CAPITALIZING ON
EXPANDED CAPABILITIES
2022 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 Auditor’s 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
2022 PRESENTED MANY CHALLENGES FOR AIRBOSS AS WE FOCUSED ON MANAGING CORPORATE AND
OPERATIONAL RISKS WHILE EXECUTING OUR STRATEGIC PLAN TO DELIVER STRONG RESULTS FROM OUR
EXPANDED OPERATING PLATFORM. AS OUR TEAM NAVIGATED RECURRING OBSTACLES RELATED TO SUPPLY CHAIN
AND LOGISTICS, WE BEGAN TO SEE MODEST RELIEF FROM PREVIOUS RECORD RAW MATERIAL PRICE INCREASES.
AIRBOSS MADE IMPORTANT PROGRESS IN SECURING NEW CONTRACT WINS AND SUCCESSFULLY
RE-POSITIONING SPECIFIC BUSINESS UNITS FOR IMPROVED CONTRIBUTIONS TO OUR FINANCIAL PERFORMANCE.
HIGHLIGHTS
(cid:129) Record annual revenue and gross margins from Rubber Solutions supported by improved operating efficiency,
enhanced compounding capabilities, and expanded geographic reach
(cid:129) Completed our integration of Ace Elastomer, surpassing initial performance expectations and solidifying our leading
role in the North American color and specialty rubber compounding space
(cid:129) Secured new contract awards within our Defense Group to manufacture and supply Husky 2G vehicles
(cid:129) Leveraging our Made in America capabilities, secured an agreement within our Defense Group to support the delivery
of COVID testing kits to the Defense Logistics Agency in the U.S.
(cid:129) Concluded our first major competition for our Blast Gauge, which was developed to monitor impulse noise and
concussive impacts, in the fourth quarter of 2022
(cid:129) AirBoss Engineered Products successfully concluded contract negotiations with key customers and suppliers,
the impacts of which were evident in Q4 segmented results
NET SALES1
($MM)
ADJUSTED EBITDA1, 2
($MM)
PROFIT TO SHAREHOLDERS
($MM)
$586.9
$501.6
$477.2
10%
CAGR1
$328.1
$316.6
$700
$600
$500
$400
$300
$200
$100
$0
$105.6
$80.3
$45.3
14%
CAGR1
$32.2
$26.1
$120
$100
$80
$60
$40
$20
$0
$70
$60
$50
$40
$30
$20
$10
$0
-$10
-$20
-$30
-$40
$46.7
$33.7
$47.4
$36.1
$10.2
$8.5
$8.9
$10.9
$12.6
-$31.9
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
1. CAGRs are calculated for the period
2018 – 2022 inclusive.
2. Adjusted EBITDA and Adjusted Profit are non-IFRS
financial measures. Please see our financial
disclosures below and on page 12 of this Annual
Report for further information.
In thousands of US dollars
EBITDA:
Profit
Finance costs
Depreciation, amortization,
and impairment
Income tax expense
EBITDA
ADG transaction fees
Insurance provision
Adjusted EBITDA
2019
2018
10,219
3,831
8,536
2,921
13,716 10,966
4,316
3,252
32,082 25,675
390
1,401
(1,287)
–
32,196 26,065
In thousands of US dollars
Adjusted profit:
Profit
ADG transaction fees
Insurance provision
Adjusted profit
2019
2018
ADJUSTED PROFIT2
10,219
1,401
(672)
10,948
8,536
390
–
8,926
A N N U A L R E P O R T
11
MESSAGE TO SHAREHOLDERS
ON THE HEELS OF A RECORD YEAR OF FINANCIAL PERFORMANCE AND CORPORATE GROWTH IN 2021, OUR FOCUS
THROUGHOUT AIRBOSS IN 2022 WAS ON INTEGRATION AND EXECUTION FROM OUR NEWLY EXPANDED OPERATING
PLATFORM. OUR STRATEGIC OBJECTIVES CENTERED ON USING OUR STRENGTHENED PRODUCTION CAPABILITIES
AND INNOVATIVE PRODUCT PORTFOLIO TO SECURE NEW BUSINESS AND ADDING CUSTOMER RELATIONSHIPS TO
DIVERSIFY OUR MARKET ACCESS. AT THE SAME TIME, WE CONTINUED TO MANAGE WITHIN THE CHALLENGING
BUSINESS ENVIRONMENT FACED BY GLOBAL MARKETS – ONGOING DISRUPTIONS TO THE GLOBAL SUPPLY CHAIN
AND PERSISTENT, HIGH LEVELS OF COST INFLATION CREATED A BACKDROP OF BUSINESS UNCERTAINTY.
As we felt the impact of these
business conditions coupled with a
post-pandemic decline in the nitrile
glove market, it underscored the
importance of our work to improve
the factors over which we had a
degree of control. Throughout our
business, we accelerated efforts to
capture production and cost
efficiencies, while successfully
completing steps to strengthen the
positioning and profitability within
specific business units. We are
pleased to have made meaningful
strategic advancements across many
parts of our business in 2022.
CAPITALIZING ON OUR CAPABILITIES
WITHIN RUBBER SOLUTIONS
Past investments made within AirBoss
Rubber Solutions (“ARS”) to improve
automation and efficiency and expand
the array of compounds and colors
available to our customers led to record
revenue and gross margin
contributions in 2022. These
performance improvements were
supported by production capacity
additions, new compounding expertise,
and expanded access to key markets in
the United States.
Within 2022, the ARS team focused on
the seamless integration of our
2
acquisition of Ace Elastomer. Since our
acquisition in 2021, the value added by
the Ace team has surpassed our
expectations and has helped to solidify
our leading role in the North American
color and specialty rubber compounding
space. Ace’s rubber-compounding
capabilities and geographic reach
combined with the skills and talent
added to our team have been an
excellent addition to AirBoss.
From an operations and execution
perspective, we are grateful to the entire
ARS team for the strong improvements
made in our business practices, and we
believe we are well-equipped to carry
these capabilities into the coming year
and beyond. The longer-term priorities
for our ARS team remain intact – to
deliver growth through our positioning
as a leading specialty supplier and
supply chain partner in North America.
ADG POSITIONED TO PROVIDE
VALUABLE SUPPORT TO THE
FRONT LINES
Within our AirBoss Defense Group, or
“ADG”, while the cadence of contract
awards meant that our annual sales
performance did not match the record
sales from this business segment in
2021, we regained important
momentum in the latter part of 2022
with new contract awards. ADG’s track
record of on-time, on-budget execution
using Made in America production
capabilities supported its success in
securing new business that
demonstrates the diverse array of
technologies provided to customers.
In December, we announced an
agreement to support the delivery of
COVID testing kits to the Defense
Logistics Agency in the U.S. These kits
are expected to be a strategic part of
the U.S. Military’s ability to effectively
respond to future national emergencies.
Earlier in the fourth quarter of 2022, we
also announced new contracts to
manufacture and supply Husky 2G
vehicles. These counter-improvised
explosive device, or C-IED vehicles, are
equipped with industry-recognized route
clearance and threat detection systems,
which are a key part of ADG’s suite of
survivability solutions. We believe these
contract wins are tangible evidence of
the technology, manufacturing, and
execution strengths we bring to our role
as a key supplier to large-scale
customers. These awards also show our
commitment to cultivating industry
partnerships to advance our technology
offerings and market access.
As we exited 2021, we were clear in our
commitment to working with AEPs
partners and customers to resume a
more stable financial footing for its
continued operation. The strong long-
term relationships built in this business
provided essential support to our efforts
to modify our agreements with key
customers in a manner that allowed for
improved recognition of rapidly rising
costs related to personnel, logistics, and
raw materials. We are excited to report
the successful conclusion of this
contract renewal process, which along
with our cost improvement and market
diversification initiatives are expected
to support improved financial
performance within AEP in the future.
LOOKING FORWARD
AirBoss continues to press ahead
against a backdrop of general
macroeconomic uncertainty, which we
expect will have varying degrees of
impact on customer demand levels in
the coming year. Throughout our
business segments, the final weeks of
2022 and the start of 2023 showed
signs of slowing business activity, while
expert projections of a potential
economic slowdown remain divided. For
our business units, productivity for ARS
was strong in 2022, so a downturn in
customer demand could potentially
affect its results and offset our efforts
to increase our throughput and gain
market share. Having now re-gained
stable footing for AEP, we continue to
see opportunities to improve its
financial performance, both through
increased sales to our core customers
and through further expansion of our
opportunity set into non-automotive
applications. For ADG, we expect that
the main market drivers for its
technology solutions are intact, and we
are optimistic that our clients remain
focused on advancing their bid
processes and awarding new business
following multiple delays as
governments grappled with their
response to the Russian invasion of
Ukraine. On the M&A front, we continue
to monitor potential acquisitions with a
focus on building our product portfolio,
advancing our technical capabilities,
and expanding our geographic reach.
During 2022, our operations team was
focused on completing the integration
of BlackBox Biometrics, or B3, into the
ADG operating platform. B3 has brought
valuable engineering and technical
bench strength along with access to
product innovations focused on noise
and impact detection and monitoring,
which are now core parts of ADG’s suite
of survivability solutions.
Looking forward, we believe ADG
remains competitively positioned to win
new survivability and healthcare sales
opportunities. In 2022, our AirBoss 100
Half Mask Respirator, which is a more
cost-effective and portable alternative
to competing products, underwent field
testing, and customer-specific
modifications were made. Our Blast
Gauge, which was developed to monitor
over-pressure events, concluded its first
major competition with the submission
of final prototypes in the fourth quarter
of 2022. These technologies along with
others within ADG diversify the solutions
we can provide and should competitively
position this business to secure new
business in the coming year.
RENEWED OPPORTUNITIES WITHIN
ENGINEERED PRODUCTS
Having faced multiple challenges
over the 2021 and 2022 timeframe,
we are confident that our Engineered
Products business has taken valuable
strategic steps to improve its
financial performance.
AEP experienced acute problems from
rapidly escalating raw material prices,
supply chain disruptions, and specific
issues due to global shortages of the
computer chips required by auto
OEMs. Similar to our ARS business,
AEP’s operations team focused on
upgrading capabilities and expanding
sales opportunities. Its use of
automation technology increased,
efforts to reduce operating expenses
accelerated, and innovative new
products were introduced to diversify
its customer reach into new non-
automotive industries and enhance
margins. The changes made by our
AEP team in 2022 have meaningfully
improved the positioning and
resilience of this business.
A N N U A L R E P O R T
In closing, we have increased confidence
that we have re-gained the high ground
for each of our businesses from a
product, production, and execution
perspective. From this improved vantage
point, we will focus on leveraging our
core expertise to win new business and
expand our market share. We want to
thank our shareholders for their support
as we continue our work to strengthen
and grow our business. Our thanks also
go to our Board of Directors for their
commitment to the strategic direction of
AirBoss. And finally, we extend our thanks
to our employees for their dedication to
building our capabilities, resilience, and
ability to capture new opportunities, all
while cultivating a safe, diverse, and
inclusive working environment. These
factors are at the core of AirBoss’ ability
to succeed in the future.
P.G. Schoch
Chairman and CEO
Chris Bitsakakis
President and COO
3
AirBoss Defense Group (“ADG”) is a
diversified developer, manufacturer, and
supplier of survivability solutions for military,
first response and healthcare applications.
Our products range from personal protective equipment (“PPE”) for
military and healthcare settings; to masks, boots, gloves, shelters
and isolation products for industrial and military-grade protection
against chemical, biological, radioactivity and nuclear (“CBRN”)
threats; and blast monitoring and route clearance solutions for
military personnel on active duty.
BLACKBOX
BIOMETRICS
ADG has taken important steps to fortify its competitive positioning in the
survivability solutions market. With its 2021 acquisition of Black Box Biometrics®,
Inc. (“B3”), ADG gained skills and products including the Blast Gauge® System of
lightweight, wearable blast overpressure sensors, which has been outfitted on
Special Forces, Army and SWAT units across the U.S. We believe significant
potential exists for deployment of this innovative technology, both domestically
and around the world.
As global militaries advance their practices and the assets they rely on during
active combat and training exercises, it is essential to ensure the safe ongoing use
of the tools required to get the job done. If not monitored and managed, blast
overpressure induced by many modern weapon systems can negatively impact
service member health and overall force readiness. The Blast Gauge® System is
operationally proven to help modern militaries safely and effectively employ these
critical combat capabilities.
