRS 16") effective January 1, 2019, see New Standards adopted.
(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.
42
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
The Company has adopted IFRS 16, Leases ("IFRS 16") effective January 1, 2019.
IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Company, as a lessee, has
recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation
to make lease payments.
The Company has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial
application is recognized in retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2018
has not been restated. The details of the changes in accounting policies are disclosed below.
Definition of a lease
Previously, the Company determined at contract inception whether an arrangement was or contained a lease under IFRIC 4
Determining Whether an Arrangement contains a Lease. The Company now assesses whether a contract is or contains a
lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right
to control the use of an identified asset for a period of time in exchange for consideration.
As a lessee
The Company leases buildings, vehicles and equipment. As a lessee, the Company previously classified leases as operating
or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Company recognizes right-of-use assets and lease liabilities for most leases. However, the
Company has elected not to recognize right-of-use assets and lease liabilities for some leases of low-value assets. The
Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease
term. The Company presents right-of-use assets in the same line item as it presents underlying assets of the same nature that
it owns. The carrying amounts of right-of-use assets are as below.
In thousands of US dollars
Balance at January 1, 2019
Balance at December 31, 2019
Property
7,020
12,215
Equipment
342
909
Vehicles
125
110
Total
7,487
13,234
The Company presents lease liabilities in "loans and borrowings" in the statement of financial position.
Significant accounting policies
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted
for certain remeasurements of the lease liability. When a right-of-use asset meets the definition of investment property, it is
presented in investment property. The right-of-use asset is initially measured at cost, and subsequently measured at fair value,
in accordance with the Company’s accounting policies.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental
borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made.
It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the
estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment
of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain
not to be exercised.
The Company applied judgment to determine the lease term for a lease contract running month-to-month, which significantly
affects the amount of lease liability and right-of-use asset recognized.
A N N U A L R E P O R T
43
2019
Notes to CFS (cont’d)
Transition
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Company’s incremental borrowing rate as at January 1, 2019. Right-of-use assets
are measured at their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the
Company’s incremental borrowing rate at the date of initial application adjusted by the amount of any prepaid or accrued lease
payments.
The Company used the following practical expedients and exemptions when applying IFRS 16 to leases previously classified
as operating leases under IAS 17.
– Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than a 12-month term or of low-value;
– Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease; and
– Grandfathered the definition of leases for existing contracts at the date of initial application.
Impact on financial statements
Impact of transition
On transition to IFRS 16, the Company recognized additional right-of-use assets and additional lease liabilities, recognizing the
difference in retained earnings. The impact on transition is summarized below.
In thousands of US dollars
Right-of-use assets
Deferred tax asset
Write-off accrued rent
Lease liabilities
Retained earnings
January 1, 2019
7,244
285
(199)
8,632
(904)
When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease
payments using its incremental borrowing rate at January 1, 2019. The weighted average rate applied was 4.6%.
In thousands of US dollars
Operating lease commitment at December 31, 2018
Discounted using the incremental borrowing rate at January 1, 2019
Recognition exemption for leases of low-value assets
Recognition exemption for leases with less than 12 months of lease term at transition
Finance lease liabilities recognized at December 31, 2018
Lease liabilities recognized at January 1, 2019
January 1, 2019
9,683
8,638
(1)
(5)
8,632
235
8,867
Impact on the period
As at December 31, 2019, the Company recognized $13,234 of right-of-use assets and $14,542 of lease liabilities. In relation
to these leases the Company has recognized depreciation and interest costs. During the period, the Company recognized
$1,471 of depreciation charges and $449 of interest costs.
(p) Future Accounting Standards
Amendments to IFRS 9, Financial Instruments (“IFRS 9”) and IAS 39, Financial Instruments: Recognition and
Measurement (“IAS 39”)
On September 26, 2019, the IASB issued amendments for some of its requirements for hedge accounting in IFRS 9, Financial
Instruments and IAS 39, Financial Instruments: Recognition and Measurement, as well as the related standards on disclosures,
IFRS 7, Financial Instruments: Disclosures. The amendments are effective from January 1, 2020. The amendments modify
some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by interest rate
benchmark reform in the following areas:
• the ‘highly’ probable requirement,
• prospective assessments,
• retrospective assessments (for IAS 39), and
• eligibility of risk components.
