TRANSFORMING
CHALLENGE INTO
OPPORTUNITY
2021 ANNUAL REPORT
TABLE OF CONTENTS
01 At a Glance
02 Message to Shareholders
04 AirBoss Defense Group
06 Airboss Rubber Solutions
08 AirBoss Engineered Products
10 Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
25 Management’s Responsibility
for Financial Reporting
26 Auditors’ Report to the
Shareholders of AirBoss of
America Corp.
29 Consolidated Financial
Statements
33 Notes to Consolidated
Financial Statements
64 Board of Directors
65 Corporate Information
AT A GLANCE
AIRBOSS DELIVERED RECORD NET SALES AND DILUTED EPS IN 2021 BY CONTINUING TO CAREFULLY
MANAGE THROUGH THE ONGOING COVID-19 PANDEMIC AND THE ASSOCIATED IMPACTS ON SUPPLY CHAIN
AND RAW MATERIAL PRICES, WHILE ALSO COMPLETING TWO ACQUISITIONS THAT ARE EXPECTED TO
SUPPORT LONG-TERM VALUE CREATION.
HIGHLIGHTS FOR 2021
(cid:129) Announced nitrile glove contract valued at up to US$288 million awarded by U.S. Department for Health and Human
Services – Office of the Assistant Secretary for Preparedness and Response
(cid:129) Awarded Specialized Footwear Solutions Contracts by the U.S. Department of Defense valued at up to US$23 million
(cid:129) AirBoss Defense Group completed acquisition of BlackBox Biometrics, the developer of the Blast Gauge® System
(cid:129) Received National institute for Occupational Safety and Health approval for AirBoss 100™ Half Mask Respirator
(cid:129) Completed acquisition of Ace Elastomer expanding AirBoss Rubber Solutions’ capabilities in color and specialty
compounding and adding to the U.S. footprint with facilities in Rock Hill, SC and Chicago, IL
(cid:129) Announced commencement of trading on the OTCQX® Best Market in the United States
(cid:129) Announced new senior secured credit facilities with availability of up to $325 million (up from $110 million in 2020)
(cid:129) Ended 2021 with record pipeline of $1.5 billion
NET SALES
($MM)
$586.9
$501.6
$328.1
$700
$600
$500
$400
$300
$200
$100
$0
DILUTED EPS
$1.65
$1.35
$0.44
$1.80
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0
DIVIDENDS
(C$ PER SHARE)
$0.37
$0.28
$0.28
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0
2019 2020 2021
2019 2020 2021
2019 2020 2021
A N N U A L R E P O R T
11
MESSAGE TO SHAREHOLDERS
IN 2021, AIRBOSS CONTINUED TO BUILD ON ITS MULTI-DECADE HISTORY OF PROFITABILITY, DELIVERING
RECORD NET SALES AND DILUTED EARNINGS PER SHARE ALONG WITH AN INCREASED DIVIDEND. WE
ACCOMPLISHED THIS BY CONTINUING TO FOCUS ON TRANSFORMING CHALLENGES INTO OPPORTUNITIES,
ESPECIALLY AS GOVERNMENTS AND BUSINESSES AROUND THE WORLD BATTLED THROUGH A SECOND YEAR
OF THE COVID-19 PANDEMIC. WE ALSO CEMENTED OUR REPUTATION AS A KEY SUPPLIER TO THE U.S.
GOVERNMENT BY AGAIN DELIVERING ON A LARGE, HIGH-PROFILE CONTRACT WITH EXTREMELY TIGHT
DEADLINES, DESPITE A GLOBAL, PANDEMIC-FUELED SUPPLY CHAIN AND LOGISTICS CALAMITY.
The pandemic has yielded an array of
opportunities, particularly for AirBoss
Defense Group’s (“ADG”) healthcare
business, as countries around the
world struggled to reduce the impact
of COVID-19 and are now increasingly
turning their attention to future
preparedness initiatives. ADG has
been at the forefront of the effort to
keep healthcare providers safe and
performing their vital roles on the
frontlines of the pandemic. With
COVID-19 beginning to transition to
an endemic, much of the buying
attention and budget focused on
domestic safety is now shifting to the
increasingly volatile geopolitical
situation globally, with organizations
like NATO actively reviewing their
defense spending targets. Although
ADG did see additional orders for its
line of protective footwear in 2021, we
expect to see further renewed interest
from military and government buyers
internationally in the year ahead for
our full array of survivability solutions,
which includes advanced equipment
for chemical and biological threats.
The combination of preparedness
requirements for personal protective
2
equipment, including gowns offering
varying levels of protection, and
opportunities for our rubber-based
boots, gloves, and masks, as well as
the Husky vehicle system, has
translated into a $1.5 billion pipeline
of opportunities, the largest in our
history. We think we can address many
of these in the near term and are
undertaking the necessary
preparations to be able to ramp-up
quickly as they are awarded.
This pipeline does not include The
Blast Gauge® System, which remains
in the early phases of deployment with
the United States Special Operations
Command, selected U.S. Army units
and special tactics teams. We are
currently working with the U.S.
Department of Defense to advance
this mission-critical technology
through the procurement process from
the prototype to full production phase.
Recognizing the significant long-term
potential value of a fully
commercialized Blast Gauge® System,
we completed the acquisition of Black
Box Biometrics, Inc. In addition to fully
participating in any upside from
product sales, we were also able to
bring significant technical and
engineering capability in house, which
will be critical in developing the next
generation of solutions with a focus
on impulse noise and concussive
impact detection and monitoring.
Leveraging our strong balance sheet,
we also strengthened and diversified
AirBoss Rubber Solutions (“ARS”)
through the acquisition of Ace
Elastomer, Inc. In addition to
expanding our geographic reach in the
U.S. Southeast and Midwest, we were
able to expand our capabilities in the
high-value specialty compounding
space, which has long been a
strategic goal for us. Ace brings
specific expertise in the custom
mixing of proprietary specialty and
colored elastomeric compounds.
Together, we are leveraging ARS’s
enhanced scale to purchase a variety
of raw materials more cost effectively,
in addition to accessing cross-selling
opportunities across two highly
complementary customer bases.
AirBoss Engineered Products (“AEP”)
also faced its share of regularly
shifting industry dynamics in 2021
but continues to rise to the challenge.
The business worked tirelessly to find
ways to help offset dramatically
increasing commodity prices for
rubber, steel and freight logistics.
In 2021, AEP installed new high-
efficiency injection presses and a
second robotic work cell, with these
assets continuing to run at high
utilization levels through the balance
of the year and into 2022. As a
domestic supplier to OEM’s and Tier 1
and 2 part-suppliers, AEP worked
collaboratively with selected
customers to localize the production of
key parts previously produced
overseas by replicating tooling,
securing approvals, and producing key
components domestically, ensuring
continuity of supply and avoiding
costly shutdowns. From a strategic
perspective, AEP continued to work on
diversifying beyond its core passenger
vehicle and light truck offering.
Beyond moving to full production on
our first part for a manufacturer of
premium electric vehicles, AEP has
advanced several parts for heavy
trucks and military vehicles into the
prototyping and on-vehicle testing
phases of development. Over the short,
medium and longer-term AEP remains
focused on deriving an ever growing
portion of its revenue from non-
automotive sources while negotiating
aggressively in ongoing efforts to pass
on commodity price increases to its
automotive customers.
Right across the organization our
teams have worked around the clock,
to keep supply chains intact, move
both bulk inputs and finished product
efficiently and cost effectively,
maintain production schedules amid
shortages of raw materials and labor,
and find solutions to myriad other
complex challenges presented by
suppliers and customers alike. Over
the last few years in particular, our
A N N U A L R E P O R T
purchasing teams have focused on
integrity of supply, building multiple,
redundant relationships with raw
material suppliers around the globe to
help manage rising costs and
increasingly sporadic availability. As
an organization we have worked
closely with customers to more
proactively communicate and
transmit price increases, where
workarounds could not be found,
sharing the increased burden we have
all experienced during the pandemic.
Likewise, our logistics personnel have
worked to get raw materials and
finished products where they need to
be, both domestically and
internationally, as quickly as possible
despite port and border congestion
and reduced carrier capacity.
Internally, our human resources teams
have focused on ensuring a safe
working environment and access to
appropriately skilled labor to keep
operations running smoothly and
production meeting demand. We want
to thank all our employees for their
foresight, creativity, and hard work in
addressing the greatly increased
number of challenges experienced
across the business in 2021.
AirBoss’ improved financial
performance and resulting cash flow
in recent years has allowed us to
significantly strengthen our balance
sheet and reduce debt to very modest
levels. In September, we closed on
$325 million in upgraded credit
facilities. With minimal leverage and
enhanced access to capital, we
believe we are very well positioned to
continue to build the business both
organically, and through additional
acquisitions. As the COVID-19
pandemic continues to evolve, we
believe numerous opportunities
remain to grow both ARS and ADG
through the acquisition of
complementary businesses. On the
rubber side, we are actively targeting
companies like Ace, that add higher
margin specialty compounding
capabilities, ideally in new markets,
with little overlap in the customer
base. The creation of ADG saw the
birth of a focused survivability
platform and we’ll continue to look for
complementary candidates that
broaden the product offering or “bolt
on” to existing solutions already on
the platform.
In closing, we are both very proud of
how AirBoss has performed in the last
year, especially in the face of the
myriad challenges experienced by
organizations around the world. The
team we have assembled over the last
few years has enabled us to rapidly
address challenges and transform
them into opportunities, allowing us to
create significant value for a full
range of stakeholder groups from
employees and suppliers to customers
and investors. We continue to feel that
we are well positioned to succeed in
each of our business segments over
the longer term and invite you to
continue to follow our progress in the
quarters and years ahead.
P.G. Schoch
Chairman and CEO
Chris Bitsakakis
President and COO
3
AirBoss Defense Group (“ADG”) is a rapidly growing survivability
platform offering a range of personal protective equipment (“PPE”)
for healthcare settings, mask, boot, glove, shelter and isolation
products for industrial and military-grade protection against
chemical, biological, radioactivity and nuclear (“CBRN”) threats, as
well as blast monitoring and route clearance solutions for military
personnel on active duty. In 2022, ADG is chasing an opportunity
pipeline of US$1.5 billion, the largest in the Company’s history.
BLACK BOX BIOMETRICS® ACQUISITION
– TRANSFORMING SURVIVABILITY
In May 2021, ADG completed its
acquisition of Black Box Biometrics®,
Inc. (“B3”), developer of the
revolutionary Blast Gauge® System of
lightweight, wearable blast
overpressure sensors, which have been
outfitted on Special Forces, Army and
SWAT units across the U.S.
ADG had previously served as the
worldwide distributor for the Blast
Gauge® System, however, bringing B3
fully under the ADG umbrella will allow
the business to:
(cid:129) Fully benefit financially from the
significant potential of widespread
deployment of the Blast Gauge®
System across the U.S. and other
militaries, as well as to police
departments and other first
responder groups both
domestically and around the world
(cid:129) Bring in-house the significant
technical and engineering
capability B3 has built since
its inception
(cid:129) Develop next-generation detection
and monitoring solutions including
those for impulse noise (e.g.
medium calibre firearms) and
concussive impact (e.g. fully body
contact sports like football,
hockey, etc.)
TRANSFORMING
THE MODERN
BATTLEFIELD
As the world observes the significant
effect that shoulder-fired anti-tank
and anti-aircraft weapons can have on
shaping today’s full-spectrum
combined arms battlefield, militaries
are also considering the user impact of
employing those systems at greater
rates. Cumulative exposure to the
blast overpressure induced by these
weapon systems in combat and
training has been proven to negatively
impact service member health and
overall force readiness if not monitored
and managed.
The Blast Gauge® System is the
operationally-proven solution to help
modern militaries manage exposure to
safely and effectively employ these
critical combat capabilities.
Blast Gauge® is a system of rugged
sensors that captures pressure and
acceleration data generated in an
explosive blast. The devices
immediately categorize the exposure,
guide real-time triage capability based
on blast intensity, and then store or
wirelessly transmit the exposure data
for detailed post-event analysis.
The technology helps identify
individuals with blast exposure that
could put them at risk for brain injury
long before physical and cognitive
symptoms arise.
BLAST GAUGE® +
4
BUILDING A BROAD SURVIVABILITY PLATFORM
In the face of COVID-19, ADG’s healthcare business has soared as medical personnel in first response, clinical, long-term care and hospital
settings have sought to stay safe while dealing with increased patient loads and higher morbidity levels. ADG remains focused on supplying
high quality PPE to protect healthcare workers, especially as governments globally continue to manage COVID-19, while also stockpiling in
preparation for potential future incidents. ADG believes there are also multiple opportunities for its existing line of CBRN masks, boots and
gloves, the Husky 2G route clearance vehicle and related add-on accessories, as well as for the wider deployment of the Blast Gauge® System.
ADG intends to complement organic growth with strategic acquisitions, looking for opportunities to broaden its survivability platform
with new solutions, or those that complement the existing product offering, targeting medical professionals, first responders, special
tactics teams and militaries around the globe. Preferred targets would additionally have strong existing government/military
relationships internationally, product development and engineering expertise and/or complementary manufacturing capacity.
ADG NET SALES
($MM)
ADG GROSS MARGIN
($MM)
$116.7
$112.0
$329.9
$302.3
$350
$300
$250
$200
$150
$100
$85.6
$50
$0
$140
$120
$100
$80
$60
$40
$20
$0
$21.8
2019 2020 2021
2019 2020 2021
5
A N N U A L R E P O R T
AirBoss Rubber Solutions (“ARS”) is North America’s second
largest custom compounder with more than 500 million pounds
of annual capacity. The Company produces thousands of proprietary
compounds for predominantly blue-chip customers in the major tire,
off-the-road, industrial, defense, roller, conveyor belting and resource
sectors. ARS is increasingly expanding its compounding capabilities
with a focus on higher value black rubber, white/colour compounds
and specialty, high-performance elastomers.
ACE ELASTOMER ACQUISITION
– TRANSFORMING THE RUBBER BUSINESS
In August 2021, AirBoss acquired Ace
Elastomer, Inc., a leading, U.S.-based
custom rubber compounder with
facilities in Rock Hill, SC and Chicago,
IL. In addition to expanding AirBoss’
presence in the in the Southeastern
states, it also allowed the Company to
gain a facility in the Midwest,
improving proximity to key markets and
customers. Ace provides design,
formulation development and custom
mixing of proprietary elastomer
compounds across the natural and
synthetic polymer range, including a
variety of custom mix compounds.
They are a market leader in rubber
rollers, but also serve the belting and
printing segments, in addition to
offering custom molding and
extrusion applications.
