Wajax Corporation (TSX:WJX) today announced a substantial increase in 2011
first quarter earnings and raised its monthly dividend.
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(Dollars in millions, except per share data) Three Months Ended March
31
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2011 2010
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CONSOLIDATED RESULTS
Revenue $ 303.9 $ 227.4
Earnings before tax $ 18.0 $ 8.5
Net earnings $ 12.8 $ 8.9
Basic earnings per share $ 0.77 $ 0.53
SEGMENTS
Revenue - Equipment $ 151.4 $ 108.4
- Industrial Components $ 80.7 $ 72.6
- Power Systems $ 72.9 $ 47.4
Earnings - Equipment $ 11.2 $ 7.9
% margin 7.4% 7.3%
- Industrial Components $ 4.4 $ 3.1
% margin 5.5% 4.3%
- Power Systems $ 7.0 $ 0.9
% margin 9.6% 2.0%
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First Quarter Highlights
-- Consolidated first quarter revenue of $303.9 million increased $76.5
million, or 34% compared to last year. Equipment and Power Systems
revenue increased 40% and 54% respectively on significantly higher
equipment and parts and service sales, with the majority of the
increases attributable to western Canada. Industrial Components revenue
increased 11% on stronger demand for all major product categories.
-- Net earnings for the quarter were $12.8 million, or $0.77 per share,
compared to $8.9 million, or $0.53 per share recorded in 2010. This
represents an increase of almost 45% even though the Corporation is now
subject to income tax since its conversion from an income fund as of
January 1, 2011. Earnings before tax of $18.0 million more than doubled
last year's level as a result of the significantly higher volumes in all
three segments.
Wajax recently announced the acquisition of the assets of Harper Power Products
Inc. ("Harper") effective May 2, 2011. Harper, with 2010 annual sales of
approximately $71.0 million, has 10 branches throughout Ontario and will be
integrated into Wajax's Power Systems segment. This acquisition secures the
Ontario distribution rights to Detroit Diesel, Mercedes-Benz, MTU and Deutz
engines, MTU Onsite Energy generator sets and Allison transmissions. With the
exception of Deutz engines, Wajax Power Systems is presently the authorized
distributor of these lines in the rest of Canada except for portions of British
Columbia. The Harper business will be rebranded as Wajax Power Systems.
In order to continue to strengthen the Wajax identity, the Corporation will
rebrand all three of its businesses. Going forward, the Mobile Equipment
division will be known as Wajax Equipment, Kinecor will be rebranded Wajax
Industrial Components and Waterous, DDACE and Harper will be known as Wajax
Power Systems. This change will allow customers, suppliers and employees to more
easily identify with the strength of the Wajax name.
The Corporation also announced a $0.03 per share increase in its monthly
dividend. Dividends of $0.18 per share ($2.16 annualized) were declared for the
months of May, June and July.
Commenting on the first quarter results and the outlook for 2011, Neil Manning,
President and CEO, stated:
"With earnings before tax more than doubling, we are very pleased with our 2011
first quarter results. As we had expected, improved results were driven by the
robust energy and mining markets in western Canada. However, we were also
encouraged by evidence of stronger activity in central and eastern Canada,
particularly in forestry, construction and certain other industrial sectors.
We are looking forward to realizing on the potential for additional growth in
the Ontario market as a result of the Harper acquisition. With this business
well established in the on-highway sector of the market, we intend to further
expand its presence in the off-highway and power generation sectors. The
acquisition represents a major step towards our strategic objective of becoming
a national total power systems solution provider. We expect it will be
immediately accretive to our 2011 results.
As well, we believe we have been able to minimize the potential supply
disruptions to our Hitachi product line caused by the earthquake and resulting
tsunami in Japan. With the inventory levels we decided to carry prior to, and
immediately after this disaster, we expect we will have adequate stock of
Hitachi parts and construction excavators to meet market demand. However, we are
expecting some delays in obtaining mining equipment, which will have some impact
on our 2011 revenue for the remainder of the year.
For the balance of 2011, we expect a continuation of the economic activity
experienced in the first quarter. Notwithstanding the negative effect of the
Hitachi mining equipment supply disruption, we expect pre-tax earnings to
continue to be ahead of last year for the balance of 2011."
Wajax Corporation is a leading Canadian distributor and service support provider
of mobile equipment, industrial components and power systems. Reflecting a
diversified exposure to the Canadian economy, its three distinct core businesses
operate through a network of 118 branches across Canada. Its customer base spans
natural resources, construction, transportation, manufacturing, industrial
processing and utilities.
Wajax will Webcast its First Quarter Financial Results Conference Call. You are
invited to listen to the live Webcast on Tuesday, May 10, 2011 at 1:30 p.m. ET.
To access the Webcast, enter www.wajax.com and click on the link for the Webcast
on the Investor Relations page. The archived Webcast will be available at the
above mentioned website within 24 hours after the conference call.
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 - Q1 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 March 31, 2011. On January 1,
2011, Wajax adopted International Financial Reporting Standards ("IFRS"). The
term "Canadian GAAP" refers to Canadian GAAP 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 March 31, 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 May 10, 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.
There were no changes in internal control over financial reporting that occurred
during the Corporation'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
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 mobile equipment, industrial components and power
systems, through a network of 118 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 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. 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 generally accepted accounting principles ("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 16 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 March 31
2011 2010
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Revenue $ 303.9 $ 227.4
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Gross profit $ 65.9 $ 51.6
Selling and administrative expenses $ 46.8 $ 42.0
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Earnings before finance costs and income
taxes $ 19.0 $ 9.6
Finance costs $ 1.0 $ 1.1
Income tax expense (recovery) $ 5.2 ($0.4)
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Net earnings $ 12.8 $ 8.9
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Earnings per share
- Basic $ 0.77 $ 0.53
- Diluted $ 0.76 $ 0.53
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Revenue
Revenue in the first quarter of 2011 increased 34% or $76.5 million to $303.9
million, from $227.4 million in 2010. Segment revenue increased 40% in Equipment
(formerly Mobile Equipment), 11% in Industrial Components and 54% in Power
Systems compared to last year.