The adoption of amendments to IFRS 9 and IAS 39 are not expected to have a material impact on the consolidated financial
statements.
44
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 4 TRADE AND OTHER RECEIVABLES
December 31
In thousands of US dollars
Trade receivables
Less: allowance for impairment
Loan to Officers (note 8)
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
50,875
12,769
4,256
67,900
The continuity of the allowance for impairment was:
For the year ended December 31
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
2019
67,900
(481)
67,419
-
1,471
68,890
2018
55,858
(399)
55,459
734
887
57,080
2019
2018
Impairment
Gross
Impairment
-
-
(481)
(481)
41,196
10,756
3,906
55,858
2019
(399)
(296)
214
(481)
2019
30,371
3,435
11,368
412
45,586
(3,590)
41,996
-
-
(399)
(399)
2018
(185)
(361)
147
(399)
2018
28,769
3,142
9,848
787
42,546
(2,855)
39,691
An inventory charge of $735 (2018: charge of $515) was included in cost of sales.
A N N U A L R E P O R T
45
Total
103,112
7,505
(779)
-
109,838
7,244
24,584
(879)
(13)
140,774
43,521
7,847
(773)
50,595
10,781
(771)
-
60,605
Total
59,243
80,169
2019
Notes to CFS (cont’d)
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
In thousands of US dollars
Cost or deemed cost
Balance at January 1, 2018
Additions
Disposals
Transfers
Balance at December 31, 2018
Recognition of right-of-use asset
on adoption of IFRS 16
Additions
Disposals
Transfers
18,790
138
-
491
19,419
7,019
9,127
(12)
687
Balance at December 31, 2019
36,240
Accumulated depreciation
Balance at January 1, 2018
Depreciation for the year
Disposals
Balance at December 31, 2018
6,324
990
-
7,314
Depreciation and impairment for the year 2,362
(12)
Disposals
21
Transfers
Balance at December 31, 2019
9,685
Land and
buildings
Plant and
equipment
Furniture
and equipment
Under
construction
78,390
1,030
(772)
4,164
82,812
-
4,527
(616)
2,645
89,368
35,715
6,703
(766)
41,652
8,204
(507)
(192)
49,157
1,813
233
(7)
162
2,201
225
340
(251)
120
2,635
1,482
154
(7)
1,629
215
(252)
171
1,763
4,119
6,104
-
(4,817)
5,406
-
10,590
-
(3,465)
12,531
-
-
-
-
-
-
-
-
Carrying amounts
In thousands of US dollars
At December 31, 2018
At December 31, 2019
Land and
buildings
12,105
26,555
Plant and
equipment
Furniture
and equipment
Under
construction
41,160
40,211
572
872
5,406
12,531
Depreciation expense of $9,910 (2018: $7,625) was charged to costs of sales, $445 (2018: $108) was charged to general and
administrative expense and $60 (2018: $114) was charged to research and development expenses.
46
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 7 INTANGIBLE ASSETS
In thousands of US dollars
Cost
Balance at January 1, 2018
Purchases
Balance at December 31, 2018
Purchases
Disposals
Balance at December 31, 2019
Amortization
Balance at January 1, 2018
Amortization for the year
Balance at December 31, 2018
Amortization for the year
Disposals
Balance at December 31, 2019
Carrying amounts
At December 31, 2018
At December 31, 2019
Customer
Relationships
Goodwill
Software and
Development
costs
28,250
-
28,250
-
-
28,250
9,787
2,825
12,612
2,825
-
15,437
15,638
12,813
32,225
-
32,225
-
-
32,225
-
-
-
-
-
-
32,225
32,225
5,846
971
6,817
2,237
(95)
8,959
3,752
294
4,046
110
(94)
4,062
2,771
4,897
Total
66,321
971
67,292
2,237
(95)
69,434
13,539
3,119
16,658
2,935
(94)
19,499
50,634
49,935
Amortization expense of $2,935 (2018: $3,119) was charged to general and administrative expense. Remaining amortization
for customer relationships acquired is 3.8 to 5.5 years.
