Wajax Corporation (TSX:WJX) today announced its 2011 third quarter earnings.
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(Dollars in millions, except per Three Months Ended Nine Months Ended
share data) September 30 September 30
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2011 2010 2011 2010
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CONSOLIDATED RESULTS
--------------------------------
Revenue $ 361.9 $ 294.4 $ 999.9 $ 794.5
Earnings before tax $ 24.6 $ 18.7 $ 65.0 $ 39.1
Net earnings $ 17.9 $ 19.6 $ 47.2 $ 40.6
Basic earnings per share $ 1.08 $ 1.18 $ 2.84 $ 2.45
SEGMENTS
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Revenue - Equipment $ 177.9 $ 144.9 $ 493.6 $ 396.1
- Industrial
Components $ 86.7 $ 75.9 $ 257.3 $ 224.4
- Power
Systems $ 98.0 $ 74.6 $ 251.9 $ 177.1
Earnings - Equipment $ 12.7 $ 10.0 $ 35.9 $ 28.2
% margin 7.1% 6.9% 7.3% 7.1%
- Industrial
Components $ 6.2 $ 4.2 $ 17.2 $ 9.4
% margin 7.2% 5.5% 6.7% 4.2%
- Power
Systems $ 9.7 $ 8.1 $ 25.0 $ 12.7
% margin 9.9% 10.9% 9.9% 7.2%
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Third Quarter Highlights
-- Consolidated third quarter revenue of $361.9 million increased $67.5
million, or 23%, compared to last year. Quarterly revenue included $20.3
million attributable to the May 2, 2011 acquisition of Ontario based
Harper Power Products ("Harper"), with gains in the mining, energy,
forestry and construction sectors accounting for the majority of the
balance of the increase. Power Systems revenue increased 31% largely as
a result of the Harper acquisition. The Equipment segment's revenue
increased 23% on stronger demand for almost all major product categories
and Industrial Components sales rose 14% on higher revenue from energy,
mining and industrial customers across all regions.
-- Earnings before tax of $24.6 million increased 31% over last year's
level as a result of the higher volumes, while disciplined control over
selling and administrative costs was maintained in all three segments.
Net earnings for the quarter of $17.9 million, or $1.08 per share, were
lower than the $19.6 million, or $1.18 per share, recorded in 2010 as
Wajax was an income fund last year and not subject to income taxes.
-- Consolidated backlog of $263.8 million at September 30, 2011 decreased
$17.9 million, or 6%, from $281.7 million at June 30, 2011 mainly as a
result of a large number of Power Systems product deliveries to energy
sector customers in the quarter.
On October 17, 2011, Wajax announced it had reached an agreement with LeTourneau
Technologies, Inc. ("LeTourneau") providing for the dealer agreement relating to
Wajax's distribution of LeTourneau mining equipment and parts products in Canada
to be discontinued effective April 27, 2012. Sales and service of LeTourneau
products in 2010 generated approximately $40 million of revenue for Wajax and
contributed approximately $10 million to its earnings before interest and taxes.
Exit costs or write downs, if any, are expected to be minimal.
The Corporation declared dividends of $0.20 per share ($2.40 annualized) for the
months of October, November, December and January.
Commenting on the third quarter results and the outlook for the remainder of
2011, Neil Manning, President and CEO, stated:
"We continue to be very pleased with our 2011 results. The third quarter
improvement in pre-tax earnings was driven by robust energy, mining, forestry
and construction markets, particularly in western Canada. As well, results from
the Harper acquisition continue to meet our expectations. While our September
30th backlog has diminished slightly, quoting activity, particularly in western
Canada, remains strong.
For the remainder of the year, we are not anticipating that the uncertainty
relating to current world events will have a significant impact on our end
markets and we expect pre-tax earnings to continue to be ahead of last year, but
at a lower rate of increase than experienced in the first nine months."
Wajax Corporation is a leading Canadian distributor and service support provider
of equipment, industrial components and power systems. Reflecting a diversified
exposure to the Canadian economy, its three distinct core businesses operate
through a network of 117 branches across Canada. Its customer base spans natural
resources, construction, transportation, manufacturing, industrial processing
and utilities.
Wajax will Webcast its Third Quarter Financial Results Conference Call. You are
invited to listen to the live Webcast on Wednesday, November 2, 2011 at 2:30
p.m. ET. To access the Webcast, enter www.wajax.com and click on the link for
the Webcast on the Investor Relations page.
Forward-Looking Statements
This news release contains forward-looking statements. These statements relate
to future events or future performance and reflect management's current
expectations and assumptions.
Although we believe that the expectations represented in such forward-looking
statements are reasonable, there is no assurance that such expectations will
prove to be correct. Undue reliance should not be placed on forward-looking
statements, as a number of factors could cause the actual results to differ
materially from the expectations expressed in the forward-looking statements.
Information on risk factors is included in the Management's Discussion and
Analysis for the year ended December 31, 2010 under the heading "Risk and
Uncertainties", and in other reports filed by Wajax Income Fund and the
Corporation with Canadian securities regulators and available at www.sedar.com.
Management's Discussion and Analysis - Q3 2011
The following management's discussion and analysis ("MD&A") discusses the
consolidated financial condition and results of operations of Wajax Corporation
("Wajax" or "Corporation") for the quarter ended September 30, 2011. On January
1, 2011, Wajax adopted International Financial Reporting Standards ("IFRS"). The
term "Canadian GAAP" refers to Canadian generally accepted accounting principles
before the adoption of IFRS. This MD&A should be read in conjunction with the
information contained in the unaudited Condensed Consolidated Financial
Statements and accompanying notes for the quarter ended September 30, 2011,
which have been prepared using IFRS, the annual Audited Consolidated Financial
Statements and accompanying notes of Wajax Income Fund for the year ended
December 31, 2010 which were prepared using Canadian GAAP, and the associated
MD&A. Information contained in this MD&A is based on information available to
management as of November 2, 2011.
Unless otherwise indicated, all financial information within this MD&A is in
millions of Canadian dollars, except share and per share data.
Additional information, including Wajax's Annual Report and Annual Information
Form, are available at www.sedar.com.
Responsibility of Management and the Board of Directors
Management is responsible for the information disclosed in this MD&A and the
unaudited Condensed Consolidated Financial Statements and accompanying notes,
and has in place appropriate information systems, procedures and controls to
ensure that information used internally by management and disclosed externally
is materially complete and reliable. Wajax's Board of Directors has approved
this MD&A and the unaudited Condensed Consolidated Financial Statements and
accompanying notes. In addition, Wajax's Audit Committee, on behalf of the Board
of Directors, provides an oversight role with respect to all public financial
disclosures made by Wajax, and has reviewed this MD&A and the unaudited
Condensed Consolidated Financial Statements and accompanying notes.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Wajax has designed disclosure controls and procedures ("DC&P") to provide
reasonable assurance that material information relating to Wajax is made known
to the Chief Executive Officer and the Chief Financial Officer, particularly
during the period in which the interim filings are being prepared. Wajax has
designed internal controls over financial reporting ("ICFR") to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS.
Wajax has not completed the design of DC&P and ICFR related to the May 2, 2011
acquisition of the assets of Harper Power Products Inc. ("Harper"). The Harper
operation has had revenues of approximately $29.4 million since the acquisition.
Wajax anticipates that the design of DC&P and ICFR related to Harper will be
completed prior to June 2012, at which time Harper will be integrated with the
existing Power Systems segment's control environment.
There were no changes in internal control over financial reporting that occurred
during Wajax's most recent interim period that have materially affected, or are
reasonably likely to materially affect, the Corporation's ICFR.
Wajax Corporation Overview
Effective January 1, 2011, Wajax Income Fund converted into a corporation
pursuant to a plan of arrangement under the Canada Business Corporations Act
("CBCA") and the shares of Wajax Corporation began trading on the Toronto Stock
Exchange on January 4, 2011 under the symbol WJX.
Wajax's core distribution businesses are engaged in the sale and after-sale
parts and service support of equipment, industrial components and power systems
through a network of 117 branches across Canada. Wajax is a multi-line
distributor and represents a number of leading worldwide manufacturers in its
core businesses. Its customer base is diversified, spanning natural resources,
construction, transportation, manufacturing, industrial processing and
utilities.
Wajax's strategy is to continue to grow earnings in all segments through
continuous improvement of operating margins and revenue growth while maintaining
a strong balance sheet. Revenue growth will be achieved through market share
gains, the addition of new or complementary product lines and expansion into new
geographic territories, either organically or through acquisitions.
Forward-Looking Information
This MD&A contains forward-looking statements. These statements relate to future
events or future performance and reflect management's current expectations and
assumptions. The words "anticipate", "expect", "believe", "may", "should",
"estimate", "project", "outlook", "forecast" or similar words are used to
identify such forward-looking information. Such forward-looking statements
reflect management's current beliefs and are based on information currently
available to management of Wajax. Although management believes that the
expectations represented in such forward-looking statements are reasonable,
there is no assurance that such expectations will prove to be correct. By their
very nature, forward-looking statements involve inherent risks and uncertainties
(both general and specific) and the risk that the expectations represented in
such forward-looking statements will not be achieved. Undue reliance should not
be placed on forward-looking statements, as a number of important factors could
cause the actual events, performance or results to differ materially from the
events, performance and results discussed in the forward-looking statements.
These factors include, among other things: changes in laws and regulations
affecting Wajax and its business operations, changes in taxation of Wajax,
general business conditions and economic conditions in the markets in which
Wajax and its customers compete, fluctuations in commodity prices, Wajax's
relationship with its suppliers and manufacturers and its access to quality
products, the ability of Wajax to maintain and expand its customer base, actual
future market conditions being different than anticipated by management and the
Board of Directors of Wajax, and actual future operating and financial results
of Wajax being different than anticipated by management and the Board of
Directors of Wajax. You are cautioned that the foregoing list is not exhaustive.
You are further cautioned that the preparation of financial statements in
accordance with IFRS requires management to make certain judgments and estimates
that affect the reported amounts of assets, liabilities, revenues and expenses.
These estimates may change, having either a negative or positive effect on net
earnings as further information becomes available, and as the economic
environment changes. Additional information on these and other factors is
included in this MD&A under the heading "Risk and Uncertainties" and in other
reports filed by Wajax with Canadian securities regulators and available at
www.sedar.com. The forward-looking statements contained in this MD&A are
expressly qualified in their entirety by this cautionary statement. The
forward-looking statements contained herein are made as of the date of this MD&A
and Wajax does not undertake any obligation to publicly update such
forward-looking statements to reflect new information, subsequent events or
otherwise unless so required by applicable securities laws.
International Financial Reporting Standards
In February 2008, The Accounting Standards Board of the Canadian Institute of
Chartered Accountants confirmed that the use of IFRS is required in Canada for
publicly accountable profit oriented enterprises for fiscal years beginning on
or after January 1, 2011. The Corporation's first annual IFRS financial
statements will be for the year ending December 31, 2011 and will include the
comparative period of 2010. Accordingly, the Corporation has adopted IFRS
effective January 1, 2010 (the IFRS transition date) and has prepared its
unaudited Condensed Consolidated Financial Statements in accordance with
International Accounting Standard 34 Interim Financial Reporting. Prior to the
adoption of IFRS, the financial statements of the Corporation were prepared in
accordance with Canadian GAAP.
The most significant impacts on the Corporation's unaudited Condensed
Consolidated Financial Statements resulting from the adoption of IFRS are
discussed within the applicable sections of this MD&A and Note 14 of the
unaudited Condensed Consolidated Financial Statements.
All comparative figures have been restated in accordance with IFRS, unless
otherwise indicated.