Gross profit
Gross profit in the first quarter of 2011 increased $14.3 million due to the
positive impact of higher volumes compared to last year. The gross profit margin
percentage for the quarter of 21.7% decreased from 22.7% 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 $4.8 million in the quarter
compared to last year due mainly to higher personnel costs resulting from an
increase in headcount, primarily sales related, and a $2.1 million increase in
annual and mid-term incentive accruals. Selling and administrative expenses as a
percentage of revenue decreased to 15.4% in 2011 from 18.5% in 2010.
Finance costs
Quarterly finance costs of $1.0 million decreased $0.1 million compared to last
year due to lower interest rates.
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. The effective income tax rate of 29.0% in
the first quarter of 2011 was greater than the Corporation's statutory income
tax rate of 27.7% due to certain expenses not fully deductible for tax purposes.
Prior to conversion to a corporation, Wajax was not taxable on its income to the
extent it was distributed to its unitholders. The first quarter of 2010 includes
a $0.6 million deferred tax recovery amount reflecting an adjustment of Wajax's
taxable temporary differences that are estimated to reverse after 2010, tax
effected at rates that will apply in the year the differences are expected to
reverse.
Net earnings
Quarterly net earnings of $12.8 million, or $0.77 per share, increased $3.9
million from $8.9 million, or $0.53 per share, in 2010. The positive impact of
higher volumes and lower finance costs more than offset the negative impact of
higher selling and administrative and income tax expenses compared to last year.
Comprehensive income
Comprehensive income for the quarter of $13.2 million increased $4.9 million
from $8.3 million the previous year due to the $3.9 million increase in net
earnings and a $0.9 million increase in other comprehensive income compared to
last year. The increase in other comprehensive income resulted from an increase
in losses on derivative instruments designated as cash flow hedges in prior
periods transferred to cost of inventory or finance costs in the current period
and a decrease in losses on derivative instruments designated as cash flow
hedges outstanding at the end of the quarter.
Funded net debt
Funded debt net of cash including obligations under finance leases ("funded net
debt") of $85.5 million as at March 31, 2011 increased $39.9 million compared to
December 31, 2010. The increase resulted mainly from cash used for additional
non-cash working capital of $34.2 million, distributions and dividends paid of
$17.5 million and $7.5 million disbursed for rental fleet additions, interest
payments and other capital additions. The increases were offset by first quarter
cash flows from operating activities before changes in non-cash working capital
of $19.7 million.
Wajax's $175 million bank credit facility expires December 31, 2011. Management
expects to be able to enter into a new credit facility by the end of 2011.
Dividends
For the quarter ended March 31, 2011 monthly dividends declared totaled $0.45
per share and included $0.15 per share for the months of January, February and
March. For the quarter ended March 31, 2010 monthly cash distributions declared
were $0.45 per unit.
On February 25, 2011 Wajax announced a monthly dividend of $0.15 per share
($1.80 annualized) for the month of April payable on May 20, 2011 to
shareholders of record on April 29, 2011.
On May 10, 2011 Wajax announced monthly dividends of $0.18 per share ($2.16
annualized) for each of the months of May, June and July payable on June 20,
2011, July 20, 2011 and August 22, 2011 to shareholders of record on May 31,
2011, June 30, 2011 and July 29, 2011 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 March 31, 2011 of $215.7 million decreased $1.6 million,
or 1%, from $217.3 million at December 31, 2010.
Quarterly Results of Operations
Equipment
Three months ended March 31
2011 2010
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Equipment(1) $ 87.5 $ 57.3
Parts and service $ 63.9 $ 51.1
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Segment revenue $ 151.4 $ 108.4
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Segment earnings $ 11.2 $ 7.9
Segment earnings margin 7.4% 7.3%
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(1) Includes rental revenue.
Revenue in the first quarter of 2011 increased $43.0 million, or 40%, to $151.4
million from $108.4 million in the first quarter of 2010. Segment earnings for
the quarter increased $3.3 million to $11.2 million compared to the first
quarter of 2010. The following factors contributed to the Equipment segment's
first quarter results:
-- Equipment revenue increased $30.2 million compared to last year.
Specific quarter-over-quarter variances included the following:
-- Construction equipment revenue increased $16.0 million due to
increases in new Hitachi excavator sales primarily in western Canada
and JCB equipment sales in eastern Canada.
-- Forestry equipment sales increased $9.1 million attributable to
higher market demand in all regions for Tigercat and forestry
related Hitachi products.
-- Mining equipment sales increased $4.0 million resulting from an
increase in Hitachi mining equipment revenues in western Canada.
-- Material handling equipment revenue increased $3.9 million on higher
volumes in all regions.
-- Crane and utility equipment revenue decreased $2.8 million due
mainly to lower sales to hydro utility customers in Ontario.
-- Parts and service volumes increased $12.8 million compared to last year
due principally to higher mining and construction sector sales in
western Canada.
-- Segment earnings increased $3.3 million to $11.2 million compared to
last year as the positive impact of higher volumes outweighed the
negative impact of lower equipment gross margins and a $1.8 million
increase in selling and administrative expenses. Selling and
administrative expenses increased compared to last year as a result of
higher personnel costs, including annual and mid-term incentive
accruals, and other sales related expenses.
Backlog of $97.3 million at March 31, 2011 increased $3.3 million compared to
December 31, 2010.