Goodwill
December 31
In thousands of US dollars
Defense
Anti-vibration
Indefinite-life intangible assets – customer relationships
December 31
In thousands of US dollars
Defense
Anti-vibration
2019
22,160
10,065
32,225
2019
6,737
6,076
12,813
2018
22,160
10,065
32,225
2018
7,963
7,675
15,638
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, 2019 and December
31, 2018, 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 9.3%
• 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 one-year period. Cash
flows for a further four-year period were extrapolated using projected sales and a growth rate of 0-6% 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 and engineered
products industries, which are based on both external sources and internal sources (historical data). Material changes to these
assumptions could cause the carrying amount of goodwill to exceed its net recoverable amount.
A N N U A L R E P O R T
47
2019
Notes to CFS (cont’d)
NOTE 8 OTHER ASSETS
In thousands of US dollars
Balance at January 1, 2018
Accrued interest
Interest paid
Repayment of loan
New loan issuances
Effect of movements in exchange rates
Balance at December 31, 2018
Less: current portion (note 4)
Accrued interest
Interest received
Repayment of loan
New loan issuances (note 19)
Effect of movements in exchange rates
Balance at December 31, 2019
Share purchase
loan
Other
997
12
(11)
-
392
(106)
1,284
(734)
550
16
(9)
(764)
364
70
961
452
-
-
-
-
(6)
446
-
446
-
-
-
-
-
446
Total
1,449
12
(11)
0
392
(112)
1,730
(734)
996
16
(9)
(764)
364
70
1,407
NOTE 9 DERIVATIVES NOT DESIGNATED IN A FORMAL HEDGING RELATIONSHIP
Foreign exchange hedge
At December 31, 2019, the Company had contracts to sell USD $19,715 from January 2020 to November 2020 for Canadian
dollars ("CAD") $26,200. The fair value of these contracts, representing an unrealized gain of $457, are included in trade and
other receivables, including derivatives on the statement of financial position. The unrealized changes in fair value, representing
a gain of $1,254 (2018: loss of $1,049), are recorded on the statement of profit as other income (expense).
At December 31, 2018, the Company had contracts to sell USD $25,427 from January 2019 to October 2019 for CAD $33,601.
The fair value of these contracts, representing an unrealized loss of $797 are included in trade and other payables, including
derivatives on the statement of financial position.
Interest rate swap
In 2017, the Company entered into an interest rate swap agreement for a notional amount of $35,000 ($28,000 and $30,800 as
at December 31, 2019 and December 31, 2018, respectively) amortizing down to $24,267 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 2019, the interest income of the swap agreement was $179 (2018: $77).
At December 31, 2019, the fair value of this agreement, representing a loss of $19 (2018: gain of $434), is included in loans and
borrowings on the statement of financial position. The change in the fair value, representing a loss of $453 (2018: gain of $169),
is recorded on the statement of profit as finance costs.
The Company entered into this interest rate swap agreement in order to fix the interest rate on a portion of its term loan and does
not hold it for trading or speculative purposes.
NOTE 10 LOANS AND BORROWINGS
December 31
In thousands of US dollars
Non-current
Term debt
Lease liabilities
Less: deferred financing
Current
Term debt
Lease liabilities
December 31
In thousands of US dollars
$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 January 2021.
Lease liabilities
Subtotal
Less principal due within one year
Less deferred financing
48
2019
2018
56,250
12,953
(417)
68,786
3,769
1,589
5,358
59,565
192
(595)
59,162
3,750
44
3,794
2019
2018
60,019
14,542
74,561
(5,358)
69,203
(417)
68,786
63,316
235
63,551
(3,794)
59,757
(595)
59,162
AirBoss of America Corp.
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 January 2021.
In March 2019 the calculation of one of the loan covenants on the Company's credit facilities was amended on a prospective
basis. In December 2019 the maturity of the credit facilities was extended from December 2020 to January 2021. In January
2020 the Company signed an amended and restated credit agreement in connection with the merger between AirBoss' defense
business and Critical Solutions International, Inc. The amended and restated credit agreement matures in January 2023 and
otherwise carries similar terms as the existing credit agreement.
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 $306 (2018: $307) has been amortized and is included in finance costs.
Interest expense on the term debt was $2,581 (2018: $2,630).
Principal repayments on the loans and borrowings are as follows:
In thousands of US dollars
Total
2020
Term debt and finance lease
Lease liabilities
60,019
14,542
74,561
3,769
1,589
5,358
2021
56,250
1,634
57,884
2022
-
1,328
1,328
2023
-
1,358
1,358
2024 Thereafter
-
1,345
1,345
-
7,288
7,288
In 2019 and 2018, 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. No amount was drawn against this facility as at December 31, 2019.