6
(cid:129) Retaining Ace’s founder and key
members of its team to
supplement ARS’ established
rubber industry expertise and key
stakeholder relationships
(cid:129) Enhancing AirBoss’ ability to
provide U.S.-based customers with
domestically produced color and
specialty compounded rubber
products
(cid:129) Realizing operational efficiencies
and reducing costs across an
expanded business through
improved sourcing of raw
materials and implementation of
enhanced manufacturing and
material handling techniques
(cid:129) Offering an immediate positive
impact on EBITDA and earnings
per share with the potential for
additional revenue and cost
synergies in the future
The acquisition of Ace dovetails well
with ARS’s broader strategy of
diversifying beyond its core
competencies in high-volume black
rubber to include value-added colour
and specialty compounds often
produced in lower volumes. In 2019,
AirBoss made an initial investment
in both white/colour and tilt mixing
lines at its facility in Kitchener, ON.
This latest transaction helps further
strengthen the business by:
(cid:129) Expanding ARS’ presence in the
higher margin colour and specialty
compounding markets, including
enhanced small-batch processing
of high-value compounds
(cid:129) Presenting new cross-selling
opportunities to distinct, but
highly complementary, customer
bases
(cid:129) Allowing Ace to leverage ARS’
dedicated rubber science and R&D
capabilities with a shared focus on
developing custom compounds
that meet increasingly stringent
customer requirements
COLLABORATING WITH CUSTOMERS
– TRANSFORMING CHALLENGE INTO OPPORTUNITY
In 2021, AirBoss Rubber Solutions
worked with a leading global provider
of rubber auto components to
advance their strategy to serve the
North American market more
effectively. The customer had
traditionally produced their raw
materials at facilities in Germany
using proprietary formulations and
manufacturing techniques, shipping
the compounded rubber to North
American markets for processing.
With the global pandemic
contributing to reduced supply of raw
materials and increasingly
challenging logistics, the customer
knew they had to act to manage
costs and continuity of supply.
AirBoss Rubber Solutions is
increasingly focused on building
higher touch, service driven
relationships that create value for
multiple stakeholder groups.
Following extensive consultation, the
AirBoss Rubber Solutions team
collaborated with the customer to
come up with a solution that allowed
the two organizations to:
(cid:129) Jointly source raw materials more
cost effectively while ensuring
security of supply
(cid:129) Transfer proprietary manufacturing
know-how and formulation
information securely, while
preserving intellectual property rights
and accelerating time to market
(cid:129) Produce compounds for the North
American market domestically
using AirBoss’ facilities,
substantially reducing logistical
challenges and minimizing
shipping costs
(cid:129) Deliver high quality product at a
reduced cost, with reduced
sensitivity to volatile broader
market forces
GROWING THE RUBBER BUSINESS OVER THE LONG-TERM
AirBoss remains focused on maintaining its leadership position in high-volume black rubber, while also continuing to grow its
capabilities in higher-margin white/colour compounds and specialty, high-performance elastomers. In recent years the business has
grown through a combination of capital investment in R&D and new equipment as well as, more recently, strategic acquisition.
Over both the near and longer-term, AirBoss intends to pursue growth using this same strategic roadmap. This includes continuing to
push organic growth initiatives that have historically seen the Company grow volumes ahead of industry levels, as well as by
leveraging a strong balance sheet and enhanced access to capital to pursue acquisitions that grow the organization’s geographic
footprint, while also adding industry-leading expertise, customer and supplier relationships and product lines.
ARS NET SALES
($MM)
ARS GROSS MARGIN
($MM)
$171.6
$137.5
$119.1
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
$20.8
$20.5
$18.6
$21.0
$20.5
$20.0
$19.5
$19.0
$18.5
$18.0
$17.5
2019 2020 2021
2019 2020 2021
7
A N N U A L R E P O R T
As one of the industry’s leading custom molders, AirBoss
Engineered Products (“AEP”) manufactures customized rubber-
based products used in noise, vibration and harshness (NVH)
reduction applications across the automotive, electric vehicle, heavy
truck & off-highway, and defense industries, in addition to industrial
and commercial products for non-automotive manufacturers.
TACKLING THE
CHALLENGES
PRESENTED BY
COVID-19
In 2021, businesses around the globe
were disrupted by the ongoing COVID-
19 pandemic. This translated into
significant upward pressure on
commodity prices and reduced supply
of key inputs, higher labour costs and
staffing issues, as well as delays and
increased costs associated with
transporting both raw materials and
finished products regionally, nationally
and internationally.
8
With a significant presence in Auburn
Hills, MI, in proximity to a number of
major automakers and Tier 1 and 2
part-suppliers, AEP is a domestic
partner of choice when it comes to
supplying key components quickly.
Automakers can’t afford shutdowns
due to non-availability of components
and are increasingly working to
localize supplier relationships to avoid
many of the supply chain and logistics
issues that have plagued the industry
through the COVID-19 pandemic. In
2021, AEP worked to address these
challenges internally and, in turn, help
customers by:
(cid:129) Introducing value-added
engineering solutions to help
reduce costs and partially offset
raw material price increases
(cid:129) Working with the ARS material
science team to assess and
develop higher-performing
alternatives to compounds that
were in short supply or subject to
large price increases (e.g.,
substituting EPDM for silicone)
(cid:129) Localizing key parts from overseas
by quickly replicating tooling,
completing approvals and
launching production as an offset
to country closures and logistics
constraints
(cid:129) Providing local support to existing
customers aimed at re-sourcing
parts traditionally supplied from
Asia, resulting in multiple new
business wins for AEP
(cid:129) Offering technical support and
resources to suppliers experiencing
manufacturing issues and/or
failure and in some cases
cooperatively relocating the
business
(cid:129) Leveraging the investment in new
injection presses and a second,
state-of-the-art work cell to
produce high-volume parts and
manage labour costs
SMOOTHING OUT
A HIGH-PERFORMANCE RIDE
AEP was called on by a major
domestic automaker to develop and
produce an NVH solution for one of
their premium, high performance
vehicles. With the uprated, optional
engine producing in excess of 600
horsepower, the component not only
had to be extremely robust, but also
meet extremely tight technical
specifications for frequency
dampening. With the third generation
of the vehicle coming to market, AEP
had to move very quickly to develop
and supply the new component.
The AEP team developed a new
design and assembly process that
allowed the component to be
delivered on time, and with the
requisite high quality and
performance required in this
specialist application.
+ MASS DAMPER
DIVERSIFYING THE ENGINEERED PRODUCTS BUSINESS
AEP continues to be a leading supplier to the automotive industry with a focus on the passenger automobile and light truck sectors.
In 2019, AirBoss began examining ways to diversify its business beyond its traditional core areas of focus and customers, with an eye
to developing solutions for military, heavy truck, bus, electric vehicle, construction, agriculture and recreational vehicles.
In 2021, AEP delivered commercial quantities of its first hydromount, a hybrid rubber/aluminum/fluid bushing, to a leading electric
vehicle manufacturer. The team is also currently prototyping a hydromount for use in isolating the cab of commercial semi trucks.
On the defense side, AEP launched a new military vehicle bushing and has two other non-traditional parts in prototyping and
on-vehicle testing. AEP is also actively selling the RamGuard reinforced guard for industrial racking, its first non-vehicle product.
AEP continues to focus on growing revenue from non-automotive sources over the longer term.
+ RAMGUARD
HYDROBUSHING
+
+
TANK PAD
A N N U A L R E P O R T
AEP NET SALES
($MM)
AEP GROSS MARGIN
($MM)
$124.9
$116.6
$114.6
$126
$124
$122
$120
$118
$116
$114
$112
$110
$108
$6.5
$5.3
$7
$6
$5
$4
$3
$2
$1
$0
-$1
-$2
-$1.2
2019 2020 2021
2019 2020 2021
9
2021
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 8, 2022 and should be read in conjunction with the
Consolidated Financial Statements and Notes for the year ended December 31, 2021 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.airboss.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 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, notably including its impact on
demand for rubber solutions and products; dependence on key customers; global defense budgets, notably in the Company’s
target markets, and success of the Company in obtaining new or extended defense contracts; 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; impact of global health situations; potential product liability and warranty claims and equipment
malfunction. COVID-19 could also negatively impact the Company’s operations and financial results in future periods. There is
increased uncertainty associated with future operating assumptions and expectations as compared to prior periods. As such, it is
not possible to estimate the impacts COVID-19 will have on the Company’s financial position or results of operations in future
periods. While the direct impacts of COVID-19 are not determinable at this time, the Company has a credit facility that can provide
financing up to $250,000. This list is not exhaustive of the factors that may affect any of AirBoss’ forward-looking information.
All of the forward-looking information in this Annual Report is expressly qualified by these cautionary statements. Investors are
cautioned not to put undue reliance on forward-looking information. All subsequent written and oral forward-looking information
attributable to AirBoss or persons acting on its behalf are expressly qualified in their entirety by this notice. Forward-looking
information contained herein is made as of the date of this 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.
10
AirBoss of America Corp.
MD&A (cont’d)
OVERALL PERFORMANCE
Recent Highlights
(In US dollars)
• Highest quarterly net sales in the Company's history at $249.1 million for the fourth quarter of 2021 ("Q4 2021"), reflecting
growth of 88.4% compared to the fourth quarter of 2020 ("Q4 2020");
• Highest annual net sales in the Company's history at $586.9 million, reflecting 17.0% growth compared to 2020;
• Grew diluted EPS by 22.2% to $1.65 for 2021 (2020: $1.35);
•
Increased diluted Adjusted EPS1 by 15.2% to $1.67 in 2021 (2020: $1.45);
• Finished 2021 with a Net Debt to EBITDA ratio1 of 0.70x;
• Declared a quarterly dividend of C$0.10 per common share; and
• Received approval from the National Institute for Occupational Safety and Health ("NIOSH") for its new AirBoss 100™ Half
Mask Respirator.
Selected Financial Information
In thousands of US dollars, except share data
For years ended December 31
2021
2020
2019
Financial results:
Net sales
Profit
Profit attributable to owners of the Company
Adjusted Profit attributable to owners of the Company1
Earnings per share (US$)
– Basic
– Diluted
Adjusted earnings per share1 (US$)
– Basic
– Diluted
EBITDA1
Adjusted EBITDA1
Net cash from operating activities
Free cash flow1
Dividends declared per share (CAD$)
Capital additions
Financial position:
Total assets
Term loan and other debt2
Net Debt
Shareholders’ equity
Outstanding shares*
*26,993,181 at March 8, 20
586,858
46,703
46,703
47,374
1.73
1.65
1.76
1.67
79,591
80,341
2,023
(15,970)
0.37
22,585
501,572
56,262
33,703
36,087
1.40
1.35
1.50
1.45
103,211
105,595
104,399
89,965
0.28
15,606
328,126
10,219
10,219
10,948
0.44
0.44
0.47
0.47
32,082
32,196
11,706
(7,775)
0.28
26,700
443,264
80,563
56,033
235,148
26,993,181
367,369
90,734
(9,718)
194,588
26,908,802
249,664
74,144
59,481
125,979
23,392,442
1See Non-IFRS and Other Financial Measures
2Term loan and other debt includes $17,399 of lease liabilities (2020: $13,482; 2019: $14,542)
A N N U A L R E P O R T
11
2021
MD&A (cont’d)
NON-IFRS AND OTHER FINANCIAL MEASURES
This MD&A is based on financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”)
and Non-IFRS and Other Financial Measures. Management believes that these measures provide useful information to investors
in measuring the financial performance of the Company. These measures do not have a standardized meaning prescribed by
IFRS and therefore they may not be comparable to similarly titled measures presented by other companies and should not be
construed as an alternative to other financial measures determined in accordance with IFRS. These terms are not a measure
of performance under IFRS and should not be considered in isolation or as a substitute for net income under IFRS.
EBITDA and Adjusted EBITDA are non-IFRS measures used to measure the Company's ability to generate cash from
operations for debt service, to finance working capital and capital expenditures, potential acquisitions and to pay dividends.
EBITDA is defined as earnings before income taxes, finance costs, depreciation, amortization, and impairment costs. Adjusted
EBITDA is defined as EBITDA excluding acquisition costs, and non-recurring costs. A reconciliation of Profit to EBITDA and
Adjusted EBITDA is below.
In thousands of US dollars
EBITDA:
Profit
Finance costs
Depreciation, amortization, and impairment
Income tax expense
EBITDA
Acquisition fees
Prospectus fees
Insurance provision
Adjusted EBITDA
2021
2020
2019
46,703
4,178
20,881
7,829
79,591
445
305
–
56,262
3,368
21,014
22,567
103,211
2,384
–
–
80,341
105,595
10,219
3,831
13,716
4,316
32,082
1,401
–
(1,287)
32,196
Adjusted profit attributable to owners of the Company is a non-IFRS measure defined as profit before acquisition costs and non-
recurring costs. This measure and Adjusted earnings per share are used to evaluate operating results of the Company. A
reconciliation of Profit attributable to owners of the Company to Adjusted profit attributable to owners of the Company and
Adjusted earnings per share is below.
In thousands of US dollars
2021
2020
2019
Adjusted profit attributable to owners of the Company:
Profit attributable to owners of the Company
Acquisition fees
Prospectus fees
Insurance provision
Adjusted profit attributable to owners of the Company
Basic weighted average number of shares outstanding
Diluted weighted average number of shares outstanding
Adjusted earnings per share (in US dollars):
Basic
Diluted
46,703
445
226
–
47,374
26,970
28,298
1.76
1.67
33,703
2,384
–
–
36,087
24,032
24,901
1.50
1.45
10,219
1,401
–
(672)
10,948
23,392
23,445
0.47
0.47
Net Debt measures the financial indebtedness of the Company assuming that all cash on hand is used to repay a portion of the
outstanding debt. A reconciliation of loans and borrowings to Net Debt is below.
In thousands of US dollars
Net debt:
Loans and borrowings - current
Loans and borrowings - non-current
Leases included in loans and borrowings
Cash and cash equivalent
Net debt
2021
2020
2019
2,356
78,207
(17,399)
(7,13)
56,033
27,083
63,651
(13,482)
(86,970)
(9,718)
5,358
68,786
(14,542)
(121)
59,481
12
AirBoss of America Corp.
MD&A (cont’d)
Free cash flow is a non-IFRS measure used to evaluate cash flow after investing in the maintenance or expansion of the
Company's business. It is defined as cash provided by operating activities, less cash expenditures on long-term assets. A
reconciliation of cash from operating activities to free cash flow is below.