The segment continues to monitor developments in Japan related to the effects of
the March 11, 2011 earthquake and tsunami on the Hitachi Japan supply chain. The
Equipment segment is the distributor of Hitachi construction and forestry
excavators and mining equipment in Canada. Hitachi equipment and parts
distributed by Wajax are manufactured and sourced from various locations in
Japan and the United States.
Hitachi announced that it incurred damage to several of its buildings, including
the production facilities for large excavators, mining trucks and key component
parts. In addition, shipping docks were damaged in the immediate area of these
production facilities. While plants have returned to production, damage to the
surrounding shipping infrastructure has required alternative arrangements to be
made. While the full extent of the impact of the Japanese supply chain
disruptions on Wajax's operations is not entirely known, the following is the
expected impact on the Equipment segment in 2011:
-- Given the Equipment segment's current level of parts inventory,
potential supply disruptions related to parts sourced from Japan are not
anticipated to have a significant effect on 2011 parts revenue.
-- Taking into account the segment's current level of inventory and its
reserved factory order positions of mid-sized excavators sourced from
the United States, the segment is expecting that any product delays as a
result of component shortages from Japan will not have a meaningful
impact on its 2011 revenue derived from these products.
-- With respect to mining equipment, the segment's current working
assumption is that there will be a delay in mining equipment deliveries
from Japan of up to six months. The effect on the segment's 2011 revenue
is estimated to be a reduction of approximately $40 million.
Industrial Components
Three months ended March 31
2011 2010
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Segment revenue $ 80.7 $ 72.6
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Segment earnings $ 4.4 $ 3.1
Segment earnings margin 5.5% 4.3%
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Revenue of $80.7 million increased $8.1 million, or 11%, from $72.6 million in
the first quarter of 2010. Segment earnings increased $1.3 million to $4.4
million in the quarter compared to the previous year. The following factors
contributed to the segment's first quarter results:
-- Bearings and power transmission parts sales increased $2.5 million
compared to last year due mainly to higher mining sector volumes across
all regions and increased sales to industrial customers in eastern
Canada and Ontario.
-- Fluid power and process equipment products and service revenue increased
$5.6 million on improved oil and gas drilling activity in western Canada
and higher mining and construction sector volumes in all regions. These
increases were somewhat offset by lower revenues to metal processing
customers in eastern Canada.
-- Segment earnings increased $1.3 million compared to last year. The
positive impact of higher volumes outweighed the negative impact of
slightly lower gross margins and a $0.3 million increase in selling and
administrative expenses.
Backlog of $45.5 million as of March 31, 2011 increased $10.1 million compared
to December 31, 2010.
Power Systems
Three months ended March 31
2011 2010
----------------------------------------------------------------------------
Equipment $ 35.4 $ 13.6
Parts and service $ 37.5 $ 33.8
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Segment revenue $ 72.9 $ 47.4
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Segment earnings $ 7.0 $ 0.9
Segment earnings margin 9.6% 2.0%
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Revenue in the first quarter increased $25.5 million, or 54%, to $72.9 million
compared to $47.4 million in 2010. Segment earnings increased $6.1 million to
$7.0 million in the quarter compared to the previous year. The following factors
impacted quarterly revenue and earnings:
-- Revenue at Waterous Power Systems ("Waterous") in western Canada
increased $21.0 million compared to last year. Equipment sales improved
$16.8 million due primarily to higher product sales to oil and gas
customers and increased power generation equipment sales. Parts and
service revenue increased $4.2 million mainly as a result of higher
sales to off-highway customers, including those in the mining and oil
and gas sectors.
-- Revenue at the eastern Canada operation, DDACE Power Systems ("DDACE")
increased by $4.5 million compared to 2010. Equipment sales increased
$5.0 million on higher generator set sales and an increase in marine and
military sector activity. Parts and service revenue decreased $0.5
million.
-- Segment earnings increased $6.1 million compared to last year as the
positive impact of higher volumes and higher gross margins at Waterous,
more than offset a $1.3 million increase in selling and administrative
expenses. Gross margins increased due to higher parts and service
margins and higher margins resulting from the commissioning of power
generation packages delivered in 2010. Selling and administrative
expenses increased due to higher personnel costs, including commissions.
Backlog of $72.9 million as of March 31, 2011 decreased $15.0 million compared
to December 31, 2010 due to equipment deliveries in the first quarter.
Effective May 2, 2011, Wajax purchased the assets of Harper Power Products Inc.
("Harper") the authorized Ontario distributor for Detroit Diesel, Mercedes-Benz,
MTU and Deutz engines, MTU Onsite Energy generator sets and Allison
transmissions with adjusted 2010 annual revenue of approximately $71 million.
The cash purchase price paid for the assets was $21.6 million, subject to post
closing adjustments.
Wajax Power Systems has assumed the operation of Harper's 10 branches in Ontario
located in Toronto, Ottawa, Hamilton, London, Sudbury, Timmins, Kingston,
Cornwall, Niagara Falls and Pembroke. With the exception of Deutz engines, Wajax
Power Systems is presently the authorized distributor of these lines in the rest
of Canada except for portions of British Columbia. This business will be
rebranded as Wajax Power Systems.
With Harper's business well established in the on-highway sector of the market,
Wajax intends to further expand its presence in the off-highway and power
generation sectors in Ontario. This acquisition also represents a major step
towards the strategic objective of becoming a national total power systems
solution provider.