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, 2019 the Company is not in default, nor has it breached any terms of the credit agreement relating to the current
credit facilities.
The carrying amount and fair value of the borrowings are as follows:
In thousands of US dollars
Term debt
Lease liabilities
Carrying amount
Fair value
2019
59,602
14,542
2018
62,720
236
2019
60,027
14,927
2018
63,597
241
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
3.48% (2018: 4.21%) for the term loan and lease liabilities.
NOTE 11 PROVISIONS
In thousands of US dollars
Balance at January 1, 2018
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
Impact of change in accounting policy (see note 3)
Provisions accrued during the year
Payments during the year
Forfeitures during the year
Amortization during the year
Foreign exchange
Balance at December 31, 2019
Less amount due within one year
A N N U A L R E P O R T
Site
restoration
Restricted
stock units
Performance
awards and
Deferred
stock units
Lease
incentives
74
-
-
-
-
-
74
-
74
-
-
-
-
-
-
74
-
74
1,202
316
(1,485)
-
-
(33)
-
-
-
-
-
-
-
-
-
-
-
-
366
184
-
(26)
-
(43)
481
(120)
361
-
313
(133)
(32)
-
26
655
(103)
552
239
-
-
-
(40)
-
199
(54)
145
(199)
-
-
-
-
-
-
-
-
Total
1,881
500
(1,485)
(26)
(40)
(76)
754
(174)
580
(199)
313
(133)
(32)
-
26
729
(103)
626
49
2019
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
January 1
Exercised
December 31
2019
-
-
-
2018
150,000
(150,000)
-
During 2019 and 2018, no restricted stock units were issued or forfeited. During 2018,150,000 fully vested restricted stock
units were exercised for $1,485 in cash. At December 31, 2019 the Company has recognized as employee costs of nil (2018:
$316) related to the plan.
Performance Awards
The Company has issued certain executives with an aggregate of 83,998 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
January 1
New issuances
Forfeitures
Settlements
December 31
2019
114,908
26,643
(14,563)
(42,990)
83,998
2018
93,333
29,933
(8,358)
-
114,908
During 2019, the Company recognized as employee costs $74 (2018: $87) 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
December 31
2019
43,088
29,584
72,672
2018
30,005
13,083
43,088
During 2019, the Company recognized as employee costs $207 (2018: $71) related to DSUs issued under the Omnibus Plan.
50
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 12 CAPITAL AND OTHER COMPONENTS OF EQUITY
Share Capital and Contributed Surplus
Share Capital: Authorized - Unlimited number of Class A shares without par value designated as common shares.
Unlimited number of Class B preference shares without par value and issuable in series subject to the filing or articles of
amendment. The directors may fix, from time to time before such issue, the number of shares that is to comprise each series
and the designations, rights, privileges, restrictions and conditions attaching to each series.
Under the Omnibus plan, a maximum of 10% of issued and outstanding shares are available for issuance under any type of
share-based compensation plan. As at December 31, 2019, 1,744,370 shares are available (2018: 1,661,976).
Issued share capital is as follows:
In thousands of shares
January 1
Exercise of share options
Share repurchase
December 31
2019
23,392
-
-
23,392
2018
23,091
342
(41)
23,392
Issuance of common shares
During 2019, nil options were exercised (2018: 495,000 options exercised resulting in the issuance of 341,949 common shares).
In November 2019, the Company renewed its normal course issuer bid ("NCIB") to purchase up to 500,000 of its common
shares, representing approximately 4% of the Company's public float. The Company purchased nil shares (2018: 40,620)
under its NCIB in 2019.
Capital and other components of equity
Contributed surplus
Contributed surplus is comprised of the difference between the book value per share and the purchase price paid for shares
acquired for cancellation by the Company and stock-based compensation of employees and non-employees.