Through B3, ADG also gained expertise in the next generation of detection and
monitoring solutions, including those for impulse noise (e.g. medium caliber
firearms) and concussive impact (e.g. full body contact sports like football,
hockey, etc.).
4
THE HUSKY 2G VEHICLE
SYSTEMS IN THE FIELD
ADG’s Husky 2G is a blast-survivable,
mission-configurable vehicle platform that
employs a range of radar and sensor
systems for countermine and non-
conventional explosive detection.
Approximately 1,500 Husky systems are
deployed to military customers globally and
have survived more than 8,000 blasts
without a single soldier fatality.
In November, ADG announced the latest order
for our Husky 2G vehicles, along with
comprehensive training and sustainment
supplies. Through these contracts, ADG will
provide critical, best-in-class route clearance
and threat detection and interrogation
capabilities that enable a rapid response to
the growing international demand for
survivability solutions delivered by ADG.
The two-operator Husky 2G clearance vehicle
was developed to meet the operational
requirement for longer, more complex,
mounted clearance missions and the
employment of more sophisticated vehicle
payloads. Built with a unique V-shaped hull
and modular design, the Husky 2G C-IED
protects operators from blast impacts, small
arms fire, and challenging terrain while
supporting sensor systems for threat
detection, identification, and mitigation.
HUSKY 2G
THE HUSKY 2G CAN BE
EQUIPPED WITH A FULL
COMPLEMENT OF DETECTION
SYSTEMS AND PERIPHERY
SUBSYSTEMS INCLUDING:
GROUND PENETRATING
RADAR (“GPR”)
M20 INTERROGATION
ARMS
ROLLOVER DETECTION
SYSTEMS
360 CAMERA
SYSTEM
RPG-DEFEAT
NETTING
ADG’S 2022 LAUNCH
OF THE AIRBOSS 100
In May of 2022, ADG introduced its AirBoss
100™ Half Mask Respirator ("AirBoss 100"),
with applications in industries including
healthcare and medical providers, law
enforcement, and first responders.
Approved by the National Institute of
Occupational Safety and Health (NIOSH),
the AirBoss 100 is lightweight and
comfortable, reducing the burden typically
associated with long-term respirator wear.
Some of the key features of the AirBoss 100
include superior filtration and protection,
low breathing resistance, comfortable
extended wear, and low-cost cleaning
and maintenance.
To augment our current business platform,
ADG’s strategic focus is on opportunities to
broaden our suite of survivability solutions
and complement our existing product
offering, targeting medical professionals,
first responders, special tactics teams, and
militaries around the globe.
A N N U A L R E P O R T
“AirBoss Defense Group is growing its worldwide leadership in
survivability solutions, ranging from IED detection to high-risk
environment personal protective equipment. The Husky 2G is a
cornerstone product in our portfolio of survivability solutions and is the
most survivable vehicle available on the battlefield, providing
unparalleled route clearance capabilities to U.S allies around the world.”
Patrick Callahan, CEO of AirBoss Defense Group.
ADG NET SALES
($MM)
ADG GROSS PROFIT
($MM)
$116.7
$112.0
$329.9
$302.3
$133.2
$350
$300
$250
$200
$150
$100
$85.6
$50
$0
$140
$120
$100
$80
$60
$40
$20
$0
-$20
$21.8
-$11.0
2019
2020
2021
2022
2019
2020
2021
2022
5
AirBoss Rubber Solutions (“ARS”) is North
America’s second-largest custom compounder with
more than 500 million pounds of annual capacity.
ARS produces over 2,000 proprietary compounds for customers in the industrial, defense, and resource
sectors, for use in tires, rollers, conveyor belting, and numerous other commercial applications.
ARS’ strategic focus is on expanding its compounding capabilities with an emphasis on high-value
compounds and specialty, high-performance elastomers; broadening its access to key end-use
markets in North America; and augmenting its market position through an emphasis on technical
expertise and innovation.
500
million pounds
annual capacity
2,000
proprietary
compounds
6
SOLIDIFYING OUR LEADERSHIP
IN RUBBER COMPOUNDING
Our focus on operating efficiency
combined with continued efforts to
strengthen our technical expertise and
manufacturing capabilities contributed
to ARS’ delivery of record financial
performance in 2022. A combination of
organic investments in our technical
skills and production assets, our
August 2021 acquisition of Ace
Elastomer, and a focus on leveraging
the capabilities of our newly expanded
platform each played an important role
in ARS’ record financial performance
during the year.
capabilities. As well, investments
in new equipment have supported
gains in operating efficiency through
higher levels of production automation,
which have enabled larger batch sizes
and shorter production cycles. The
addition of white/colour and tilt mixing
lines in our Kitchener facility has
strengthened AirBoss’ ability to provide
U.S.-based customers with
domestically produced color and
specialty compounded rubber products.
The overall expansion of ARS has
created important new opportunities to
capture operational efficiencies and
reduce costs across our larger
platform, with improved raw materials
purchasing power and enhanced
manufacturing and material handling
Alongside this growth, recent
investments in our R&D technical
Center and Laboratory in our Kitchener,
ON facility also ensured that as we
expanded production into new colours,
products, and formulations, we
successfully maintained high levels
of quality and consistency in our
finished products.
Ace has played an important part in the
strategic efforts within ARS. Through
the Ace acquisition, we gained valuable
access to its leading position in the
design, formulation development and
custom mixing of proprietary elastomer
compounds across the natural and
synthetic polymer range, including a
variety of custom mix compounds. In
addition to offering custom molding
and extrusion applications, Ace is a
market leader in rubber rollers and
serves the belting and printing
segments. Geographically, Ace
expanded ARS’ U.S. presence in the
Southeast while adding new access in
the Midwest, improving proximity to key
markets and customers. Given these
factors, Ace is closely aligned with
ARS’s long-term strategy of diversifying
our core compounding capabilities and
expanding our geographic presence.
ENHANCING OUR LONG-TERM
POSITIONING IN THE RUBBER BUSINESS
From its expanded platform, AirBoss remains focused on maintaining its leadership
position in high-volume black rubber and further expanding its capabilities in higher-
margin white/colour compounds and specialty, high-performance elastomers. From an
organic perspective, our efforts will center on ongoing research and development,
industry partnerships for applied development of customer solutions, and new
investment to improve our manufacturing capabilities. We expect that over the long-
term our organic growth initiatives will continue to enable us to grow volumes at rates exceeding industry levels, and our prioritization
of operational efficiency will support the price competitiveness of our products. We also continue to believe in the value to be gained
through acquisitions - accessing our available liquidity to pursue accretive acquisitions to expand our regional footprint, add
expertise, and build our industry relationships and product portfolio.
Our longer-term strategy is to continue our pursuit of further
growth of ARS using these same two primary channels.
ARS NET SALES
($MM)
ARS GROSS PROFIT
($MM)
$33.1
$20.5
$20.8
$18.6
$236.1
$171.6
$137.5
$119.1
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
$35
$30
$25
$20
$15
$10
$5
$0
2019
2020
2021
2022
2019
2020
2021
2022
7
A N N U A L R E P O R T
As one of the industry’s leading custom
molders, AirBoss Engineered Products (“AEP”)
manufactures customized rubber-based products
used in noise, vibration, and harshness (NVH) reduction applications across the automotive, electric
vehicle, heavy truck & off-highway, and defense industries, in addition to industrial and commercial
products for non-automotive manufacturers. AEP’s research & development, design, and
manufacturing resources are headquartered at our US-based location in Auburn Hills, Michigan.
AEP NET SALES
($MM)
AEP GROSS PROFIT
($MM)
$6.5
$5.3
$132.5
$116.6
$114.6
$135
$130
$124.9
$125
$120
$115
$110
$105
$7
$6
$5
$4
$3
$2
$1
$0
-$1
-$2
$2.0
-$1.2
2019
2020
2021
2022
2019
2020
2021
2022
8
PERSEVERANCE AGAINST A
CHALLENGING BUSINESS BACKDROP
Over the past two years, global
businesses have contended with
operational impacts from several
sources including the COVID-19
pandemic, rising inflation, global
supply chain disruptions, and the
effects of higher borrowing rates. For
AEP, these market factors placed
upward pressure on commodity prices,
reduced supply of key inputs, escalated
labour cost and availability issues, and
led to ongoing logistics challenges.
These factors were also having a
pronounced effect on AEP’s key
customers and supply chain partners,
which added to the problems faced by
this business segment.
Following the 2020/2021 timeframe
during which AEP was most
significantly impacted by these
business challenges, efforts to pursue
operating efficiencies, expand and
improve our product portfolio, and
renew long-standing customer
agreements led to positive momentum
in the financial performance of AEP
through the end of 2022.
The work we completed with AEP’s long-
standing partners in the automotive
industry was a prime example of the
issues we continued to manage and the
strategies being employed to manage
them. AEP continued its work to improve
product availability, drive higher levels
of production efficiency, and use our
ability to innovate to address changing
customer requirements. Efforts focused
on new engineering solutions to create
production efficiencies and offset input
cost increases, and leveraging the
expertise of our ARS material science
team to introduce compounds that
improve performance while reducing
risks related to raw materials
availability and pricing. AEP’s U.S.
manufacturing base also provided
essential support to efforts to localize
the production of key parts from
overseas, which has led to new
business wins. Our investments in new
injection presses and two robotic work
cells increased our throughput and
reduced our labour costs. These internal
initiatives and collaboration with supply
chain partners have meaningfully
strengthened the long-term capabilities
and competitiveness of AEP.
ADVANCING OUR PARTNERSHIPS
AND PRODUCTS FOR GROWTH
The strategic goals for AEP include expanding our market access and product portfolio to while establishing
and maintaining supplier and customer agreements that create long-term opportunities and mitigate risks
for those involved.
AEP continues to be a leading supplier
to the automotive industry with a focus
on the passenger automobile and light
truck sectors – this is a core part of our
business. As part our overall plan to
deliver stable, long-term growth,
AirBoss continues to investigate ways
to diversify its business toward
solutions for companies participating
in new end markets, including military,
heavy truck, bus, electric vehicle,
construction, agriculture and
recreational vehicles. Led by
management team members within
AEP that are specifically tasked with
expanding our non-automotive
presence, commercial sales of our first
non-automotive product commenced in
2020, and work continued on product
applications in the semi-truck as well
as other markets market in 2022.
A N N U A L R E P O R T
Leveraging AirBoss’ market presence in
serving military customers, AEP has
also launched new parts for military
vehicles. Our first non-vehicle products,
including AEP’s RamGuard which is a
reinforced guard for industrial racking,
have also been introduced. We remain
committed to increasing AEP’s sales
success in non-automotive
applications over the longer term.
In 2022, essential progress was made
toward our goal to establish supplier
and customer agreements that create
long-term opportunities while
mitigating risk. AEP successfully
concluded a series of arrangements
with key suppliers and customers that
serve to strengthen our financial
situation, and management expects
that these negotiations should support
the delivery of improved financial
results going forward.
For AEP, our long-term strategy remains
focused on capturing operational
improvements and using our core
technical and manufacturing
capabilities to diversify our product
lines and strengthen our presence in
sectors adjacent to the automotive
space, all in support of strengthening
our leading market position.
9
2022
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 13, 2023 and should be read in conjunction with the
Consolidated Financial Statements and Notes for the year ended December 31, 2022 prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. 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 their 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;
current and future 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. The continued COVID-19 pandemic 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 the continued COVID-19 pandemic 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 Annual Report and, whether as a result of new information, future events
or otherwise, AirBoss disclaims any intent or obligation to update publicly the forward-looking information except as required by
applicable laws. Risks and uncertainties about AirBoss’ business are more fully discussed under the heading “Risk Factors” in our
most recent Annual Information Form and are otherwise disclosed in our filings with securities regulatory authorities which are
available on SEDAR at www.sedar.com.
10
AirBoss of America Corp.