Consolidated Results
Three months ended Nine months ended
September 30 September 30
2011 2010 2011 2010
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Revenue $ 361.9 $ 294.4 $ 999.9 $ 794.5
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Gross profit $ 74.7 $ 62.4 $ 213.1 $ 173.6
Selling and administrative
expenses $ 48.7 $ 42.6 $ 144.6 $ 131.3
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Earnings before finance costs and
income taxes $ 26.0 $ 19.8 $ 68.5 $ 42.3
Finance costs $ 1.4 $ 1.1 $ 3.5 $ 3.3
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Earnings before income taxes $ 24.6 $ 18.7 $ 65.0 $ 39.1
Income tax expense (recovery) $ 6.7 $ (0.8) $ 17.8 $ (1.5)
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Net earnings $ 17.9 $ 19.6 $ 47.2 $ 40.6
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Earnings per share
- Basic $ 1.08 $ 1.18 $ 2.84 $ 2.45
- Diluted $ 1.06 $ 1.16 $ 2.79 $ 2.41
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Revenue
Revenue in the third quarter of 2011 increased 23% or $67.5 million to $361.9
million, from $294.4 million in 2010 and included $20.3 million of revenue from
the acquisition of the assets of Harper by the Power Systems segment effective
May 2, 2011. Segment revenue increased 23% in Equipment (formerly Mobile
Equipment), 14% in Industrial Components and 31% in Power Systems (4% excluding
Harper revenue) compared to last year. For the nine months ended September 30,
2011, revenue increased 26% or $205.4 million.
Gross profit
Gross profit in the third quarter of 2011 increased $12.3 million due to the
positive impact of higher volumes, offset partially by a lower gross profit
margin percentage compared to last year. The gross profit margin percentage for
the quarter of 20.6% decreased from 21.2% in 2010 due mainly to lower parts and
service margins in all segments compared to last year.
For the nine months ended September 30, 2011, gross profit increased $39.5
million due to higher volumes compared to last year. The gross profit margin
percentage decreased to 21.3% in 2011 from 21.9% in 2010 due primarily to a
sales mix variance resulting from a higher proportion of equipment sales in both
the Equipment and Power Systems segments compared to last year.
Selling and administrative expenses
Selling and administrative expenses increased $6.1 million in the quarter
compared to last year. This was due mainly to $2.6 million of selling and
administrative expenses related to Harper and higher sales related costs in all
segments. Selling and administrative expenses as a percentage of revenue
decreased to 13.5% in 2011 from 14.5% in 2010.
For the nine months ended September 30, 2011, selling and administrative
expenses increased $13.3 million compared to last year. This was due primarily
to $4.3 million of selling and administrative expenses relating to Harper,
higher sales related costs, a $2.1 million increase in annual and mid-term
incentive accruals and additional occupancy costs. The increase was offset
partially by lower bad debt expense in the Equipment segment compared to last
year. Selling and administrative expenses as a percentage of revenue decreased
to 14.5% in 2011 from 16.5% in 2010.
Finance costs
Quarterly finance costs of $1.4 million increased $0.3 million compared to last
year due to the impact of higher funded net debt, mainly attributable to the
acquisition of Harper on May 2, 2011, and the write-off of unamortized deferred
financing costs as a result of the extension on August 12, 2011 of the
Corporation's $175 million bank credit facility to August 12, 2016 from December
31, 2011.
For the nine months ended September 30, 2011, finance costs of $3.5 million
increased $0.2 million compared to 2010. The impact of higher funded net debt,
due mainly to the acquisition of Harper on May 2, 2011, was partially offset by
the positive impact of lower interest rates compared to last year.
Earnings before income taxes
Quarterly earnings before income taxes increased $5.9 million as the positive
impact of higher volumes more than offset the lower gross profit margin
percentage, increased selling and administrative costs and higher finance costs
compared to last year.
For the nine months ended September 30, 2011, earnings before income taxes
increased $25.9 million. The positive impact of higher volumes more than offset
the lower gross profit margin percentage, increased selling and administrative
costs and higher finance costs compared to last year.
Income tax expense
Effective January 1, 2011, Wajax converted from an income fund to a corporation.
As a result, Wajax and its subsidiaries are subject to tax on all of their
taxable income from that date forward.
For the three and nine months ended September 30, 2011, the effective income tax
rates of 27.2% and 27.3%, respectively, were less than the Corporation's
statutory income tax rate of 27.7%. The positive impact of partnership income
generated in 2011 which will be subject to tax in 2012 at a lower rate, more
than offset the negative impact of expenses not deductible for tax purposes.
Net earnings
Quarterly net earnings decreased $1.7 million to $17.9 million, or $1.08 per
share, from $19.6 million, or $1.18 per share, in 2010. The $5.9 million
increase in net earnings before income taxes was more than offset by the $7.5
million increase in income tax expense resulting from the conversion from an
income fund to a corporation.
For the nine months ended September 30, 2011, net earnings increased $6.6
million to $47.2 million, or $2.84 per share, from $40.6 million, or $2.45 per
share, in 2010. The $25.9 million increase in net earnings before income taxes,
was partially offset by the $19.3 million increase in income tax expense.
Comprehensive income
Comprehensive income for the quarter of $19.7 million increased $0.9 million
from $18.8 million the previous year as a $2.6 million increase in other
comprehensive income more than offset the $1.7 million reduction in net earnings
compared to last year. The increase in other comprehensive income resulted from
gains on derivative instruments designated as cash flow hedges outstanding at
the end of the quarter and losses on derivative instruments designated as cash
flow hedges in prior periods reclassified to cost of inventory or finance costs
in the current period.
For the nine months ended September 30, 2011, comprehensive income of $49.9
million increased $9.1 million from $40.8 million the previous year due to
higher net earnings of $6.6 million and a $2.5 million increase in other
comprehensive income compared to last year. The increase in other comprehensive
income resulted from gains on derivative instruments designated as cash flow
hedges outstanding at the end of the period and increased losses on derivative
instruments designated as cash flow hedges in prior periods reclassified to cost
of inventory or finance costs in the current period.
Funded net debt
Funded net debt of $97.5 million at September 30, 2011 decreased $13.6 million
compared to June 30, 2011. The decrease resulted mainly from cash flows
generated from operating activities of $31.3 million, offset partially by
dividends paid of $9.3 million, rental fleet and other capital additions of $4.3
million, post closing adjustments related to the Harper acquisition of $1.7
million, interest payments of $1.3 million and refinancing transaction costs of
$1.1 million. Compared to December 31, 2010 funded net debt increased $51.9
million. Wajax's quarter-end funded net debt-to-equity ratio of 0.43:1 at
September 30, 2011 decreased from last quarter's ratio of 0.52:1 and increased
from the December 31, 2010 ratio of 0.23:1.
On August 12, 2011, Wajax amended and extended the term of its $175 million bank
credit facility to August 12, 2016 from December 31, 2011. The terms of the
fully secured facility, comprised of a $30 million non-revolving term portion
and a $145 million revolving term portion, are no more restrictive than in the
previous facility. Margins on the amended facility depend on Wajax's leverage
ratio at the time of borrowing and range between 1.5% and 3.0% for Canadian
dollar bankers' acceptances and US dollar LIBOR borrowings, and 0.5% and 2.0%
for prime rate borrowings.
Dividends
For the quarter ended September 30, 2011 monthly dividends declared totalled
$0.58 per share and included $0.18 per share for the month of July and $0.20 per
share for the months of August and September. For the quarter ended September
30, 2010 monthly cash distributions declared were $0.85 per unit.
For the nine months ended September 30, 2011 monthly dividends declared totaled
$1.54 per share. For the nine months ended September 30, 2010 monthly cash
distributions declared were $1.75 per unit.
On August 3, 2011 Wajax announced a monthly dividend of $0.20 per share ($2.40
annualized) for the month of October payable on November 21, 2011 to
shareholders of record on October 31, 2011.
On November 2, 2011 Wajax announced monthly dividends of $0.20 per share ($2.40
annualized) for each of the months of November, December, January and February
payable on December 20, 2011, January 20, 2012, February 21, 2012 and March 20,
2012 to shareholders of record on November 30, 2011, December 30, 2011, January
31, 2012 and February 29, 2012, respectively.
Tax information relating to 2011 dividends and prior year distributions is
available on Wajax's website at www.wajax.com.
Backlog
Consolidated backlog at September 30, 2011 of $263.8 million decreased $17.9
million, or 6%, from $281.7 million at June 30, 2011 due mainly to significant
deliveries in the Power Systems segment in the third quarter. Backlog includes
the total retail value of customer purchase orders for future delivery or
commissioning.
CEO Succession
The search is currently underway for a new CEO to replace Mr. Manning who is
retiring. Mr. Manning has agreed to continue in the CEO role until his successor
is appointed.
Quarterly Results of Operations
Equipment
Three months ended Nine months ended
September 30 September 30
2011 2010 2011 2010
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Equipment(i) $ 116.5 $ 91.0 $ 302.5 $ 230.7
Parts and service $ 61.4 $ 53.9 $ 191.1 $ 165.4
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Segment revenue $ 177.9 $ 144.9 $ 493.6 $ 396.1
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Segment earnings $ 12.7 $ 10.0 $ 35.9 $ 28.2
Segment earnings margin 7.1% 6.9% 7.3% 7.1%
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(i) Includes rental revenue.
Revenue in the third quarter of 2011 increased $33.0 million, or 23%, to $177.9
million from $144.9 million in the third quarter of 2010. Segment earnings for
the quarter increased $2.7 million to $12.7 million compared to the third
quarter of 2010. The following factors contributed to the Equipment segment's
third quarter results:
-- Equipment revenue increased $25.5 million compared to last year.
Specific quarter-over-quarter variances included the following:
-- Mining equipment sales increased $16.5 million due mainly to the
delivery of a large Hitachi mining shovel in western Canada.
-- Construction equipment revenue increased $6.7 million due mainly to
increased sales of Hitachi construction excavators across Canada and
higher JCB construction equipment sales in eastern Canada (Quebec
and Atlantic provinces) and western Canada.
-- Forestry equipment sales increased $6.3 million attributable to
higher market demand, primarily in western and eastern Canada, for
Tigercat and forestry related Hitachi products.
-- Material handling equipment revenue increased $1.3 million.
-- Crane and utility equipment revenue decreased $5.3 million due
mainly to lower sales to utility customers in Ontario.
-- Parts and service volumes increased $7.5 million compared to last year
due principally to higher mining sector sales, primarily in western
Canada, and higher construction sector sales in all regions.
-- Segment earnings increased $2.7 million to $12.7 million compared to
last year. The positive impact of higher volumes outweighed a $2.2
million increase in selling and administrative expenses resulting from
higher sales related expenses and increased occupancy expenses.
Backlog of $146.0 million at September 30, 2011 decreased $5.0 million compared
to June 30, 2011.
On October 17, 2011, Wajax announced it had reached an agreement with LeTourneau
Technologies, Inc. ("LeTourneau") providing for the dealer agreement relating to
Wajax's distribution of LeTourneau mining equipment and parts products in Canada
to be discontinued effective April 27, 2012. As previously reported, Joy Global
Inc. ("Joy") announced the closing of its acquisition of LeTourneau on June 22,
2011 and indicated its intention to integrate the LeTourneau field facilities
and distribution activities with its P&H mining equipment operations. Sales and
service of LeTourneau products in 2010 generated approximately $40 million of
revenue for Wajax and contributed approximately $10 million to its earnings
before interest and taxes. Exit costs or write downs, if any, are expected to be
minimal.
Industrial Components
Three months ended Nine months ended
September 30 September 30
2011 2010 2011 2010
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Segment revenue $ 86.7 $ 75.9 $ 257.3 $ 224.4
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Segment earnings $ 6.2 $ 4.2 $ 17.2 $ 9.4
Segment earnings margin 7.2% 5.5% 6.7% 4.2%
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Revenue of $86.7 million increased $10.8 million, or 14%, from $75.9 million in
the third quarter of 2010. Segment earnings increased $2.0 million to $6.2
million in the quarter compared to the previous year. The following factors
contributed to the segment's third quarter results:
-- Bearings and power transmission parts sales increased $3.3 million
compared to last year due mainly to higher mining sector volumes across
all regions.