In thousands of US dollars
2020
2021
2019
Free cash flow:
Net cash provided by operating activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from government grant
Free cash flow
Basic weighted average number of shares outstanding
Diluted weighted average number of shares outstanding
Free cash flow per share (in US dollars):
Basic
Diluted
2,023
(16,912)
(1,081)
–
(15,970)
26,970
26,970
(0.59)
(0.59)
104,399
(14,215)
(719)
500
89,965
24,032
24,901
3.74
3.61
11,706
(17,261)
(2,220)
–
(7,775)
23,392
23,392
(0.33)
(0.33)
OVERVIEW
This was another transformative year for AirBoss as it completed two key acquisitions, Blackbox Biometrics, Inc. ("B3") and Ace
Elastomer, LLC ("Ace"), continuing the strategic plan to position itself as a strong player in each segment that it competes in. In
2021, AirBoss continued to demonstrate its resilience in the face of the significant and extensive obstacles associated with
COVID-19 including significant supply challenges and record raw material price increases. Despite these ongoing challenges,
AirBoss continued to take the necessary steps, including risk mitigation plans within its supply chain, to strive to reduce potential
impacts to its business and that of customers, by identifying alternative raw material sources both domestically and internationally
while providing a safe work environment for its employees. The Company’s continued focus on supporting its customers,
employees and stakeholders resulted in the highest sales and EPS in the company’s history along with its second highest
EBITDA. Although the timing for continued recovery in volumes is difficult to predict and will be subject, at least in part, to a
stable and sustained re-opening of businesses globally and specifically in North America, management believes the Company
is positioned for another strong performance in 2022, including a record pipeline of over $1.5 billion, the largest in the Company’s
history.
While this past year had many obstacles and challenges, AirBoss was able to continue to take advantage of opportunities which
supported its strong trajectory. The Company’s strong results were driven by continued deliveries of nitrile patient examination
gloves under the previously announced order for the Strategic National Stockpile (“SNS”) for the U.S. Department for Health and
Human Services (“HHS") – Office of the Assistant Secretary for Preparedness and Response (ASPR). Continued execution
under this contract provided a strong financial backdrop to offset raw material, logistics and labor challenges faced by the Rubber
Solutions and Engineered Products segments and allowed those segments to experience progressive recoveries in volume in
the latter part of the year.
In addition to the acquisitions completed in 2021, and despite the disruptions noted above, AirBoss continued its capital
investment in support of longer-term growth with investments in a series of key initiatives across the business with a strategic
focus on productivity, innovation and diversification. Capital expenditures for 2021 were $16.9 million dollars (excluding leases)
and are expected to remain strong as AirBoss continues to invest in its future at a rate well above historical levels.
For the Rubber Solutions segment, investment continued to build from the record capital spend in 2019 with the successful
implementation of the bulk material handling and delivery system in Scotland Neck, North Carolina. Development and sales in
colored rubber continued to grow throughout the year in line with the margin expansion strategy with new customers accelerated
by the Ace acquisition and continued development of new proprietary compounds and continuous improvement of existing
compounds. The continued focus on integrating operational excellence supported by Ace’s line of specialized products expanded
production of a broader array of compounded products (white and color), as well as providing enhanced flexibility in attracting
and fulfilling new business through identified synergies. The Company also continued to make inroads in utilization of the “tilt”
mixer, which is expected to support the production of increasingly specialized, higher margin compounds, further diversifying
AirBoss’ offering and enhancing penetration with both existing and new customers. In Kitchener, AirBoss continued to invest in
its R&D expertise and lab capital 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, 2021 was a transformative year despite the continued impact of record raw material
increases, significant supply chain challenges and electronic chip shortages as original equipment manufacturers ("OEMs")
continued to shutter production, with vehicle inventories at record lows while demand remains very strong. The segment
continued to focus on its operational improvement plan including managing variable costs and focusing on sustaining a stable
hourly workforce, while dealing with the volume reductions in the automotive sector and specifically on AirBoss' products for SUV,
light truck and mini-van platforms. Global supply chain challenges also added to logistical challenges associated with the supply
of certain steel and molded products. Despite these challenges, the Company continued its focus and commitment to drive
efficiencies and best-in-class automation including completing the installation of 22 new injection presses as part of a multi-year
investment, and the addition of a second state of the art automated work cell. The segment also continued its focus on
diversification of its product lines into sectors adjacent to the automotive space. Management remains committed to continuing
to address key challenges in the anti-vibration business, focusing on margin improvement with targeted cost management,
improved pricing strategies with raw material indexing and investments in advanced manufacturing.
A N N U A L R E P O R T
13
2021
MD&A (cont’d)
The Company remains in sound financial position. The strong performance of the business has continued to support increased
balance sheet strength and is expected to provide management with enhanced flexibility to execute opportunistically on both
organic and inorganic growth initiatives, particularly as potential acquisition targets may lack the balance sheet strength to
weather a prolonged downturn. AirBoss believes it is well positioned to further leverage its significant recent investments in
innovation, capacity expansion, and innovative solutions as industry conditions improve.
Despite the continued headwinds associated with COVID-19, the Company’s longer-term priorities remain intact and include:
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. Capitalizing on AirBoss Defense Group'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 Engineered Products 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 with 15 years of dividend payments growing at an average annual
rate of 15%, while driving improved profitability and simultaneously investing in core areas of the business to expand a solid foundation
that will support long-term growth.
RESULTS OF OPERATIONS – For year ended December 31, 2021 compared to 2020
NET SALES
Consolidated net sales for the year ended December 31, 2021 increased by 17.0% to $586,858, compared with 2020 primarily
due to the HHS nitrile patient examination glove contract, supported by a significant recovery in volumes at the Rubber Solutions
and Engineered Products segments, despite continued pandemic and logistics challenges.
In thousands of US dollars
Net Sales
Increase (decrease) $
Increase (decrease) %
2021
2020
AirBoss
Defense Group
329,916
302,278
27,638
9.1
Rubber
Solutions
171,553
119,090
52,463
44.1
Engineered
Products
116,621
114,557
2,064
1.8
Inter-segment
net sales
(31,232)
(34,353)
3,121
(9.1)
Total
586,858
501,572
85,286
17.0
AirBoss Defense Group
Net sales in the AirBoss Defense Group segment increased by 9.1% to $329,916, from $302,278 in 2020. The increase was primarily
the result of continued delivery under the nitrile patient examination glove contract from HHS, as part of the U.S. government's
response to the COVID-19 pandemic.
Rubber Solutions
Net sales for the year ended December 31, 2021 increased by 44.1%, to $171,553, from $119,090 in 2020. Volume was up 19.6%
with increases across the majority of sectors despite residual disruptions due to supply chain issues and some softness due to the
COVID-19 pandemic.
Tolling volumes for the year ended December 31, 2021 increased by 6.2%, compared with 2020. Non-tolling volumes for the year
ended December 31, 2021 increased by 23.1% compared with 2020. The increase in volume was across the majority of sectors
with strong increases in Mining, Oil & gas, and conveyor belt applications.
Engineered Products
Net sales in the Engineered Products segment increased by 1.8%, to $116,621, from $114,557 in 2020. The increase was due to
stronger volumes in the SUV, light truck and mini-van platforms compared to the same period in the prior year, in addition to
continued production of certain molded defense products. Compared to the same period of 2020, volume and sales improved early
in the year, then softened as the automotive sector continued to manage volume volatility given the challenges with the global
electronic chip shortages combined with raw material shortages in addition to freight and logistics constraints. This softness is
anticipated to continue in the foreseeable future.
14
AirBoss of America Corp.
MD&A (cont’d)
GROSS PROFIT
For the year ended December 31, 2021, consolidated gross profit was up by $376 to $136,298. Gross profit as a percentage
of net sales decreased to 23.2% from 27.1% in 2020. The decrease was heavily driven by mix at AirBoss Defense Group,
specifically on the large nitrile glove deliveries in 2021 compared to the PAPRs, filters and accessories substantially delivered
in 2020. Gross profit was furthered impacted at the Rubber Solutions and Engineered Products segments by raw material
increases, in addition to the freight and logistics challenges experienced across all segments.
In thousands of US dollars
Gross Profit
Increase (decrease) $
% net of sales
AirBoss
Defense Group
116,658
112,033
4,625
35.4
37.1
2021
2020
2021
2020
Rubber
Solutions
20,836
18,552
2,284
12.1
15.6
Engineered
Products
(1,196)
5,337
(6,533)
(1.0)
4.7
Total
136,298
135,922
376
23.2
27.1
AirBoss Defense Group
Gross profit at AirBoss Defense Group for the year ended December 31, 2021 was $116,658 (35.4% of net sales), up $4,625
compared with $112,033 (37.1% of net sales) in 2020. The increase was primarily the result of the large contract from HHS
partly offset by the reduction of government-directed wage subsidies compared to 2020.
Rubber Solutions
For the year ended December 31, 2021, gross profit for Rubber Solutions was $20,836 (12.1% of net sales), up $2,284 compared to
$18,552 (15.6% of net sales) in 2020. The increase was primarily as a result of increased tolling and non-tolling volumes compared
to 2020, managing and reducing the impact of Covid-related disruptions and managing controllable overhead costs, partially offset by
higher raw material, labor and logistics costs and a decrease in government-directed subsidies.
Engineered Products
Gross profit for the year ended December 31, 2021 in the Engineered Products segment was $(1,196), down $6,533 compared with
$5,337 in 2020. The decrease was primarily a result of significant raw material price increases in addition to freight, logistics and labor
constraints, partially offset by a continued focus on controllable operational cost containment and PPP loan forgiveness. This was
further impacted by volatility in the automotive sector volumes in part due to the global electronic chip shortages.
OPERATING EXPENSES
Consolidated operating expenses for the year ended December 31, 2021 increased by $23,863 to $77,588 compared with
2020. The increase was primarily due to higher stock based compensation expenses, higher selling and administrative costs
including the integration of the B3 and Ace, amortization of B3's and Ace's intangible assets, and a decrease in government-
directed subsidies partially offset by lower transaction costs and impairment charges. As a percentage of net sales, operating
expenses for the year ended December 31, 2021 increased to 13.2% from 10.7% in 2020.
In thousands of US dollars
Operating Expenses
Increase (decrease) $
% net of sales
AirBoss
Defense Group
41,660
24,187
17,473
12.6
8.0
2021
2020
2021
2020
Rubber
Solutions
9,711
7,100
2,611
5.7
6.0
Engineered
Products
10,033
12,503
(2,470)
8.6
10.9
Corporate
16,184
9,935
6,249
N/A
N/A
Total
77,588
53,725
23,863
13.2
10.7
AirBoss Defense Group
AirBoss Defense Group's operating expenses for the year ended December 31, 2021 increased by 72.2% to $41,660. The
increase was primarily due to higher selling costs, higher administrative costs in part due to the addition of B3, amortization of
B3's intangible assets, and lower government-directed wage subsidies partially offset by an impairment charge in 2020.
Rubber Solutions
Rubber Solutions' operating expenses for the year ended December 31, 2021 increased by 36.8%, to $9,711, compared with
$7,100 in 2020. The increase was primarily due to higher administration costs including the acquisition of Ace, amortization of Ace's
intangible assets, and lower government-directed wage subsidies.
Engineered Products
Engineered Product's operating expenses for the year ended December 31, 2021 decreased by 19.8% to $10,033. The decrease
was due to lower administration costs, government-directed subsidies and an impairment charge in 2020.
Unallocated Corporate Costs
Unallocated corporate costs for the year ended December 31, 2021 increased by $6,249 from 2020. The increase was
principally due to increased stock based compensation expenses and lower government-directed wage subsidies partially
offset by a lower foreign exchange loss and transaction costs in 2020.
A N N U A L R E P O R T
15
2021
MD&A (cont’d)
FINANCE COST
Finance costs in 2021 were $4,178 (2020: $3,368). The increase was primarily due to borrowing to acquire nitrile patient
examination glove inventory to fulfill a contract for HHS. The increase was partially offset by lower losses on the interest rate
swap and a $289 adjustment to the provision for the payment owing to former shareholders of an acquired business.
INCOME TAX EXPENSE
For the year ended December 31, 2021, the Company recorded an income tax expense of $7,829 (2020: $22,567) or an effective
income tax rate of 14.4% (28.6% in 2020). The effective tax rate decreased due to the recognition of temporary differences not
previously recognized.
Tax expense Rate
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
2021
14,452
(1,377)
(1,124)
(199)
(543)
(3,464)
84
7,829
2020
20,889
(890)
374
(186)
3
2,367
10
22,567
2021
2020
26.50%
(2.53%)
(2.06%)
(0.36%)
(1.00%)
(6.35%)
0.15%
14.35%
26.50%
(1.31%)
0.47%
(0.24%)
0.00%
3.00%
0.01%
28.61%
NET INCOME AND EARNINGS PER SHARE
Net income in 2021 amounted to $46,703, compared with $56,262 in 2020. The basic and fully diluted net earnings per share were
$1.73 (2020: $1.40) and $1.65 (2020: $1.35) based on basic and fully diluted shares outstanding of 26,970,429 (2020: 24,031,845)
and 28,297,939 (2020: 24,900,755), respectively. The increase in earnings per share despite the decrease in net income is due
to owning 100% of AirBoss Defense Group for the full year compared to owning 55% for 10 months of 2020.
QUA RTERLY INFORMATION
In thousands of US dollars
Quarter Ended
2021
December 31, 2021
September 30, 2021
June 30, 2021
March 31, 2021
2020
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
Fourth Quarter 2021 Results
Net Sales
249,053
112,027
118,449
107,329
132,180
162,745
112,450
94,197
Earnings (loss) per share
Diluted
Profit (loss)
Basic
15,162
6,902
18,320
6,319
15,902
11,646
6,675
(520)
0.56
0.26
0.68
0.23
0.61
0.50
0.29
(0.02)
0.53
0.24
0.65
0.22
0.59
0.47
0.27
(0.02)
NET SALES
Consolidated net sales for Q4 2021 increased by 88.4% to $249,053, from $132,180 in Q4 2020, with increases in AirBoss
Defense Group and the Rubber Solutions segments partially offset by decreases in the Engineered Products segment, for the
reasons outlined below.
AirBoss Defense Group
AirBoss Defense Group's net sales for Q4 2021 increased by 129.1% to $175,890 compared with Q4 2020. The increase
was primarily the result of continued delivery under the nitrile patient examination gloves contract from HHS, as part of the
U.S. government's response to the COVID-19 pandemic.
Rubber Solutions
Net sales for Q4 2021 in the Rubber Solutions segment increased 65.8% to $52,616, from $31,728 in Q4 2020. Tolling
volume was down 20.3%, while non-tolling volume was up 18.8% driven by increases in most sectors. 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 inputs that are reflected in net sales.
The increase in net sales for Q4 2021 was primarily in the conveyor belt, mining, OTR/retread, industrial and oil & gas
sectors.
Engineered Products
Engineered Products net sales for Q4 2021 decreased by 14.6% to $28,309 compared with Q4 2020. The decrease was
across several automotive product lines due the electronic chip shortages and in particular the muffler hangers, bushings,
and spring insulator product lines.
16
AirBoss of America Corp.
MD&A (cont’d)
GROSS PROFIT
Consolidated gross profit for Q4 2021 increased to $51,444 (20.7% of net sales) from $40,255 (30.5% of net sales) in Q4
2020, with increases in AirBoss Defense Group and in the Rubber Solutions segment offset by a decrease in the Engineered
Products segment.