Stock Options
The term of an option shall not exceed 10 years from the date of grant. Options granted to directors and officers of the Company,
which were outstanding at December 31, 2019, are as follows:
Range of exercise
price ($CAD)
9.49
10.98
11.56
12.26
15.40
16.69
17.86
Options
outstanding
Quantity
Weighted
average
contract life
Options
exercisable
Quantity
197,261
33,200
23,092
37,524
50,000
82,127
15,000
438,204
4.41
2.86
3.22
2.22
0.25
1.25
1.00
-
16,600
5,773
18,762
50,000
61,595
15,000
167,730
Options granted and outstanding:
A summary of the status of the Company’s stock option plan as of December 31, 2019 and 2018 and changes during the years
then ended, is presented below:
Outstanding beginning of year
Granted
Exercised
Forfeited
Outstanding end of year
A N N U A L R E P O R T
2019
Weighted average
exercise price
($CAD)
13.25
9.49
-
12.14
12.26
Quantity
519,272
197,261
-
(278,329)
438,204
Quantity
988,710
38,109
(495,000)
(12,547)
519,272
2018
Weighted average
exercise price
($CAD)
9.86
11.56
6.35
13.31
13.25
51
2019
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
May 2019
March 2018
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:
Vested at December 31, 2019
2020
2021
2022
2023
Stock option expense
$ 2.04
$ 9.58
$ 9.49
30.7%
5 years
2.9%
1.5%
$ 3.11
$ 12.08
$ 11.56
31.8%
5 years
2.3%
2.1%
Quantity
167,730
93,301
72,769
55,088
49,316
438,204
During 2019, the Company recognized as employee costs $105 (2018: $194) 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 2019 and in 2018 as follows:
Shareholder of record at:
$CAD/share
Date Paid
$CAD/share
Date Paid
2019
2018
March 31
June 30
September 30
December 31
April 15, 2019
0.07
0.07
July 15, 2019
0.07 October 15, 2019
January 15, 2020
0.07
0.28
0.07
0.07
0.07
0.07
0.28
April 16, 2018
July 16, 2018
October 15, 2018
January 15, 2019
The dividend payable at December 31, 2019 was $1,261 (2018: $1,200).
52
AirBoss of America Corp.
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 deferred stock units
Diluted weighted average number of shares outstanding
Net income per share:
Basic
Diluted
2019
10,219
23,392
-
53
23,445
0.44
0.44
2018
8,536
23,345
6
32
23,383
0.37
0.37
As of December 31, 2019, 438,204 options (2018: 214,387) 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
Deductible temporary differences not recognized
Other
Total expense
The components of the provision for income taxes are as follows:
Current
Deferred
Total
2019
3,852
456
(286)
26
(100)
667
(299)
4,316
6,272
(1,956)
4,316
2018
3,124
179
(110)
22
119
-
(82)
3,252
3,014
238
3,252
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
Recorded on the consolidated statement of financial position as follows:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax liabilities
A N N U A L R E P O R T
2019
4,327
150
164
49
138
541
5,369
-
(64)
(8,418)
(8,482)
(3,113)
846
(3,959)
(3,113)
2018
2,116
126
175
97
156
242
2,912
(6)
(70)
(8,136)
(8,212)
(5,300)
-
(5,300)
(5,300)
53
2019
Notes to CFS (cont’d)
In assessing the recognition 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 future 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 $29,147 of unused tax losses (2018: $13,708) available to offset future income taxes in the US and has
recognized a related net deferred income tax asset of $846. Losses incurred prior to 2018 were set to expire starting 2037, while
losses incurred in 2018 and after can be carried forward indefinitely.
The aggregate amount of deductible temporary differences associated with investments in subsidiaries, branches and
associated and interests in joint ventures, for which no deferred income tax assets have been recognized, is $28,553 (2018:
taxable temporary differences of $43,687).
Deferred tax assets have not been recognized in respect of the following items, because it is not probable that future taxable
profit will be available against which the Company can use the benefits therefrom.
December 31
In thousands of US dollars
Gross amount
2019
Tax effect
Gross amount
2018
Tax effect
Capital losses
Operating losses
918
980
1,898
142
229
371
648
-
648
81
-
81
NOTE 15 GOVERNMENT ASSISTANCE
During 2019, Rubber Solutions recognized grants of $118 (2018: $135). Engineered Products did not recognize grants in 2019 or 2018.
Scientific research and investment tax credits of $537 were recognized in 2019 (2018: $780); research and development costs were
reduced accordingly. No reduction to capital assets was recognized in respect of provincial tax credits (2018: nil).
NOTE 16 COMMITMENTS AND CONTINGENCIES
Commitments
The Company has purchase commitments of $10,770 for raw materials. Delivery on these commitments is expected in 2020.
Litigation
No legal provisions are recognized at December 31, 2019 and 2018.