-- Fluid power and process equipment products and service revenue increased
$7.5 million on improved oil and gas drilling activity in western Canada
and increased sales to mining and industrial sector customers in all
regions.
-- Segment earnings increased $2.0 million compared to last year. The
positive impact of higher volumes outweighed the negative impact of
lower gross margins on fluid power and process equipment products and a
$0.4 million increase in selling and administrative expenses. The
increase in selling and administrative expenses resulted mainly from
higher sales related costs.
Backlog of $47.3 million as of September 30, 2011 increased slightly compared to
June 30, 2011.
Power Systems
Three months ended Nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Equipment $ 45.3 $ 40.1 $ 116.9 $ 72.1
Parts and service $ 52.7 $ 34.5 $ 135.0 $ 105.0
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Segment revenue $ 98.0 $ 74.6 $ 251.9 $ 177.1
----------------------------------------------------------------------------
Segment earnings $ 9.7 $ 8.1 $ 25.0 $ 12.7
Segment earnings margin 9.9% 10.9% 9.9% 7.2%
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Revenue in the third quarter increased $23.4 million, or 31%, to $98.0 million
compared to $74.6 million in 2010. Excluding the Harper acquisition, Power
Systems revenue increased $3.1 million, or 4% compared to last year. Segment
earnings increased $1.6 million to $9.7 million in the quarter compared to the
previous year. The following factors impacted quarterly revenue and earnings:
-- Revenue in western Canada increased $1.7 million compared to last year.
Equipment revenues declined $2.6 million on lower power generation
product sales offset partially by higher equipment sales to off-highway
oil and gas customers. Parts and service revenue increased $4.3 million
mainly as a result of higher sales to off-highway customers, including
those in the mining and oil and gas sectors.
-- Revenue in central Canada of $20.3 million from the acquisition of
Harper resulted primarily from parts and service sales to on-highway
customers.
-- Revenue in eastern Canada increased by $1.4 million compared to 2010.
Equipment sales decreased $0.2 million while parts and service revenue
increased $1.6 million due to higher activity in the power generation
and off-highway markets.
-- Segment earnings increased $1.6 million compared to last year as a
result of Harper. Selling and administrative expenses increased $3.2
million and included $2.6 million of selling and administrative expenses
related to Harper and sales related costs.
Backlog of $70.5 million as of September 30, 2011 decreased $13.2 million
compared to June 30, 2011 due to deliveries during the third quarter out of
backlog.
Selected Quarterly Information
2011(1) 2010(1) 2009(2)
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
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Revenue $361.9 $334.1 $303.9 $317.1 $294.4 $272.0 $227.4 $259.1
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Net earnings $17.9 $16.5 $12.8 $15.0 $19.6 $12.2 $8.9 $8.3
Net earnings per
share
- Basic $1.08 $0.99 $0.77 $0.90 $1.18 $0.73 $0.53 $0.50
- Diluted $1.06 $0.98 $0.76 $0.89 $1.16 $0.72 $0.53 $0.50
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(1) 2011 and 2010 financials are prepared in accordance with IFRS and
certain 2010 comparative amounts have been reclassified to conform with
the current period presentation. In particular, cash discounts provided
to customers have been reclassified out of selling and administrative
expenses into revenue and cash discounts received from vendors have been
reclassified out of selling and administrative expenses into cost of
sales. The above reclassifications do not affect net earnings or
cashflows.
(2) 2009 financials are prepared in accordance with Canadian GAAP and
certain 2009 comparative amounts have been reclassified to conform with
the current period presentation. In particular, amounts recovered from
customers or manufacturers have been reclassified out of selling and
administrative expenses into revenue and service department overhead
amounts have been reclassified out of selling and administrative
expenses into cost of sales. The above reclassifications do not affect
net earnings or cashflows.
A discussion of Wajax's previous quarterly results can be found in Wajax's
quarterly MD&A reports available on SEDAR at www.sedar.com.
Cash Flow, Liquidity and Capital Resources
Net Cash Flows used in Operating Activities
While the IFRS adjustments do not impact the Corporation's total cash flows,
cash flows from operating activities and cash flows used in investing activities
have each been adjusted, by equal and offsetting amounts to reflect the
reclassification of rental equipment additions as operating activities.
Net cash flows generated from operating activities amounted to $26.7 million in
the third quarter of 2011, compared to $28.8 million the previous year. The $2.1
million decrease was due mainly to an increased use of non-cash working capital
of $3.4 million, lower income tax recoveries of $1.8 million and higher lift
truck rental fleet additions in the Equipment segment of $2.5 million, partially
offset by higher cash flows from operations before changes in non-cash working
capital of $6.3 million.
For the nine months ended September 30, 2011, net cash flows generated from
operating activities amounted to $12.5 million, compared to $47.3 million the
previous year. The $34.8 million decrease was due primarily to an increased use
of non-cash working capital of $44.1 million, higher lift truck rental fleet
additions in the Equipment segment of $12.4 million and lower income tax
recoveries of $1.9 million, partially offset by higher cash flows from
operations before changes in non-cash working capital of $24.0 million.
Changes in non-cash working capital for the first three and nine months of 2011
compared to 2010 include the following components:
Increase (decrease) in non-cash Three months ended Nine months ended
working capital September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Trade and other receivables $ 3.6 $ 0.2 $ 42.0 $ 23.7
Inventories $ 12.5 $ 11.7 $ 24.6 $ 12.2
Prepaid expenses $ 2.2 $ (6.7) $ 2.1 $ (2.0)
Trade and other payables $ (18.0) $ (18.8) $ (17.4) $ (31.4)
Accrued Liabilities $ (0.6) $ 8.7 $ (3.3) $ (0.6)
Provisions $ (0.7) $ 0.3 $ (1.1) $ 0.9
----------------------------------------------------------------------------
Total $ (1.1) $ (4.4) $ 46.9 $ 2.8
----------------------------------------------------------------------------
Significant components of the changes in non-cash working capital for the
quarter ended September 30, 2011 are as follows:
-- Inventories increased $12.5 million, primarily in the Equipment segment.
-- Trade and other payables increased $18.0 million reflecting higher
inventory trade payables in the Equipment segment.
Significant components of the changes in non-cash working capital for the nine
months ended September 30, 2011 are as follows:
-- Trade and other receivables increased $42.0 million due to the impact of
higher sales activity in all segments.
-- Inventories increased $24.6 million as a result of a continued growth in
sales activity in all segments.
-- Trade and other payables increased $17.4 million reflecting higher
inventory trade payables.
At September 30, 2011 Wajax had employed $191.9 million in working capital,
exclusive of funded net debt, compared to $118.3 million at December 31, 2010.
The $73.6 million increase was due primarily to the cash flow factors listed
above, the Harper acquisition and a $9.1 million decrease in dividends payable
related to the payment in January 2011 of distributions declared in December
2010 prior to converting from an income fund to a corporation.
Investing Activities
During the quarter, Wajax paid $1.7 million of post-closing adjustments related
to the asset acquisition of Harper that closed on May 2, 2011. In addition, the
Company paid a net amount of $0.8 million on capital asset additions net of
disposals in the third quarter of 2011 compared to $1.1 million in 2010.
For the nine months ended September 30, 2011, Wajax had paid a total of $23.3
million for the asset acquisition of Harper and a net amount of $3.0 million on
capital asset additions net of disposals compared to $2.4 million the previous
year.
Financing Activities
The Corporation used $18.3 million of cash in financing activities in the third
quarter of 2011 compared to $11.4 million in 2010. Financing activities in the
quarter included dividends paid to shareholders totaling $9.3 million, or $0.56
per share, bank debt and financing lease payments of $7.9 million and
transaction costs related to the bank credit facility extension of $1.1 million.
For the nine months ended September 30, 2011, Wajax used $31.3 million of cash
in financing activities compared to $28.1 million in 2010. Distributions and
dividends paid to shareholders totaling $34.8 million, or $2.09 per share,
financing lease payments of $2.5 million and transaction costs related to the
bank credit facility extension of $1.1 million exceeded increases in bank debt
of $7.0 million.
Funded net debt of $97.5 million at September 30, 2011 decreased $13.6 million
compared to June 30, 2011. The decrease resulted mainly from cash flows
generated from operating activities of $31.3 million, offset partially by
dividends paid of $9.3 million, rental fleet and other capital additions of $4.3
million, post closing adjustments related to the Harper acquisition of $1.7
million, interest payments of $1.3 million and refinancing transaction costs of
$1.1 million. Wajax's quarter-end funded net debt-to-equity ratio of 0.43:1 at
September 30, 2011 decreased from last quarter's ratio of 0.52:1.
Funded net debt of $97.5 million at September 30, 2011 increased $51.9 million
compared to December 31, 2010. The increase resulted mainly from cash used for
additional non-cash working capital of $46.9 million, distributions and
dividends paid of $34.8 million, $23.3 million paid for the acquisition of
Harper, $18.2 million disbursed for rental fleet and other capital additions and
interest payments of $3.1 million. The increases were partially offset by cash
flows from operating activities before changes in non-cash working capital of
$77.6 million. Wajax's period-end funded net debt-to-equity ratio of 0.43:1 at
September 30, 2011 increased from the ratio of 0.23:1 at December 31, 2010.
Liquidity and Capital Resources
On August 12, 2011, Wajax amended and extended the term of its $175 million bank
credit facility to August 12, 2016 from December 31, 2011. The terms of the
fully secured facility, comprised of a $30 million non-revolving term portion
and a $145 million revolving term portion, are no more restrictive than the
previous facility. Margins on the amended facility depend on Wajax's leverage
ratio at the time of borrowing and range between 1.5% and 3.0% for Canadian
dollar bankers' acceptances and US dollar LIBOR borrowings, and 0.5% and 2.0%
for prime rate borrowings.
At September 30, 2011, Wajax had borrowed $87.0 million and issued $5.7 million
of letters of credit for a total utilization of $92.7 million of its $175
million bank credit facility and had no utilization of its $15 million equipment
financing facility. Borrowing capacity under the bank credit facility is
dependent on the level of inventories on-hand and outstanding trade accounts
receivables. At September 30, 2011, borrowing capacity under the bank credit
facility was equal to $175 million.
Wajax's $175 million bank credit facility along with an additional $15 million
of capacity permitted under the credit facility, should be sufficient to meet
Wajax's short-term normal course working capital, maintenance capital and growth
capital requirements. In the long-term Wajax may be required to access the
equity or debt markets in order to fund significant acquisitions and growth
related working capital and capital expenditures.
Financial Instruments
Wajax uses derivative financial instruments in the management of its foreign
currency and interest rate exposures. Wajax's policy is not to utilize
derivative financial instruments for trading or speculative purposes.
Significant derivative financial instrument transactions and those outstanding
at the end of the quarter were as follows:
-- Wajax has entered into the following interest rate swaps that have
effectively fixed the interest rate on $80 million of its debt at the
combined rate of 2.925%, plus applicable margins, until December 31,
2011:
-- On June 7, 2008 the delayed interest rate swap Wajax entered into on
May 9, 2007 with two of its lenders became effective. As a result,
the interest rate on the $30 million non-revolving term portion of
the bank credit facility was effectively fixed at 4.60% plus
applicable margins until December 31, 2011.
-- On January 23, 2009 a delayed interest rate swap Wajax entered into
on December 18, 2008 with two of its lenders became effective. As a
result, the interest rate on the $50 million revolving term portion
of the bank credit facility was effectively fixed at 1.92% plus
applicable margins until December 31, 2011.