MD&A (cont’d)
OVERALL PERFORMANCE
Recent Highlights
(In US dollars)
• Record sales and profitability for the Rubber Solutions segment;
• AirBoss Defense Group supported initial delivery of COVID-19 test kits to the US Government;
• Adjusted EBITDA1 of $45.3 million (excluding the $57.0 million write-down of inventory) on Adjusted Profit1 of $12.6 million and
a loss of $31.9 million;
• Finished 2022 with a Net Debt to Adjusted EBITDA ratio1 of 2.43x; and
• Declared a quarterly dividend of C$0.10 per common share.
Selected Financial Information
In thousands of US dollars, except share data
For years ended December 31
2022
2021
2020
Financial results:
Net sales
Profit (loss)
Profit (loss) attributable to owners of the Company
Adjusted Profit attributable to owners of the Company1
Earnings (loss) per share (US$)
– 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
Debt2
Net Debt1
Shareholders’ equity
Outstanding shares*
*27,092,041 at March 9, 2023
477,155
(31,892)
(31,892)
12,558
(1.18)
(1.18)
0.46
0.45
(12,769)
45,336
(30,775)
(40,964)
0.40
10,212
586,858
46,703
46,703
47,374
1.73
1.65
1.76
1.67
79,591
80,341
2,023
(15,961)
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
440,766
143,642
110,083
196,997
27,092,041
443,264
80,563
56,033
235,148
26,993,181
367,369
90,734
(9,718)
194,588
26,908,802
1See Non-IFRS Financial Measures
2Debt includes $15,007 of lease liabilities (2021: $17,399; 2020: $13,482)
A N N U A L R E P O R T
11
2022
MD&A (cont’d)
NON-IFRS FINANCIAL MEASURES
This MD&A is based on consolidated financial statements prepared in accordance with IFRS and uses Non-IFRS 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 profit or loss 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 (loss) to EBITDA
and Adjusted EBITDA is below.
In thousands of US dollars
EBITDA:
Profit (loss)
Finance costs
Depreciation, amortization, and impairment
Income tax expense (recovery)
EBITDA
Acquisition fees
Prospectus fees
Professional fees related to AEP negotiations
Write-down of inventory
Adjusted EBITDA
2022
2021
2020
(31,892)
5,738
21,905
(8,520)
(12,769)
–
–
1,104
57,001
45,336
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
Adjusted profit attributable to owners of the Company is a non-IFRS measure defined as profit (loss) 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
2022
2021
2020
Adjusted profit attributable to owners of the Company:
Profit (loss) attributable to owners of the Company
Acquisition fees
Prospectus fees (after tax)
Professional fees related to AEP negotiations (after tax)
Write-down of inventory (after tax)
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
(31,892)
–
–
844
43,606
12,558
27,071
28,109
0.46
0.45
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
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
2022
2021
2020
2,286
141,356
(15,007)
(18,552)
110,083
2,356
78,207
(17,399)
(7,131)
56,033
27,083
63,651
(13,482)
(86,970)
(9,718)
The Company has a Net Debt to trailing twelve-month Adjusted EBITDA ratio of 2.43x (2021: 0.70x, 2020: (0.09)x)
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 net cash provided by (used in) operating activities to free cash flow is below.
In thousands of US dollars
2022
2021
2020
Free cash flow:
Net cash provided by (used in) operating activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from government grant
Proceeds from disposition
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
(30,775)
(8,800)
(1,392)
–
3
(40,964)
27,071
27,071
(1.51)
(1.51)
2,023
(16,912)
(1,081)
–
9
(15,961)
26,970
26,970
(0.59)
(0.59)
104,399
(14,215)
(719)
500
–
89,965
24,032
24,901
3.74
3.61
OVERVIEW
2022 was a challenging year for AirBoss as the company focused on managing risks at the corporate level and in each segment,
while continuing to execute our strategic plan to deliver strong operational and financial results. The Company navigated
significant and extensive obstacles including supply chain and logistics challenges, while beginning to see some modest
improvements from previous record raw material price increases. AirBoss also worked diligently to address and mitigate the
impact of uncertain economic conditions on its business and that of its customers during Q4 2022, including risk mitigation plans
within its supply chain and a focus on growth initiatives and key investments, while maintaining its focus on a safe work
environment for its employees.
The Rubber Solutions and AirBoss Defense Group ("ADG") segments experienced residual softness in Q4 2022, while the
Engineered Products segment was able to work with its key suppliers and customers to strengthen its financial situation and
management expects this segment to deliver improved financial results in 2023. The continued recovery in volumes in 2023 for
each segment will remain subject to the ongoing management of the stable and sustained operations of businesses globally,
which remains complex and volatile considering evolving and ongoing challenges such as continued inflation pressure and the
ongoing war in Ukraine, and successful conversion of opportunities.
For the Rubber Solutions segment, 2022 was a record year from a sales and EBITDA perspective, with strong momentum during
the first three quarters and some pronounced softness experienced at the end of Q4 2022 as sales were impacted by customers
focused on reducing inventory levels. Despite these headwinds, the segment remains focused on executing on its strategy to
deliver strong results with specialized products, expanded production of a broader array of compounds (white and color) and
enhanced flexibility in attracting and fulfilling new business through identified synergies and margin expansion. As a segment,
Rubber Solutions continued to invest in research and development to support enhanced collaboration with customers and
remained focused on integrating Ace Elastomer’s (“Ace”) specialized products into its expanding range of solutions.
ADG remained focused on its survivability solutions platform while targeting traditional defense contracts in line with its long
term strategy of expanding its product portfolio. In addition, ADG continued to work with its key customers to leverage
opportunities aligned with its growth initiatives, subject to timing as delays in the conversion of these opportunities continued
through the fourth quarter of 2022. In particular, execution of the previously announced awards for Husky 2G vehicles has been
delayed due to ongoing global challenges, and management now anticipates execution of those orders to commence by the end
of the second quarter of 2023. Management continues to believe that the future sourcing of Personal Protective Equipment
("PPE") for first responders and healthcare professionals will remain a necessity and priority for front line workers, evidenced by
the strong pipeline of PPE-related opportunities that ADG is currently pursuing.
Within the Engineered Products segment, 2022 finished strong despite being a challenging year given the continued impact of
raw material price increases, supply chain challenges and production volatility by the original equipment manufacturers (OEMs).
Engineered Products was able to work with its key suppliers and customers to strengthen its financial situation and management
expects this segment to deliver improved financial results in 2023. Management also continued to focus on operational
improvements including managing variable costs and sustaining a stable hourly workforce, while dealing with volume volatility
in the automotive sector and specifically on AirBoss' products for SUV, light truck and mini-van platforms. The segment also
continued its focus and commitment to drive efficiencies and best-in-class automation, as well as diversification of its product
lines into sectors adjacent to the automotive space.
A N N U A L R E P O R T
13
2022
MD&A (cont’d)
In December 2022, a statement of claim was filed in the Ontario Superior Court of Justice against AirBoss and several named
officers. The applicants under the proceeding seek an order for leave to proceed under the Securities Act (Ontario), certifying
the proceeding as a class proceeding and appointing them as representative plaintiffs. The applicants seek, among other relief,
a declaration that the Company made misrepresentations contrary to the Securities Act (Ontario) during a period extending from
November 9,2021 to September 6, 2022, as well as unspecified damages. No provision for contingent losses has been
recognized in the Company’s annual consolidated financial statements.
Despite the continued headwinds associated with economic and geopolitical issues, 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 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 16 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, 2022 compared to 2021
NET SALES
Consolidated net sales for the year ended December 31, 2022 decreased by 18.7% to $477,155, compared with 2021 primarily
due to ADG's delivery of nitrile gloves to the U.S. Department for Health and Human Services ("HHS") in the prior year, partially
offset by increased sales at Rubber Solutions across the majority of customer sectors and improved performance at the Engineered
Products segment.
In thousands of US dollars
Net Sales
Increase (decrease) $
Increase (decrease) %
2022
2021
AirBoss
Defense Group
133,160
329,916
(196,756)
(59.6)
Rubber
Solutions
236,149
171,553
64,596
37.7
Engineered
Products
132,512
116,621
15,891
13.6
Inter-segment
net sales
(24,666)
(31,232)
6,566
(21.0)
Total
477,155
586,858
(109,703)
(18.7)
AirBoss Defense Group
Net sales in the AirBoss Defense Group segment decreased by 59.6% to $133,160 in 2022, from $329,916 in 2021. The decrease
was primarily due to ADG's delivery of filters and nitrile gloves to HHS in 2021.
Rubber Solutions
Net sales in the Rubber Solutions segment increased by 37.7%, to $236,149 in 2022, from $171,553 in 2021. This was a record
year for Rubber Solutions. Volume was up 3.3% with increases across the majority of sectors despite residual softness due to
economic headwinds.
Tolling volumes for the year ended December 31, 2022 decreased by 11.9%, compared with 2021. Non-tolling volumes for the year
ended December 31, 2022 increased by 6.6% compared with 2021. The overall increase in volume was across several sectors with
strong increases in industrial, conveyor belt applications and specialty applications.
Engineered Products
Net sales in the Engineered Products segment increased by 13.6%, to $132,512 in 2022, from $116,621 in 2021. The increase was
due to increased volume and improved arrangements with key suppliers and customers in the SUV, light truck and mini-van
platforms compared to the same period in the prior year.
14
AirBoss of America Corp.
MD&A (cont’d)
GROSS PROFIT
For the year ended December 31, 2022, consolidated gross profit was down by $112,167 to $24,131. Gross profit as a
percentage of net sales decreased to 5.1% from 23.2% in 2021. The decrease was driven by a $57.0 million non-cash write-
down at ADG related to nitrile glove inventory and the delivery of nitrile gloves to HHS in 2021, partially offset by significant
improvements at the Rubber Solutions and Engineered Products segments.
In thousands of US dollars
Gross Profit
Increase (decrease) $
% net of sales
AirBoss
Defense Group
(10,970)
116,658
(127,628)
(8.2)
35.4
2022
2021
2022
2021
Rubber
Solutions
33,084
20,836
12,248
14.0
12.1
Engineered
Products
2,017
(1,196)
3,213
1.5
(1.0)
Total
24,131
136,298
(112,167)
5.1
23.2
AirBoss Defense Group
Gross profit at AirBoss Defense Group for the year ended December 31, 2022 was $(10,970), down $127,628 compared with
$116,658 in 2021. The decreases were primarily the result of the $57.0 million inventory write-down and deliveries to HHS in 2021,
partially offset by favorable volume in ADG's industrial products line.
Rubber Solutions
For the year ended December 31, 2022, gross profit for Rubber Solutions was $33,084 (14.0% of net sales), up $12,248 compared
to $20,836 (12.1% of net sales) in 2021. The increase was primarily as a result of increased non-tolling volumes compared to the same
period in 2021 and managing controllable overhead costs, partially offset by labor and logistics costs and the elimination of government-
directed subsidies in the first half of 2021.
Engineered Products
Gross profit for the year ended December 31, 2022 in the Engineered Products segment was $2,017, up $3,213 compared with
$(1,196) in 2021. The increase was primarily a result of increased volume, improved arrangements with Engineered Products’ key
suppliers and customers and a continued focus on controllable operational cost containment and managing overhead costs, partially
offset by a government-directed wage subsidy in the first half of 2021 and challenges associated with global electronic chip shortages
in the automotive sector combined with some residual raw material cost escalations, freight and logistics costs earlier in the year.
OPERATING EXPENSES
Consolidated operating expenses for the year ended December 31, 2022 decreased by $18,783 to $58,805 compared with
2021. The decrease was primarily due to lower stock-based compensation expenses and lower selling costs, partially offset
by higher professional fees related in part to negotiations at AEP, the elimination of government-directed wage subsidies,
inclusion of Blackbox Biometrics, Inc. (“B3”) and Ace for a full year, higher administrative costs, and a larger foreign exchange
loss. As a percentage of net sales, operating expenses for the year ended December 31, 2022 decreased to 12.3% from 13.2%
in 2021.
In thousands of US dollars
Operating Expenses
Increase (decrease) $
% net of sales
AirBoss
Defense Group
29,051
41,660
(12,609)
21.8
12.6
2022
2021
2022
2021
Rubber
Solutions
13,389
9,711
3,678
5.7
5.7
Engineered
Products
13,289
10,033
3,256
10.0
8.6
Corporate
3,076
16,184
(13,108)
N/A
N/A
Total
58,805
77,588
(18,783)
12.3
13.2
AirBoss Defense Group
AirBoss Defense Group's operating expenses for the year ended December 31, 2022 decreased by 30.3% to $29,051. The
decrease was primarily due to lower selling costs and administrative costs, partially offset by the inclusion of B3 for a full year
and amortization of B3's intangible assets, the elimination of government-directed wage subsidies, and higher R&D costs.