Selected Quarterly Information
2011(1) 2010(1) 2009(2)
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
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Revenue $ 303.9 $316.4 $294.4 $ 272.0 $ 227.4 $ 259.1 $ 234.6 $ 248.7
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Net earnings $ 12.8 $ 15.0 $ 19.6 $ 12.2 $ 8.9 $ 8.3 $ 6.8 $ 9.8
Net earnings
per share
- Basic $ 0.77 $ 0.90 $ 1.18 $ 0.73 $ 0.53 $ 0.50 $ 0.41 $ 0.59
- Diluted $ 0.76 $ 0.89 $ 1.16 $ 0.72 $ 0.53 $ 0.50 $ 0.40 $ 0.59
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1. 2011 and 2010 financials are prepared in accordance with IFRS.
2. 2009 financials are prepared in accordance with Canadian GAAP. In
addition, 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. In addition, 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 used in operating activities amounted to $20.7 million in the
first quarter of 2011, compared to $3.6 million the previous year. The $17.1
million increase was due mainly to a $20.0 million increase in non-cash working
capital and higher lift truck rental fleet additions in the Equipment segment of
$4.4 million, offset by higher cash flows from operations before changes in
non-cash working capital of $6.7 million.
Changes in non-cash working capital include the following components:
Increase (decrease) in non-cash working Three months ended March 31
capital 2011 2010
----------------------------------------------------------------------------
Trade and other receivables $ 16.7 $ 8.3
Inventories $ 10.5 $ 5.7
Prepaid expenses $ (1.3) $ 0.9
Trade and other payables $ 5.3 $ (5.1)
Accrued Liabilities $ 3.3 $ 4.2
Provisions $ (0.2) $ 0.1
----------------------------------------------------------------------------
Total $ 34.2 $ 14.2
----------------------------------------------------------------------------
Significant components of the changes in non-cash working capital for the
quarter ended March 31, 2011 are as follows:
-- Trade and other receivables increased $16.7 million due to higher parts
and service activity in all segments.
-- Inventories increased $10.5 million largely as a result of a continued
growth in sales activity.
-- Trade and other payables decreased $5.3 million reflecting reductions in
the Equipment and Power Systems segments.
-- Accrued liabilities decreased $3.3 million due mostly to the payment of
prior year accrued bonus and mid-term incentive accruals.
At March 31, 2011 Wajax had employed $160.5 million in working capital,
exclusive of cash and obligations under finance leases, compared to $120.7
million at December 31, 2010. The $39.8 million increase was due primarily to
the cash flow factors listed above and a $10.0 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. This was
offset by a $5.5 million increase in current income tax liabilities.
Investing Activities
Wajax invested a net amount of $1.0 million on capital asset additions net of
disposals in the first quarter of 2011 compared to $0.6 million the previous
year.
Financing Activities
Wajax used $18.4 million of cash in financing activities in the first quarter of
2011 compared to $8.4 million in the first quarter of 2010. Distributions and
dividends paid to shareholders totaled $17.5 million, or $1.05 per share for the
quarter ended March 31, 2011.
Funded net debt of $85.5 million at March 31, 2011 increased $39.9 million
compared to December 31, 2010. The increase resulted mainly from cash used for
additional non-cash working capital of $34.2 million, distributions and
dividends paid of $17.5 million and $7.5 million disbursed for rental fleet
additions, interest payments and other capital additions. The increases were
offset by first quarter cash flows from operating activities before changes in
non-cash working capital of $19.7 million.
Wajax's quarter-end debt-to-equity ratio of 0.42:1 at March 31, 2011 increased
from last quarter's ratio of 0.23:1.
Liquidity and Capital Resources
At March 31, 2011 Wajax had borrowed $80.0 million and issued $5.5 million of
letters of credit for a total utilization of $85.5 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 March 31, 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.
The $175 million bank credit facility expires December 31, 2011. Management
expects to be able to enter into a new credit facility by the end of 2011.
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 Wajax's 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 expiry of the facility on 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 expiry of the facility on December 31,
2011.
-- Margins on the debt associated with the interest rate swaps depend
on Wajax's Leverage Ratio and range between 0.75% and 2.5%.
-- 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 March 31,
2011, Wajax had contracts outstanding to buy U.S.$26.2 million and to
sell U.S.$4.7 million (December 31, 2010 - to buy U.S.$34.1 million and
to sell U.S.$0.3 million, March 31, 2010 - to buy U.S.$33.2 million and
EUR0.3 million and to sell U.S.$0.03 million). The U.S. dollar contracts
expire between April 2011 and December 2012, with a weighted average
U.S./Canadian dollar rate of 1.0122.
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.
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 $38.0 million (2010 - $25.1 million) of consigned
inventory on-hand from a major manufacturer as at March 31, 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 March 31, 2011, the non-discounted operating
lease commitment for the rental fleet was $5.0 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
----------------------------------------------------------------------------
January 31, 2011 February 22, 2011 $ 0.15 $ 2.5
February 28, 2011 March 21, 2011 0.15 2.5
March 31, 2011 April 20, 2011 0.15 2.5
----------------------------------------------------------------------------
Three months ended March 31,
2011 $ 0.45 $ 7.5
----------------------------------------------------------------------------
On February 25, 2011 Wajax announced a monthly dividend of $0.15 per share
($1.80 annualized) for the month of April payable on May 20, 2011 to
shareholders of record on April 29, 2011.
On May 10, 2011 the Wajax announced monthly dividends of $0.18 per share ($2.16
annualized) for each of the months of May, June and July payable on June 20,
2011, July 20, 2011 and August 22, 2010 to shareholders of record on May 31,
2011, June 30, 2011 and July 29, 2011 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
There have been no material changes to the Corporation's productive capacity and
productive capacity management since December 31, 2010.
Financing Strategies
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. The $175 million bank credit facility expires December 31, 2011.
Management expects to be able to enter into a new credit facility by the end of
2011.
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 March
31, 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. If the leverage ratio is less than or equal to 3.0,
then the aggregate dividend payments by the borrowers in each fiscal quarter may
not exceed 115% of distributable cash for the trailing four fiscal quarters.