-- Margins on the debt associated with the interest rate swaps depend
on Wajax's leverage ratio and range between 1.5% and 3.0%.
-- Wajax enters into short-term currency forward contracts to fix the
exchange rate on the cost of certain inbound inventory and to hedge
certain foreign currency-denominated sales to (receivables from)
customers as part of its normal course of business. As at September 30,
2011, Wajax had contracts outstanding to buy U.S.$29.8 million (December
31, 2010 - to buy U.S.$34.1 million and to sell U.S.$0.3 million,
September 30, 2010 - to buy U.S.$37.7 million and EUR0.1 million and to
sell U.S.$4.1 million). The U.S. dollar contracts expire between October
2011 and December 2012, with a weighted average U.S./Canadian dollar
rate of 0.9939.
Wajax measures financial instruments held for trading and not accounted for as
hedging items, at fair value with subsequent changes in fair value being charged
to earnings. Derivatives designated as effective hedges are measured at fair
value with subsequent changes in fair value being charged to other comprehensive
income. The fair value of derivative instruments is estimated based upon market
conditions using appropriate valuation models. The carrying values reported in
the balance sheet for financial instruments are not significantly different from
their fair values.
Wajax is exposed to non-performance by counterparties to interest rate swaps and
short-term currency forward contracts. These counterparties are large financial
institutions with "Stable" outlook and high short-term and long-term credit
ratings from Standard and Poor's. To date, no such counterparty has failed to
meet its financial obligations to Wajax. Management does not believe there is a
significant risk of non-performance by these counterparties and will continue to
monitor the credit risk of these counterparties.
The transition to IFRS did not have a material effect on the Corporation's
accounting for financial instruments.
Currency Risk
There have been no material changes to currency risk since December 31, 2010.
Contractual Obligations
There have been no material changes to contractual obligations since December
31, 2010.
Off Balance Sheet Financing
The Equipment segment had $26.1 million (2010 - $20.6 million) of consigned
inventory on-hand from a major manufacturer as at September 30, 2011. In the
normal course of business, Wajax receives inventory on consignment from this
manufacturer which is generally sold to customers or purchased by Wajax. This
consigned inventory is not included in Wajax's inventory as the manufacturer
retains title to the goods.
Wajax's off balance sheet financing arrangements with non-bank lenders include
operating lease contracts in relation to Wajax's long-term lift truck rental
fleet in the Equipment segment. At September 30, 2011, the non-discounted
operating lease commitment for the rental fleet was $3.2 million (December 31,
2010 - $6.0 million).
In the event the inventory consignment program was terminated, Wajax would
utilize interest free financing, if any, made available by the manufacturer
and/or utilize capacity under its bank credit facility. Although management
currently believes Wajax has adequate debt capacity, Wajax would have to access
the equity or debt markets, or temporarily reduce dividends to accommodate any
shortfalls in Wajax's credit facility. See the Liquidity and Capital Resources
section.
Under IFRS, vehicle leases that were previously classified as operating leases
under Canadian GAAP are assessed as financing leases. Assets under finance lease
are capitalized at the commencement of the lease at the fair value of the leased
asset or, if lower, at the present value of the minimum lease payments. The
liability is recorded in the statement of financial position and classified
between current and non-current amounts. Lease payments are apportioned between
finance charges and a reduction of the lease liability so as to achieve a
constant rate of return of interest on the remaining balance of the liability.
Dividends
Dividends to shareholders were declared as follows:
Record Date Payment Date Per Share Amount
----------------------------------------------------------------------------
July 29, 2011 August 22, 2011 $0.18 $3.0
August 31, 2011 September 20, 2011 0.20 3.3
September 30, 2011 October 20, 2011 0.20 3.3
----------------------------------------------------------------------------
Three months ended September 30, 2011 $0.58 $9.6
----------------------------------------------------------------------------
On August 3, 2011 Wajax announced a monthly dividend of $0.20 per share ($2.40
annualized) for the month of October payable on November 21, 2011 to
shareholders of record on October 31, 2011.
On November 2, 2011 Wajax announced monthly dividends of $0.20 per share ($2.40
annualized) for each of the months of November, December, January and February
payable on December 20, 2011, January 20, 2012, February 21, 2012 and March 20,
2012 to shareholders of record on November 30, 2011, December 30, 2011, January
31, 2012 and February 29, 2012, respectively.
Tax information relating to 2011 dividends and prior year distributions is
available on Wajax's website at www.wajax.com.
Productive Capacity and Productive Capacity Management
During the second quarter, Wajax increased its productive capacity through the
acquisition of Harper which increased the Power Systems' Ontario infrastructure
by an additional nine branches. There have been no other material changes to the
Corporation's productive capacity and productive capacity management since
December 31, 2010.
Financing Strategies
On August 12, 2011, Wajax amended and extended the term of its $175 million bank
credit facility to August 12, 2016 from December 31, 2011. The terms of the
fully secured facility, comprised of a $30 million non-revolving term portion
and a $145 million revolving term portion, are no more restrictive than the
previous facility. Margins on the amended facility depend on Wajax's leverage
ratio at the time of borrowing and range between 1.5% and 3.0% for Canadian
dollar bankers' acceptances and US dollar LIBOR borrowings, and 0.5% and 2.0%
for prime rate borrowings.
Wajax's $175 million bank credit facility along with the $15 million demand
inventory equipment financing facility should be sufficient to meet Wajax's
short-term normal course working capital, maintenance capital and growth capital
requirements.
Wajax's short-term normal course working capital requirements can swing widely
quarter-to-quarter due to the timing of large inventory purchases and/or sales
and changes in market activity. In general, as Wajax experiences growth, there
is a need for additional working capital as was the case in 2006 and 2008.
Conversely, as Wajax experiences economic slowdowns working capital reduces
reflecting the lower activity levels as was the case in 2009. Fluctuations in
working capital are generally funded by, or used to repay, the bank credit
facilities.
In the long-term Wajax may also be required to access the equity or debt markets
or reduce dividends in order to fund significant acquisitions and growth related
working capital and capital expenditures.
Borrowing capacity under the bank credit facility is dependent on the level of
Wajax's inventories on-hand and outstanding trade accounts receivables. At
September 30, 2011, borrowing capacity under the bank credit facility was equal
to $175 million.
The bank credit facility contains covenants that could restrict the ability of
Wajax to make dividend payments, if (i) an event of default exists or would
exist as a result of a dividend payment, and (ii) the leverage ratio (Debt to
EBITDA) is greater than 3.0 at the time of declaration of the dividend.
Borrowing capacity under the bank credit facility is dependent on the level of
inventories on-hand and outstanding trade accounts receivables.
Share Capital
The shares of Wajax issued are included in shareholders' equity on the balance
sheet as follows:
Issued and fully paid shares as at September 30, 2011 Number Amount
----------------------------------------------------------------------------
Balance at the beginning of the year 16,629,444 $ 105.9
Rights exercised - -
----------------------------------------------------------------------------
Balance at end of quarter 16,629,444 $ 105.9
----------------------------------------------------------------------------
Wajax has five share-based compensation plans; the Wajax Share Ownership Plan
("SOP"), the Deferred Share Program ("DSP"), the Directors' Deferred Share Unit
Plan ("DDSUP"), the Mid-Term Incentive Plan for Senior Executives ("MTIP") and
the Deferred Share Unit Plan ("DSUP"). SOP, DSP and DDSUP rights are issued to
the participants and are settled by issuing Wajax Corporation shares. The
cash-settled MTIP and DSUP consist of annual grants that vest over three years
and are subject to time and performance vesting criteria. A portion of the MTIP
and the full amount of the DSUP grants are determined by the price of the
Corporation's shares. Compensation expense for the SOP, DSP and DDSUP is
determined based upon the fair value of the rights at the date of grant and
charged to earnings on a straight line basis over the vesting period, with an
offsetting adjustment to contributed surplus. Compensation expense for the DSUP
and the share-based portion of the MTIP varies with the price of the
Corporation's shares and is recognized over the vesting period. Wajax recorded
compensation cost of $1.7 million for the quarter (2010 - $1.1 million) and $5.3
million for the nine months ended (2010 - $3.0 million) in respect of these
plans.
Effective January 1, 2011 the SOP, DSP, DDSUP and MTIP plans have been amended
to reflect the conversion to a corporation.
Critical Accounting Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Significant accounting estimates include the provision for inventory
obsolescence, provision for doubtful accounts and any impairment of goodwill and
other assets, classification of leases, warranty reserve and measurement of
employee benefit obligations. Wajax makes a provision for doubtful accounts when
there is evidence that a specific account may become uncollectible. Wajax does
not provide a general reserve for bad debts. As conditions change, actual
results could differ from those estimates. Critical accounting estimates used by
Wajax's management are discussed in detail in the MD&A for the year ended
December 31, 2010 which can be found on SEDAR at www.sedar.com.
Accounting Changes
Transition to International Financial Reporting Standards
This is the first year that the Corporation has presented its unaudited
Condensed Consolidated Financial Statements in accordance with IFRS. The
Corporation provided information on its transition to IFRS in its MD&A for the
quarter ended March 31, 2011. This information has not changed materially from
what was provided.
Note 14 of the condensed consolidated financial statements provides an
explanation of the transition to IFRS. In addition, Note 14 provides detailed
reconciliations between Canadian GAAP and IFRS of the consolidated income
statement and consolidated statement of comprehensive income for the three
months and nine months ended September 30, 2010 and of the consolidated
statement of financial position as at September 30, 2010. These reconciliations
provide explanations of each major difference.
New standards and interpretations not yet adopted
As of January 1, 2013, the Corporation will be required to adopt IFRS 9
Financial Instruments, which is the result of the first phase of the IASB's
project to replace IAS 39 Financial Instruments: Recognition and Measurement.
The new standard replaces the current multiple classification and measurement
models for financial assets and liabilities with a single model that has only
two classification categories: amortized cost and fair value. The Corporation is
currently assessing the impact of this standard on its consolidated financial
statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 10
Consolidated Financial Statements, which establishes principles for the
preparation and presentation of consolidated financial statements when an entity
controls one or more other entities. The Corporation does not expect IFRS 10 to
have a material impact on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 13 Fair
Value Measurement, which defines fair value and sets out a framework for
measuring fair value when fair value measurements are required or permitted by
other IFRSs. The Corporation is currently assessing the impact of this standard
on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt amendments to
IAS 1 Presentation of Financial Statements, which require that an entity present
separately the items of OCI that may be reclassified to profit or loss in the
future from those that would never be reclassified to profit or loss. The
Corporation intends to adopt the amendments in its financial statements for the
annual period beginning on January 1, 2013. As the amendments only require
changes in the presentation of items in other comprehensive income, the
Corporation does not expect the amendments to IAS 1 to have a material impact on
the financial statements.
As of January 1, 2013, the Corporation will be required to adopt amendments to
IAS 19 Employee Benefits, which requires recognition of actuarial gains and
losses immediately in other comprehensive income, the full recognition of past
service costs immediately in profit or loss, recognition of the expected return
on plan assets in profit or loss to be calculated based on the rate used to
discount the defined benefit obligation, and certain additional disclosures. The
Corporation is currently assessing the impact of this standard on its
consolidated financial statements.
Risks and Uncertainties
As with most businesses, Wajax is subject to a number of marketplace and
industry related risks and uncertainties which could have a material impact on
operating results. Wajax attempts to minimize many of these risks through
diversification of core businesses and through the geographic diversity of its
operations. There are however, a number of risks that deserve particular comment
which are discussed in detail in the MD&A for the year ended December 31, 2010
which can be found on SEDAR at www.sedar.com. For the period October 1, 2011 to
November 2, 2011 there have been no material changes to the business of Wajax
that require an update to the discussion of the applicable risks discussed in
the MD&A for the year ended December 31, 2010.