Rubber Solutions
Rubber Solutions' operating expenses for the year ended December 31, 2022 increased by 37.9%, to $13,389, compared with
$9,711 in 2021. The increase was primarily due to the inclusion of Ace for a full year and amortization of Ace's intangible
assets, higher administration costs and the elimination of government-directed wage subsidies, partially offset by a larger foreign
exchange gain.
Engineered Products
Engineered Products' operating expenses for the year ended December 31, 2022 increased by 32.5% to $13,289. The increase
was due to higher professional fees, the elimination of government-directed wage subsidies, and higher administration costs.
Unallocated Corporate Costs
Unallocated corporate costs for the year ended December 31, 2022 decreased by $13,108 from 2021. The decrease was
principally due to lower stock-based compensation expenses and lower administration costs, partially offset by higher
professional fees, the elimination of government-directed wage subsidies, and a larger foreign exchange loss.
A N N U A L R E P O R T
15
2022
MD&A (cont’d)
FINANCE COST
Finance costs in 2022 were $5,738 (2021: $4,178). The increase was primarily due to greater borrowings and increased
borrowing costs along with higher banking fees, partially offset by gains on the interest rate swap.
INCOME TAX EXPENSE
For the year ended December 31, 2022, the Company recorded an income tax recovery of $8,520 (2021: expense of $7,829)
or an effective income tax rate of 21.1% (14.4% in 2021). The effective tax rate increased due to the recognition of temporary
differences recognized in 2021.
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
2022
(10,709)
2,137
225
259
(309)
(14)
(109)
(8,520)
2021
14,452
(1,377)
(1,124)
(199)
(543)
(3,464)
84
7,829
2022
2021
26.50%
(5.29%)
(0.56%)
(0.64%)
0.76%
0.03%
0.27%
21.07%
26.50%
(2.53%)
(2.06%)
(0.36%)
(1.00%)
(6.35%)
0.15%
14.35%
PROFIT (LOSS) AND EARNINGS (LOSS) PER SHARE
Net loss in 2022 amounted to $31,892, compared with a profit of $46,703 in 2021. The basic and fully diluted net loss per share
were $1.18 (2021: earnings of $1.73 and $1.65, respectively). The decreases were primarily attributable to ADG's $57.0 million
inventory write-down, and deliveries of filters and nitrile gloves to HHS in 2021.
QUA RTERLY INFORMATION
In thousands of US dollars
Quarter Ended
2022
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
2021
December 31, 2021
September 30, 2021
June 30, 2021
March 31, 2021
Fourth Quarter 2022 Results
Net Sales
117,453
104,682
110,547
144,473
249,053
112,027
118,449
107,329
Earnings (loss) per share
Diluted
Profit (loss)
Basic
11,997
(55,957)
2,492
9,576
15,162
6,902
18,320
6,319
0.44
(2.07)
0.09
0.35
0.56
0.26
0.68
0.23
0.43
(2.07)
0.09
0.34
0.53
0.24
0.65
0.22
NET SALES
Consolidated net sales for Q4 2022 decreased by 52.8% to $117,453, from $249,053 in Q4 2021, with a decrease from ADG
partially offset by increases from Rubber Solutions and Engineered Products for the reasons outlined below.
AirBoss Defense Group
AirBoss Defense Group's net sales for Q4 2022 decreased by 88.7% to $19,806 compared with Q4 2021. The decrease
was primarily the result of delivery under the nitrile patient examination gloves contract from HHS, as part of the U.S.
government's response to the COVID-19 pandemic, in the prior year.
Rubber Solutions
Net sales for Q4 2022 in the Rubber Solutions segment increased by 9.8% to $57,778, from $52,616 in Q4 2021. The
increase in net sales for Q4 2022 was primarily in the conveyor belt, OTR/retread, industrial and specialty products sectors.
Tolling volume was down 46.0%, while non-tolling volume was down 4.5% driven by decreases 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.
Engineered Products
Engineered Products net sales for Q4 2022 increased by 64.8% to $46,655 compared with Q4 2021. The increase a result
of improved volumes across several automotive product lines in particular the muffler hangers, bushings, and spring
insulator product lines in addition to improved arrangements with Engineered Products’ key suppliers and customers
recognized in the quarter.
16
AirBoss of America Corp.
MD&A (cont’d)
GROSS PROFIT
Consolidated gross profit for Q4 2022 decreased to $24,767 (21.1% of net sales) from $51,444 (20.7% of net sales) in Q4 2021,
with decreases in the AirBoss Defense Group segment partially offset by increases in the Rubber Solutions and Engineered
Products segments.
AirBoss Defense Group
AirBoss Defense Group's gross profit for Q4 2022 decreased by $44,920 to $2,904 compared with Q4 2021.The decrease was
primarily due to delivery of nitrile patient examination gloves to HHS in the prior year.
Rubber Solutions
Gross profit at Rubber Solutions for Q4 2022 was $6,915 (12.0% of net sales), compared with $5,869 (11.2% of net sales) in
Q4 2021. The increase in gross profit was principally due to product mix partially offset by a modest reduction in volume.
Engineered Products
Gross profit at Engineered Products for Q4 2022 increased by $17,197 to $14,948 compared with a loss of $2,249 in Q4 2021.
The increase was primarily a result of price, product mix, and volume in the automotive sector in addition to operational cost
containment, and managing overhead costs.
OPERATING EXPENSES
Consolidated operating expenses for Q4 2022 decreased by $14,611, compared with Q4 2021. The decrease was primarily
due to lower selling costs, lower stock-based compensation costs, lower administration costs, and a higher foreign exchange
gain, partially offset by higher professional fees related in part to key challenges addressed in the Engineered Products segment.
As a percentage of net sales, operating expenses in Q4 2022 were slightly higher than Q4 2021.
INCOME TAX EXPENSE
Tax expense for Q4 2022 decreased by $10,115 compared to Q4 2021. Income tax expense decreased due to lower pre-tax
income and recognizing tax assets during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company expects to fund its 2023 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 (2021: $250,000). As at
December 31, 2022, $130,813 was drawn against the credit facility.
For the period ended December 31, 2022, $30,775 of cash was consumed by operations (2021: $2,023 cash generated),
$10,189 was used for investing activities (2021: $64,559) and $52,202 was provided by financing activities (2021: $17,526
cash consumed). Cash and cash equivalents increased by $11,421 from $7,131 to $18,552, adjusted for the effect of
exchange rate fluctuations on cash held.
Operating activities
For the year ended December 31, 2022, cash used by operating activities increased by $32,798 compared to 2021. The increase
was due to a $78,595 decrease in profit and higher interest payments of $2,014, partially offset by higher non-cash expenses of
$33,997, a $7,056 decrease in cash consumed by net working capital and decreased tax payments of $6,758.
Cash consumed by working capital for the year ended December 31, 2022 was $58,490 (2021: $65,546) as a result of the following
factors:
• Cash used for trade and other receivables was $12,252 due to increased sales at the Engineered Products and Rubber
Solutions segments;
• Cash used for inventories was $25,140, primarily related to AirBoss Defense Group's carryover inventory of nitrile gloves,
and raw material safety stock at the Rubber Solutions segment;
• Cash from prepaid expenses was $727 primarily from taking delivery of inventory paid by deposit;
• Cash used for trade and other payables was $19,997 due to lower volumes at AirBoss Defense Group, partially offset by
increased activity at the Rubber Solutions and Engineered Products segments.
• Cash used for provisions of $1,828 related to the payout of preferred share units and payments to former owners of acquired
businesses.
A N N U A L R E P O R T
17
2022
MD&A (cont’d)
Investing Activities
Property, Plant and Equipment
For the year ended December 31, 2022, the following investments were made in each segment:
AirBoss Defense Group invested $1,292. $408 was invested in growth initiatives, and the balance was invested to replace or
upgrade existing property, plant and equipment.
Rubber Solutions invested $6,548. $1,267 was invested in growth initiatives, $1,310 in cost savings initiatives, and the balance
was invested to replace or upgrade existing property, plant and equipment.
Engineered Products invested $960. $206 was invested in growth initiatives, $352 was invested in cost savings initiatives, and
the balance was invested to replace or upgrade existing property, plant and equipment.
Intangible assets
The Company invested $1,392 on productivity software and 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 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. The Company expects to
modify the credit facilities in March 2023 to convert borrowing rates from LIBOR to SOFR in line with market-wide changes. This
change is not expected to have a material impact on the consolidated financial statements.
In September 2022, the Company's lenders agreed to exclude the $57 million charge related to the nitrile gloves from the
calculation of financial covenants.
In April 2021 the Company's previous credit facility was amended to increase the revolving facility from $60 million to $150 million.
Deferred financing fees, less accumulated amortization have been deducted against borrowings for presentation purposes.
The fees are being amortized over the term of the credit facilities and $376 (2021: $324) has been amortized and is included in
finance costs.
Interest expense under the credit facility was $4,441 (2021: $3,817).
Commitments and contractual obligations
The Company’s contractual obligations as at December 31, 2022 are summarized below:
Revolving line of credit
Lease liabilities
Purchase obligations
Total
2023
–
2,286
30,854
33,140
2024
–
2,155
–
2,155
Payments Due In
2026
2025
–
2,153
–
2,153
130,048
2,257
–
132,305
2027 Thereafter
Total
–
2,388
–
2,388
–
3,768
–
3,768
130,048
15,007
30,854
175,909
Government assistance
Scientific research and investment tax credits of $839 were recognized in 2022 (2021: $813); research and development expenses
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 were 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 CAD per share was declared on November 8, 2022 and paid on January 16, 2023. Total dividends
declared during the year were $0.40 CAD per common share compared to $0.37 per common share in 2021.
Outstanding shares
As at December 31, 2022 the Company had 27,092,041 common shares outstanding.
18
AirBoss of America Corp.
MD&A (cont’d)
TRANSACTIONS WITH RELATED PARTIES
During the year, the Company paid $168 (2021: $176) to companies controlled by the Chairman & CEO of the Company for
use of office facilities.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Key management includes directors, Chairman & CEO, President & COO, CFO, and senior management. The compensation expense
to key management for employee services is shown below:
December 31
Salaries and other short-term benefits
Share-based payment expense (recovery)
2022
4,175
(5,313)
(1,138)
2021
6,297
8,332
14,629
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, 2022 (2021: 21.0%).
In March 2018, the Company provided a share purchase loan of CAD $500 to the President & COO that bears interest at 1%,
maturing March 2023. In June 2019, the Company provided share purchase loans of CAD $300 to the Executive Vice President,
General Counsel; and CAD $92 to the President & COO that bear interest at 2%, maturing June 2024. The loan to the Executive
Vice President, General Counsel was repaid in May 2022. In April 2022 the Company loaned $1,750 to the Chief Executive
Officer of ADG, secured by shares of the Company, bearing interest at 1%, maturing April 2023. All loans are due upon the
earlier of the disposition date of all or proportionate to any part of the pledged securities, and maturity. All share purchase loans
are full recourse and interest is due and payable semi-annually. In total, 141,178 shares of the Company having a fair value of
$776 were pledged as collateral on these loans. At December 31, 2022, the loan receivable of $2,203, including accrued
interest, were included in Other Assets on the consolidated statement of financial position. During the year, interest revenue
of $8 (2021: $7) was received.
NEW STANDARDS ADOPTED
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. This 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
2022
MD&A (cont’d)
FUTURE ACCOUNTING STANDARDS
Certain new accounting standards and interpretations have been published that are not mandatory for the current period and
have not been early adopted. Of those standards applicable to the Company none are expected to have a material impact on
its consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The Company’s preparation of consolidated 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 trade and other receivables and inventories, valuation of goodwill and other long-lived assets, accounting for
income taxes, and government assistance.