AirBoss Defense Group
AirBoss Defense Group's gross profit for Q4 2021 increased by $11,810 to $47,824 compared with Q4 2020.The increase was
primarily due to higher volume associated with new business awards specifically the nitrile patient examination gloves contract
from HHS, partially offset by a reduction in government-directed wage subsidies which were not received in Q4 2021.
Rubber Solutions
Gross profit at Rubber Solutions for Q4 2021 was $5,869 (11.2% of net sales), compared with $3,873 (12.2% of net sales) in
Q4 2020. The increase in gross profit was principally due to higher volume and mix partially offset by a reduction in government-
directed wage subsidies which were not received in Q4 2021.
Engineered Products
Gross profit at Engineered Products for Q4 2021 decreased by $2,617 to $(2,249) compared with $368 in Q4 2020. The
decrease was primarily a result of mix, and volume in the automotive sector due to the electronic chip shortage, along with
increased raw material costs for steel and molded products, partially offset by operational cost containment, and managing
overhead costs.
OPERATING EXPENSES
Consolidated operating expenses for Q4 2021 increased by $19,589, compared with Q4 2020. The increase was primarily due
to higher selling costs, higher stock based compensation expenses, B3 and Ace operating expenses stemming from the 2021
acquisitions, amortization of B3's and Ace's intangible assets, a decrease in government-directed subsidies and a foreign
exchange gain in 2020. As a percentage of net sales, operating expenses in Q4 2021 were higher than Q4 2020.
INCOME TAX EXPENSE
Tax expense for Q4 2021 decreased by $3,713 compared to Q4 2020. Income tax expense decreased due to lower pre-tax
income.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company expects to fund its 2022 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 $250,000 (2020: $60,000). As at December
31, 2021, $65,713 was drawn against the credit facility.
For the period ended December 31, 2021, $2,023 of cash was provided by operations (2020: $104,399 cash consumed),
$64,559 was used for investing activities (2020: $8,545) and $17,526 was used in financing activities (2020: $9,586). Cash
and cash equivalents decreased by $79,839 from $86,970 to $7,131, adjusted for the effect of exchange rate fluctuations
on cash held.
Operating activities
For the year ended December 31, 2021, cash provided by operating activities decreased by $102,376 compared to 2020. The
decrease was due to a $9,559 decrease in profit, lower non-cash expenses of $11,538, a $93,722 increase in cash consumed by
net working capital and higher interest payments of $813. The decreases were partially offset by decreased tax payments of $13,256.
Cash consumed by working capital for the year ended December 31, 2021 was $65,546 (2020: provided $28,176) as a result of
the following factors:
• Cash used for accounts receivable was $12,074 due to increased sales at the Rubber Solutions segment;
• Cash used for Inventory was $74,376, primarily related to AirBoss Defense Group's contract to deliver nitrile gloves to HHS,
and at the Rubber Solutions and Engineered Products segments for raw material safety stock;
• Cash used for prepaid expenses was $3,065 primarily for shipping costs to deliver nitrile gloves for AirBoss Defense Group's
HHS contract;
• Cash from accounts payable was $25,038 due to increased inventory purchases and extending payment terms with suppliers.
A N N U A L R E P O R T
17
2021
MD&A (cont’d)
Investing Activities
Property, Plant and Equipment
For the year ended December 31, 2021, the following investments were made in each segment:
AirBoss Defense Group invested $4,081, of which $1,288 was spent on growth initiatives, $2,624 to upgrade existing property,
plant and equipment, and the balance on cost savings initiatives.
Rubber Solutions invested $6,130, of which $2,776 was spent on growth initiatives, $2,602 to upgrade existing property, plant and
equipment, and the balance on cost savings initiatives.
Engineered Products invested $6,701, of which $2,257 was spent on growth initiatives, $4,206 on cost savings initiatives, and the
balance to upgrade existing property, plant and equipment.
Intangible assets
The Company invested $1,081 on rolling out company-wide enterprise software.
Financing activities
In September 2021 the Company updated its credit facilities to increase revolving credit availability to $250 million from $150
million with an accordion of $75 million (from $50 million) upon the satisfaction of customary conditions for such features. The new
facility bears interest at LIBOR plus applicable margins from 145 to 250 basis points, depending on covenants, and matures on
September 23, 2026. Proceeds from the new facility were used to repay the Company's term loan and fund upfront payments
related to acquisition of finished goods and other inventories, related primarily to execution on existing contracts.
In April 2021 the Company's credit facility was amended to increase the revolving facility from $60 million to $150 million. The credit
facility includes terms to replace LIBOR with a suitable replacement as that issue develops. The replacement of LIBOR is not
expected to have an impact on the consolidated financial statements.
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 was scheduled to mature
in January 2023 and otherwise carried 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 the term of the credit facilities and $324 (2020: $614) has been amortized and is included in
finance costs.
Interest expense under the credit facility was $3,817 (2020: $1,439).
Commitments and contractual obligations
The Company’s contractual obligations as at December 31, 2021 are summarized below:
Revolving line of credit
Lease liabilities
Purchase obligations
Total
2022
0
2,356
32,015
34,371
2023
–
2,271
–
2,271
Payments Due In
2025
2024
2026 Thereafter
Total
–
2,168
–
2,168
–
2,152
–
2,152
64,952
2,256
–
67,208
–
6,196
–
6,196
64,952
17,399
32,015
114,366
Government assistance
During 2020, Rubber Solutions recognized a grant of $500 as a reduction of capital assets.
Scientific research and investment tax credits of $813 were recognized in 2021 (2020: $1,177); research and development costs were
reduced accordingly.
On May 1, 2020, the Company received a $6,422 loan pursuant to the Paycheck Protection Program under Division A, Title I of the
CARES Act, to fund certain payroll and business expenses of the Company’s Michigan and North Carolina operations. This loan bore
interest at 1.0% and was scheduled to mature on May 1, 2022. On June 30, 2021, the loan and accrued interest was forgiven and the
Company recorded a reduction to cost of sales and operating expenses of $5,560 and $936, respectively, in the consolidated statement
of profit.
The Government of Canada provided the Canada Emergency Wage Subsidy (“CEWS”) and the Canada Emergency Rent Subsidy
("CERS") to support businesses affected by COVID-19 based on certain criteria, including demonstration of revenue declines as a result
of COVID-19. The Company recorded the subsidy as a reduction to cost of sales and operating expenses in the consolidated statement
of profit.
Dividends
A quarterly dividend of $0.10 per share was declared on November 9, 2021 and paid on January 17, 2022. Total dividends declared
during the year were $0.37 per common share compared to $0.28 per common share in 2020.
Outstanding shares
As at December 31, 2021 the Company had 26,993,181 common shares outstanding.
18
AirBoss of America Corp.
MD&A (cont’d)
TRANSACTIONS WITH RELATED PARTIES
During the year, the Company paid rent for the corporate office of CAD $180 (2020: 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 (2020: $29) to a company
in which the CEO and Chairman is an officer.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Key management includes directors, CEO, President and 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
2021
6,297
8,332
14,629
2020
4,840
2,200
7,040
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 21.0% of the outstanding common shares as at December 31, 2021 (2020: 20.5%).
In December 2016, the Company provided a share purchase loan of CAD $250 to the former Chief Financial Officer that was
repaid in June 2020. 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, General Counsel; and CAD $92 to the President and Chief Operating Officer. 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, 86,807 shares
of the Company having a fair value of $3,165 were pledged as collateral on these loans. At December 31, 2021, the loan
receivables of $710, including accrued interest, were included in Other Assets on the statement of financial position. During
the year, interest revenue of $7 (2020: $15) was received.
NEW STANDARDS ADOPTED
Amendments to IAS 1, Presentation of Financial Statements
The amendments clarify the classification of liabilities as current or non-current. For the purposes of non-current
classification, the amendments remove the requirement for a right to defer settlement of a liability for at least twelve months
to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period in order to qualify
for non-current classification. The amendment did not have a material impact on the consolidated financial statements.
Amendments to IFRS 9, Financial Instruments and IFRS 7, Financial Instruments: Disclosures
Under the amendments a company will not have to derecognize the carrying amount of financial instruments for changes
required by the ongoing reform of inter-bank offered rates and other interest rate benchmarks, but change the effective
interest rate to reflect the new benchmark rate. The amendment did not have a material impact on the consolidated financial
statements.
A N N U A L R E P O R T
19
2021
MD&A (cont’d)
FUTURE ACCOUNTING STANDARDS
Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs
that relate directly to the contract can either be incremental costs of fulfilling that contract or an allocation of other costs that
relate directly to fulfilling that contract. The amendment is effective on January 1, 2022 and is to be applied prospectively. The
adoption of the amendment is not expected to have a material impact on the consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements
The first amendment serves to address whether debt and other liabilities with an uncertain settlement date should be classified
as current or non-current in the Consolidated Balance Sheets. The second amendments will help companies provide useful
accounting policy disclosures. Both amendments are effective on January 1, 2023 and the Company is assessing the impact
of adopting these amendments on its consolidated financial statements.
Amendments to IAS 12, Income Taxes
The amendments narrow the scope of the recognition exemption so that it no longer applies to transactions that, on initial
recognition, give rise to equal taxable and deductible temporary differences. The amendments are effective for annual reporting
periods beginning on or after January 1, 2023 and the Company is assessing the impact of adopting these amendments on its
consolidated financial statements.
Amendments to IAS 8, Definition of Accounting Estimates
The amendments will require the disclosure of material accounting policy information rather than disclosing significant
accounting policies and clarifies how to distinguish changes in accounting policies from changes in accounting estimates. The
amendments are effective for annual periods beginning on or after January 1, 2023 and the Company is assessing the impact
of adopting these amendments on its 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, 2021, AirBoss Defense Group recorded a $252 allowance for impairment and the Rubber Solutions
segment recorded a $349 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, 2021, a reserve for impaired inventory in the Rubber Solutions segment represents $832 (2020: $1,219).
AirBoss Defense Group maintains a provision of $7,101 (2020: $5,048) and the Engineered Products segment maintains a
provision of $498 (2020: $190).
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 2021 or 2020.
20
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 2021. In 2020, the Company determined that
certain product development costs for predecessor products would no longer form part of AirBoss Defense Group's survivability
platform and the Company recorded an impairment loss of $2,007. In addition the Company recorded an impairment loss of
$820 on fixed assets no longer in use.
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 18 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 assistance receivable 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, 2021, the Company had contracts to sell USD $16,617 from January 2022 to September 2022 for Canadian
dollars ("CAD") $21,000. The fair value of these contracts, representing an unrealized loss of $53, are included in trade and other
payables, including derivatives on the statement of financial position. The unrealized changes in fair value, representing a loss
of $673 (2020: gain of $362), are recorded on the statement of profit as other income (expense).
Interest rate swap
In December 2020, the Company entered into an interest rate swap agreement for a notional amount of $28,125 ($26,250 as
at December 31, 2021) amortizing down to $24,375 at maturity on January 1, 2023. 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 0.265%. This swap
agreement replaces an old swap agreement that matured in December 2020 that calculated interest based on the difference
between the floating rate of USD LIBOR and the fixed rate of 1.69%.
During 2021, interest expense on the swap agreements was $44 (2020: $264).
At December 31, 2021, the fair value of this agreement, representing a gain of $48 (2020: loss of $57), is included in loans and
borrowings on the statement of financial position. The change in the fair value, representing a gain of $105 (2020: loss of $37),
is recorded on the statement of profit as finance costs.
The Company entered into these interest rate swap agreements 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 defense, automotive, tire, energy generation, construction, mining and
transportation industries because these industries are significant markets for the Company’s business and are highly cyclical.
In a severe economic slowdown, prices for coal, copper and other mined materials may fall, affecting demand for conveyor
belting, off-road retread tires and other rubber products manufactured by our customers from rubber compounds manufactured
by the Rubber Solutions segment. 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. 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.
A N N U A L R E P O R T
21
2021
MD&A (cont’d)
Political Uncertainty and Policy Change
Certain of the business sectors in which we and our customers operate, particularly in the AirBoss Defense Group and Engineered
Products segments, 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.
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 the majority of its suppliers and purchases most raw materials
on a purchase order basis. The price of many raw materials, such as carbon black, synthetic and natural rubber, chemicals for
rubber mixing, 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:
in millions of US dollars
Natural and synthetic rubber
Chemicals (Rubber mixing)
Steel
Carbon black
Silicone
Earnings before tax
2021
(7.27)
(3.64)
(2.55)
(2.45)
(0.75)
(16.66)
2020
(4.81)
(2.70)
(2.28)
(1.90)
(0.81)
(12.50)
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 Solutions and Engineered Products segments, 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 and personal protective equipment from the United States, Canadian
or other foreign governments or agencies 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.
22
AirBoss of America Corp.
MD&A (cont’d)
Currency Exposure
The Company has net sales and expenses denominated in both Canadian (“CAD”) and US (“USD”) dollars. In addition, the cost
to the Company of certain key raw materials and other expense items and the competitiveness of prices charged by the
Company for its products will be indirectly affected by currency fluctuations. Changes in the value of the Canadian dollar relative
to the US dollar could have a material positive or adverse effect on the Company’s results of operations.
The Company reviews its currency exposure positions from time to time and reacts accordingly by increasing or decreasing
the proportion of operating or term loan borrowings denominated in CAD funds as a natural balance sheet hedge or establishing
forward contracts to purchase CAD funds to manage its foreign exchange risk related to cash-flows. However, there is no
assurance that such strategies will be successful or cost effective and the profitability of the Company’s business could be
adversely affected by currency fluctuations.
The following table approximates the following impact on the Company of a $0.10 decrease in the value of one CAD dollar in
the Company’s USD functional currency (million):
in millions of US dollars
Sales (1)
Purchases (2)
Earnings before tax
2021
(1.8)
6.5
2020
(3.9)
5.2
(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 and we continue to monitor the impact of COVID-19
(Coronavirus). The duration and scope of the continued outbreaks is not known with any certainty and the Company is unable to
accurately project the ultimate impact on the business. However, if outbreaks continue for an extended period of time, AirBoss may
continue to experience supply chain and logistics challenges, in particular given production delays throughout the world, a decline
in sales activities, and reductions in operations and workforce.
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 40% (2020: 19%) of consolidated net sales in 2021. Five
customers represented 56% (2020: 48%) of consolidated net sales in 2021. 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.
Product Liability and Warranty Claims
As a manufacturer of rubber-based and other products, products which are used in vehicles and products which are worn by
individuals in the defense and first responder communities, 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 and its results.
Capacity and Equipment
Our rubber compounding facilities have an annual capacity to process over 500 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.
A N N U A L R E P O R T
23
2021
MD&A (cont’d)
Production Disruptions
Our production facilities, and those of our subcontractors and suppliers, are subject to risk of shut-down caused by fire, natural
disaster or other catastrophic event, pandemic, 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.
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, 2021, 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, 2021 and believe the design and effectiveness of the internal
controls to be effective.