Outlook
Management continues to be very pleased with 2011 results. The third quarter
improvement in pre-tax earnings was driven by robust energy, mining, forestry
and construction markets particularly in western Canada. As well, results from
the Harper acquisition continued to meet expectations. While the September 30,
2011 backlog diminished slightly, quoting activity, particularly in western
Canada remains strong.
For the remainder of the year, management is not anticipating that the
uncertainty regarding current world events will have a significant impact on
Wajax's end markets and expects pre-tax earnings to continue to be ahead of last
year, but at a lower rate of increase than experienced in the first nine months.
Additional information, including Wajax's Annual Report and Annual Information
Form, are available on SEDAR at www.sedar.com.
WAJAX CORPORATION
Unaudited Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2011
Notice required under National Instrument 51-102, "Continuous Disclosure
Obligations" Part 4.3(3) (a):
The attached condensed consolidated financial statements have been prepared by
Management of Wajax Corporation and have not been reviewed by the Corporation's
auditors.
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
As at
(unaudited, in thousands of Canadian September December
dollars) 30, 2011 31, 2010
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ - $ 42,954
Trade and other receivables 188,003 135,517
Inventories 231,497 196,460
Prepaid expenses 9,568 7,244
Derivative instruments 1,145 -
----------------------------------------------------------------------------
430,213 382,175
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment Note 4 25,312 15,794
Property, plant and equipment Note 5 48,148 46,090
Intangible assets Note 6 81,790 72,972
Deferred taxes - 5,277
Employee benefits Note 10 472 240
----------------------------------------------------------------------------
155,722 140,373
----------------------------------------------------------------------------
$ 585,935 $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness $ 2,097 $ -
Trade and other payables 157,682 134,832
Accrued liabilities 68,616 64,229
Provisions 6,012 4,892
Dividends payable 3,326 12,472
Income taxes payable 2,691 2,072
Obligations under finance leases 3,578 3,677
Derivative instruments - 2,452
Bank debt Note 7 - 79,680
----------------------------------------------------------------------------
244,002 304,306
----------------------------------------------------------------------------
NON-CURRENT
Provisions 4,608 4,338
Deferred taxes Note 10 12,734 -
Employee benefits 3,840 4,132
Other liabilities 4,005 5,221
Obligations under finance leases 5,862 5,227
Bank debt Note 7 85,954 -
----------------------------------------------------------------------------
117,003 18,918
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 105,892 -
----------------------------------------------------------------------------
Trust units - 105,892
----------------------------------------------------------------------------
Contributed surplus Note 9 7,769 6,426
----------------------------------------------------------------------------
Retained earnings 111,044 89,411
Accumulated other comprehensive income
(loss) 225 (2,405)
----------------------------------------------------------------------------
111,269 87,006
----------------------------------------------------------------------------
Total shareholders' equity 224,930 199,324
----------------------------------------------------------------------------
$ 585,935 $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
These condensed consolidated financial statements were approved by the Board
of Directors on November 2, 2011.
WAJAX CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands of
Canadian dollars, except per Three months ended Nine months ended
share data) September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue $ 361,920 $ 294,369 $ 999,918 $ 794,532
Cost of sales 287,212 231,963 786,817 620,958
----------------------------------------------------------------------------
Gross profit 74,708 62,406 213,101 173,574
----------------------------------------------------------------------------
Selling and
administrative
expenses 48,736 42,565 144,623 131,250
----------------------------------------------------------------------------
Earnings before
finance costs and
income taxes 25,972 19,841 68,478 42,324
Finance costs 1,392 1,114 3,477 3,263
----------------------------------------------------------------------------
Earnings before
income taxes 24,580 18,727 65,001 39,061
Income tax expense
(recovery) Note 10 6,692 (835) 17,759 (1,542)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 17,888 $ 19,562 $ 47,242 $ 40,603
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per
share Note 11 $ 1.08 $ 1.18 $ 2.84 $ 2.45
Diluted earnings per
share Note 11 $ 1.06 $ 1.16 $ 2.79 $ 2.41
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(unaudited, in thousands of Three months ended Nine months ended
Canadian dollars) September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Net earnings $ 17,888 $ 19,562 $ 47,242 $ 40,603
----------------------------------------------------------------------------
Losses (gains) on derivative
instruments designated as cash
flow hedges in prior periods
reclassified to cost of inventory
or finance costs during the
period, net of tax of $70 (2010 -
$19) and year to date, net of tax
of $460 (2010 - $30) 185 (182) 1,214 277
Gains (losses) on derivative
instruments designated as cash
flow hedges during the period,
net of tax of $593 (2010 - $27)
and year to date, net of tax of
$506 (2010 - $81) 1,654 (626) 1,416 (117)
----------------------------------------------------------------------------
Other comprehensive income (loss),
net of tax 1,839 (808) 2,630 160
----------------------------------------------------------------------------
Total comprehensive income $ 19,727 $ 18,754 $ 49,872 $ 40,763
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
For the nine months
ended September 30,
2011
(unaudited, in Contributed
thousands of Canadian Share Trust surplus Retained
dollars) capital units (Note 9) earnings
----------------------------------------------------------------------------
January 1, 2011 $ - 105,892 6,426 89,411
----------------------------------------------------------------------------
Conversion to
corporation 105,892 (105,892) - -
Net earnings - - - 47,242
Other comprehensive
income
Losses on derivative
instruments
designated as cash
flow hedges in prior
periods reclassified
to cost of inventory
or finance costs
during the period,
net of tax - - - -
Gains on derivative
instruments
designated as cash
flow hedges during
the period, net of
tax - - - -
----------------------------------------------------------------------------
Total other
comprehensive income - - - -
----------------------------------------------------------------------------
Total comprehensive
income for the period - - - 47,242
----------------------------------------------------------------------------
Dividends Note 8 - - - (25,609)
----------------------------------------------------------------------------
Share-based
compensation expense Note 9 - - 1,343 -
----------------------------------------------------------------------------
September 30, 2011 $ 105,892 - 7,769 111,044
----------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) ("AOCL")
---------------------------------
For the nine months
ended September 30,
2011
(unaudited, in Gains and losses
thousands of Canadian Actuarial gains on cash flow
dollars) and losses hedges Total
----------------------------------------------------------------------------
January 1, 2011 (628) (1,777) $ 199,324
----------------------------------------------------------------------------
Conversion to
corporation - - -
Net earnings - - 47,242
Other comprehensive
income
Losses on derivative
instruments
designated as cash
flow hedges in prior
periods reclassified
to cost of inventory
or finance costs
during the period,
net of tax - 1,214 1,214
Gains on derivative
instruments
designated as cash
flow hedges during
the period, net of
tax - 1,416 1,416
----------------------------------------------------------------------------
Total other
comprehensive income - 2,630 2,630
----------------------------------------------------------------------------
Total comprehensive
income for the period - 2,630 49,872
----------------------------------------------------------------------------
Dividends Note 8 - - (25,609)
----------------------------------------------------------------------------
Share-based
compensation expense Note 9 - - 1,343
----------------------------------------------------------------------------
September 30, 2011 (628) 853 $ 224,930
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
For the nine months
ended September 30,
2010
(unaudited, in Contributed
thousands of Canadian Share Trust surplus Retained
dollars) capital units (Note 9) earnings
----------------------------------------------------------------------------
January 1, 2010 $ - 105,307 5,645 90,258
----------------------------------------------------------------------------
Net earnings - - - 40,603
Other comprehensive
income
Losses on derivative
instruments
designated as cash
flow hedges in prior
periods reclassified
to cost of inventory
or finance costs
during the period,
net of tax - - - -
Losses on derivative
instruments
designated as cash
flow hedges during
the period, net of
tax - - - -
----------------------------------------------------------------------------
Total other
comprehensive income - - - -
----------------------------------------------------------------------------
Total comprehensive
income for the
period - - - 40,603
----------------------------------------------------------------------------
Distributions Note 8 - - - (29,076)
----------------------------------------------------------------------------
Unit rights plans
exercised Note 9 - 585 - -
----------------------------------------------------------------------------
Unit-based
compensation expense Note 9 - - 282 -
----------------------------------------------------------------------------
September 30, 2010 $ - 105,892 5,927 101,785
----------------------------------------------------------------------------
AOCL
---------------------------------
For the nine months
ended September 30,
2010
(unaudited, in Gains and losses
thousands of Canadian Actuarial gains on cash flow
dollars) and losses hedges Total
----------------------------------------------------------------------------
January 1, 2010 - (2,233) $ 198,977
----------------------------------------------------------------------------
Net earnings - - 40,603
Other comprehensive
income
Losses on derivative
instruments
designated as cash
flow hedges in prior
periods reclassified
to cost of inventory
or finance costs
during the period,
net of tax - 277 277
Losses on derivative
instruments
designated as cash
flow hedges during
the period, net of
tax - (117) (117)
----------------------------------------------------------------------------
Total other
comprehensive income - 160 160
----------------------------------------------------------------------------
Total comprehensive
income for the
period - 160 40,763
----------------------------------------------------------------------------
Distributions Note 8 - - (29,076)
----------------------------------------------------------------------------
Unit rights plans
exercised Note 9 - - 585
----------------------------------------------------------------------------
Unit-based
compensation expense Note 9 - - 282
----------------------------------------------------------------------------
September 30, 2010 - (2,073) $ 211,531
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited, in thousands Three months ended Nine months ended
of Canadian dollars) September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 17,888 $ 19,562 $ 47,242 $ 40,603
Items not affecting
cash flow:
Depreciation and
amortization
Rental equipment 1,301 875 3,367 2,611
Property, plant
and equipment 1,323 1,145 3,687 3,305
Assets under
finance lease 783 680 2,229 1,929
Intangible assets 139 119 391 414
Share-based
compensation
expense Note 9 431 275 1,343 867
Other liabilities 633 891 (1,216) 2,159
Non-cash rental
expense (129) 106 (178) 79
Employee benefits
expense, net of
payments (270) (18) (524) (141)
Finance costs 1,392 1,114 3,477 3,263
Income tax expense
(recovery) 6,692 (835) 17,759 (1,542)
----------------------------------------------------------------------------
Cash flows from
operating activities
before changes in non-
cash working capital 30,183 23,914 77,577 53,547
----------------------------------------------------------------------------
Changes in non-cash
working capital:
Trade and other
receivables (3,588) (234) (41,964) (23,736)
Inventories (12,462) (11,743) (24,569) (12,153)
Prepaid expenses (2,207) 6,661 (2,106) 2,002
Trade and other
payables 17,956 18,784 17,355 31,448
Accrued liabilities 645 (8,748) 3,256 571
Provisions 726 (297) 1,120 (945)
----------------------------------------------------------------------------
1,070 4,423 (46,908) (2,813)
----------------------------------------------------------------------------
Cash flows generated
from operating
activities 31,253 28,337 30,669 50,734
----------------------------------------------------------------------------
Rental equipment
additions (3,472) (935) (15,181) (2,796)
Provisions, non-
current 233 727 270 708
Finance costs paid (1,295) (1,081) (3,121) (3,164)
Income taxes (paid)
received (61) 1,717 (98) 1,778
----------------------------------------------------------------------------
Net cash flows generated
from operating
activities 26,658 28,765 12,539 47,260
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and
equipment additions (861) (1,167) (3,068) (2,534)
Proceeds on disposal
of property, plant
and equipment 30 71 71 164
Acquisition of
business Note 12 (1,654) - (23,257) -
----------------------------------------------------------------------------
Net cash flows used in
investing activities (2,485) (1,096) (26,254) (2,370)
----------------------------------------------------------------------------
24,173 27,669 (13,715) 44,890
----------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease) increase in
bank debt (7,000) - 7,000 -
Debt facility renewal
costs Note 7 (1,072) (1) (1,072) (93)
Payments under finance
leases (916) (613) (2,509) (2,290)
Dividends paid Note 8 (9,312) (10,800) (34,755) (25,744)
----------------------------------------------------------------------------
Net cash flows used in
financing activities (18,300) (11,414) (31,336) (28,127)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net change in cash and
cash equivalents 5,873 16,255 (45,051) 16,763
----------------------------------------------------------------------------
(Bank indebtedness) cash
- beginning of period (7,970) 9,715 42,954 9,207
----------------------------------------------------------------------------
(Bank indebtedness) cash $ $
- end of period $ (2,097) 25,970 (2,097) $ 25,970
----------------------------------------------------------------------------
WAJAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(unaudited, amounts in thousands of Canadian dollars, except share and per share
data)
1. COMPANY PROFILE
Wajax Corporation ("the Corporation") is incorporated in Canada. The address of
the Corporation's registered office is 3280 Wharton Way, Mississauga, Ontario,
Canada. The Corporation's core distribution businesses are engaged in the sale
and after-sale parts and service support of equipment, industrial components and
power systems, through a network of 117 branches across Canada. The Corporation
is a multi-line distributor and represents a number of leading worldwide
manufacturers across its core businesses. Its customer base is diversified,
spanning natural resources, construction, transportation, manufacturing,
industrial processing and utilities.