Borrowing capacity under the bank credit facility is dependent on the level of
inventories on-hand and outstanding trade accounts receivables. For further
detail, the bank credit facility is available on SEDAR at www.sedar.com.
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 March 31,
2011 Number Amount
----------------------------------------------------------------------------
Balance at the beginning of quarter 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 Stock 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 which is
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 share-based portions of the MTIP and DSUP varies
with the price of the Corporation's shares and is recognized over the vesting
period. Wajax recorded compensation cost of $2.2 million for the quarter (2010 -
$0.6 million) in respect of these plans.
Effective January 1, 2011 the plans have been amended to reflect the conversion
to a corporation. In particular, rights issued to participants will be valued
and settled by Wajax Corporation shares and portions of the MTIP and DSUP
compensation expense will vary with the price of Wajax Corporation's shares.
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
The Corporation has adopted IFRS on January 1, 2011 as required by the
Accounting Standards Board of the Canadian Institute of Chartered Accountants.
The Corporation provided information on its transition to IFRS in its 2010
annual MD&A. This information has not changed materially from what was provided.
Note 16 of the condensed consolidated financial statements provides an
explanation of the transition to IFRS. In addition, Note 16 provides detailed
reconciliations between Canadian GAAP and IFRS of the consolidated income
statement and consolidated statement of comprehensive income for the three
months ended March 31, 2010 and for the year ended December 31, 2010 and of the
consolidated statement of financial position as at March 31, January 1 and
December 31, 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.
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 April 1, 2011 to
May 10, 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
First quarter improved results were driven by the robust energy and mining
markets in western Canada. In addition, management was also encouraged by
evidence of stronger activity in central and eastern Canada, particularly in
forestry, construction and certain other industrial sectors.
Management is looking forward to realizing on the potential for additional
growth in the Ontario market as a result of the Harper acquisition. With this
business well established in the on-highway sector of the market, Wajax Power
Systems intends to further expand its presence in the off-highway and power
generation sectors. The acquisition represents a major step towards the
segment's strategic objective of becoming a national total power systems
solution provider. Management expects it will be immediately accretive to its
2011 results.
As well, management believes it has been able to minimize the potential supply
disruptions to its Hitachi product line caused by the earthquake and resulting
tsunami in Japan. With the inventory levels the Equipment segment decided to
carry prior to, and immediately after this disaster, management expects it will
have adequate stock of Hitachi parts and construction excavators to meet market
demand. However, the Equipment segment is expecting some delays in obtaining
mining equipment, which will have some impact on 2011 revenue for the remainder
of the year.
For the balance of 2011, Wajax expects a continuation of the economic activity
experienced in the first quarter. Notwithstanding the negative effect of the
Hitachi mining equipment supply disruption, management expects pre-tax earnings
to continue to be ahead of last year for the balance of 2011.
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 months ended March 31, 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 March 31, December 31, January 1,
Canadian dollars) 2011 2010 2010
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 2,873 $ 42,954 $ 9,207
Trade and other receivables 152,176 135,517 123,537
Inventories 208,125 196,460 177,909
Prepaid expenses 5,945 7,244 7,800
----------------------------------------------------------------------------
369,119 382,175 318,453
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment Note 4 19,370 15,794 16,370
Property, plant and equipment Note 5 45,846 46,090 46,008
Intangible assets 72,853 72,972 73,505
Deferred tax assets Note 12 5,234 5,277 2,229
Pension asset 307 240 -
----------------------------------------------------------------------------
143,610 140,373 138,112
----------------------------------------------------------------------------
$ 512,729 $ 522,548 $ 456,565
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT
Trade and other payables $ 129,542 $ 134,832 $ 83,723
Accrued liabilities 61,001 64,229 66,089
Provisions Note 6 5,119 4,892 4,859
Dividends payable 2,494 12,472 2,491
Income taxes payable 7,557 2,072 274
Obligations under finance
leases Note 7 3,596 3,677 3,850
Derivative instrument
liability 1,989 2,452 -
Bank debt 79,759 79,680 -
----------------------------------------------------------------------------
291,057 304,306 161,286
----------------------------------------------------------------------------
NON-CURRENT
Provisions Note 6 4,477 4,338 3,518
Employee benefits 4,021 4,132 3,699
Derivative instrument
liability - - 2,643
Bank debt - - 79,461
Other liabilities 2,601 5,221 841
Obligations under finance
leases Note 7 5,036 5,227 6,140
----------------------------------------------------------------------------
16,135 18,918 96,302
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital Note 9 105,892 - -
----------------------------------------------------------------------------
Trust units Note 10 - 105,892 105,307
----------------------------------------------------------------------------
Contributed surplus Note 11 6,971 6,426 5,645
----------------------------------------------------------------------------
Retained earnings 94,744 89,411 90,258
Accumulated other
comprehensive loss (2,070) (2,405) (2,233)
----------------------------------------------------------------------------
92,674 87,006 88,025
----------------------------------------------------------------------------
Total shareholders' equity 205,537 199,324 198,977
----------------------------------------------------------------------------
$ 512,729 $ 522,548 $ 456,565
----------------------------------------------------------------------------
----------------------------------------------------------------------------
These condensed consolidated financial statements were approved by the Board
of Directors on May 10, 2011.