24
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, 2021 and December 31, 2020 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 8, 2022
P. Gren Schoch
Chairman and Chief Executive Officer
Frank Ientile
Chief Financial Officer
A N N U A L R E P O R T
25
2021
Independent Auditors’ Report
the consolidated statements of financial position as at end of December 31, 2021 and end of December 31, 2020
the consolidated statements of profit and 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
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:
•
•
•
•
• 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 end of December 31, 2021 and end of December 31, 2020, 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements for the year ended December 31, 2021. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.
Evaluation of impairment of goodwill
Description of the matter
We draw attention to Notes 2(d), 3(e)(i) and 11 to the financial statements. The goodwill balance included in intangible assets
is $51,577 thousand. The Entity performs goodwill impairment testing at least annually and whenever events or changes in
circumstances indicate that the carrying amount of the cash-generating unit likely exceeds its recoverable amount. The
allocation of goodwill 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. The recoverable amount
of the cash-generating unit is based on value in use, which is determined by discounting the future cash flows generated from
the continuing use of the cash-generating unit. In determining the estimated recoverable amount of the cash-generating unit,
the Entity’s key assumptions include projected sales and margins, discount rates and the terminal multiple.
Why the matter is a key audit matter
We identified the evaluation of the impairment of goodwill as a key audit matter. This matter represented significant auditor
judgement due to the high degree of estimation uncertainty in determining the recoverable amount. In addition, the involvement
of those with specialized skills and knowledge was required in performing and evaluating the results of our audit procedures
due to the sensitivity of the recoverable amount to changes in key assumptions.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter:
We assessed the Entity’s ability to accurately forecast by comparing the Entity’s projected sales and margins used in the prior
year impairment test to actual results.
We compared the Entity’s projected sales and margins to actual results. We took into account changes in conditions and
events, affecting each cash-generating unit or cash-generating group to assess the adjustments made in arriving at the
projected assumptions.
We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the appropriateness of
(1) the discount rates and (2) the terminal multiple. The discount rates for the cash-generating units were compared against
ranges that were independently developed using publicly available market data for comparable entities. The terminal multiple
was compared against independently developed multiples using publicly available market data for comparable entities and
overall macro-economic conditions.
26
AirBoss of America Corp.
Evaluation of acquisition-date fair value of intangible assets and contingent consideration
Description of the matter
We draw attention to Notes 2(d), 4 and 5 to the financial statements. The Entity acquired Blackbox Biometrics, Inc. and Ace
Elastomer, Inc. on May 17, 2021 and August 31, 2021, respectively. In connection with the transactions, the Entity recorded
patents and trademarks of $13,410 thousand and customer relationships, trade name and unpatented know-how of $25,900
thousand (collectively, the intangible assets). The acquisition of Blackbox Biometrics, Inc. included contingent consideration of
$9,008 thousand. The Entity’s significant assumptions in determining the acquisition-date fair value for the intangible assets
and contingent consideration include financial forecasts, estimated annual attrition rates, discount rates and royalty rates.
Why the matter is a key audit matter
We identified the evaluation of the acquisition-date fair value of the intangible assets and contingent consideration as a key audit
matter. This matter required significant auditor judgment due to the estimation uncertainty in determining the fair value of the
intangible assets and contingent consideration. In addition, the involvement of those with specialized skills and knowledge was
required in performing and evaluating the results of our audit procedures due to the sensitivity of the fair value to possible
changes in significant assumptions used in the models. The following methodologies were used: Relief from Royalty, Multi
Period Excess Earnings and With and Without Income approach.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We compared the Entity’s financial forecasts to historical results to assess the Entity’s ability to accurately forecast. We took
into account changes in conditions and events to assess the Entity’s revenue forecasts. We compared the estimated annual
customer attrition rates to historical attrition rates.
In addition, we involved valuations professionals with specialized skills and knowledge, who assisted with the:
• Assessment of the valuation approaches used by the Entity to calculate the fair value of the intangible assets and contingent
consideration
• Evaluation of the discount rates by comparing to discount rates that were independently developed using publicly available data
for comparable entities or by comparing against a range of returns for venture capital investments
• Evaluation of the royalty rates by comparing against publicly available market data for comparable entities.
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 “Glossy 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
“Glossy 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 International
Financial Reporting Standards (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.
A N N U A L R E P O R T
27
2021
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.
• Determine, from the matters communicated with those charged with governance, those matters that were of most significance
in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters
in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is William J. Stephen.
Vaughan, Canada
March 8, 2022
28
AirBoss of America Corp.
Consolidated Statement of Financial Position
In thousands of US dollars
Note
December 31, 2021
December 31, 2020
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
7, 13
8
18
9, 10
11
18
12
10, 14
13
15
18
10, 14
21
15
18
16
16
7,131
82,440
10,032
122,147
6,136
227,886
93,148
121,075
–
1,155
215,378
443,264
2,356
103,026
2,840
–
108,222
78,207
579
17,511
3,597
99,894
86,970
68,602
6,176
45,525
1,452
208,725
81,254
71,774
3,973
1,643
158,644
367,369
27,083
74,295
573
747
102,698
63,651
664
2,058
3,710
70,083
208,116
172,781
87,937
2,531
144,680
235,148
443,264
87,060
1,578
105,950
194,588
367,369
The notes on pages 33 to 63 are an integral part of these consolidated financial statements.
Commitments (note 20).
On behalf of the Board
P.G. Schoch
Director
Robert L. McLeish
Director
A N N U A L R E P O R T
29
2021
Consolidated Statement of Profit and Comprehensive income
For the year ended December 31
In thousands of US dollars
Note
2021
2020
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
Profit attributable to:
Owners of the Company
Non-controlling interest
Earnings per share
Basic
Diluted
8
3
19
14, 21
18
17
17
586,858
(450,560)
136,298
(52,918)
(20,729)
(3,652)
(289)
(77,588)
58,710
(4,178)
54,532
(7,829)
46,703
46,703
–
46,703
1.73
1.65
501,572
(365,650)
135,922
(42,425)
(6,332)
(2,657)
(2,311)
(53,725)
82,197
(3,368)
78,829
(22,567)
56,262
33,703
22,559
56,262
1.40
1.35
The notes on pages 33 to 63 are an integral part of these consolidated financial statements.
30
AirBoss of America Corp.
Consolidated Statement of Changes in Equity
In thousands of US dollars
Attributable to equity holders of the Company
Share Contributed Retained
Earnings
Surplus
Capital
Non-
controlling
interest
Total
Total
equity
Balance at January 1, 2020
Profit and comprehensive income for the period
39,579
–
1,262
–
85,138
33,703
125,979
33,703
–
22,559
125,979
56,262
Contributions by and distributions to owners
Stock options expensed
Share options exercised
Share options forfeited
Acquisition of subsidiary (note 6)
Acquisition of non-controlling interest (note 6)
Settlement of deferred share units
Dividends to equity holders
–
(5)
–
–
47,419
67
–
644
(44)
(284)
13,655
(13,655)
–
–
–
–
–
–
(7,844)
–
(5,047)
644
(49)
(284)
13,655
25,920
67
(5,047)
–
–
–
23,538
(46,097)
–
–
644
(49)
(284)
37,193
(20,177)
67
(5,047)
Total contributions by and distributions to owners
47,481
316
(12,891)
34,906
(22,559)
12,347
Balance at December 31, 2020
87,060
1,578
105,950
194,588
–
194,588
In thousands of US dollars
Attributable to equity holders of the Company
Share Contributed Retained
Earnings
Surplus
Capital
Non-
controlling
interest
Total
Total
equity
Balance at January 1, 2021
Profit and comprehensive income for the period
87,060
–
1,578
–
105,950
46,703
194,588
46,703
Contributions by and distributions to owners
Stock options expensed
Share options exercised
Share options forfeited
Dividends to equity holders
Total contributions by and distributions to owners
–
877
–
–
877
1,196
(220)
(23)
–
–
–
–
(7,973)
1,196
657
(23)
(7,973)
953
(7,973)
(6,143)
Balance at December 31, 2021
87,937
2,531
144,680
235,148
–
–
–
–
–
–
–
–
194,588
46,703
1,196
657
(23)
(7,973)
(6,143)
235,148
The notes on pages 33 to 63 are an integral part of these consolidated financial statements.
A N N U A L R E P O R T
31
2021
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 gains
Share-based payment expense
SRED tax credits
Income tax expense
Government assistance loan forgiveness
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 working capital balances
Interest paid
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities
Cash acquired on acquisition of subsidiary
Cash paid to acquire subsidiary
Grant from government
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Expenditures on intangible assets
Net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from operating line of credit
Principal payments for lease liabilities
Payment of debt refinancing fees
Proceeds from new debt
Exercise of stock options (net of withholding taxes)
Repayment of share purchase loans
Share issuance costs
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
Note
2021
2020
46,703
56,262
9
11
14, 21
15, 16
19
18
19
4, 5
4, 5
9
11
12
16
13,135
7,746
–
4,178
1,012
9,448
(813)
7,829
(6,496)
(168)
82,574
(74,376)
(12,074)
(3,065)
25,038
(1,069)
(65,546)
(3,542)
(11,463)
2,023
1,946
(48,521)
–
9
(16,912)
(1,081)
(64,559)
(71,883)
65,000
(2,354)
(1,593)
–
656
–
–
7
(7,359)
(17,526)
(80,062)
86,970
223
7,131
12,400
5,787
2,827
3,368
(684)
2,203
(1,177)
22,567
–
118
103,671
(169)
2,808
(1,304)
26,891
(50)
28,176
(2,729)
(24,719)
104,399
4,498
–
500
1,391
(14,215)
(719)
(8,545)
(8,750)
–
(1,741)
(717)
6,432
(50)
248
(178)
15
(4,845)
(9,586)
86,268
121
581
86,970
The notes on pages 33 to 63 are an integral part of these consolidated financial statements.
32
AirBoss of America Corp.
Notes to Consolidated Financial Statements ("CFS")
For the years ended December 31, 2021 and 2020
(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 and cross-traded on the OTCQX® Best
Market in the United States, 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, health care, government, automotive
and industrial markets (see note 22).
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
Jurisdiction
Ownership % 2021 (2020)
AirBoss Rubber Compounding (NC) LLC ("ANC")
North Carolina
SunBoss Chemicals Corp.
AirBoss Flexible Products, LLC ("AFP")
AirBoss Defense Group Ltd. ("ADG Canada")
AirBoss Defense Group, LLC ("ADG USA")
Critical Solutions International, LLC ("CSI")
Blackbox Biometrics, Inc. ("B3")
Ace Elastomer, LLC ("Ace")
Ontario
Michigan
Quebec
Delaware
Texas
New York
South Carolina
100% (100%)
100% (100%)
100% (100%)
100% (100%)
100% (100%)
100% (100%)
100% (nil)
100% (nil)
The Company’s operating segments are organized into the following 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 anti-noise, vibration and harshness dampening parts.
• AirBoss Defense Group - Includes the manufacture and distribution of personal protection and safety products, primarily for
CBRN-E threats, and the manufacture of semi-finished rubber related products.
• Unallocated Corporate Costs - Includes corporate activities and certain unallocated costs.
The Company owned 55% of AirBoss Defense Group from January 1, 2020 until October 25, 2020 and acquired the remaining
45% ownership interest on October 26, 2020 (see note 6).
COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The impact of COVID-19 has been felt
throughout the world, with significant disruptions to business operations, supply chains and customer demand; the imposition
of quarantines; as well as considerable general concern and uncertainty. While a majority of the Company’s operations have
fallen within essential businesses classifications and have continued to operate throughout the pandemic, the Engineered
Product segment’s original equipment manufacturers ("OEM") customers shut down their operations in March 2020 and as a
result, the Company temporarily idled its automotive related operations from March 2020 through mid-May 2020. This
suspension had a negative impact on the segment’s profitability and cash flows. In 2021, the Company continued to experience
significant supply challenges and record raw material price increases. The Engineered Products segment was further
challenged as electronic chip shortages caused OEMs to shutter production. The ultimate business and economic impacts of
COVID- 19 will depend on a variety of factors, including the possibility of future shutdowns, impacts on customers and suppliers,
the rate at which economic conditions return to pre-COVID levels, any continued or future governmental orders or lock-downs
due to any future wave of COVID-19, the potential for a recession in key markets due to the effect of the pandemic, and on the
demand for the respective products that the Company and its customers produce.
A N N U A L R E P O R T
33
2021
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 8, 2022.
(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,
intangible assets, accounting for income taxes, share-based payments, measurement of post-retirement benefits and fair value
of assets acquired through business combination. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any future periods affected.
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts
recognized in the consolidated financial statements is included in the following notes:
Note 4 to 6 – fair value of assets acquired in a business combination and fair value of contingent consideration
Note 7 – trade and other receivables
Note 8 – inventories
Note 10 – leases
Note 11 – intangible assets
Note 18 – income taxes
Note 19 – government assistance
Information about assumptions and estimation uncertainties that have a significant risk resulting in a material adjustment within
the next financial year are included in the following notes:
Note 11 – intangible assets - key assumptions used in value-in-use calculations;
Note 15 – provisions;
Note 16 – capital and other components of equity;
Note 18 – income taxes;
Note 20 – commitments and contingencies; and
Note 21 – post retirement benefits.
.
34
AirBoss of America Corp.
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) Basis of consolidation
(i) Business combinations
The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-
controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and
liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized
immediately in profit or loss. The Company elects to measure, on a transaction-by-transaction basis, non-controlling interest
either at its fair value or at its proportionate share of the recognized amount of the identifiable net assets at the acquisition date.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection
with a business combination are expensed as incurred. Contingent consideration is remeasured at fair value at each reporting
date and subsequent changes in the fair value are recognized in profit or loss.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The
financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences
until the date that control ceases. The accounting policies of subsidiaries have been changed, when necessary, to align them
with the policies adopted by the Company.
(iii) Transactions eliminated on consolidation
Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are
eliminated in preparing the consolidated financial statements.
(b) 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).
(c) 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.
A N N U A L R E P O R T
35
2021
Notes to CFS (cont’d)
(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) Derecognition
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.
(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.
(d) 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.
36
AirBoss of America Corp.
Notes to CFS (cont’d)
(e) 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 and
whenever events or changes in circumstances indicate that the carrying amount of the cash-generating unit likely exceeds its
recoverable amount. 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 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
• brands, patents and trademarks
5 years
3-5 years
10-17 years
8-10 years
A N N U A L R E P O R T
37
2021
Notes to CFS (cont’d)
Inventories
(f)
Inventories are measured at the lower of cost and net realizable value. The cost of manufactured 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. Inventory that is not interchangeable is
determined on an individual item basis and includes expenditures incurred in acquiring the inventories, shipping and logistics
costs. 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.
(g) 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 recognizes 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.
38
AirBoss of America Corp.
Notes to CFS (cont’d)
(h) 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.