Valuation of Accounts receivable
As at December 31, 2022, AirBoss Defense Group recorded a $482 (2021: $252) allowance for impairment and the Rubber
Solutions segment recorded a $243 (2021: $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 forecast 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, 2022, a reserve for impaired inventory in the Rubber Solutions segment represents $732 (2021: $832).
AirBoss Defense Group maintains a provision of $60,817 (2021: $7,101) and the Engineered Products segment maintains a
provision of $1,515 (2021: $498).
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 2022 or 2021.
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 2022, there are no indicators of impairment based on assumptions which they believe to
be reasonable and no impairment charge was recorded.
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 amounts 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 17 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.
FINANCIAL INSTRUMENTS
Foreign exchange hedge
At December 31, 2022, the Company had contracts to sell $24,662 from January 2023 to September 2023 for Canadian dollars
("CAD") $33,000. The fair value of these contracts, representing an unrealized loss of $258, are included in trade and other
payables, including derivatives on the consolidated statement of financial position. The unrealized changes in fair value,
representing a loss of $205 (2021: $673), are recorded on the statement of profit as other expenses.
Interest rate swap
In December 2020, the Company entered into an interest rate swap agreement for a notional amount of $28,125 ($24,375 as
at December 31, 2022) 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%. In February 2023,
the Company entered into an interest rate swap agreement for a notional amount of $25,000, maturing in February 2025. The
swap agreement calculates interest based on the difference between the floating rate of SOFR and a fixed rate of 4.31%.
During 2022, interest recovery on the swap agreement was $310 (2021: expense of $44).
At December 31, 2022, the fair value of this agreement, representing a gain of $52 (2021: $48), is included in loans and
borrowings on the consolidated statement of financial position. The change in the fair value, representing a gain of $4 (2021:
$105), is recorded on the consolidated statement of profit as finance costs. The Company entered into the interest rate swap
agreements to fix the interest rate on a portion of its borrowings and does not hold them for trading or speculative purposes.
Share price hedge
In November 2022, the Company entered into hedging arrangements to reduce its exposure to the change in share price related to
its share-based compensation. At December 31, 2022, the fair value of these agreements, representing a gain of $223 is included
in trade and other receivables, including derivatives on the consolidated statement of financial position. The change in the fair value,
representing a gain of $223, is recorded on the consolidated statement of profit (loss) as other expenses.
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
2022
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
2022
(8.19)
(4.42)
(2.82)
(3.60)
(0.83)
(19.86)
2021
(7.27)
(3.64)
(2.55)
(2.45)
(0.75)
(16.66)
Competition and Price Pressure
The Company competes directly against major North American and international companies. 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.
Litigation
In December 2022, a statement of claim was filed in the Ontario Superior Court of Justice against AirBoss and several named
officers. The applicants under the proceeding seek an order for leave to proceed under the Securities Act (Ontario), certifying
the proceeding as a class proceeding and appointing them as representative plaintiffs. The applicants seek, among other relief,
a declaration that the Company made misrepresentations contrary to the Securities Act (Ontario) during a period extending from
November 9, 2021 to September 6, 2022, as well as unspecified damages. No provision for contingent losses has been
recognized in the Company’s annual consolidated financial statements.
In addition to ongoing litigation, the Company may become party to litigation from time to time in the ordinary course of business
which could adversely affect our business. Should any litigation in which the Company becomes involved be determined against
the Company, such a decision could adversely affect the Company’s ability to continue operating and the market price for our
shares, and could require the use of significant resources. Even if the Company is involved in litigation and wins, litigation can
redirect significant Company resources.
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 CAD and 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 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 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
2022
(1.9)
6.1
2021
(1.8)
6.5
(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 9% (2021: 40%) of consolidated net sales in 2022. Five
customers represented 33% (2021: 56%) of consolidated net sales in 2022. 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
2022
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.
Climate Change Risks
Extreme weather events such as floods and windstorms and other natural disasters such as earthquakes caused by climate could
cause catastrophic destruction to some of our or our sub-suppliers’ facilities, which could in turn disrupt our production and/or
prevent us from supplying products to our customers. While we conduct risk assessments of our facilities and have implemented
mitigation strategies to address, where practical, physical risks related to extreme weather events or natural disasters, the
frequency and severity of any such event can vary by region and cannot be predicted. A catastrophic destruction of our or our sub-
supplier facilities could have a material adverse effect on our operations and profitability.
IT/Cybersecurity Risks
Although we have established and continue to enhance security controls intended to protect our IT systems and infrastructure,
there is no guarantee that such security measures will be effective in preventing unauthorized physical access or cyber-attacks.
A significant breach of our IT systems could: result in theft of funds; cause disruptions in our manufacturing operations; lead to
the loss, destruction or inappropriate use of sensitive data; or result in theft of our, our customers’ or our suppliers’ intellectual
property or confidential information. The occurrence of any of the foregoing could adversely affect our operations and/or reputation,
and could lead to claims against us that could have a material adverse effect 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 Chairman & CEO, and CFO, of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, our Chairman & CEO, and CFO concluded that the design and operation of our disclosure
controls and procedures were effective as of December 31, 2022, 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 Chairman & CEO, and 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 Chairman & 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 to provide reasonable assurance regarding the reliability
of the Company’s financial reporting and its compliance with IFRS in its consolidated financial statements. The Chairman &
CEO, and 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, 2022 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 consolidated financial
statements have been prepared by management, in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board. 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 consolidated 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, 2022 and December 31, 2021 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 13, 2023
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
2022
Independent Auditor's Report
the consolidated statements of financial position as at December 31, 2022 and December 31, 2021
the consolidated statements of profit (loss) and comprehensive income (loss) 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 December 31, 2022 and December 31, 2021, and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
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 “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our
auditor’s 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, 2022. 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 auditor’s report.
Evaluation of impairment of goodwill
Description of the matter
We draw attention to Notes 2(d), 3(e)(i) and 10 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 primary procedures we performed to address this key audit matter included the following:
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.
Assessment of nitrile gloves inventory
Description of the matter
We draw attention to Notes 3 (f) and 7 to the financial statements. Inventories are measured at the lower of cost and net
realizable value. 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 that the net realizable value is less than
cost. The Entity had finished goods inventory of $92,745 thousand, a portion of which related to nitrile gloves inventory. The
Entity recorded inventory provisions for the write-down of inventories of $63,064 thousand, which included a specific provision
of $54,500 related to nitrile gloves inventory.
Why the matter is a key audit matter
We identified the assessment of nitrile gloves inventory as a key audit matter. This matter was a key audit matter because it
required significant auditor attention in performing the audit. An increased extent of audit effort was needed to address this matter.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
As it relates to the write-down of the nitrile gloves inventory, we evaluated the condition of the inventory to assess the
appropriateness of the write-down.
For the remaining nitrile gloves inventory, we:
• Counted a sample of inventory to verify quantities on hand.
• Examined a sample of shipping documents for inventory in-transit.
• Assessed the net realizable value by evaluating the physical condition of the inventory and comparing the net realizable
value to recent sales invoices
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 auditor’s report thereon, included in a document likely to be
entitled “2022 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 auditor’s 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 auditor’s report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor’s report thereon, included in a document likely to be entitled
“2022 Annual Report” is expected to be made available to us after the date of this auditor’s report. If, based on the work we
will perform on this other information, we conclude that there is a material misstatement of this other information, we are
required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS as
issued by the IASB, 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
2022
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 auditor’s 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 auditor’s 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 auditor’s 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 auditor’s 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 auditor’s 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 auditor's report is David Brendan Power.
Vaughan, Canada
March 13, 2023
28
AirBoss of America Corp.
Consolidated Statement of Financial Position
In thousands of US dollars
Note
December 31, 2022
December 31, 2021
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
6, 12
7
17
8, 9
10
17
11
9, 13
12
14
17
9, 13
20
14
17
15
15
18,552
94,628
9,310
92,833
8,466
223,789
89,292
113,237
11,799
2,649
216,977
440,766
2,286
85,239
2,108
609
90,242
141,356
408
8,548
3,215
153,527
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
243,769
208,116
87,811
4,598
104,588
196,997
440,766
87,937
2,531
144,680
235,148
443,264
The notes on pages 33 to 63 are an integral part of these consolidated financial statements.
Commitments (note 19), Subsequent events (notes 12 and 23).
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
2022
Consolidated Statement of Profit (loss) and Comprehensive income (loss)
For the year ended December 31
In thousands of US dollars
Note
2022
2021
Net Sales
Cost of sales
Gross profit
General and administrative expenses
Selling and marketing expenses
Research and development expenses
Other expenses
Operating expenses
Results from operating activities
Finance costs
Profit (loss) before income tax
Income tax recovery (expense)
Profit (loss) and comprehensive income (loss)
Earnings (loss) per share
Basic
Diluted
7
3
18
13, 20
17
16
16
477,155
(453,024)
24,131
(46,478)
(8,223)
(3,390)
(714)
(58,805)
(34,674)
(5,738)
(40,412)
8,520
(31,892)
(1.18)
(1.18)
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
1.73
1.65
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
Capital
Contributed
Surplus
Retained
Earnings
Total
equity
Balance at January 1, 2021
Profit and comprehensive income for the year
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)
–
953
–
–
–
(7,973)
(7,973)
1,196
657
(23)
(7,973)
(6,143)
Balance at December 31, 2021
87,937
2,531
144,680
235,148
In thousands of US dollars
Attributable to equity holders of the Company
Share
Capital
Contributed
Surplus
Retained
Earnings
Total
equity
Balance at January 1, 2022
Loss and comprehensive loss for the year
87,937
–
2,531
–
144,680
(31,892)
235,148
(31,892)
Contributions by and distributions to owners
Stock options expensed
Share options exercised
Share options forfeited
Shares issued
Deferred share unit reclassified as equity (notes 14, 15)
Dividends to equity holders
Total contributions by and distributions to owners
–
(622)
–
496
–
–
(126)
1,600
(71)
(53
–
591
–
2,067
–
–
–
–
–
(8,200)
(8,200)
1,600
(693)
(53)
496
591
(8,200)
(6,259)
Balance at December 31, 2022
87,811
4,598
104,588
196,997
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
2022
Consolidated Statement of Cash Flows
For the year ended December 31
In thousands of US dollars
Cash flows from operating activities
Profit (loss) for the year
Adjustments for:
Depreciation
Amortization of intangible assets
Write-down of inventory
Finance costs
Unrealized foreign exchange gains
Share-based payment expense (recovery)
SRED tax credits
Income tax (recovery) expense
Government assistance loan forgiveness
Other
Change in inventories
Change in trade and other receivables
Change in prepaid assets
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 (used in) operating activities
Cash flows from investing activities
Cash acquired on acquisition of subsidiary
Cash paid to acquire subsidiary
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
Exercise of stock options (net of withholding tax)
Repayment of share purchase loans
Issuance of share purchase loans
Interest received on share purchase loan
Dividends paid
Net cash provided by (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
2022
2021
(31,892)
46,703
8, 9
10
7
13, 20
14, 15
18
17
18
4, 5
4, 5
8
10
11
11
15
12,609
9,296
57,001
5,738
135
(5,394)
(839)
(8,520)
–
(158)
37,976
(25,140)
(12,252)
727
(19,997)
(1,828)
(58,490)
(5,556)
(4,705)
(30,775)
–
–
3
(8,800)
(1,392)
(10,189)
–
65,100
(2,364)
–
(693)
239
(1,750)
8
(8,338)
52,202
11,238
7,131
183
18,552
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
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, 2022 and 2021
(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 21).
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 % 2022 (2021)
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%
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.
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. A majority of the Company’s operations fall within
essential businesses classifications and have continued to operate throughout the pandemic. 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 original equipment manufacturers to shutter production. The effect of
COVID-19 continued into 2022 but with a smaller impact on operations. The ultimate business and economic impacts of COVID-
19 will depend on a variety of factors, including the possibility of shutdowns, impacts on customers and suppliers, the rate at
which economic conditions return to pre-COVID-19 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
2022
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”)
as issued by the International Accounting Standards Board.
The Consolidated financial statements were authorized for issue by the Board of Directors on March 13, 2023.