NOTE 17 POST RETIREMENT BENEFITS
The Company provides post retirement life insurance benefits to eligible retirees (“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 $18. This plan is unfunded as such there is no plan asset to be disclosed. At December
31, 2019, the weighted average duration of the defined benefit obligation was 12 years (2018: 12 years).
The 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 Benefit Plan
Statement of Profit charge for Benefit Plan
2019
510
43
2018
474
(78)
54
AirBoss of America Corp.
Notes to CFS (cont’d)
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 loss (gain)
Foreign currency translation
At December 31
The amounts recognized in the income
statement are as follows:
Post-retirement benefits expense
Interest cost
Foreign currency translation
Expense (recovery)
2019
510
474
2
17
(41)
34
24
510
2
17
24
43
2018
474
560
2
17
(45)
(17)
(43)
474
(52)
17
(43)
(78)
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
Retirement age:
Percentage of members with spouses at retirement
2019
2018
3.00%
3.60%
CPM
mortality table
projected
with scale MI-
2017 for the
private sector
CPM
mortality table
projected
with scale MI-
2017 for the
private sector
N/A
N/A
The sensitivity of the 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.
A N N U A L R E P O R T
55
2019
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
2019
(56)
70
1
(1)
2018
(48)
60
5
(6)
AirBoss Flexible Products Co. (“Flexible”) maintains a 401(k) defined contribution plan for its employees. Total contributions and
expense to this plan during 2019 were $430 (2018: $362).
Immediate Response Technologies, LLC maintains a 401(k) defined contribution plan for its employees. Total contributions
and expense to this plan during 2019 were $90 (2018: $88).
AirBoss Rubber Compounding (NC) Inc. maintains a 401(k) plan for its employees. Total contributions and expense to this
plan during 2019 were $69 (2018: $45).
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 2019 were $341 (2018: $281).
AirBoss Engineered Products Inc. employees are covered under various registered and unregistered defined contribution
plans. Total contribution and expense to these plans for 2019 were $179 (2018: $159).
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 2019, the Company made contributions of $273 (2018: $284) to the multi-employer pension plan. The unfunded vested
benefit ratio was 17.0% at December 31, 2019 (2018: 8.2%). The Steel Workers Pension Trust was in a net deficit at December
31, 2019 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.
56
AirBoss of America Corp.
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
2019
2018
2019
2018
2019
2018
2019
2018
Segment net sales
Inter-segment net sales
196,802
(48,220)
184,065
(38,801)
180,987
(1,443)
172,077
(738)
External net sales
148,582
145,264
179,544
171,339
-
-
-
-
-
-
377,789
(49,663)
356,142
(39,539)
328,126
316,603
Depreciation, amortization,
and impairment
Finance cost
Reportable segment profit
(loss) before income tax
Income tax expense
(recovery)
Net Income
6,459
4,356
5,186
4,583
7,075
5,710
182
70
13,716
10,966
388
3
(913)
(1,665)
3,831
2,921
13,158
9,910
4,290
5,723
(2,913)
(3,845)
14,535
11,788
4,847
8,311
5,126
4,784
879
3,411
1,457
4,266
(1,410)
(3,331)
4,316
(1,503)
(514)
10,219
3,252
8,536
Reportable segment assets
99,107
97,263
146,310
122,395
4,247
12,870
249,664
232,528
Reportable segment liabilities
29,452
26,802
29,575
15,902
64,658
68,341
123,685
111,045
Capital additions
13,093
4,693
12,284
3,553
1,323
230
26,700
8,476
A N N U A L R E P O R T
57
2019
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.
For the year ended December 31
In thousands of US dollars
Canada
United States
Other countries
2019
2018
Net sales
Non-current assets
Net sales Non-current assets
62,522
235,898
29,706
328,126
48,429
83,082
-
131,511
47,209
227,311
42,083
316,603
44,314
66,559
-
110,873
Major customers
Net sales from one customer represent approximately 9% (2018: 8%) of consolidated net sales in 2019. Five customers
represented 31% (2018: 33%) of consolidated net sales in 2019.