(i) 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. Net sales for other services are recognized upon acceptance by the customer.
(j) Government assistance
Government assistance is recognized as a reduction of the related expense or cost of the asset acquired in the period the
expenditure is recognized, unless the conditions for receiving the assistance are met after the related expenditure has been
recognized. In this case, the assistance is recognized when it becomes receivable.
(k) Lease payments
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 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.
(l) 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.
A N N U A L R E P O R T
39
2021
Notes to CFS (cont’d)
(m) 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.
(n) 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.
(o) 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.
40
AirBoss of America Corp.
Notes to CFS (cont’d)
(p) New Standards adopted
Amendments to IAS 1, Presentation of Financial Statements
The amendments clarify the classification of liabilities as current or non-current. For the purposes of non-current classification,
the amendments remove the requirement for a right to defer settlement of a liability for at least twelve months to be
unconditional. Instead, such a right must have substance and exist at the end of the reporting period in order to qualify for non-
current classification. The amendment did not have a material impact on the consolidated financial statements.
Amendments to IFRS 9, Financial Instruments and IFRS 7, Financial Instruments: Disclosures
Under the amendments a company will not have to derecognize the carrying amount of financial instruments for changes
required by the ongoing reform of inter-bank offered rates and other interest rate benchmarks, but change the effective interest
rate to reflect the new benchmark rate. The amendment did not have a material impact on the consolidated financial statements.
(q) Future Accounting Standards
Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs
that relate directly to the contract can either be incremental costs of fulfilling that contract or an allocation of other costs that
relate directly to fulfilling that contract. The amendment is effective on January 1, 2022 and is to be applied prospectively. The
adoption of the amendment is not expected to have a material impact on the consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements
The first amendment serves to address whether debt and other liabilities with an uncertain settlement date should be classified
as current or non-current in the Consolidated Balance Sheets. The second amendments will help companies provide useful
accounting policy disclosures. Both amendments are effective on January 1, 2023 and the Company is assessing the impact
of adopting these amendments on its consolidated financial statements.
Amendments to IAS 12, Income Taxes
The amendments narrow the scope of the recognition exemption so that it no longer applies to transactions that, on initial
recognition, give rise to equal taxable and deductible temporary differences. The amendments are effective for annual reporting
periods beginning on or after January 1, 2023 and the Company is assessing the impact of adopting these amendments on its
consolidated financial statements.
Amendments to IAS 8, Definition of Accounting Estimates
The amendments will require the disclosure of material accounting policy information rather than disclosing significant
accounting policies and clarifies how to distinguish changes in accounting policies from changes in accounting estimates. The
amendments are effective for annual periods beginning on or after January 1, 2023 and the Company is assessing the impact
of adopting these amendments on its consolidated financial statements.
A N N U A L R E P O R T
41
2021
Notes to CFS (cont’d)
NOTE 4 ACQUISITION OF ACE ELASTOMER, INC.
On August 31, 2021, the Company closed of the previously announced acquisition of 100% ownership of Ace for US$42.5
million in cash, adjusted for working capital.
Acquisition-related costs
The Company incurred acquisition-related costs of $275 on professional fees and due diligence costs that were included in
general and administrative expenses in 2021.
Consideration transferred
The following table summarizes acquisition date fair value of consideration transferred.
In thousands of US dollars
Cash paid on closing
Cash held back and to be settled in accordance with purchase agreement
Holdback not paid
Cash for excess working capital
Total consideration transferred
39,958
2,542
(214)
42,286
371
42,657
Identifiable assets acquired and liabilities assumed
The following table summarizes the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition
date on the basis of management’s preliminary estimates of fair values as follows:
In thousands of US dollars
Fair value of assets acquired:
Cash and cash equivalents
Restricted cash to settle Ace's outstanding debt
Trade and other receivables
Prepaid expenses
Inventories
Property, plant, and equipment
Trade name
Customer relationships
Unpatented know-how
Non-compete agreements with employees
Total assets
Value of liabilities assumed:
Trade and other payables
Debt
Total liabilities assumed
Net assets acquired
540
638
2,522
429
2,169
1,691
3,300
17,060
5,540
90
33,979
1,852
633
2,485
31,494
The fair value of Ace's intangible assets have been measured through an independent valuation based on the following key
assumptions: financial forecasts, customer attrition rates, estimated technical obsolescence rates, discount rates and royalty
rates. The following methodologies were used: Relief From Royalty, Multi Period Excess Earnings, and With and Without
Income approach.
Goodwill
Goodwill arising from the acquisition has been recognized as follows.
In thousands of US dollars
Consideration transferred
Fair value of identifiable net assets
Goodwill
42,657
(31,494)
11,163
The valuation of goodwill is attributable mainly to the skills and technical talent of Ace’s work force, and the synergies expected
to be achieved from integrating Ace into AirBoss Rubber Solutions.
42
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 5 ACQUISITION OF BLACKBOX BIOMETRICS, INC.
On May 17, 2021, the Company closed the previously announced transaction to acquire B3. $7.6 million in cash was paid on
closing and up to an additional $20 million will be paid in royalties over eight years, based on revenues earned from B3 products.
Acquisition-related costs
The Company incurred acquisition-related costs of $170 on professional fees and due diligence costs that were included in
general and administrative expenses in 2021.
Consideration transferred
The following table summarizes acquisition date fair value of consideration transferred:
In thousands of US dollars
Cash
Contingent consideration
Total consideration transferred
7,615
9,008
16,623
Identifiable assets acquired and liabilities assumed
The following table summarizes the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition
date on the basis of management’s preliminary estimates of fair values as follows:
In thousands of US dollars
Fair value of assets acquired:
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Inventories
Property, plant, and equipment
Computer software
Patents and trademarks
Total assets
Value of liabilities assumed:
Trade and other payables
Deferred taxes
Total liabilities assumed
Net assets acquired
768
121
357
77
102
42
13,410
14,877
320
2,878
3,198
11,679
The fair value of B3's intangible assets (patents and trademarks) have been measured through an independent valuation based
on the following key assumptions: financial forecasts, estimated technical obsolescence rates, discount rates and royalty rates
using the following methodologies: Relief From Royalty and Multi Period Excess Earnings.
Contingent consideration was measured on a discounted cash flow basis, reflecting the present value of undiscounted expected
future payments of $20 million which is the expected payout based on forecast revenues at that date, discounted using a risk
adjusted discount rate of 25 percent.
Goodwill
Goodwill arising from the acquisition has been recognized as follows.
In thousands of US dollars
Consideration transferred
Fair value of pre-existing interest in B3
Fair value of identifiable net assets
Goodwill
16,623
417
(11,679)
5,361
The remeasurement to fair value of the Company’s pre-existing 2.5% interest in B3 resulted in a loss of $76 ($417 less the $493
carrying amount of the investment). This amount has been included in finance costs.
The goodwill is attributable mainly to the skills and technical talent of B3’s work force, and the synergies expected to be achieved
from integrating B3 into AirBoss Defense Group ("ADG").
A N N U A L R E P O R T
43
2021
Notes to CFS (cont’d)
NOTE 6 AIRBOSS DEFENSE GROUP TRANSACTIONS
On January 1, 2020, the Company closed the previously announced transaction to form ADG through the merger of its
AirBoss Defense businesses and other operations in Acton Vale, Quebec with CSI. CSI is a 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. This merger created a dedicated defense player better positioned to capitalize on emerging opportunities
arising from the current geopolitical environment by combining AirBoss Defense’s strengths in manufacturing and
engineering design with CSI's expertise in global marketing and distribution of defense products. The merger also diversified
the Company's product offerings and provides significant cross-selling opportunities to an increasingly global combined
customer base.
The Company contributed the shares of ADG Canada and the membership interests of ADG USA to newly formed Canadian
and U.S. entities that formed AirBoss Defense Group, in exchange for a note receivable of $45,000 and equity interests.
Critical Solutions Holdings Inc. ("CSH") contributed all the shares of CSI and transferred a $15,000 receivable from CSI in
exchange for equity interests. Following these transactions AirBoss owned 55% of the equity in ADG and a $60,000 Vendor
Takeback Notes due from ADG, with the remaining 45% of the equity interest in ADG owned by CSH. The acquisition of
control of the CSI business has been accounted for as a business combination and recognized at fair value. The sale of a
non-controlling interest in the Company's former ADG Canadian and US businesses resulted in a gain of $13,655, which is
recognized in other equity.
Acquisition-related costs
The Company incurred acquisition-related costs of $2,384 on professional fees and due diligence costs in 2020 and $1,401 in
2019 related to this transaction. These costs have been included in general and administrative expenses.
Identifiable assets acquired and liabilities assumed
The following table summarizes the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition
date on the basis of management’s estimates of fair values as follows:
In thousands of US dollars
Fair value of assets acquired:
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Inventories
Property, plant, and equipment
Customer relationships
Brand
Other intangible assets
Investments
Total assets
Value of liabilities assumed:
Trade and other payables
Vendor Takeback Note
Total liabilities assumed
Net assets acquired
4,498
2,203
184
3,360
1,335
17,900
6,000
2,150
493
38,123
3,758
15,000
18,758
19,365
The fair value of CSI's intangible assets (customer relationships, brand and patented technology) have been measured through
an independent valuation based on the following key assumptions: revenue forecasts, estimated annual attrition rates, discount
rates and a royalty rates and using the following methodologies: Relief From Royalty, Multi Period Excess Earnings, and Cost
Avoidance.
44
AirBoss of America Corp.
Notes to CFS (cont’d)
Goodwill
Goodwill arising from the acquisition has been recognized as follows:
In thousands of US dollars
Consideration transferred:
NCI, based on their proportionate interest in ADG Canada, ADG USA and CSI
Paid in capital on dilution of ownership interest in ADG Canada and ADG USA
Vendor Takeback Note transferred from CSH
Less: Fair value of net assets acquired
Goodwill
23,538
13,655
(15,000)
(19,365)
2,828
Non-controlling interest ("NCI") was measured using the fair value method.
The goodwill is attributable mainly to the skills and technical talent of CSI’s work force, and the synergies expected to be
achieved from integrating CSI into AirBoss Defense Group.
Acquisition of non-controlling interest in ADG
On October 26, 2020, the Company acquired the 45% ownership of AirBoss Defense Group held by CSH in return for 3.5
million shares of the Company having a fair value of $47,597 (less issuance costs of $178) and $20,000 (see note 14), with
$5,000 paid at closing, and installments of $5,000 paid at each three-month anniversary. The fair value of the Company's
shares issued was based on the listed share price at October 23, 2020 of CAD $17.87 per share. The excess of the total
consideration over the carrying value of the non-controlling interest of $46,097 was accounted in the contributed surplus of
$13,655 and retained earnings of $7,844.
NOTE 7 TRADE AND OTHER RECEIVABLES
December 31
In thousands of US dollars
Trade receivables
Less: expected credit loss
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
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
Revised estimate
Balance at December 31
A N N U A L R E P O R T
2021
80,861
(601)
80,260
2,180
82,440
2020
66,692
(750)
65,942
2,660
68,602
2021 2020
Gross
Impairment
Gross
Impairment
64,776
10,520
5,565
80,861
–
–
(601)
(601)
49,544
12,621
4,527
66,692
2021
(750)
(188)
292
45
(601)
–
–
(750)
(750)
2020
(481)
(755)
486
–
(750)
45
2021
Notes to CFS (cont’d)
NOTE 8 INVENTORIES
December 31
In thousands of US dollars
Raw materials and consumables
Work in progress
Finished goods
Inventory in transit
Provisions
An inventory charge of $1,974 (2020: charge of $2,867) was included in cost of sales.
NOTE 9 PROPERTY, PLANT AND EQUIPMENT
2021
49,338
3,734
76,848
658
130,578
(8,431)
122,147
Land and
buildings1
Plant and
equipment1
Furniture
and equipment1
Under
construction
In thousands of US dollars
Cost
Balance at January 1, 2020
Acquisition of subsidiary
Additions
Government grant
Disposals
Transfers
Balance at December 31, 2020
Acquisition of subsidiary
Disposals
Transfers
36,240
–
1,602
–
(1,933)
4,898
40,807
1,811
5,030
(846)
5,586
89,368
–
10,482
–
(1,176)
4,156
102,830
1,939
2,165
(66)
856
Balance at December 31, 2021
52,388
107,724
Accumulated depreciation
Balance at January 1, 2020
Depreciation for the period
Impairment
Disposals
Transfers
9,685
2,530
–
(562)
2,824
Balance at December 31, 2020
14,477
Acquisition of subsidiary
Depreciation for the period
Disposals
Transfers
–
3,390
(937)
959
Balance at December 31, 2021
17,889
49,157
9,450
820
(1,171)
(2,846)
55,410
498
9,113
(37)
(438)
64,546
(1) includes right of use assets. See note 10 for additional details.
2,635
1,335
293
–
(70)
(374)
3,819
184
408
–
(1,365)
3,046
1,763
420
–
(29)
22
2,176
–
632
–
(521)
2,287
12,531
–
2,510
(500)
–
(8,680)
5,861
27
13,901
–
(5,077)
14,712
–
–
–
–
–
–
–
–
–
–
–
2020
33,147
3,743
14,229
863
51,982
(6,457)
45,525
Total
140,774
1,335
14,887
(500)
(3,179)
–
153,317
3,961
21,504
(912)
–
177,870
60,605
12,400
820
(1,762)
–
72,063
498
13,135
(974)
–
84,722
Carrying amounts
In thousands of US dollars
At December 31, 2020
At December 31, 2021
Land and
buildings
26,330
34,499
Plant and
equipment
Furniture
and equipment
Under
construction
47,420
43,178
1,643
759
5,861
14,712
Total
81,254
93,148
Depreciation expense of $12,442 (2020: $11,774) was charged to costs of sales, $673 (2020: $541) was charged to general
and administrative expense and $21 (2020: $85) was charged to research and development expenses.
46
AirBoss of America Corp.
Notes to CFS (cont’d)
During 2020, the Company reviewed operations at AirBoss Defense Group's Acton Vale facility which resulted in a change in
the expected usage of certain molding and tooling equipment that were previously amortized over units of production basis.
The equipment is now expected to remain in production for one more year. The effect of this change increased depreciation
expense included in cost of sales by $1,323.
Impairment
During 2020, the Engineered Products segment replaced certain equipment to improve production efficiency. The equipment
was taken out of production and was no longer in use. Management estimated the equipment’s recoverable amount was nil
and the Company recorded an impairment loss of $743. In addition, the Rubber Solutions segment removed an asset from
service and recorded a $77 impairment charge.
NOTE 10 LEASES
The Company leases some of its plants, offices, and equipment. The majority of the Company's leases are for buildings, which
have remaining terms between 1 and 7 years.