WAJAX CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited, in thousands of Canadian
dollars, except per share data) 2011 2010
----------------------------------------------------------------------------
Revenue $ 303,929 $ 227,440
Cost of sales 238,066 175,829
----------------------------------------------------------------------------
Gross profit 65,863 51,611
----------------------------------------------------------------------------
Selling and administrative expenses 46,843 42,037
----------------------------------------------------------------------------
Earnings before finance costs and income
taxes 19,020 9,574
Finance costs 976 1,067
----------------------------------------------------------------------------
Earnings before income taxes 18,044 8,507
Income tax expense (recovery) Note 12 5,228 (370)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 12,816 $ 8,877
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per share Note 13 $ 0.77 $ 0.53
Diluted earnings per share Note 13 $ 0.76 $ 0.53
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited, in thousands of Canadian dollars) 2011 2010
----------------------------------------------------------------------------
Net earnings $ 12,816 $ 8,877
----------------------------------------------------------------------------
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 of $230 (2010 - $15) 607 139
Losses on derivative instruments designated as
cash flow hedges during the period, net of tax of
$103 (2010 - $7) (272) (706)
----------------------------------------------------------------------------
Other comprehensive income (loss), net of tax 335 (567)
----------------------------------------------------------------------------
Total comprehensive income $ 13,151 $ 8,310
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS
ENDED MARCH 31, 2011 Share Trust Contributed
(unaudited, in thousands capital units surplus
of Canadian dollars) (Note 9) (Note 10) (Note 11)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2011 $ - 105,892 6,426
Conversion to corporation 105,892 (105,892) -
Net earnings - - -
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 - - -
----------------------------------------------------------------------------
Dividends Note 8 - - -
----------------------------------------------------------------------------
Share-based
compensation expense Note 11 - - 545
----------------------------------------------------------------------------
March 31, 2011 $ 105,892 - 6,971
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
other
comprehensive
income(loss)
("AOCL")
--------------
FOR THE THREE MONTHS Gains and
ENDED MARCH 31, 2011 Actuarial Losses on
(unaudited, in thousands Retained Gains and Cash Flow
of Canadian dollars) earnings Losses Hedges Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2011 89,411 (628) (1,777) $ 199,324
Conversion to corporation - - - -
Net earnings 12,816 - - 12,816
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 - - 607 607
Losses on derivative
instruments designated
as cash flow hedges
during the period, net
of tax - - (272) (272)
----------------------------------------------------------------------------
Total other comprehensive
income 335 335
----------------------------------------------------------------------------
Total comprehensive
income for the period 12,816 - 335 13,151
----------------------------------------------------------------------------
Dividends Note 8 (7,483) - - (7,483)
----------------------------------------------------------------------------
Shared-based compensation
expense Note 11 - - - 545
----------------------------------------------------------------------------
March 31, 2011 94,744 (628) (1,442) $ 205,537
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED
MARCH 31, 2010 Share Trust Contributed
(unaudited, in thousands capital units surplus
of Canadian dollars) (Note 9) (Note 10) (Note 11)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2010 $ - 105,307 5,645
Net earnings - - -
Other comprehensive loss
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 loss
----------------------------------------------------------------------------
Total comprehensive income for
the period
----------------------------------------------------------------------------
Dividends Note 8 -
----------------------------------------------------------------------------
Shared-based
compensation expense Note 11 - 292
----------------------------------------------------------------------------
March 31, 2010 $ - 105,307 5,937
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
other
comprehensive
income (loss)
("AOCL")
----------------
FOR THE THREE MONTHS ENDED Gains and
MARCH 31, 2010 Losses
(unaudited, in thousands Retained on Cash
of Canadian dollars) earnings Flow Hedges Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2010 90,258 (2,233) 198,977
Net earnings 8,877 - 8,877
Other comprehensive loss
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 - 139 139
Losses on derivative
instruments designated as
cash flow hedges during the
period, net of tax - (706) (706)
----------------------------------------------------------------------------
Total other comprehensive loss (567) (567)
----------------------------------------------------------------------------
Total comprehensive income for
the period 8,877 (567) 8,310
----------------------------------------------------------------------------
Dividends Note 8 (7,472) (7,472)
----------------------------------------------------------------------------
Shared-based
compensation expense Note 11 292
----------------------------------------------------------------------------
March 31, 2010 91,663 (2,800) 200,107
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited, in thousands of Canadian dollars) 2011 2010
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 12,816 $ 8,877
Items not affecting cash flow:
Depreciation and amortization
Rental equipment 962 849
Property, plant and equipment 1,137 893
Assets under finance lease 720 722
Intangible assets 119 176
Share-based compensation expense Note 11 545 292
Other liabilities (2,620) 424
Non-cash rental expense 30 27
Pension expense, net of payments (178) 48
Finance costs 976 1,067
Income tax expense (recovery) 5,228 (370)
----------------------------------------------------------------------------
Cash flows from operating activities before
changes in non-cash working capital 19,735 13,005
----------------------------------------------------------------------------
Changes in non-cash working capital:
Trade and other receivables (16,659) (8,309)
Inventories (10,521) (5,720)
Prepaid expenses 1,299 (911)
Trade and other payables (5,320) 5,111
Accrued liabilities (3,270) (4,237)
Provisions 227 (134)
----------------------------------------------------------------------------
(34,244) (14,200)
----------------------------------------------------------------------------
Cash flows used in operating activities (14,509) (1,195)
----------------------------------------------------------------------------
Rental equipment additions (5,682) (1,279)
Provisions 139 (171)
Interest paid (856) (999)
Income taxes (paid) received 169 61
----------------------------------------------------------------------------
Net cash flows used in operating activities (20,739) (3,583)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment additions (993) (709)
Proceeds on disposal of property, plant and
equipment 38 87
----------------------------------------------------------------------------
Net cash flows used in investing activities (955) (622)
----------------------------------------------------------------------------
(21,694) (4,205)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in transaction costs - (83)
Payments under finance leases (926) (801)
Dividends paid Note 8 (17,461) (7,472)
----------------------------------------------------------------------------
Net cash flows used in financing activities (18,387) (8,356)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net change in cash and cash equivalents (40,081) (12,561)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash (bank indebtedness) - beginning of period 42,954 9,207
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash (bank indebtedness) - end of period $ 2,873 $ (3,354)
----------------------------------------------------------------------------
WAJAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 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 mobile equipment, industrial
components and power systems, through a network of 118 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 first 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"). The significant
accounting policies are disclosed in Note 3.