In 2010 the Corporation was structured as an unincorporated, open-ended, limited
purpose investment trust called Wajax Income Fund ("the Fund"). On January 1,
2011, the Fund converted into a corporation pursuant to a Plan of Arrangement
under the Canada Business Corporations Act. Unitholders of the Fund
automatically received one common share of the Corporation in exchange for each
unit of the Fund. The conversion was accounted for as a continuity of interests.
The business continues to be carried on by the same management team that was in
place prior to the completion of the conversion.
2. BASIS OF PREPARATION
Statement of compliance
These condensed consolidated financial statements have been prepared in
accordance with International Accounting Standard 34 Interim Financial
Reporting. These are the Corporation's interim International Financial Reporting
Standards ("IFRS") condensed consolidated financial statements for part of the
period covered by the first IFRS annual financial statements, and IFRS 1
First-time Adoption of International Financial Reporting Standards has been
applied. The condensed consolidated financial statements do not include all of
the disclosures required for full annual consolidated financial statements.
Accordingly, these condensed consolidated financial statements should be read in
conjunction with the annual consolidated financial statements of Wajax Income
Fund for the year ended December 31, 2010 reported under previous Canadian
generally accepted accounting principles ("Canadian GAAP") and the condensed
consolidated financial statements of the Corporation for the three months ended
March 31, 2011, which were the first financial statements presented under IFRS.
An explanation of how the transition to IFRS has affected the reported financial
position, financial performance and cash flows of the Corporation is provided in
Note 14. This note includes reconciliations of equity and total comprehensive
income for comparative periods reported under previous Canadian GAAP to those
reported under IFRS for the current periods. The Corporation's date of
transition to IFRS was January 1, 2010.
Basis of measurement
The condensed consolidated financial statements have been prepared under the
historical cost basis, except for derivative financial instruments and held for
trading financial instruments that have been measured at fair value.
Functional and presentation currency
These condensed consolidated financial statements are presented in Canadian
dollars, which is the Corporation's functional currency. All financial
information presented in Canadian dollars has been rounded to the nearest
thousand, unless otherwise stated and except share and per share data.
Judgements and estimation uncertainty
The preparation of the condensed consolidated financial statements in conformity
with IFRS requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported amounts of
assets, liabilities, revenues and expenses. Actual results could differ from
those estimates. The Corporation bases its estimates on historical experience
and various other assumptions that are believed to be reasonable in the
circumstances.
In preparing these condensed consolidated financial statements, the significant
judgments made by management in applying the Corporation's accounting policies
and the key sources of estimation uncertainty are expected to be the same as
those to be applied in the first annual IFRS financial statements. The more
significant judgements and assumptions that have an effect on the amounts
recognized in the condensed consolidated financial statements are provision for
doubtful accounts, inventory obsolescence, asset impairment, classification of
leases, impairment of intangible assets, warranty reserve and measurement of
employee benefit obligations.
3. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
These condensed consolidated financial statements have been prepared using IFRS
currently issued and expected to be effective at the end of the Corporation's
first annual IFRS reporting period, December 31, 2011. Accounting policies
currently adopted under IFRS are subject to change as a result of either a new
standard being issued or as a result of a voluntary change in accounting policy
made by the Corporation during 2011. A change in an accounting policy used may
result in material changes to the Corporation's reported financial position,
results of operations and cash flows.
As of January 1, 2013, the Corporation will be required to adopt IFRS 9
Financial Instruments, which is the result of the first phase of the IASB's
project to replace IAS 39 Financial Instruments: Recognition and Measurement. An
exposure draft has been issued which proposes to extend the implementation date
of IFRS 9 to January 1, 2015. The new standard replaces the current multiple
classification and measurement models for financial assets and liabilities with
a single model that has only two classification categories: amortized cost and
fair value. The Corporation is currently assessing the impact of this standard
on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 10
Consolidated Financial Statements, which establishes principles for the
preparation and presentation of consolidated financial statements when an entity
controls one or more other entities. The Corporation does not expect IFRS 10 to
have a material impact on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 13 Fair
Value Measurement, which defines fair value and sets out a framework for
measuring fair value when fair value measurements are required or permitted by
other standards. The Corporation is currently assessing the impact of this
standard on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt amendments to
IAS 1 Presentation of Financial Statements, which require that an entity present
separately the items of OCI that may be reclassified to profit or loss in the
future from those that would never be reclassified to profit or loss. The
Corporation intends to adopt the amendments in its financial statements for the
annual period beginning on January 1, 2013. As the amendments only require
changes in the presentation of items in other comprehensive income, the
Corporation does not expect the amendments to IAS 1 to have a material impact on
the financial statements.
As of January 1, 2013, the Corporation will be required to adopt IAS 19 Employee
Benefits, which requires recognition of actuarial gains and losses immediately
in other comprehensive income, the full recognition of past service costs
immediately in profit or loss, recognition of the expected return on plan assets
in profit or loss to be calculated based on the rate used to discount the
defined benefit obligation, and certain additional disclosures. The Corporation
is currently assessing the impact of this standard on its consolidated financial
statements.
4. RENTAL EQUIPMENT
The Corporation acquired rental equipment with a cost of $3,472 during the
quarter (2010 - $935) and $15,181 year to date (2010 - $2,796). Rental equipment
with a carrying amount of $230 during the quarter (2010 - $642) and $2,296 year
to date (2010 - $1,935) ceased to be rented and was classified as held for sale
in the normal course of business and transferred to inventory.
5. PROPERTY, PLANT AND EQUIPMENT
The Corporation acquired property, plant and equipment with a cost of $1,933
during the quarter (2010 - $2,184) and $6,115 year to date (2010 - $4,146).
Assets with a carrying amount of $89 during the quarter (2010 - $565) and $457
year to date (2010 - $749) were disposed of, resulting in losses on disposal of
$2 during the quarter (2010 - losses of $70) and gains of $14 year to date (2010
- $121).
Included in property, plant and equipment are vehicles held under finance leases:
September December
30, 2011 31, 2010
----------------------------------------------------------------------------
Cost, beginning of year $ 22,006 $ 21,999
Additions 3,433 3,515
Disposals (1,881) (3,508)
Transfers (810) -
----------------------------------------------------------------------------
Cost, end of period $ 22,748 $ 22,006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated depreciation, beginning of year 12,542 12,424
Charge for the period 2,229 2,810
Disposals (1,495) (2,692)
Transfers (589) -
----------------------------------------------------------------------------
Accumulated depreciation, end of period 12,687 12,542
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net book value $ 10,061 $ 9,464
----------------------------------------------------------------------------
All property, plant and equipment except real property and vehicles held under
finance leases have been pledged as security for bank debt.
6. INTANGIBLE ASSETS
Customer
Product lists/Non-
distribution competition
Goodwill rights agreements Total
----------------------------------------------------------------------------
Cost
January 1, 2011 $ 66,335 4,900 4,302 $ 75,537
Acquisition of business
(Note 12) 4,309 3,900 1,000 9,209
----------------------------------------------------------------------------
September 30, 2011 70,644 8,800 5,302 84,746
----------------------------------------------------------------------------
January 1, 2010 $ 66,335 4,900 4,302 $ 75,537
----------------------------------------------------------------------------
September 30, 2010 66,335 4,900 4,302 75,537
----------------------------------------------------------------------------
Accumulated amortization
January 1, 2011 $ - - 2,565 $ 2,565
Amortization for the
period - - 391 391
----------------------------------------------------------------------------
September 30, 2011 - - 2,956 2,956
----------------------------------------------------------------------------
January 1, 2010 $ - - 2,032 $ 2,032
Amortization for the
period - - 414 414
----------------------------------------------------------------------------
September 30, 2010 - - 2,446 2,446
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net book value
----------------------------------------------------------------------------
January 1, 2011 $ 66,335 4,900 1,737 $ 72,972
----------------------------------------------------------------------------
September 30, 2011 $ 70,644 8,800 2,346 $ 81,790
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2010 $ 66,335 4,900 2,270 $ 73,505
----------------------------------------------------------------------------
September 30, 2010 $ 66,335 4,900 1,856 $ 73,091
----------------------------------------------------------------------------
7. BANK DEBT
On August 12, 2011, the Corporation amended and extended the term of its $175
million bank credit facility to August 12, 2016 from December 31, 2011. The
terms of the fully secured facility, comprised of a $30 million non-revolving
term portion and a $145 million revolving term portion, are no more restrictive
than in the previous facility. Margins on the amended facility depend on the
Corporation's leverage ratio at the time of borrowing and range between 1.5% and
3.0% for Canadian dollar bankers' acceptances and US dollar LIBOR borrowings,
and 0.5% and 2.0% for prime rate borrowings.
8. DIVIDENDS DECLARED
During the three months ended September 30, 2011 the Corporation declared cash
dividends of $0.58 per share, or $9,645 (September 30, 2010, distributions of
$0.85 per unit or $14,132).
Year to date, the Corporation declared cash dividends of $1.54 per share, or
$25,609 (September 30, 2010, distributions of $1.75 per unit or $29,076).
9. SHARE-BASED COMPENSATION PLANS
The Corporation has five share-based compensation plans: the Wajax Share
Ownership Plan ("SOP"), the Deferred Share Program ("DSP"), the Directors'
Deferred Share Unit Plan ("DDSUP"), the Mid-Term Incentive Plan for Senior
Executives ("MTIP") and the Deferred Share Unit Plan ("DSUP").
a) Share Rights Plans
Under the SOP, DSP and the DDSUP, rights are issued to the participants which,
upon satisfaction of certain time and performance vesting conditions, are
settled by issuing Wajax Corporation shares for no cash consideration. Vested
rights are settled when the participant is no longer employed by the Corporation
or one of its subsidiary entities or no longer sits on its board. The aggregate
number of shares issuable to satisfy entitlements under these plans may not
exceed 1,050,000 shares. Compensation expense is based upon the fair value of
the rights at the date of grant and is charged to earnings on a straight-line
basis over the vesting period, with an offsetting adjustment to contributed
surplus. The Corporation recorded compensation cost of $431 for the quarter
(2010 - $275) and $1,343 for the year to date (2010 - $867) in respect of these
plans.
Share Ownership Plan September 30, 2011 September 30, 2010
----------------------------------------------------------------------------
Number of Fair value at Number of Fair value at
Rights time of grant Rights time of grant
----------------------------------------------------------------------------
Outstanding at
beginning of year 101,999 $ 2,326 126,125 $ 2,764
Granted in the
period 5,977 218 7,439 188
Exercised in the
period - - (18,034) (435)
Forfeited in the
period - - (9,130) (258)
----------------------------------------------------------------------------
Outstanding at end
of period 107,976 $ 2,544 106,400 $ 2,259
----------------------------------------------------------------------------
At September 30, 2011 99,077 SOP rights were vested.