Major Products
In thousands of US dollars
Rubber Solutions
Tolling
Industrial
Mixing
Engineered Products
Anti-vibration
Defense
2019
2018
9,729
28,383
110,470
148,582
124,887
54,657
179,544
328,126
7,484
30,945
106,835
145,264
129,348
41,991
171,339
316,603
NOTE 19 RELATED PARTIES
Related Party Transactions
During the year, the Company paid rent for the corporate office of CAD $180 (2018: CAD $180) to a company controlled by
the CEO and Chairman of the Company.
During the year, the Company paid fees for the use of a facility in South Carolina of approximately $28 (2018: $26) to a company
in which the CEO and Chairman is an officer.
58
AirBoss of America Corp.
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
Share-based payment expense
2019
4,154
352
4,506
2018
3,378
633
4,011
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.
Key management own 26.3% of the outstanding common shares as at December 31, 2019 (2018: 26.4%).
During 2014, the Company provided a share purchase loan of CAD $1,000 to the Vice-Chair to purchase common shares of
the Company that was repaid in November 2019. In December 2016, the Company provided a share purchase loan of CAD
$250 to the Chief Financial Officer. In March 2018, the Company provided a share purchase loan of CAD $500 to the President
and Chief Operating Officer. On June 28, 2019, the Company provided share purchase loans of CAD $300 to the Executive
Vice President, Corporate and General Counsel; CAD $92 to the President and Chief Operating Officer; and CAD $100 to the
Vice President Human Resources. All loans are due upon the earlier of the disposition date of all or proportionate to any part
of the pledged securities or the fifth anniversary of the issuance date. All share purchase loans issued prior to 2019 bear interest
at 1% annually and all subsequent loans share purchase loans bear interest at 2% annually. In all cases, loans are full recourse
and interest is due and payable semi-annually. In total, 120,185 shares of the Company having a fair value of $812 were
pledged as collateral on these loans. At December 31, 2019, the loan receivables of $961, including accrued interest of $5, were
included in other assets. During the year, interest of $9 (2018: $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:
$Millions
Natural and synthetic rubber
Steel
Carbon black
EPDM
Silicone
Earnings before tax
2019
2018
(3.38)
(3.24)
(1.84)
(0.42)
(0.86)
(9.74)
(2.98)
(3.00)
(1.71)
(0.34)
(0.82)
(8.85)
A N N U A L R E P O R T
59
2019
Notes to CFS (cont’d)
A 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
2019
2018
(2.4)
6.8
(2.9)
6.1
(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.
In 2017, the Company entered into an interest rate swap agreement for a notional amount of $35,000 ($28,000 and $30,800 as at
December 31, 2019 and December 31, 2018, respectively) amortizing down to $24,267 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 2019, the interest income of the swap agreement was $179 (2018: $77).
At December 31, 2019, the fair value of this agreement, representing a loss of $19 (2018: gain of $434), is included in loans and
borrowings on the statement of financial position. The change in the fair value, representing a loss of $453 (2018: gain of $169), is
recorded on the statement of profit as finance costs.
The Company entered into this interest rate swap agreement in order to fix the interest rate on a portion of its term loan and does
not hold it for trading or speculative 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
2019
2018
1,418
(14,542)
(60,000)
(73,124)
1,284
(235)
(63,750)
(62,701)
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
2019
Variable rate instruments
2018
Variable rate instruments
Net income and equity
100bp increase
100bp decrease
(213)
(191)
213
191
This analysis assumes that all other variables, in particular foreign exchange rates, remain constant.
60
AirBoss of America Corp.
Notes to CFS (cont’d)
Credit Risk
The Company held cash and cash equivalents of $121 at December 31, 2019 (2018: $17,862), 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 (see note 4), 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
9% (2018: 8%) of consolidated net sales in 2019. Five customers represented 31% (2018: 33%) of consolidated net sales in
2019.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 $121 and
unused revolving credit facilities of $60,000 (2018: cash of $17,862 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, 2019
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
121
68,890
961
69,972
44,047
-
-
74,125
118,172
-
-
-
-
-
19
(457)
-
(438)
Total
carrying
amount
121
68,890
961
69,972
44,047
19
(457)
74,125
117,734
Total fair
value
121
68,890
961
69,972
44,047
19
(457)
75,215
118,824
A N N U A L R E P O R T
61
2019
Notes to CFS (cont’d)
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
The fair value of the share purchase loans and long-term loan has been based on market interest rate (level 2) in 2019 and 2018.
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 2019 and 2018. There were no transfers between levels of the fair value hierarchy in 2019 and 2018.