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 16. This note includes reconciliations of equity and total comprehensive
income for comparative periods and of equity at the date of transition reported
under previous Canadian GAAP to those reported for those periods and at the date
of transition under IFRS. The Corporation's date of transition to IFRS is
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 and 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 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. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
These condensed consolidated financial statements include the accounts of Wajax
Corporation and its subsidiary entities, which are all wholly-owned.
The financial statements of the subsidiaries are prepared for the same reporting
period as the Corporation, using consistent accounting policies. All
intercompany balances, transactions, unrealized gains and losses from
intercompany transactions and dividends are eliminated in full on consolidation.
When goodwill arises from a business combination, the Corporation measures it as
the fair value of the consideration transferred less the net recognized amounts
(generally fair value) of the identifiable assets acquired and liabilities
assumed, all measured as of the acquisition date.
Revenue recognition
Revenue is measured at the fair value of consideration received or receivable,
net of expected returns, rebates and discounts and is recognized as it is earned
in accordance with the following:
-- Revenue from the sale of equipment and parts is recognized in earnings
at the time goods are shipped to customers or when all contracted-upon
conditions have been fulfilled.
-- Revenue from the sale of internally-manufactured or assembled products
is recognized in earnings when goods are shipped to customers or when
all contracted-upon conditions have been fulfilled.
-- Revenue from the rental of equipment is recognized in earnings on a
straight-line basis over the term of the lease.
-- Revenue from construction contracts is recognized using the percentage
of completion method, with the stage of completion being assessed by
reference to the proportion that contract costs incurred for the work
performed to date bears to the estimated total contract costs. An
expected loss on the contract is recognized immediately in earnings.
-- Revenue from engineering and technical services rendered to customers is
recognized in earnings upon performance of contracted-upon services with
the customer.
-- Revenue for separately priced extended warranty or product maintenance
contracts is recognized in earnings over the contract period in
proportion to the costs expected to be incurred in performing the
services under the contract. If insufficient historical evidence exists
to support this pattern, then revenue is recognized on a straight-line
basis over the term of the contract.
Derivative financial instruments
The Corporation uses derivative financial instruments to hedge its foreign
currency and interest rate exposures. The Corporation's policy is not to utilize
derivative financial instruments for trading or speculative purposes.
The Corporation purchases foreign exchange forward contracts to fix the cost of
certain inbound inventory and the related accounts payable, and to hedge certain
anticipated foreign currency denominated sales to customers and the related
accounts receivable.
In order to manage its exposure to interest rates on variable rate debt, the
Corporation has entered into interest rate swaps where it receives variable rate
interest and pays fixed rates on a notional amount.
On initial designation of the hedge, the Corporation formally documents all
relationships between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions,
together with the methods that will be used to assess the effectiveness of the
hedging relationship. This process includes linking all derivatives to specific
assets and liabilities on the statement of financial position or to specific
firm commitments or forecasted transactions. The Corporation also assesses, both
at the inception of the hedged relationship and at the end of each quarter on a
retrospective and prospective basis, whether the hedging instruments are
expected to be effective in offsetting the changes in the fair values or cash
flows of the respective hedged items during the period for which the hedge is
designated, and whether the actual results of each hedge are within a range of
80% - 125% effective. Hedge accounting has been applied when the hedge is
effective.
Derivative instruments are recognized initially at fair value. Subsequent to
initial recognition, derivative financial instruments are measured at fair
value, and any changes in fair value are recognized in earnings unless cash flow
hedge accounting is applied, in which case changes in fair value are recognized
in other comprehensive income with any ineffectiveness recognized in earnings.
Foreign currency transactions and balances
Foreign currency transactions are translated into Canadian dollars at exchange
rates at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting dates are retranslated into
Canadian dollars at the rate of exchange in effect at the date of the statement
of financial position. Foreign currency differences arising on retranslation are
recognized in earnings, except for differences arising on retranslation of
qualifying cash flow hedges which are recognized in other comprehensive income.
Inventories
Inventories are valued at the lower of cost and estimated net realizable value.
Net realizable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.
Cost is determined using the weighted average method except where the items are
not ordinarily interchangeable, in which case the specific identification method
is used.
Cost of equipment and parts includes purchase cost, conversion cost if
applicable and cost incurred in bringing inventory to its present location and
condition.
Cost of work-in-progress and cost of conversion includes cost of direct labour,
direct materials and a portion of direct and indirect overheads, allocated based
on normal capacity.
Cost of inventories includes transfers from other comprehensive income of gains
or losses on qualifying cash flow hedges of foreign currency purchases of
inventories.
Rental equipment
Rental equipment assets are recorded at cost less accumulated depreciation and
accumulated impairment losses. Cost includes all expenditures directly
attributable to the acquisition of the asset. Assets are depreciated over their
estimated useful lives using the declining balance method at a rate of 20% per
year (for the current and comparative periods), and recognized in earnings over
the estimated useful life of rental equipment. The depreciation method and
useful lives are reviewed at each annual reporting date and adjusted if
appropriate. Rental equipment assets are transferred to inventory at their
carrying amount when they cease to be rented and become held for sale.