Deferred Share Program September 30, 2011 September 30, 2010
----------------------------------------------------------------------------
Number of Fair value at Number of Fair value at
Rights time of grant Rights time of grant
----------------------------------------------------------------------------
Outstanding at
beginning of year 24,164 $ 738 21,944 $ 673
Granted in the period 5,554 207 1,371 35
----------------------------------------------------------------------------
Outstanding at end of
period 29,718 $ 945 23,315 $ 708
----------------------------------------------------------------------------
No DSP rights have vested at September 30, 2011.
Directors' Deferred
Share Unit Plan September 30, 2011 September 30, 2010
----------------------------------------------------------------------------
Number of Fair value at Number of Fair value at
Rights time of grant Rights time of grant
----------------------------------------------------------------------------
Outstanding at
beginning of year 147,797 $ 3,641 117,518 $ 2,768
Granted in the period 20,723 746 21,669 563
----------------------------------------------------------------------------
Outstanding at end of
period 168,520 $ 4,387 139,187 $ 3,331
----------------------------------------------------------------------------
DDSUP rights vest immediately upon grant.
b) Mid-Term Incentive Plan for Senior Executives ("MTIP")
The MTIP, which is settled in cash, consists of an annual grant that vests over
three years and is based upon time and performance vesting criteria, a portion
of which is determined by the price of the Corporation's shares. Compensation
expense varies with the price of the Corporation's shares and is recognized over
the 3 year vesting period. The Corporation recorded compensation cost of $1,158
for the quarter (2010 - $827) and $3,852 for the year to date (2010 - $2,163) in
respect of the share-based portion of the MTIP. At September 30, 2011 the
carrying amount of the share-based portion of the MTIP liability was $6,002
(2010 - $1,975).
c) Deferred Share Unit Plan ("DSUP")
The DSUP, which is settled in cash, consists of an annual grant that vests over
three years and is based upon time and performance vesting criteria.
Compensation expense for DSUP rights varies with the price of the Corporation's
shares and is recognized over the vesting period. Vested rights are settled when
the participant is no longer employed by the Corporation or one of its
subsidiary entities. The Corporation recorded compensation cost of $142 for the
quarter and year to date (2010 - nil) in respect of the share-based portion of
the DSUP. At September 30, 2011 the carrying amount of the DSUP liability was
$142 (2010 - nil).
10. INCOME TAXES
On January 1, 2011, a plan of arrangement was completed and Wajax Income Fund
was converted to Wajax Corporation. The arrangement resulted in the
reorganization of the Fund into a corporate structure which is subject to income
tax on all of its taxable income at combined federal and provincial rates.
Prior to conversion, the Fund was a "mutual fund trust" as defined under the
Income Tax Act (Canada) and was not taxable on its income to the extent that it
was distributed to its unitholders. Pursuant to the terms of the Declaration of
Trust, all taxable income earned by the Fund was distributed to its unitholders.
Accordingly, no provision for income taxes was required on taxable income earned
by the Fund that was distributed to its unitholders. For 2010, only the Fund's
corporate subsidiaries were subject to tax on their taxable income.
Income tax expense comprises current and deferred tax as follows:
For the nine months ended September 30 2011 2010
----------------------------------------------------------------------------
Current $ 716 $ 128
Deferred
- Origination and reversal of temporary difference 17,867 123
- Change in tax law and rate (824) (1,793)
----------------------------------------------------------------------------
Income tax expense (recovery) $ 17,759 $ (1,542)
----------------------------------------------------------------------------
The calculation of current tax is based on a combined federal and provincial
statutory income tax rate of 27.7% (2010 - 29.4%). The tax rate for the current
year is 1.7% lower than 2010 due to the effect of the reduced statutory tax
rates. Deferred tax assets and liabilities are measured at tax rates that are
expected to apply to the period when the asset is realized or the liability is
settled. Deferred tax assets and liabilities have been measured using an
expected average combined statutory income tax rate of 25.9% based on the tax
rates in years when the temporary differences are expected to reverse.
The reconciliation of effective income tax is as follows:
For the nine months ended September 30 2011 2010
----------------------------------------------------------------------------
Combined statutory income tax rate 27.7% 29.4%
Expected income tax expense at statutory rates $ 18,005 $ 11,483
Income of the Fund taxed directly to unitholders - (11,769)
Non-deductible expenses 619 347
Deferred tax related to changes in tax law and
rates (824) (1,793)
Other (41) 190
----------------------------------------------------------------------------
Income tax expense (recovery) $ 17,759 $ (1,542)
----------------------------------------------------------------------------
Deferred income tax relates to book and tax basis differences for assets and
liabilities and is attributable to the following:
September December
30, 2011 31, 2010
----------------------------------------------------------------------------
Accrued liabilities and provisions not
currently deductible $ 8,717 $ 8,258
Partnership income not currently taxable (17,173) -
Property, plant and equipment (1,741) (1,418)
Vehicles under finance lease (175) (146)
Deductible goodwill and other assets (2,284) (2,052)
Deductible debt facility renewal costs (29) (38)
Derivative instrument liability not currently
deductible (292) 673
Income tax losses available for carry forward 243 -
----------------------------------------------------------------------------
Net deferred income tax (liabilities) assets $ (12,734) $ 5,277
----------------------------------------------------------------------------
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three months ended Nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Numerator for basic and
diluted earnings per
share:
- net earnings $ 17,888 $ 19,562 $ 47,242 $ 40,603
----------------------------------------------------------------------------
Denominator for basic
earnings per share:
- weighted average
shares 16,629,444 16,610,751 16,629,444 16,604,561
----------------------------------------------------------------------------
Denominator for diluted
earnings per share:
- weighted average
shares 16,629,444 16,610,751 16,629,444 16,604,561
- effect of dilutive
share rights 294,679 255,914 287,184 256,280
----------------------------------------------------------------------------
Denominator for diluted
earnings per share 16,924,123 16,866,665 16,916,628 16,860,841
----------------------------------------------------------------------------
Basic earnings per share $ 1.08 $ 1.18 $ 2.84 $ 2.45
----------------------------------------------------------------------------
Diluted earnings per
share $ 1.06 $ 1.16 $ 2.79 $ 2.41
----------------------------------------------------------------------------
No share rights were excluded from the above calculations as none were
anti-dilutive.
12. ACQUISITION OF BUSINESS
On May 2, 2011, the Corporation's Power Systems segment acquired certain assets
of Harper Power Products Inc. ("Harper") for consideration of $23,257, subject
to post-closing adjustments. The acquisition price was funded through the
Corporation's existing bank credit facility. The acquisition secures the Ontario
distribution rights for certain product lines and complements the segment's
existing product distribution rights in the rest of Canada, except for portions
of British Columbia.
For the five months since the acquisition, Harper contributed revenue of $29,431
and net earnings of $2,321 to the year to date results. Had the acquisition
occurred on January 1, 2011 the Corporation estimates that it would have
reported revenue of $1,023,462 and net earnings of $48,484 on its condensed
consolidated income statement for the nine months ended September 30, 2011. In
determining these amounts, management has assumed that the level of business
activity experienced by Harper after May 2, 2011 is representative of the level
of business activity that it would have experienced prior to the acquisition.
Recognized amounts of identifiable assets acquired and liabilities assumed are
as follows:
Trade and other receivables $ 10,522
Inventories 8,172
Prepaid expenses 218
Property, plant and equipment 1,930
Trade and other payables (6,794)
----------------------------------------------------------------------------
Tangible net assets acquired 14,048
Goodwill and other intangible assets (note 6) 9,209
----------------------------------------------------------------------------
Total $ 23,257
----------------------------------------------------------------------------
An amount of $21,603 was paid on closing based upon a preliminary estimate of
tangible net assets acquired. In the third quarter an additional amount of
$1,654 was paid to the vendors based on an updated determination of the value of
the tangible net assets acquired. The amount of any trade and other receivables
which prove to be uncollectable will be deducted from the purchase price.
The goodwill is mainly attributable to the skills and technical talent of
Harper's workforce and its existing branch network, synergies expected to be
achieved from integrating the business into the existing Power Systems segment
and the value expected to be generated from its operation over time, for
example, through growing the power generation business in Ontario. It is
anticipated that amounts attributed to goodwill and other intangible assets will
be 75% deductible for income tax purposes.
The Corporation incurred acquisition-related costs of $385 relating to external
legal fees and due diligence costs. These costs have been included in selling
and administrative expenses on the condensed consolidated income statement.
13. SEGMENTED INFORMATION
The Corporation operates through a network of 117 branches in Canada in three
core businesses which reflect the internal organization and management structure
according to the nature of the products and services provided. The Corporation's
three core businesses are: i) the distribution, modification and servicing of
equipment; ii) the distribution, servicing and assembly of industrial
components; and iii) the distribution and servicing of power systems.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three Segment
months ended Eliminations
September 30, and
2011 Industrial Power Unallocated
Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 108,446 $ $ 45,344 $ $ 153,790
Parts 40,407 86,727 36,787 163,921
Service 21,027 15,842 36,869
Rental and other 8,048 (708) 7,340
----------------------------------------------------------------------------
Revenue $ 177,928 $ 86,727 $ 97,973 $ (708) $ 361,920
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and
income taxes $ 12,714 $ 6,215 $ 9,745 $ $ 28,674
Corporate costs
and
eliminations (2,702) (2,702)
----------------------------------------------------------------------------
Earnings before
finance costs
and income
taxes
12,714 6,215 9,745 (2,702) 25,972
Finance costs 1,392 1,392
Income tax
expense 6,692 6,692
----------------------------------------------------------------------------
Net earnings $ 12,714 $ 6,215 $ 9,745 $ (10,786) $ 17,888
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine Segment
months ended Eliminations
September 30, and
2011 Industrial Power Unallocated
Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 280,032 $ $ 116,895 $ $ 396,927
Parts 129,184 257,346 90,236 476,766
Service 61,843 44,805 106,648
Rental and other 22,493 (2,916) 19,577
----------------------------------------------------------------------------
Revenue $ 493,552 $ 257,346 $ 251,936 $ (2,916) $ 999,918
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and
income taxes $ 35,856 $ 17,204 $ 25,030 $ $ 78,090
Corporate costs
and
eliminations (9,612) (9,612)
----------------------------------------------------------------------------
Earnings before
finance costs
and income
taxes
35,856 17,204 25,030 (9,612) 68,478
Finance costs 3,477 3,477
Income tax
expense 17,759 17,759
----------------------------------------------------------------------------
Net earnings $ 35,856 $ 17,204 $ 25,030 $ (30,848) $ 47,242
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets
excluding
intangible
assets $ 243,976 $ 114,580 $ 143,666 $ $ 502,222
Intangible
assets 21,541 45,679 14,570 81,790
Corporate and
other assets 1,923 1,923
----------------------------------------------------------------------------
Total assets $ 265,517 $ 160,259 $ 158,236 $ 1,923 $ 585,935
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three Segment
months ended Eliminations
September 30, and
2010 Industrial Power Unallocated
Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 83,083 $ $ 40,095 $ $ 123,178
Parts 36,033 75,890 21,706 133,629
Service 17,862 12,789 30,651
Rental and other 7,884 (973) 6,911
----------------------------------------------------------------------------
Revenue $ 144,862 $ 75,890 $ 74,590 $ (973) $ 294,369
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and
income taxes $ 10,002 4,180 8,099 $ $ 22,281
Corporate costs
and
eliminations (2,440) (2,440)
----------------------------------------------------------------------------
Earnings before
finance costs
and income
taxes
10,002 4,180 8,099 (2,440) 19,841
Finance costs 1,114 1,114
Income tax
recovery (835) (835)
----------------------------------------------------------------------------
Net earnings $ 10,002 $ 4,180 $ 8,099 $ (2,719) $ 19,562
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine Segment
months ended Eliminations
September 30, and
2010 Industrial Power Unallocated
Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 207,299 $ $ 72,108 $ $ 279,407
Parts 114,240 224,418 66,427 405,085
Service 51,147 38,608 89,755
Rental and other 23,405 (3,120) 20,285
----------------------------------------------------------------------------
Revenue $ 396,091 $ 224,418 $ 177,143 $ (3,120) $ 794,532
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and
income taxes $ 28,172 $ 9,376 $ 12,699 $ $ 50,247
Corporate costs
and
eliminations (7,923) (7,923)
----------------------------------------------------------------------------
Earnings before
finance costs
and income
taxes
28,172 9,376 12,699 (7,923) 42,324
Finance costs 3,263 3,263
Income tax
recovery (1,542) (1,542)
----------------------------------------------------------------------------
Net earnings $ 28,172 $ 9,376 $ 12,699 $ (9,644) $ 40,603
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets
excluding
intangible
assets $ 198,601 $ 104,427 $ 100,197 $ $ 403,225
Intangible
assets 21,541 46,106 5,444 73,091
Cash 25,970 25,970
Corporate and
other assets 4,598 4,598
----------------------------------------------------------------------------
Total assets $ 220,142 $ 150,533 $ 105,641 $ 30,568 $ 506,884
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets do not include assets associated with the corporate office,
financing or income taxes. Additions to corporate assets, and depreciation of
these assets, are included in segment eliminations and unallocated amounts.