Right-of-Use Assets
In thousands of US dollars
Cost
Balance at January 1, 2020
Lease additions
Balance at December 31, 2020
Acquisition of subsidiary
Lease additions
Disposals
Balance at December 31, 2021
Accumulated depreciation
Balance at January 1, 2020
Depreciation
Balance at December 31, 2020
Depreciation
Disposals
Balance at December 31, 2021
Carrying amount at December 31, 2020
Carrying amount at December 31, 2021
Land and
buildings
Equipment
Total
13,525
–
13,525
1,593
4,517
(846)
18,789
1,310
1,465
2,775
1,999
(846)
3,928
10,750
14,861
1,181
671
1,852
78
75
(5)
2,000
161
304
465
385
(5)
845
1,387
1,155
14,706
671
15,377
1,671
4,592
(851)
20,789
1,471
1,769
3,240
2,384
(851)
4,773 -
12,137
16,016
Lease Liabilities
Interest expense on lease liabilities of $764 (2020: $685) is included in Finance Costs.
Cash outflow related to leases was $3,118 (2020: $2,426).
The future undiscounted contractual lease payments are as follows:
In thousands of US dollars
Total
2022
2023
2024
2025
2026 Thereafter
Lease payments
20,425
3,090
2,855
2,639
2,584
2,589
6,668
A N N U A L R E P O R T
47
2021
Notes to CFS (cont’d)
NOTE 11 INTANGIBLE ASSETS
In thousands of US dollars
Cost
Balance at January 1, 2020
Acquisition of subsidiary
Purchases
Impairment
Disposals
Transfers
Balance at December 31, 2020
Acquisition of subsidiary
Purchases
Balance at December 31, 2021
Accumulated Amortization
Balance at January 1, 2020
Amortization for the year
Disposals
Balance at December 31, 2020
Amortization for the year
Balance at December 31, 2021
Carrying amounts
At December 31, 2020
At December 31, 2021
Goodwill
Customer
Relationships
32,225
2,828
–
–
–
–
35,053
16,524
–
51,577
–
–
–
–
–
–
35,053
51,577
28,250
17,900
–
–
–
–
46,150
17,060
–
63,210
15,437
4,702
–
20,139
4,863
25,002
26,011
38,208
Brands,
Software and
Patents and Development
costs
Trademarks
2,458
8,150
86
(2,007)
–
–
8,687
22,341
–
31,028
–
819
–
819
2,268
3,087
7,868
27,941
6,501
–
633
–
(173)
–
6,961
41
1,081
8,083
4,062
266
(209)
4,119
615
4,734
2,842
3,349
Total
69,434
28,878
719
(2,007)
(173)
–
96,851
55,966
1,081
153,898
19,499
5,787
(209)
25,077
7,746
32,823
71,774
121,075
Amortization expense of $7,746 (2020: $5,787) was charged to general and administrative expense. Remaining amortization
for customer relationships acquired is 2 to 17 years and patents and trademarks is 3 to 8 years.
Goodwill
December 31
In thousands of US dollars
AirBoss Defense Group
Rubber Solutions
Engineered Products
2021
30,349
11,163
10,065
51,577
2020
24,988
–
10,065
35,053
Impairment
The AirBoss Defense Group segment has been working on the development of certain next generation portfolio products for several
years. The product development pipeline has been re-prioritized and revised as a result of the Company’s response to the COVID-19
pandemic, particularly with respect to improved manufacturability and enhanced features of its core product portfolio. During 2020, the
Company determined that certain product development costs for predecessor products would no longer form part of the survivability
platform. Management estimated the recoverable amount of these development costs was nil and the Company recorded an
impairment loss of $2,007.
Goodwill
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,
2021 and December 31, 2020, 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 cash generating 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 12.4 to 13.1% determined using risk-adjusted returns from comparable companies adjusted for the
Company's capital structure.
• Terminal multiple based on market capitalization
• Projected sales and margins 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 for operating expenses based
on past experiences and future growth trends.
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 continuous improvement 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 defense 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.
48
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 12 OTHER ASSETS
In thousands of US dollars
Balance at January 1, 2020
Accrued interest
Interest paid
Repayment of loan
Effect of movements in exchange rates
Acquired on acquisition of ADG (note 6)
Balance at December 31, 2020
Investment eliminated upon acquiring control of B3 (note 5)
Accrued interest
Interest paid
Effect of movements in exchange rates
Balance at December 31, 2020
Share purchase
loan
Other
Total
961
11
(15)
(248)
(5)
–
704
–
10
(7)
2
709
446
–
–
–
–
493
939
(493)
–
–
–
446
1,407
11
(15)
(248)
(5)
493
1,643
(493)
10
(7)
2
1,155
NOTE 13 DERIVATIVES NOT DESIGNATED IN A FORMAL HEDGING RELATIONSHIP
Foreign exchange hedge
At December 31, 2021, the Company had contracts to sell USD $16,617 from January 2022 to September 2022 for Canadian
dollars ("CAD") $21,000. The fair value of these contracts, representing an unrealized loss of $53, are included in trade and
other payables, including derivatives on the statement of financial position. The unrealized changes in fair value, representing
a loss of $673 (2020: gain of $362), are recorded on the statement of profit as other income (expense).
At December 31, 2020, the Company had contracts to sell USD $16,031 from January 2021 to July 2021 for CAD $21,200.
The fair value of these contracts, representing an unrealized gain of $620 are included in trade and other receivables including
derivatives on the statement of financial position.
Interest rate swap
In December 2020, the Company entered into an interest rate swap agreement for a notional amount of $28,125 ($26,250 as at
December 31, 2021) amortizing down to $24,375 at maturity on January 1, 2023. 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 0.265%. This swap agreement
replaces an old swap agreement that matured in December 2020 that calculated interest based on the difference between the
floating rate of USD LIBOR and the fixed rate of 1.69%.
During 2021, interest expense on the swap agreements was $44 (2020: $264).
At December 31, 2021, the fair value of this agreement, representing a gain of $48 (2020: loss of $57), is included in loans and
borrowings on the statement of financial position. The change in the fair value, representing a gain of $105 (2020: loss of $37),
is recorded on the statement of profit as finance costs.
The Company entered into these interest rate swap agreements 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 14 LOANS AND BORROWINGS
December 31
In thousands of US dollars
Non-current
Revolving line of credit
Interest rate swap
Term debt
Lease liabilities
Less: deferred financing
Current
Term debt and interest rate swap
Forgivable loan from US government (note 19)
Due to former non-controlling interest (note 6)
Lease liabilities
December 31
In thousands of US dollars
Term debt
Interest rate swap
Term debt
PPP loan
Due to former non-controlling interest
Lease liabilities
Subtotal
Less principal due within one year
Less deferred financing
A N N U A L R E P O R T
2021
2020
65,000
(48)
–
15,043
(1,788)
78,207
–
–
–
2,356
2,356
–
–
52,500
11,670
(519)
63,651
3,807
6,464
15,000
1,812
27,083
2021
2020
65,000
(48)
–
–
–
17,399
82,351
(2,356)
79,995
(1,788)
78,207
–
57
56,250
6,464
15,000
13,482
91,253
(27,083)
64,170
(519)
63,651
49
2021
Notes to CFS (cont’d)
In September 2021 the Company updated its credit facilities to increase revolving credit availability to $250 million from $150
million with an accordion of $75 million (from $50 million) upon the satisfaction of customary conditions for such features. The
new facility bears interest at LIBOR plus applicable margins from 145 to 250 basis points, depending on covenants, and matures
on September 23, 2026. Proceeds from the new facility were used to repay the Company's term loan and fund upfront payments
related to acquisition of finished goods and other inventories, related primarily to execution on existing contracts.
In April 2021 the Company's credit facility was amended to increase the revolving facility from $60 million to $150 million. The
credit facility includes terms to replace LIBOR with a suitable replacement as that issue develops. The replacement of LIBOR
is not expected to have an impact on the consolidated financial statements.
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 was scheduled
to mature in January 2023 and otherwise carried 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 the term of the credit facilities and $324 (2020: $614) has been amortized and is included
in finance costs.
Interest expense under the credit facility was $3,817 (2020: $1,439).
Principal repayments on the loans and borrowings are as follows:
In thousands of US dollars
2026 Thereafter
Total
2022
2025
2024
2023
Revolving line of credit
Lease liabilities
64,952
17,399
82,351
–
2,356
2,356
–
2,271
2,271
–
2,168
2,168
–
2,152
2,152
64,952
2,256
67,208
–
6,196
6,196
As at December 31, 2021, $65,713 was drawn against the credit facility (2020: $732).
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, 2021 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
Revolving line of credit and interest rate swap
Term debt and interest rate swap
Forgivable loan from US government
Due to former non-controlling interest
Lease liabilities
Carrying amount Fair value
2021
63,164
–
–
–
17,399
2020
–
55,788
6,464
15,000
13,482
2021
65,022
–
–
–
18,739
2020
–
56,239
6,447
14,847
15,041
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
2.1% (2020: 1.9%) for the term loan and lease liabilities.
NOTE 15 PROVISIONS
In thousands of US dollars
Balance at January 1, 2020
Impact of change in accounting policy
Provisions accrued during the year
Payments during the year
Forfeitures during the year
Foreign exchange
Balance at December 31, 2020
Less: amount due within one year
Funds withheld on acquisition on ACE (note 4)
Settlement of funds withheld
Issued to acquire B3 (note 5)
Change in fair value of B3 provision
Provisions accrued during the year
Payments during the year
Forfeitures during the year
Foreign exchange
Balance at December 31, 2021
Less: amount due within one year
50
Site
restoration
PSUs and
DSUs
Payable to
former owners
of acquired
businesses
74
–
–
–
–
–
74
–
74
–
–
–
–
–
–
–
5
79
–
79
655
–
1,936
(117)
(93)
176
2,557
(573)
1,984
–
–
–
–
8,403
(1,069)
(129)
41
9,803
(829)
8,974
–
–
–
–
–
–
–
–
–
2,542
(792)
9,008
(289)
–
–
–
–
10,469
(2,011)
8,458
Total
729
0
1,936
(117)
(93)
176
2,631
(573)
2,058
2,542
(792)
9,008
(289)
8,403
(1,069)
(129)
46
20,351
(2,840)
17,511
AirBoss of America Corp.
Notes to CFS (cont’d)
Performance Awards
The Company has issued certain executives with an aggregate of 224,470 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 1.5,
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
2021
201,210
54,350
(5,847)
(25,243)
224,470
2020
83,998
191,233
(46,906)
(27,115)
201,210
During 2021, the Company recognized as employee costs $5,577 (2020: $1,149) 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
Settlements
December 31
2021
97,060
15,275
–
112,335
2020
72,672
31,976
(7,588)
97,060
During 2021, the Company recognized as employee costs $2,698 (2020: $694) related to DSUs issued under the Omnibus Plan.
A N N U A L R E P O R T
51
2021
Notes to CFS (cont’d)
NOTE 16 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, 2021, 936,191 shares are available (2020: 988,394).
Issued share capital is as follows:
In thousands of shares
January 1
Issued to acquire subsidiary
Exercise of share options
Settlement of deferred share units
December 31
2021
26,909
–
84
–
26,993
2020
23,392
3,500
9
8
26,909
Issuance of common shares
During 2021, 98,764 options were exercised resulting in the issuance of 84,379 common shares (2020: 23,974 options exercised).
In December 2021, the Company renewed its normal course issuer bid ("NCIB") to purchase up to 500,000 of its common
shares, representing approximately 1.9% of the Company's public float. The Company purchased nil shares (2020: nil) under
its NCIB in 2021.
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, 2021, are as follows:
Range of exercise
price ($CAD)
5.14
9.49
10.98
11.56
16.30
17.53
36.01
Options
outstanding
Quantity
Weighted
average
contract life
Options
exercisable
Quantity
1,265,418
144,764
33,200
1,244
25,000
8,372
172,794
1,650,792
3.23
2.41
0.86
1.22
3.42
3.87
4.23
307,697
70,546
33,200
622
6,250
2,093
–
420,408
Options granted and outstanding:
A summary of the status of the Company’s stock option plan as of December 31, 2021 and 2020 and changes during the years
then ended, is presented below:
2021 2020
Weighted average
exercise price
($CAD)
6.42
36.01
13.50
7.87
9.11
Quantity
1,605,426
175,279
(98,764)
(31,149)
1,650,792
Quantity
438,204
1,616,925
(23,974)
(425,729)
1,605,426
Weighted average
exercise price
($CAD)
12.26
5.38
10.80
8.24
6.42
Outstanding beginning of year
Granted
Exercised
Forfeited
Outstanding end of year
52
AirBoss of America Corp.
Notes to CFS (cont’d)
Inputs for measurement of grant date fair values
The grant date fair value of all options were measured based on the Black-Scholes model. Expected volatility is estimated by
considering historic average share price volatility. The inputs used in the measurement of the fair values at grant date of the
share-based payment plans are the following:
Fair value of share options and assumptions
In Canadian dollars
March 2021 November 2020
June 2020
March 2020
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)
$
$
$
15.18
39.77
36.01
41.8%
5 years
0.7%
1.0%
$
$
$
4.67
16.68
17.53
39.4%
5 years
1.7%
0.5 %
$
$
$
5.06
16.68
16.30
39.7%
5 years
1.7%
0.4%
$
$
$
0.66
4.84
5.14
32.6%
5 years
5.8%
0.8%
The stock options issued vest as follows:
Vested at December 31, 2021
2022
2023
2024
2025
Stock option expense
Quantity
420,407
408,513
407,891
370,782
43,199
1,650,792
During 2021, the Company recognized as employee costs $1,173 (2020: $360) 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 2021 and in 2020 as follows:
2021 2020
Shareholder of record at:
$CAD/share
Date Paid
$CAD/share
Date Paid
March 31
June 30
September 30
December 31
0.07
April 15, 2021
July 15, 2021
0.10
0.10 October 15, 2021
January 15, 2022
0.10
0.37
0.07
0.07
0.07
0.07
0.28
April 15, 2020
July 15, 2020
October 15, 2020
January 15, 2021
The dividend payable at December 31, 2021 was $2,133 (2020: $1,479).
A N N U A L R E P O R T
53
2021
Notes to CFS (cont’d)
NOTE 17 EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted earnings per share:
For the year ended 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
2021
46,703
26,970
1,224
104
28,298
1.73
1.65
2020
33,703
24,032
787
82
24,901
1.40
1.35
As of December 31, 2021, nil options (2020: 74,742) 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 18 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:
For the year ended December 31
In thousands of US dollars except per share amounts
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
2021
14,452
(1,377)
(1,124)
(199)
(543)
(3,464)
84
7,829
6,847
982
7,829
2020
20,889
(890)
374
(186)
3
2,367
10
22,567
25,943
(3,376)
22,567
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
Financing fees
Capital assets
Reserve
Other
Deferred income tax liabilities:
Reserve
Capital assets
Other
Net deferred income tax liabilities
Recorded on the consolidated statement of financial position:
Deferred income tax assets
Deferred income tax liabilities
Net
54
2021
4,353
169
2,479
–
55
113
4,187
429
11,785
(133)
(14,821)
(428)
(15,382)
(3,597)
–
(3,597)
(3,597)
2020
2,400
191
647
–
–
122
5,949
442
9,751
–
(9,350)
(138)
(9,488)
263
3,973
(3,710)
263
AirBoss of America Corp.