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
2019
(121)
74,144
74,023
125,979
200,002
2018
(17,862)
62,956
45,094
121,483
166,577
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 26.3% of the outstanding 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.
In November 2019, the Company renewed its normal course issuer bid ("NCIB") to purchase up to 500,000 of its common
shares, representing approximately 4% of the Company's public float. The Company purchased nil shares (2018: 40,620) under
its NCIB in 2019.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
62
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 21 LEASES
The Company leases some of its plants, offices, and equipment. The majority of the Company's leases are for building, which have a
remaining terms between 2 and 9 years.
Right-of-Use Assets
In thousands of US dollars
Cost
Balance at January 1, 2019
Lease additions
Lease extensions
Balance at December 31, 2019
Accumulated depreciation
Balance at January 1, 2019
Depreciation
Balance at December 31, 2019
Land and
buildings
Furniture and
equipment
7,020
-
6,505
13,525
-
1,310
1,310
467
714
-
1,181
-
161
161
Total
7,487
714
6,505
14,706
-
1,471
1,471
Carrying amount at December 31, 2019
12,215
1,020
13,235
Under IAS 17, as at December 31, 2018, the carrying amount of finance lease assets of $243 was presented in fixed assets in note 6.
Lease Liabilities
In thousands of US dollars
Cost
Balance at January 1, 2019
Lease additions
Lease extensions
Lease payments
Interest expense on lease liabilities
Foreign currency translation
Balance at December 31, 2019
Accumulated depreciation
Lease liabilities due within one year
Lease liabilities
Balance at December 31, 2019
Total
8,867
714
6,505
(2,063)
449
70
14,542
1,589
12,953
14,542
Under IAS 17, as at December 31, 2018, finance lease obligations of $235 were presented in long term debt due within one
year and long-term debt in note 10.
Liquidity
The future undiscounted contractual lease payments are as follows:
In thousands of US dollars
Lease payments
Total
17,648
2020
2,254
2021
2,222
2022
1,844
2023
1,808
2024 Thereafter
1,731
7,789
Future Finance Lease payments Under IAS 17
As at December 31, 2018, the undiscounted future finance lease payments and future finance charges were $235 and $31, respectively.
Future Operating Lease payments Under IAS 17
As at December 31, 2018, the undiscounted future minimum lease payments were $9,683. During 2018, the Company recognized
$1,783 of operating lease rent expense.
NOTE 22 SUBSEQUENT EVENTS
On January 1, 2020, the Company formed AirBoss Defense Group (“ADG”) through the merger of its AirBoss Defense business
and other operations in Acton Vale, Quebec with Critical Solutions International, Inc. ("CSI"). CSI is a privately-owned U.S.-
based company and is the leading global supplier of route clearance vehicles; countermine capability and survivability products
to U.S. and foreign military forces. The Company contributed the shares of AirBoss Engineered Products Inc. and the
membership interests of Immediate Response Technologies, LLC to newly formed Canadian and U.S. entities that will form,
along with the shares of CSI, ADG. AirBoss received 55% of the equity in ADG and US$60 million vendor takeback note payable
by ADG. CSI's former owner received 45% of the equity interest in ADG.
NOTE 23 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
63
2019
Corporate Information
Board of Directors
Mary Matthews, CPA, CA, ICD.D. (1) (2) (3)
Toronto, Ontario
Robert L. McLeish (1) (2) (3)
Aurora, Ontario
Port Carling, Ontario
Brian A. Robbins (1)
President and CEO, Exco Technologies Limited
Aurora, Ontario
Anita Antenucci
Upperville, Virginia
P. Grenville Schoch
Chairman and CEO, AirBoss of America Corp.
Aurora, Ontario
David Camilleri
Waterloo, Ontario
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of Corporate Governance Committee
Alan J. D. Watson (2) (3)
Sydney, Australia
64
AirBoss of America Corp.
Corporate Information
Solicitors
CORPORATE OFFICE
Davies Ward Phillips & Vineberg LLP
Toronto, 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 14, 2020
at 4:30pm at AirBoss Rubber Solutions’ offices
located at 101 Glasgow Street, Kitchener, Ontario
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 and Chief Operating Officer:
Chris Bitsakakis
Chief Financial Officer:
Daniel Gagnon
Executive Vice President & General Counsel, Corp:
Chris Figel
.
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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.
2019