(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 trade and other receivables,
inventories, 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 and 5 – fair value of assets acquired in a business combination and fair value of contingent consideration
Note 6 – trade and other receivables
Note 7 – inventories
Note 9 – leases
Note 10 – intangible assets
Note 17 – income taxes
Note 18 – 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 10 – intangible assets - key assumptions used in value-in-use calculations;
Note 14 – provisions;
Note 15 – capital and other components of equity;
Note 17 – income taxes;
Note 19 – commitments and contingencies; and
Note 20 – 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 information of subsidiaries is 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 consolidated 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 within other expenses in the consolidated statement of
profit (loss).
(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 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
statement of profit (loss). Transaction costs incurred are expensed in the consolidated statement of profit (loss).
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 (loss). When an investment is derecognized, the accumulated gain or loss in other comprehensive income (loss)
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 statement 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
2022
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 expenses in the
consolidated statement of profit (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 research and development
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:
5 years
•
3-5 years
•
10-17 years
•
8-10 years
• brands, patents and trademarks
software
capitalized development costs
customer relationships
A N N U A L R E P O R T
37
2022
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 locations and conditions. 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 participating employers.
(b) If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
(c) 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 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 is 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.
A N N U A L R E P O R T
39
2022
Notes to CFS (cont’d)
(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.
(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 the Chairman & CEO, and President & COO (the chief operating decision
makers) include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Operating
segments are aggregated if they are similar and demonstrate similar economic characteristics. Unallocated items comprise
mainly corporate assets (primarily the Company’s headquarters), and head office expenses.
40
AirBoss of America Corp.
Notes to CFS (cont’d)
(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.
The dilutive effect of outstanding equity awards is reflected as additional share dilution in the computation of diluted earnings
per share.
(p) New Standards adopted
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. This amendment did not have a material impact on the consolidated financial statements.
(q) Future Accounting Standards
Certain new accounting standards and interpretations have been published that are not mandatory for the current period and
have not been early adopted. Of those standards applicable to the Company none are expected to have a material impact on
its consolidated financial statements.
A N N U A L R E P O R T
41
2022
Notes to CFS (cont’d)
NOTE 4 ACQUISITION OF ACE ELASTOMER, INC.
On August 31, 2021, the Company acquired 100% ownership of Ace for $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.
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 estimates of fair values as follows:
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.
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 acquired B3. $7.6 million in cash was paid on closing and up to an additional $20.0 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:
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 estimates of fair values as follows:
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 $20.0 million which is the expected payout based on forecast revenues at that date, discounted using a risk
adjusted discount rate of 25%.
Goodwill
Goodwill arising from the acquisition has been recognized as follows.
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.
A N N U A L R E P O R T
43
2022
Notes to CFS (cont’d)
NOTE 6 TRADE AND OTHER RECEIVABLES
December 31
Trade receivables
Less: expected credit loss
Other receivables
Impairment losses
The aging of trade receivables at the reporting date was:
2022
93,367
(725)
92,642
1,986
94,628
2021
80,861
(601)
80,260
2,180
82,440
December 31
Within terms
Past due 0-30 days
Past due 31-120 days
2022 2021
Gross
Impairment
Gross
Impairment
70,382
14,117
8,868
93,367
–
–
(725)
(725)
64,776
10,520
5,565
80,861
–
–
(601)
(601)
2021
(750)
(188)
292
45
(601)
The continuity of the allowance for impairment was:
For the year ended December 31
Balance at January 1
Impairment loss recognized
Collected
Revised estimate
Balance at December 31
2022
(601)
(251)
74
53
(725)
44
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 7 INVENTORIES
December 31
Raw materials and consumables
Work in progress
Finished goods
Inventory in transit
Provisions
2022
53,305
8,205
92,745
1,642
155,897
(63,064)
92,833
2021
49,338
3,734
76,848
658
130,578
(8,431)
122,147
An inventory charge of $54,633 (2021: charge of $1,974) was included in cost of sales. During the quarter ended September
30, 2022, AirBoss Defense Group recorded a $57,001 provision related to its inventory of nitrile gloves due to significant
downward shifts in pricing and some gloves no longer meeting ADG’s safety standards. Of the total provision, $54,500 was
recorded in inventory and $2,501 was recorded in trade and other payables, including derivatives.
A N N U A L R E P O R T
45
2022
Notes to CFS (cont’d)
NOTE 8 PROPERTY, PLANT AND EQUIPMENT
Land and
buildings1
Plant and
equipment1
Furniture
and equipment1
Under
construction
Cost
Balance at January 1, 2021
Acquisition of subsidiary
Additions
Disposals
Transfers
Balance at December 31, 2021
Additions
Disposals
Transfers
40,807
1,811
5,030
(846)
5,586
52,388
412
–
1,151
Balance at December 31, 2022
53,951
Accumulated Depreciation
Balance at January 1, 2021
Acquisition of subsidiary
Depreciation for the period
Disposals
Transfers
Balance at December 31, 2021
Depreciation for the period
Disposals
Transfers
14,477
–
3,390
(937)
959
17,889
3,751
–
–
Balance at December 31, 2022
21,640
102,830
1,939
2,165
(66)
856
107,724
1,554
(1,024)
12,537
120,791
55,410
498
9,113
(37)
(438)
64,546
8,612
(1,024)
180
72,314
3,819
184
408
–
(1,365)
3,046
176
–
(217)
3,005
2,176
–
632
–
(521)
2,287
246
–
(355)
2,178
5,861
27
13,901
–
(5,077)
14,712
6,678
–
(13,713)
7,677
–
–
–
–
–
–
–
–
–
–
Total
153,317
3,961
21,504
(912)
–
177,870
8,820
(1,024)
(242)
185,424
72,063
498
13,135
(974)
–
84,722
12,609
(1,024)
(175)
96,132
(1) includes right of use assets. See note 9 for additional details.
Carrying amounts
In thousands of US dollars
Balance at December 31, 2021
Balance at December 31, 2022
Land and
buildings
34,499
32,311
Plant and
equipment
Furniture
and equipment
Under
construction
43,178
48,477
759
827
14,712
7,677
Total
93,148
89,292
Depreciation expense of $11,913 (2021: $12,442) was charged to cost of sales, $630 (2021: $673) was charged to general and
administrative expense and $66 (2021: $21) was charged to research and development expenses.
46
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 9 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 6 years.
Right-of-Use Assets
Cost
Balance at January 1, 2021
Acquisition of subsidiary
Lease additions
Disposals
Balance at December 31, 2021
Lease additions
Balance at December 31, 2022
Accumulated depreciation
Balance at January 1, 2021
Depreciation
Disposals
Balance at December 31, 2021
Depreciation
Balance at December 31, 2022
Carrying amount at December 31, 2021
Carrying amount at December 31, 2022
Land and
buildings
Equipment
Total
13,525
1,593
4,517
(846)
18,789
–
18,789
2,775
1,999
(846)
3,928
2,069
5,997
14,861
12,792
1,852
78
75
(5)
2,000
20
2,020
465
385
(5)
845
436
1,281
1,155
739
15,377
1,671
4,592
(851)
20,789
20
20,809
3,240
2,384
(851)
4,773
2,505
7,278
16,016
13,531
Lease Liabilities
Interest expense on lease liabilities of $708 (2021: $764) is included in Finance Costs.
Cash outflow related to leases was $3,072 (2021: $3,118).
The future undiscounted contractual lease payments are as follows:
In thousands of US dollars
Total
2023
2024
2025
2026
2027 Thereafter
Lease payments
17,181
2,772
2,656
2,570
2,538
2,592
4,053
A N N U A L R E P O R T
47
2022
Notes to CFS (cont’d)
NOTE 10 INTANGIBLE ASSETS
Cost
Balance at January 1, 2021
Acquisition of subsidiary
Additions
Balance at December 31, 2021
Additions
Transfers
Balance at December 31, 2022
Accumulated Amortization
Balance at January 1, 2021
Amortization for the year
Balance at December 31, 2021
Amortization for the year
Disposals
Balance at December 31, 2022
Carrying amounts
Balance at December 31, 2021
Balance at December 31, 2022
Goodwill
Customer
Relationships
Patents and Development
costs
Trademarks
Total
Brands,
Software and
35,053
16,524
–
51,577
–
–
51,577
–
–
–
–
–
–
51,577
51,577
46,150
17,060
–
63,210
–
–
63,210
20,139
4,863
25,002
5,618
–
30,620
38,208
32,590
8,687
22,341
–
31,028
196
–
31,224
819
2,268
3,087
2,913
–
6,000
27,941
25,224
6,961
41
1,081
8,083
1,196
241
9,520
4,119
615
4,734
765
175
5,674
3,349
3,846
96,851
55,966
1,081
153,898
1,392
241
155,531
25,077
7,746
32,823
9,296
175
42,294
121,075
113,237
Amortization expense of $9,296 (2021: $7,746) was charged to general and administrative expense. Remaining amortization
for customer relationships acquired is 1 to 16 years and patents and trademarks is 2 to 7 years.
Goodwill
December 31
AirBoss Defense Group
Rubber Solutions
Engineered Products
2022
30,349
11,163
10,065
51,577
2021
30,349
11,163
10,065
51,577
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,
2022 and December 31, 2021, 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 of 12.3% to 14.4% 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 rubber, 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 amounts of goodwill exceed their net recoverable amounts.
48
AirBoss of America Corp.
Notes to CFS (cont’d)
NOTE 11 OTHER ASSETS
Balance at January 1, 2021
Accrued interest
Interest paid
Effect of movements in exchange rates
Investment eliminated upon acquiring control of B3 (note 5)
Balance at December 31, 2021
Accrued interest
Interest paid
Repayment of loan
New loan issuances
Effect of movements in exchange rates
Balance at December 31, 2022
(1) see note 22 for additional details.
Share purchase
loans1
Other
Total
704
10
(7)
2
–
709
20
(8)
(239)
1,750
(29)
2,203
939
–
–
–
(493)
446
–
–
–
–
–
446
1,643
10
(7)
2
(493)
1,155
20
(8)
(239)
1,750
(29)
2,649
NOTE 12 DERIVATIVES NOT DESIGNATED IN A FORMAL HEDGING RELATIONSHIP
Foreign exchange hedge
At December 31, 2022, the Company had contracts to sell $24,662 from January 2023 to September 2023 for Canadian dollars
("CAD") $33,000. The fair value of these contracts, representing an unrealized loss of $258, are included in trade and other
payables, including derivatives on the consolidated statement of financial position. The unrealized changes in fair value,
representing a loss of $205 (2021: $673), are recorded on the statement of profit as other expenses.
At December 31, 2021, the Company had contracts to sell $16,617 from January 2022 to September 2022 for 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 consolidated 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 ($24,375 as
at December 31, 2022) 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%. In February 2023,
the Company entered into an interest rate swap agreement for a notional amount of $25,000, maturing in February 2025. The
swap agreement calculates interest based on the difference between the floating rate of SOFR and a fixed rate of 4.31%.
During 2022, interest recovery on the swap agreement was $310 (2021: expense of $44).
At December 31, 2022, the fair value of this agreement, representing a gain of $52 (2021: $48), is included in loans and
borrowings on the consolidated statement of financial position. The change in the fair value, representing a gain of $4 (2021:
$105), is recorded on the consolidated statement of profit as finance costs. The Company entered into the interest rate swap
agreements to fix the interest rate on a portion of its borrowings and does not hold them for trading or speculative purposes.
Share price hedge
In November 2022, the Company entered into hedging arrangements to reduce its exposure to the change in share price
related to its share-based compensation. At December 31, 2022, the fair value of these agreements, representing a gain of $223
is included in trade and other receivables, including derivatives on the consolidated statement of financial position. The change
in the fair value, representing a gain of $223, is recorded on the consolidated statement of profit (loss) as other expenses.
NOTE 13 LOANS AND BORROWINGS
December 31
2022
2021
Non-current
Revolving line of credit
Interest rate swap
Lease liabilities
Less: deferred financing
Current
Lease liabilities
December 31
Revolving line of credit
Interest rate swap
Lease liabilities
Subtotal
Less principal due within one year
Less deferred financing
A N N U A L R E P O R T
130,100
(52)
12,721
(1,413)
141,356
2,286
2,286
2022
130,100
(52)
15,007
145,055
(2,286)
142,769
(1,413)
141,356
65,000
(48)
15,043
(1,788)
78,207
2,356
2,356
2021
65,000
(48)
17,399
82,351
(2,356)
79,995
(1,788)
78,207
49
2022
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
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. The Company
expects to modify the credit facilities in March 2023 to convert borrowing rates from LIBOR to SOFR in line with market-wide
changes. This change is not expected to have a material impact on the consolidated financial statements.