14. EXPLANATION OF TRANSITION TO IFRS
This is the first year that the Corporation has presented its condensed
consolidated financial statements in accordance with IFRS. In the year ended
December 31, 2010, the Corporation reported under previous Canadian GAAP.
The accounting policies set out in Note 3 of the condensed consolidated
financial statements of the Corporation for the three months ended March 31,
2011 have been applied in preparing the condensed consolidated financial
statements for the three and nine months ended September 30, 2011.
In preparing its opening IFRS statement of financial position, the Corporation
has adjusted amounts reported previously in financial statements prepared in
accordance with previous Canadian GAAP. An explanation of how the transition
from previous Canadian GAAP to IFRS has affected the Corporation's reported
financial position, financial performance and cash flows is set out in the
tables below and the notes that accompany the tables.
IFRS 1 First-time Adoption of International Financial Reporting Standards sets
forth guidance for the initial adoption of IFRS. Under IFRS 1, the standards are
applied retrospectively at the transitional statement of financial position date
and, in general, all adjustments to assets and liabilities are taken to retained
earnings, unless certain exemptions are elected and certain mandatory exceptions
are applied. In preparing its opening IFRS statement of financial position, the
Corporation has elected the following exemptions:
Business combinations before January 1, 2010 (IFRS 3 "Business Combinations")
The Corporation has elected not to apply IFRS 3 retrospectively to business
combinations that took place before January 1, 2010. In addition, and as a
condition under IFRS 1 for applying this exemption, goodwill relating to
business combinations that occurred prior to January 1, 2010 was tested for
impairment even though no impairment indicators were identified. No impairment
existed at the date of transition.
Employee Benefits - actuarial gains and losses (IAS 19 "Employee Benefits")
Under IFRS, the Corporation's accounting policy is to recognize all actuarial
gains and losses immediately in other comprehensive income. At the date of
transition, the Corporation has elected to recognize all cumulative actuarial
gains and losses in retained earnings.
Employee Benefits - pension costs (IAS 19 "Employee Benefits")
The Corporation has elected to disclose the present value of the defined benefit
obligation, fair value of the plan assets, surplus or deficit in the plan, and
the experience adjustments arising on the plan assets or liabilities, for each
accounting period prospectively from the date of transition to IFRS.
Reconciliation of Consolidated Income Statement
For the three months Employee
ended September 30, Canadian Benefits Leases Inventory
2010 GAAP IAS 19 IAS 17 IAS 2 IFRS
(In thousands of
Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 294,369 $ 294,369
Cost of sales 232,215 (252) 231,963
----------------------------------------------------------------------------
Gross profit 62,154 252 62,406
----------------------------------------------------------------------------
Selling and
administrative expenses 42,580 (35) 20 42,565
----------------------------------------------------------------------------
Earnings before finance
costs and income taxes 19,574 35 (20) 252 19,841
Finance costs 1,067 47 1,114
----------------------------------------------------------------------------
Earnings before income
taxes 18,507 35 (67) 252 18,727
Income tax (recovery)
expense (896) 9 (18) 70 (835)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 19,403 26 (49) 182 $ 19,562
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Comprehensive Income
Employee
For the three months ended Canadian Benefits Leases Inventory
September 30, 2010 GAAP IAS 19 IAS 17 IAS 2 IFRS
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 19,403 26 (49) 182 $ 19,562
----------------------------------------------------------------------------
Gains on derivative
instruments designated as
cash flow hedges in prior
periods reclassified to
cost of inventory or
finance costs during the
period, net of tax (182) (182)
Losses on derivative
instruments designated as
cash flow hedges during
the period, net of tax (626) (626)
----------------------------------------------------------------------------
Other comprehensive loss,
net of tax (808) - - - (808)
----------------------------------------------------------------------------
Total comprehensive income $ 18,595 26 (49) 182 $ 18,754
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Income Statement
For the nine months Employee
ended September 30, Canadian Benefits Leases Inventory
2010 GAAP IAS 19 IAS 17 IAS 2 IFRS
(In thousands of
Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 794,532 $ 794,532
Cost of sales 621,362 (404) 620,958
----------------------------------------------------------------------------
Gross profit 173,170 404 173,574
----------------------------------------------------------------------------
Selling and
administrative expenses 131,834 (105) (479) 131,250
----------------------------------------------------------------------------
Earnings before finance
costs and income taxes 41,336 105 479 404 42,324
Finance costs 3,143 120 3,263
----------------------------------------------------------------------------
Earnings before income
taxes 38,193 105 359 404 39,061
Income tax (recovery)
expense (1,778) 27 96 113 (1,542)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 39,971 78 263 291 $ 40,603
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Comprehensive Income
Employee
For the nine months ended Canadian Benefits Leases Inventory
September 30, 2010 GAAP IAS 19 IAS 17 IAS 2 IFRS
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
Net earnings $ 39,971 78 263 291 $ 40,603
----------------------------------------------------------------------------
Losses on derivative
instruments designated as
cash flow hedges in prior
periods reclassified to
cost of inventory or
finance costs during the
period, net of tax 277 277
Losses on derivative
instruments designated as
cash flow hedges during
the period, net of tax (117) (117)
----------------------------------------------------------------------------
Other comprehensive
income, net of tax 160 160
----------------------------------------------------------------------------
Total comprehensive income $ 40,131 78 263 291 $ 40,763
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Financial Position
Employee Income
As at September Canadian Benefits Leases Inventory Tax IAS
30, 2010 GAAP IAS 19 IAS 17 IAS 2 12 IFRS
----------------------------------------------------------------------------
(In thousands of
Canadian dollars)
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 25,970 $ 25,970
Trade and other
receivables 147,273 147,273
Inventories 189,915 2,082 191,997
Prepaid expenses 5,798 5,798
Deferred taxes 4,842 (4,842) -
----------------------------------------------------------------------------
373,798 2,082 (4,842) 371,038
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 14,620 14,620
Property, plant
and equipment 35,230 8,937 44,167
Intangible assets 73,091 73,091
Deferred taxes - 855 (57) 2,990 3,788
Employee benefits 2,643 (2,463) 180
----------------------------------------------------------------------------
125,584 (1,608) 8,880 - 2,990 135,846
----------------------------------------------------------------------------
$ 499,382 (1,608) 8,880 2,082 (1,852) $ 506,884
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT
Trade and other
payables $ 115,166 (341) $ 114,825
Accrued
liabilities 66,739 66,739
Provisions 3,914 3,914
Distributions
payable 5,820 5,820
Income taxes
payable 1,514 577 2,091
Obligations under
finance leases - 3,663 3,663
----------------------------------------------------------------------------
193,153 (341) 3,663 577 - 197,052
----------------------------------------------------------------------------
NON-CURRENT
Provisions 4,226 4,226
Deferred taxes 1,852 (1,852) -
Employee benefits 2,896 1,144 4,040
Derivative
instruments 2,373 2,373
Bank debt 79,600 79,600
Other liabilities 2,999 2,999
Obligations under
finance leases - 5,063 5,063
----------------------------------------------------------------------------
93,946 1,144 5,063 - (1,852) 98,301
----------------------------------------------------------------------------
SHAREHOLDERS'
EQUITY
Trust units 105,892 105,892
----------------------------------------------------------------------------
Contributed
surplus 5,927 5,927
----------------------------------------------------------------------------
Retained earnings 102,537 (2,411) 154 1,505 101,785
Accumulated other
comprehensive
loss (2,073) (2,073)
----------------------------------------------------------------------------
100,464 (2,411) 154 1,505 - 99,712
----------------------------------------------------------------------------
Total
shareholders'
equity 212,283 (2,411) 154 1,505 - 211,531
----------------------------------------------------------------------------
$ 499,382 (1,608) 8,880 2,082 (1,852) $ 506,884
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Material adjustments to the statement of cash flows for 2010
Consistent with the Corporation's accounting policy choice under IAS 7 Statement
of Cash Flows, interest paid and income taxes paid have moved into the body of
the Statement of Cash Flows, whereas they were previously disclosed as
supplementary information. There are no other material differences between the
statement of cash flows presented under IFRS and the statement of cash flows
presented under previous Canadian GAAP.
Notes to the reconciliations
(a) Employee Benefits (IAS 19)
Under Canadian GAAP, the Corporation accounted for post-employment benefits
under CICA Handbook Section 3461, Employee Future Benefits, whereby defined
benefit pension plan net actuarial gains or losses over 10% of the greater of
the benefit obligation and the fair value of the plan assets were amortized to
income over the average remaining service life of active employees. Under IAS
19, Employee Benefits, the Corporation has adopted the policy of recognizing
actuarial gains and losses in full in other comprehensive income in the period
in which they occur.
(b) Leases (IAS 17)
Under Canadian GAAP, the Corporation assessed vehicle leases under CICA Handbook
Section 3065, Leases, as operating leases. Under IAS 17, Leases, the Corporation
has assessed the vehicle leases as financing leases. Under finance leases the
asset is recorded at the lower of its fair value and the present value of the
minimum lease payments at the inception of the lease. The liability is included
in the statement of financial position and classified between current and
non-current amounts. The interest component of the lease payments is charged to
earnings over the period of the lease so as to achieve a constant rate of
interest on the remaining balance of the liability.
(c) Inventory (IAS 2)
Under Canadian GAAP, the Corporation did not allocate overhead to work in
process inventory relating to customer repair orders. Under IFRS the Corporation
allocates overhead to work in process inventory relating to customer repair
orders resulting in an adjustment to inventory and opening retained earnings.
(d) Income Taxes (IAS 12)
The effect of applying IAS 12, Income Taxes, is that all deferred tax balances
are now classified as non-current. No other changes arise from this section.
Applicable income tax rates have been applied to all IFRS adjustments.
(e) Comparative Information
Certain comparative amounts have been reclassified to conform with the current
period presentation.
In particular, cash discounts provided to customers in an amount of $224 for the
quarter and $717 year to date have been reclassified out of selling and
administrative expenses into revenue.
In addition, cash discounts received from vendors in an amount of $342 for the
quarter and $913 year to date have been reclassified out of selling and
administrative expenses into cost of sales.
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