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 $42,087 of unused tax losses (2020: $42,935) available to offset future income taxes in the US. 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 taxable temporary differences associated with investments in subsidiaries, branches and associated
and interests in joint ventures, for which no deferred income tax liabilities have been recognized, is $55,734 (2020: deductible
temporary differences of $32,304).
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
2021
Tax effect
Gross amount
2020
Tax effect
Capital losses
Operating losses
Deductible temporary differences
575
24,608
10,523
35,706
72
5,168
2,507
7,747
918
31,850
17,691
50,459
142
6,688
3,759
10,589
NOTE 19 GOVERNMENT ASSISTANCE
During 2020, Rubber Solutions recognized a grant of $500 as a reduction of capital assets.
Scientific research and investment tax credits of $813 were recognized in 2021 (2020: $1,177); research and development costs
were reduced accordingly.
On May 1, 2020, the Company received a $6,422 loan pursuant to the Paycheck Protection Program under Division A, Title I of
the CARES Act, to fund certain payroll and business expenses of the Company’s Michigan and North Carolina operations. This
loan bore interest at 1.0% and was scheduled to mature on May 1, 2022. On June 30, 2021, the loan and accrued interest was
forgiven and the Company recorded a reduction to cost of sales and operating expenses of $5,560 and $936, respectively, in the
consolidated statement of profit.
The Government of Canada provided the Canada Emergency Wage Subsidy (“CEWS”) and the Canada Emergency Rent Subsidy
("CERS") to support businesses affected by COVID-19 based on certain criteria, including demonstration of revenue declines as
a result of COVID-19. The Company applied for CEWS and recorded the subsidy as a reduction to cost of sales and operating
expenses of $2,380 and $569 (2020:$7,216 and $1,654), respectively, in the consolidated statement of profit.
NOTE 20 COMMITMENTS AND CONTINGENCIES
Commitments
The Company has purchase commitments of $32,015 (2020: $15,361) for raw materials. Delivery on these commitments is
expected in 2022.
Litigation
No legal provisions are recognized at December 31, 2021 and 2020. The Company is occasionally named as a party in various
claims and legal proceedings, which arise during the normal course of its business. The Company reviews each of these claims,
including the nature of the claim, the amount in dispute or claimed and the availability of insurance coverage. Although there can
be no assurance that any particular claim will be resolved in the Company’s favour, management does not believe that the outcome
of any claim or potential claims of which it is currently aware will have a material adverse effect on the Company.
NOTE 21 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 ADG Canada, which are
unfunded defined benefit plans covering life insurance.
The methods of accounting, assumptions and frequency of valuations for 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 $20. This plan is unfunded as such there is no plan asset to be disclosed. At December 31, 2021,
the weighted average duration of the defined benefit obligation was 10 years (2020: 11 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
2021
579
(76)
A N N U A L R E P O R T
2020
664
164
55
2021
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 (gain)/loss
Foreign currency translation
At December 31
The amounts recognized in the
Statement of Profit is as follows:
Post-retirement benefits (recovery)/expense
Interest cost
Foreign currency translation
Expense (recovery)
2021
579
664
3
15
(30)
(76)
3
579
(94)
15
3
(76)
2020
664
510
3
14
(94)
218
13
664
136
15
13
164
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
2021
2020
2.85%
2.35%
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
56
AirBoss of America Corp.
Notes to CFS (cont’d)
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.
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
2021
(54)
66
2
(3)
2020
(66)
83
7
(8)
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 2021 were $450 (2020: $420).
AFP maintains a 401(k) defined contribution plan for its employees. Total contributions and expense to this plan during 2021
were $505 (2020: $512).
ANC maintains a 401(k) plan for its employees. Total contributions and expense to this plan during 2021 were $98 (2020: $78).
ADG USA maintains a 401(k) defined contribution plan for its employees. Total contributions and expense to this plan during
2021 were $151 (2020: $106).
ADG Canada employees are covered under various registered and unregistered defined contribution plans. Total contribution
and expense to these plans for 2021 were $210 (2020: $217).
CSI maintains a 401(k) defined contribution plan for its employees. Total contribution and expense to these plans for 2021
were $133 (2020: $271).
B3 maintains a 401(k) defined contribution plan for its employees. Total contribution and expense to these plans for 2021 were $45.
Multi-Employer Pension Plan
AFP 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 2021, the Company made contributions of $281 (2020: $257) to the multi-employer pension plan. The unfunded vested
benefit ratio was 33.3% at December 31, 2021 (2020: 12.8%). The Steel Workers Pension Trust was in a net deficit at December
31, 2021 and the Company’s portion of the deficit was unknown. The collective bargaining agreement requires that the Company
contributes $0.40 for each hour worked by eligible employees during the preceding wage month.
A N N U A L R E P O R T
57
2021
Notes to CFS (cont’d)
NOTE 22 SEGMENTED INFORMATION
The Company’s operating segments are organized into the following 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 anti-noise, vibration and harshness dampening parts.
• AirBoss Defense Group - Includes the manufacture and distribution of personal protection and safety products, primarily for
CBRN-E threats, and the manufacture of semi-finished rubber related products.
• Unallocated Corporate Costs - 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 finance costs and 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.
Comparative period segment disclosures have been recast to reflect the changes in the Company’s reporting segments. Information
regarding the results of each reportable segment is included below. 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.
For the year ended
December 31
AirBoss
Defense Group
Rubber
Solutions
Engineered
Products
Unallocated
Corporate Costs
Total
In thousands of US dollars
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Segment net sales
329,916 302,278 171,553 119,090 116,621 114,557
Inter-segment net sales
(4,565)
(4,275)
(18,492)
(17,824)
(8,175)
(12,254)
External net sales
325,351 298,003 153,061 101,266 108,446 102,303
–
–
–
– 618,090 535,925
– (31,232)
(34,353)
– 586,858 501,572
Depreciation, amortization,
and impairment
10,405 11,488
4,903
3,351 5,330 5,837
243
338 20,881 21,014
Segment measure of
profit (loss)
Finance costs
Income tax expense
Profit
Segment assets
Segment liabilities
Capital additions
74,998 87,846 11,125
11,452
(11,229) (7,166) (16,184)
(9,935) 58,710 82,197
(4,178)
(3,368)
(7,829) (22,567)
46,703 56,262
205,240 198,450 146,237 82,150 83,292 75,597 8,495 11,172 443,264 367,369
69,571 42,396 32,115 25,856 23,565 22,788 82,865 81,741 208,116 172,781
8,613
5,455
6,113
3,840
6,722
5,665
1,137
646 22,585 15,606
58
AirBoss of America Corp.
Notes to CFS (cont’d)
Geographical segments
The Company operates 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 is 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
Net sales
Non-current assets
Net sales Non-current assets
2021
2020
Canada
United States
Other countries
47,295
497,875
41,688
586,858
62,278
153,100
–
215,378
62,686
409,728
29,158
501,572
45,357
113,287
–
158,644
Major customers
Net sales from one customer represent approximately 40% (2020: 19%) of consolidated net sales in 2021. Five customers
represented 56% (2020: 48%) of consolidated net sales in 2021.
Major Products
In thousands of US dollars
AirBoss Defense Group
Defense
Industrial
Rubber Solutions
Tolling
Mixing
Engineered Products
2021
2020
291,621
33,730
325,351
8,643
144,418
153,061
108,446
586,858
271,429
26,574
298,003
7,315
93,951
101,266
102,303
501,572
NOTE 23 RELATED PARTIES
Related Party Transactions
During the year, the Company paid rent for the corporate office of CAD $180 (2020: 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 (2020: $29) to a company
in which the CEO and Chairman is an officer.
A N N U A L R E P O R T
59
2021
Notes to CFS (cont’d)
Transactions with key management personnel
Key management includes directors, CEO, President and 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
2021
6,297
8,332
14,629
2020
4,840
2,200
7,040
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 21.0% of the outstanding common shares as at December 31, 2021 (2020: 20.5%).
In December 2016, the Company provided a share purchase loan of CAD $250 to the former Chief Financial Officer that was
repaid in June 2020. 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, General Counsel; and CAD $92 to the President and Chief Operating Officer. 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, 86,807 shares
of the Company having a fair value of $3,165 were pledged as collateral on these loans. At December 31, 2021, the loan
receivables of $710, including accrued interest, were included in Other Assets on the statement of financial position. During
the year, interest revenue of $7 (2020: $15) was received.
NOTE 24 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, chemicals for rubber mixing, steel and silicone used in the production of its products. The price and
availability of these raw materials are subject to fluctuations from such factors as weather, exchange rates, the price of oil,
changes in industry production capacity, changes in world inventory levels and other factors beyond the Company's control.
The Company manages its commodity price and supply risk by matching purchase commitments to its customers’ requirements
during term of the price quote, generally ranging from 1 to 3 months and maintains supply sources in different areas of the world.
The Company does not enter into commodity contracts other than to meet the Company’s expected usage and sale
requirements; such contracts are not settled net.
The following table approximates the financial impact, (assuming changes are not passed along to its customers), on the
Company of a 10% increase in the cost of its most critical raw materials based upon purchases made in the respective years:
Earnings before tax
2021 2020
(7.27)
(3.64)
(2.55)
(2.45)
(0.75)
(16.66)
(4.81)
(2.70)
(2.28)
(1.90)
(0.81)
(12.50)
in millions of US dollars
Natural and synthetic rubber
Chemicals (Rubber mixing)
Steel
Carbon black
Silicone
60
AirBoss of America Corp.
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:
in millions of US dollars
Sales (1)
Purchases (2)
Earnings before tax
2021 2020
(1.8)
6.5
(3.9)
5.2
(1) Based upon Canadian dollar-denominated sales
(2) Based upon Canadian dollar-denominated 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 December 2020, the Company entered into an interest rate swap agreement for a notional amount of $28,125 ($26,250 as at
December 31, 2021) amortizing down to $24,375 at maturity on January 1, 2023. 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 0.265%. This swap agreement
replaces an old swap agreement that matured in December 2020 that calculated interest based on the difference between the
floating rate of USD LIBOR and the fixed rate of 1.69%.
During 2021, interest expense on the swap agreements was $44 (2020: $264).
At December 31, 2021, the fair value of this agreement, representing a gain of $48 (2020: loss of $57), is included in loans and
borrowings on the statement of financial position. The change in the fair value, representing a gain of $105 (2020: loss of $37), is
recorded on the statement of profit as finance costs.
The Company entered into these interest rate swap agreements 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
2021
2020
709
(13,649)
(63,164)
(76,104)
1,324
(28,539)
(55,788)
(83,003)
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
2021
Variable rate instruments
2020
Variable rate instruments
This analysis assumes that all other variables, in particular foreign exchange rates, remain constant.
A N N U A L R E P O R T
Net income and equity
100bp increase
100bp decrease
(374)
7
374
(7)
61
2021
Notes to CFS (cont’d)
Credit Risk
The Company held cash and cash equivalents of $7,131 at December 31, 2021 (2020: $86,970), 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 7), 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
40% (2020: 19%) of consolidated net sales in 2021. Five customers represented 56% (2020: 48%) of consolidated net sales in
2021.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 $75,000
availability, upon the satisfaction of customary conditions for such features. At year end, the Company had cash of $7,131 and
had drawn $65,713 against its $250,000 revolving credit facilities (2020: cash of $86,970 and had drawn $723).
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, accounts payable and
accrued liabilities, contingent consideration, 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, 2020
In thousands of US dollars
Cash and cash equivalents
Trade and other accounts receivable
Interest rate swap
Share Purchase loans
Total financial assets
Trade and other payables
Interest rate swap
Foreign Exchange Hedge
Loans and borrowings
Contingent consideration
Total financial liabilities
Amortized
cost
Fair value
through profit
and loss
7,131
82,440
–
709
90,280
102,973
–
–
80,611
–
183,584
–
–
48
–
48
–
–
53
–
8,719
8,772
Total
carrying
amount
7,131
82,440
48
709
90,328
102,973
–
53
80,611
8,719
192,356
Total fair
value
7,131
82,440
48
709
90,328
102,973
–
53
83,761
8,719
195,506
62
AirBoss of America Corp.
Notes to CFS (cont’d)
December 31, 2020
In thousands of US dollars
Cash and cash equivalents
Trade and other accounts receivable
Foreign Exchange Hedge
Share Purchase loans
Total financial assets
Trade and other payables
Interest rate swap
Loans and borrowings
Total financial liabilities
Amortized
cost
Fair value
through profit
and loss
86,970
68,602
–
704
156,276
74,295
–
90,677
164,972
–
–
620
–
620
–
57
–
57
Total
carrying
amount
86,970
68,602
620
704
156,896
74,295
57
90,677
165,029
Total fair
value
86,970
68,602
620
704
156,896
74,295
57
92,574
166,926
The fair value of the share purchase loans and long-term loan has been based on market interest rate (level 2) in 2021 and 2020.
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 2021 and 2020. There were no transfers between levels of the fair value hierarchy in 2021 and 2020.
Capital Management
The Company has defined its capital as follows:
December 31
In thousands of US dollars
Loans and borrowings
less: leases included in loans and borrowings
less: cash and cash equivalents
Net debt
Shareholders’ equity
2021
80,563
(17,399)
(7,131)
56,033
235,148
291,181
2020
90,734
(13,482)
(86,970)
(9,718)
194,588
184,870
Net Debt measures the financial indebtedness of the Company assuming that all cash on hand is used to repay a portion of the
outstanding debt.
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 $250,000 committed revolving line of credit that provides liquidity and flexibility when capital
markets are restricted.
Key management currently own 21.1% of the outstanding shares of the Company. Each Director is required to hold Common
Shares and/or DSUs valued, at the time(s) of purchase or issuance, as applicable, at three times the annual base cash retainer
entitlement. Directors have a period of five years from the date of their election to the Board to achieve the minimum shareholding
requirement. 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 December 2021, the Company renewed its normal course issuer bid ("NCIB") to purchase up to 500,000 of its common
shares, representing approximately 1.9% of the Company's public float. The Company purchased nil shares (2020: nil) under
its NCIB in 2021.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
A N N U A L R E P O R T
63
2021
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 (1)
Waterloo, Ontario
Alan J. D. Watson (2) (3)
Sydney, Australia
Stephen Ryan (2)
Washington, D.C.
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of Corporate Governance Committee
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.airboss.com
Email Address: info@airboss.com
Our Annual Meeting is Thursday, May 13, 2021
at 9:00am at: AirBoss Rubber Solutions
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:
Frank Ientile
.
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A N N U A L R E P O R T
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and 10% Post-Consumer recycled content & fibre.
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