In September 2022, the Company's lenders agreed to exclude the $57 million charge related to the nitrile gloves from the
calculation of financial covenants.
In April 2021 the Company's previous credit facility was amended to increase the revolving facility from $60 million to $150
million.
Deferred financing fees, less accumulated amortization have been deducted against borrowings for presentation purposes.
The fees are being amortized over the term of the credit facilities and $376 (2021: $324) has been amortized and is included
in finance costs.
Interest expense under the credit facility was $4,441 (2021: $3,817).
Principal repayments on the loans and borrowings are as follows:
Revolving line of credit
Lease liabilities
Total
130,048
15,007
145,055
2023
–
2,286
2,286
2024
–
2,155
2,155
2025
–
2,153
2,153
2026
2027 Thereafter
130,048
2,257
132,305
–
2,388
2,388
–
3,768
3,768
As at December 31, 2022, $130,813 was drawn against the credit facility (2021: $65,713).
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, 2022 the Company is not in default, nor has it breached any terms of the credit agreement relating to the
credit facilities.
The carrying amount and fair value of the borrowings are as follows:
Revolving line of credit and interest rate swap
Lease liabilities
Carrying amount Fair value
2022
128,635
15,007
2021
63,164
17,399
2022
130,156
13,726
2021
65,022
18,739
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
6.3% (2021: 2.1%) for the credit facility and lease liabilities.
NOTE 14 PROVISIONS
Balance at January 1, 2021
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
Payments
Forfeitures
Foreign exchange
Balance at December 31, 2021
Less: amount due within one year
Change in accounting estimate
Change in fair value of B3 provision
Provisions accrued (recovered)
Payments
Forfeitures
Foreign exchange
Balance at December 31, 2022
Less: amount due within one year
Site
restoration
Legal
PSUs and
DSUs
Payable to
former owners
of acquired
businesses
74
–
–
–
–
–
–
–
5
79
–
79
–
–
–
–
–
–
79
–
79
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,550
(11,550)
–
–
–
–
–
2,557
–
–
–
–
8,403
(1,069)
(129)
41
9,803
(829)
8,974
(591)
–
(6,720)
(694)
(221)
(298)
1,279
(1,072)
207
–
2,542
(792)
9,008
(289)
–
–
–
–
10,469
(2,011)
8,458
–
(37)
–
(1,134)
–
–
9,298
(1,036)
8,262
Total
2,631
2,542
(792)
9,008
(289)
8,403
(1,069)
(129)
46
20,351
(2,840)
17,511
(591)
(37)
4,830
(13,378)
(221)
(298)
10,656
(2,108)
8,548
50
AirBoss of America Corp.
Notes to CFS (cont’d)
In the second quarter of 2022, the Company was named as a defendant in legal proceedings related to shipping and demurrage
costs owed to a vendor by a subcontractor of the Company. The Company agreed to settlements totaling $11.6 million (inclusive
of legal fees) in respect of the shipping and demurrage costs, which were fully settled before the end of the year.
Performance Awards
The Company has issued 274,841 performance awards to certain executives 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
2022
224,470
79,367
(11,520)
(17,476)
274,841
2021
201,210
54,350
(5,847)
(25,243)
224,470
During 2022, the Company recognized cost recoveries of $3,691 (2021: costs of $5,577) related to the plan.
Deferred Stock Units
The Company has issued deferred stock units (“DSUs”) to non-executive directors pursuant to the terms and conditions of the
Omnibus Plan. Each vested DSU entitles the holder to receive, on redemption, either: (a) one common share; (b) a cash payment
equal to the fair market value of a common share as of the redemption date; or (c) a combination of both cash and common shares,
at the sole discretion of the Company. The redemption of a DSU occurs only following the termination of a holder’s service as director
and will occur on either: (a) a date selected by a recipient following the termination of their services as a director (which can be no
earlier than 10 days, and no later than one year, after the service termination date); or (b) a date selected by the Company following
the death of the recipient while still serving as director (which can be no later than 90 days following the death of the recipient). Under
the terms of compensation for independent directors of the Company approved by the Compensation Committee and Board in 2016,
commencing with the second quarter of 2016 and for each subsequent quarter while he or she remains a director, each independent
director is to be granted a number of DSUs having a fair market value equal to CAD $6.25. The fair market value of each DSU is
equal to the volume-weighted average trading price of a Common Share on the TSX for the 5 trading days preceding the relevant
grant date. In addition to this fixed amount of DSUs, independent directors are able to elect to be paid all or a portion of all other
director’s fees in DSUs in lieu of cash, using the same calculation of fair market value as for the fixed amount of DSUs, to be
granted on a quarterly basis. All DSUs issued to independent directors vest three months following the relevant grant date. The
compensation expense is accrued over the vesting period with a corresponding increase in liabilities in the amount which represents
the fair value of the amount payable to the independent director in respect of the DSUs.
Deferred stock units
January 1
New issuances
December 31
2022
112,335
22,553
134,888
2021
97,060
15,275
112,335
During 2022, the Company recognized cost recoveries of $3,220 (2021: expense of $2,698) related to DSUs issued under the
Omnibus Plan, including costs of $30 following the change in how DSUs are redeemed. In November 2022, the Company
notified its directors that the redemption of all existing and future DSUs will only be satisfied in common shares. As a result of
this change the Company will no longer record the DSUs at fair value with a corresponding adjustment for the change in fair
value recorded in the Statement of Profit and Loss. Instead, the Company will record fair value of the cost of DSUs over their
vesting periods based on their fair values at the grant dates.
A N N U A L R E P O R T
51
2022
Notes to CFS (cont’d)
NOTE 15 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, 2022, 903,907 shares are available (2021: 936,191).
Issued share capital is as follows:
In thousands of shares
January 1
Issued to employee
Exercise of share options
December 31
2021
26,993
20
79
27,092
2021
26,909
–
84
26,993
Issuance of common shares
During 2022, 122,040 options were exercised resulting in the issuance of 79,079 common shares (2021: 98,764 options exercised).
In December 2022, the Company renewed its normal course issuer bid ("NCIB") to purchase up to 500,000 of its common shares,
representing approximately 2.9% of the Company's public float. The Company purchased nil shares (2021: nil) under its NCIB in
2022.
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, 2022, are as follows:
Range of exercise
price ($CAD)
5.14
9.49
11.56
16.30
17.53
32.45
36.01
Options
outstanding
Quantity
Weighted
average
contract life
Options
exercisable
Quantity
1,121,477
138,644
1,244
25,000
8,372
208,732
166,940
1,670,409
2.23
1.41
0.22
2.42
2.87
4.21
3.23
511,018
99,979
1,244
12,500
4,186
–
41,735
670,662
Options granted and outstanding:
A summary of the status of the Company’s stock option plan as of December 31, 2022 and 2021 and changes during the years
then ended, is presented below:
2022 2021
Weighted average
exercise price
($CAD)
9.11
32.45
5.36
12.25
12.23
Quantity
1,650,792
213,800
(122,040)
(72,143)
1,670,409
Quantity
1,605,426
175,279
(98,764)
(31,149)
1,650,792
Weighted average
exercise price
($CAD)
6.42
36.01
13.50
7.87
9.11
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
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected annual dividend rate
Risk-free interest rate (based on government bonds)
The stock options issued vest as follows:
Vested at December 31, 2022
2023
2024
2025
2026
Stock option and DSU expense
March 2022
March 2021
$
$
$
11.76
32.84
32.45
42.4%
5 years
1.2%
2.0%
$
$
$
15.18
39.77
36.01
41.8%
5 years
0.7%
1.0%
Quantity
670,662
446,156
407,491
93,918
52,182
1,670,409
During 2022, the Company recognized employee costs of $1,517 (2021: $1,173) relating to option grants in general and
administrative expenses in the consolidated statement of profit (loss), and employee costs of $30 relating to DSUs in general and
administrative expenses following the change in how DSUs are redeemed (see note 14).
Dividends
Dividends on common shares were paid to shareholders of record quarterly in 2022 and in 2021 as follows:
2022 2021
Shareholder of record at:
$CAD/share
Date Paid
$CAD/share
Date Paid
March 31
June 30
September 30
December 31
0.10
April 15, 2022
July 15, 2022
0.10
0.10 October 15, 2022
January 15, 2023
0.10
0.40
0.07
0.10
0.10
0.10
0.37
April 15, 2021
July 15, 2021
October 15, 2021
January 15, 2022
The dividend payable at December 31, 2022 was $2,000 (2021: $2,133).
A N N U A L R E P O R T
53
2022
Notes to CFS (cont’d)
NOTE 16 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 (loss)
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
Profit (loss) per share:
Basic
Diluted
2022
(31,892)
27,071
–
–
27,071
(1.18)
(1.18)
2021
46,703
26,970
1,224
104
28,298
1.73
1.65
As of December 31, 2022, 1,670,409 options (2021: nil options) 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 17 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
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 (recovery)
The components of the provision for income taxes are as follows:
Current
Deferred
Total expense (recovery)
2022
(10,709)
2,137
225
259
(309)
(14)
(109)
(8,520)
3,661
(12,181)
(8,520)
2021
14,452
(1,377)
(1,124)
(199)
(543)
(3,464)
84
7,829
6,847
982
7,829
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
Deferred income tax assets:
Non-capital income tax loss carry-forwards
Deferred income tax deductions relating to long-term liabilities
Equity Compensation
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
2022
18,283
–
536
–
286
5,520
231
24,856
(73)
(16,096)
(103)
(16,272)
8,584
11,799
(3,215)
8,584
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)
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 $102,981 of unused tax losses (2021: $42,087) available to offset future income taxes in the US. $41,811
of these losses were incurred prior to 2018 and are set to expire starting 2037. Losses incurred after 2017 can be carried
forward indefinitely.
The aggregate amount of taxable temporary differences associated with investments in subsidiaries for which no deferred
income tax liabilities have been recognized is $11,614 (2021: deductible temporary differences of $55,734).
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
Gross amount
Tax effect
Gross amount
Tax effect
2022
2021
Capital losses
Operating losses
Deductible temporary differences
575
29,289
4,716
34,580
72
6,764
1,089
7,925
575
24,608
10,523
35,706
72
5,168
2,507
7,747
NOTE 18 GOVERNMENT ASSISTANCE
Scientific research and investment tax credits of $839 were recognized in 2022 (2021: $813); research and development expenses
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 were
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. In 2022 the Company did not apply for CEWS. In 2021 the Company applied for CEWS and recorded the
subsidy as a reduction to cost of sales and operating expenses of $2,380 and $569, respectively, in the consolidated statement
of profit.
NOTE 19 COMMITMENTS AND CONTINGENCIES
Commitments
The Company has purchase commitments of $30,854 (2021: $32,015) for raw materials. Delivery on these commitments is
expected in 2023.
Litigation
In December 2022, a statement of claim was filed in the Ontario Superior Court of Justice against AirBoss and several named
officers. The applicants under the proceeding seek an order for leave to proceed under the Securities Act (Ontario), certifying the
proceeding as a class proceeding and appointing them as representative plaintiffs. The applicants seek, among other relief, a
declaration that the Company made misrepresentations contrary to the Securities Act (Ontario) during a period extending from
November 9, 2021 to September 6, 2022, as well as unspecified damages. No legal provisions are recognized at December 31,
2022 and 2021. 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.
A N N U A L R E P O R T
55
2022
Notes to CFS (cont’d)
NOTE 20 POST RETIREMENT BENEFITS
The Company provides post-retirement life insurance benefits to eligible retirees (the “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 the 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 $22. This plan is unfunded, as such there is no plan asset to be disclosed. At December 31, 2022,
the weighted average duration of the defined benefit obligation was 8 years (2021: 10 years).
The Benefit Plan exposes the Company to actuarial risks, such as interest rate risk and longevity risk.
December 31
Present value of unfunded obligation and liability
in the Consolidated 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
Foreign currency translation
At December 31
Amounts recognized in the
Consolidated Statement of Profit (loss):
Post-retirement benefits (recovery)/expense
Interest cost
Foreign currency translation
Recovery
2022
408
579
4
15
(55)
(99)
(36)
408
(142)
15
(36)
(163)
2021
579
664
3
15
(30)
(76)
3
579
(94)
15
3
(76)
The current service charge was included in general and administrative expense and the interest cost is included in finance
costs in the consolidated statement of profit (loss).
December 31
The principal actuarial valuation
assumptions used were as follows:
Discount rate
Mortality
2022
2021
5.15%
2.85%
CPM
mortality table
projected
with scale MI-
2017 for the
private sector
CPM
mortality table
projected
with scale MI-
2017 for the
private sector
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
2022
(32)
38
1
(2)
2021
(54)
66
2
(3)
AirBoss of America Corp. maintains a registered retirement savings defined contribution plan for all of their employees. Total
contribution and expense to this plan for 2022 were $531 (2021: $450).
ANC maintains a 401(k) plan for its employees. Total contributions and expense to this plan during 2022 were $130 (2021: $98).
Ace maintains a 401(k) plan for its employees. Total contributions and expense to this plan during 2022 were $104 (2021: $5).
AFP maintains a 401(k) defined contribution plan for its employees. Total contributions and expense to this plan during 2022
were $538 (2021: $505).
ADG USA maintains a 401(k) defined contribution plan for its employees. Total contributions and expense to this plan during
2022 were $123 (2021: $151).
ADG Canada employees are covered under various registered and unregistered defined contribution plans. Total contribution
and expense to these plans for 2022 were $217 (2021: $210).
CSI maintains a 401(k) defined contribution plan for its employees. Total contribution and expense to these plans for 2022
were $87 (2021: $133).
B3 maintains a 401(k) defined contribution plan for its employees. Total contribution and expense to these plans for 2022 were
$37 (2021: $45).
Multi-Employer Pension Plan
During 2022, the Company made contributions of $299 (2021: $281) to a multi-employer pension plan. At December 31, 2022,
multi-employer pension plan had assets of $6,871 (2021: $5,998) and liabilities of $6,602 (2021: $6,383). 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
2022
Notes to CFS (cont’d)
NOTE 21 SEGMENTED INFORMATION
Performance of each reportable segment is measured based on profit before finance costs and income tax, as included in the
internal management reports that are reviewed by the Company’s Chief Operating Decision Makers: the Chairman & CEO, and
President & COO. 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.
Information regarding the results of each reportable segment is included below. Inter-company amounts, which represent items
purchased and sold between 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
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Segment net sales
133,160 329,916 236,149 171,553 132,512 116,621
Inter-segment net sales
(2,588)
(4,565)
(20,937)
(18,492)
(1,141)
(8,175)
External net sales
130,572 325,351 215,212 153,061 131,371 108,446
–
–
–
– 501,821 618,090
– (24,666)
(31,232)
– 477,155 586,858
Depreciation and
amortization
Segment measure of
profit (loss)
Finance costs
Income tax expense
Profit (loss)
Segment assets
Segment liabilities
Capital additions
9,767 10,405
6,622
4,903 5,265 5,330
251
243 21,905 20,881
(40,021) 74,998 19,695
11,125
(11,272) (11,229) (3,076)
(16,184)
(34,674) 58,710
(5,738)
(4,178)
8,520)
(7,829)
(31,892) 46,703
177,976 205,240 160,154 146,237 97,998 83,292 4,638 8,495 440,766 443,264
108,076 69,571 39,755 32,115 20,619 23,565 75,319 82,865 243,769 208,116
1,515
8,613
6,247
6,113
960
6,722
1,490
1,137 10,212 22,585
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
2022
2021
Net sales
Non-current assets
Net sales Non-current assets
Canada
United States
Other countries
70,248
363,994
42,913
477,155
59,340
157,637
–
216,977
47,295
497,875
41,688
586,858
62,278
153,100
–
215,378
Major customers
Net sales from one customer represent approximately 9% (2021: 40%) of consolidated net sales in 2022. Five customers
represented 33% (2021: 56%) of consolidated net sales in 2022.
Major Products
AirBoss Defense Group
Defense
Industrial
Rubber Solutions
Tolling
Mixing
Engineered Products
2022
2021
85,931
44,641
130,572
10,009
205,203
215,212
131,371
477,155
291,621
33,730
325,351
8,643
144,418
153,061
108,446
586,858
A N N U A L R E P O R T
59
2022
Notes to CFS (cont’d)
NOTE 22 RELATED PARTIES
Related Party Transactions
During the year, the Company paid $168 (2021: $176) to companies controlled by the Chairman & CEO of the Company for
use of office facilities.
Transactions with key management personnel
Key management includes directors, Chairman & CEO, President & COO, CFO, and senior management. The compensation
expense to key management for employee services is shown below:
December 31
Salaries and other short-term benefits
Share-based payment expense (recovery)
2022
4,175
(5,313)
(1,138)
2021
6,297
8,332
14,629
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, 2022 (2021: 21.0%).
In March 2018, the Company provided a share purchase loan of CAD $500 to the President & COO that bears interest at 1%,
maturing March 2023. In June 2019, the Company provided share purchase loans of CAD $300 to the Executive Vice President,
General Counsel; and CAD $92 to the President & COO that bear interest at 2%, maturing June 2024. The loan to the Executive
Vice President, General Counsel was repaid in May 2022. In April 2022 the Company loaned $1,750 to the Chief Executive
Officer of ADG, secured by shares of the Company, bearing interest at 1%, maturing April 2023. All loans are due upon the
earlier of the disposition date of all or proportionate to any part of the pledged securities, and maturity. All share purchase loans
are full recourse and interest is due and payable semi-annually. In total, 141,178 shares of the Company having a fair value of
$776 were pledged as collateral on these loans. At December 31, 2022, the loan receivable of $2,203, including accrued
interest, were included in Other Assets on the consolidated statement of financial position. During the year, interest revenue
of $8 (2021: $7) was received.
NOTE 23 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
2022 2021
(8.19)
(4.42)
(2.82)
(3.60)
(0.83)
(19.86)
(7.27)
(3.64)
(2.55)
(2.45)
(0.75)
(16.66)
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 or based on prevailing CAD; most of the raw
material purchases are denominated in USD and a significant portion of its operational costs and expenses are incurred in CAD.
Therefore, an increase in the value of the USD to CAD decreases the net sales in USD terms realized by the Company from
sales made in CAD, partially offset by lower CAD operational costs/expenses, which decreases operating margin and the cash
flow available to fund operations. The net CAD 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 CAD by increasing or
decreasing the proportion of borrowings denominated in CAD or forward currency contracts. The Rubber Solution segment’s
profit and loss is somewhat naturally hedged in that sales denominated in USD offset USD 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 dollars
Sales (1)
Purchases (2)
Earnings before tax
2022 2021
(1.9)
6.1
(1.8)
6.5
(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. CAD and USD 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 ($24,375 as at
December 31, 2022) 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%. In February 2023, the
Company entered into an interest rate swap agreement for a notional amount of $25,000, maturing in February 2025. The swap
agreement calculates interest based on the difference between the floating rate of SOFR and a fixed rate of 4.31%.
During 2022, interest recovery on the swap agreement was $310 (2021: expense of $44).
At December 31, 2022, the fair value of this agreement, representing a gain of $52 (2021: $48), is included in loans and borrowings
on the consolidated statement of financial position. The change in the fair value, representing a gain of $4 (2021: $105), is recorded
on the consolidated statement of profit as finance costs. The Company entered into the interest rate swap agreements to fix the
interest rate on a portion of its borrowings and does not hold them for trading or speculative purposes.
At the reporting date, the interest profile of the Company’s interest-bearing financial instruments was:
December 31
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial liabilities
Total
2022
2021
2,203
(14,955)
(128,687)
(141,439)
709
(13,649)
(63,164)
(76,104)
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 profit (loss) and equity by:
2022
Variable rate instruments
2021
Variable rate instruments
Net income and equity
100bp increase
100bp decrease
(760)
(374)
760
374
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
61
2022
Notes to CFS (cont’d)
Credit Risk
The Company held cash and cash equivalents of $18,552 at December 31, 2022 (2021: $7,131), 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 6), maturity and other relevant factors.
The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended
when deemed necessary. Purchase limits established for certain accounts represent the maximum open balance permitted
without approval from the CEO. The Company maintains reserves for potential credit losses relating to specific exposures, and
any such losses to date have been within management’s expectations. Net sales from one customer represent approximately
9% (2021: 40%) of consolidated net sales in 2022. Five customers represented 33% (2021: 56%) of consolidated net sales in
2022.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 $18,552 and
had drawn $130,813 against its $250,000 revolving credit facilities (2021: cash of $7,131 and had drawn $65,713).
Fair value of financial instruments
The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables, share purchase loans, trade
and other payables, interest rate swap, revolving line of credit, other debt, and foreign exchange hedges. The fair values of cash
and cash equivalents, trade and other receivables, share purchase loans, trade and other payables, contingent consideration,
interest rate swap and foreign exchange hedges, as recorded in the consolidated statement of financial position approximate their
carrying amounts due to the short-term maturities of these instruments. The fair value of the revolving line of credit and leases
have been discounted using current market interest rates.
The carrying value and fair value are as follows:
December 31, 2022
Cash and cash equivalents
Trade and other accounts receivable
Interest rate swap
Share price hedge
Share purchase loans
Total financial assets
Trade and other payables
Foreign exchange hedge
Loans and borrowings
Contingent consideration
Total financial liabilities
Amortized
cost
Fair value
through profit
and loss
18,552
94,628
–
–
2,203
115,383
84,981
–
143,694
–
228,675
–
–
52
223
–
275
–
258
–
8,422
8,680
Total
carrying
amount
18,552
94,628
52
223
2,203
115,658
84,981
258
143,694
8,422
237,355
Total fair
value
18,552
94,628
52
223
2,203
115,658
84,981
258
143,882
8,422
237,543
62
AirBoss of America Corp.
Notes to CFS (cont’d)
December 31, 2021
Cash and cash equivalents
Trade and other accounts receivable
Interest rate swap
Share purchase loans
Total financial assets
Trade and other payables
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
The fair values of the share purchase loans and revolving line of credit have been based on market interest rate (level 2) in 2022
and 2021. The Company has not disclosed the fair values for financial instruments (trade and other receivables 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 2022 and 2021. There were no transfers between levels of the fair value hierarchy in 2022 and 2021.
Capital Management
The Company has defined its capital as follows:
December 31
Loans and borrowings
less: leases included in loans and borrowings
less: cash and cash equivalents
Net debt
Shareholders’ equity
2022
143,642
(15,007)
(18,552)
110,083
196,997
307,080
2021
80,563
(17,399)
(7,131)
56,033
235,148
291,181
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 CAD and USD.
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 21.0% 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 2022, the Company renewed its normal course issuer bid ("NCIB") to purchase up to 500,000 of its common
shares, representing approximately 2.9% of the Company's public float. The Company purchased nil shares (2021: nil) under
its NCIB in 2022.
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
2022
Corporate Information
Board of Directors
P. Grenville Schoch
Chairman and CEO, AirBoss of America Corp.
Aurora, Ontario
Mary Matthews, CPA, CA, ICD.D. (1) (2) (3)
Toronto, Ontario
Stephen Ryan (2)
Lead Director
Washington, D.C.
Robert L. McLeish (1) (2) (3)
Port Carling, Ontario
Anita Antenucci
Upperville, Virginia
Alan J. D. Watson (1) (2) (3)
Sydney, Australia
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of Corporate Governance Committee
David Camilleri (1)
Waterloo, Ontario
64
AirBoss of America Corp.
Corporate Information
Solicitors
CORPORATE OFFICE
Davies Ward Phillips & Vineberg LLP
Toronto, Ontario
Auditors
KPMG LLP
Vaughan, Ontario
Transfer Agent And Registrar
Computershare Investor Services, Inc.
Toronto, Ontario
Stock Symbol - Toronto Stock Exchange: BOS
Stock Symbol - OTCQX: ABSSF
Website Address: www.airboss.com
Email Address: info@airboss.com
Our Annual Meeting is Wednesday, May 10, 2023
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
Paper is FSC® Certified, Rainforest Alliance Certified™
and 10% Post-Consumer recycled content & fibre.
65