Property, plant and equipment
Initial recognition and measurement after recognition
Property, plant and equipment are recorded at cost less accumulated depreciation
and accumulated impairment losses. Cost includes all expenditures directly
attributable to the acquisition of the asset. Depreciation is recognized in
current earnings over the estimated useful lives of property, plant and
equipment based on the following methods and annual rates for the current and
comparative periods:
Asset Method Rate
----------------------------------------------------------------------------
Buildings declining balance 4% - 5%
Equipment and vehicles declining balance 20% - 30%
Information systems straight-line 3 - 7 years
Furniture and fixtures declining balance 20%
Leasehold improvements straight-line over the remaining terms
of the leases
Depreciation methods and useful lives are reviewed at each annual reporting date
and adjusted if appropriate. Leased assets are depreciated over the shorter of
the lease term and their useful life.
Impairment
The carrying amounts of property, plant and equipment, and rental equipment are
reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's recoverable amount
is estimated. The recoverable amount of an asset is the higher of its value in
use or its fair value less costs to sell. Value in use is the present value of
estimated future cash flows using a pre-tax discount rate that reflects the
current market assessments of the time value of money and the risks specific to
the asset. For the purpose of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the cash-generating unit, or
"CGU"). Where the asset does not generate cash flows that are independent of
other assets, impairment is considered for the CGU to which the asset belongs.
An impairment loss is recognized if the carrying amount of the asset or CGU
exceeds its estimated recoverable amount. Impairment losses are recognized in
current earnings. Impairment losses recognized in respect of CGUs are allocated
first to reduce the carrying amount of any goodwill allocated to the units, and
then to reduce the carrying amounts of the other assets in the unit (group of
units) on a pro rata basis.
An impairment loss recognized in a prior period is assessed at each reporting
date for any indications that the loss has decreased or no longer exists. An
impairment loss, other than goodwill, is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation, if no
impairment loss had been recognized. A reversal of an impairment loss is
recognized immediately in current earnings.
Leases
As lessor:
Leases in which the Corporation does not transfer substantially all the risks
and rewards of ownership of the assets are classified as operating leases. The
Corporation's equipment rentals are classified as operating leases with amounts
received included in revenue on a straight-line basis over the term of the
lease.
As lessee:
Leases are classified as finance leases when the terms of the lease transfer
substantially all the risks and rewards incidental to ownership of the leased
item to the Corporation. Under finance leases, the asset is 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. Lease payments are apportioned
between finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. A leased
asset is depreciated over the useful life of the asset. However, if there is no
reasonable certainty that the Corporation will obtain ownership by the end of
the lease term, the asset is depreciated over the shorter of the estimated
useful life of the asset and the lease term.
All other leases are classified as operating leases. Operating lease payments
are recognized as an operating expense in profit or loss on a straight-line
basis over the lease term.
Intangible assets
Goodwill
Goodwill is initially measured at cost being the excess of the aggregate of the
consideration transferred over the fair value of the net identifiable assets
acquired and liabilities assumed at the date of acquisition. After initial
recognition, goodwill is measured at cost less any accumulated impairment
losses. Goodwill is not amortized but is tested annually for impairment, and
whenever there is an indication that the CGU to which goodwill has been
allocated, may be impaired. For the purposes of impairment testing, goodwill
acquired in a business combination is allocated to the CGU, or group of CGUs,
that is expected to benefit from the synergies of the combination. This
allocation is subject to an operating segment ceiling test and reflects the
lowest level at which that goodwill is monitored for internal reporting
purposes. To test for impairment, the Corporation compares the carrying amount
of the CGU, including the goodwill, with the recoverable amount of the CGU.
Recoverable amount is the higher of its value in use or its fair value less
costs to sell. Value in use is the present value of estimated future cash flows
using a pre-tax discount rate that reflects the current market assessments of
the time value of money and the risks specific to the CGU. Any goodwill
impairment in the current year would be recorded as a charge against current
earnings. An impairment loss in respect of goodwill is not reversed.
Product distribution rights
Product distribution rights are all acquired through business combinations and
are initially recorded at the fair value attributed to these rights. They are
classified as indefinite life intangible assets because the Corporation is
generally able to renew these rights with minimal cost of renewal. Indefinite
life intangible assets are not amortized but are tested annually for impairment,
and whenever there is an indication that the intangible asset may be impaired.
To test for impairment, the Corporation compares the carrying amount of the
intangible asset with the recoverable amount of the intangible asset.
Recoverable amount is the higher of its value in use or its fair value less
costs to sell. Value in use is the present value of estimated future cash flows
using a pre-tax discount rate that reflects the current market assessments of
the time value of money and the risks specific to the CGU. Any impairment in the
current year would be recorded as a charge against current earnings. An
impairment loss recognized in a prior period is assessed at each reporting date
for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized. A reversal of an impairment loss is
recognized immediately in current earnings.
Customer lists and non-competition agreements
Customer lists and non-competition agreements are all acquired through business
combinations and are initially recorded at their fair values. They are amortized
on a straight-line basis over their useful lives which range from 2 to 7 years.
They are tested for impairment when events or changes in circumstances indicate
that the carrying value may not be recoverable. Impairment of an intangible
asset is recognized in an amount equal to the difference between the carrying
value and the recoverable amount of the related intangible asset and would be
recorded as a charge against current earnings. Recoverable amount is the higher
of its value in use or its fair value less costs to sell. Value in use is the
present value of estimated future cash flows using a pre-tax discount rate that
reflects the current market assessments of the time value of money and the risks
specific to the CGU. An impairment loss recognized in a prior period is assessed
at each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation, if no
impairment loss had been recognized. A reversal of an impairment loss is
recognized immediately in current earnings.
Cash
Cash includes cash on hand, demand deposits and bank overdrafts. The Corporation
considers cash to be an integral part of the Corporation's cash management. Cash
and bank overdrafts are offset and the net amount presented in the statement of
financial position when the Corporation has a legal right to offset the amounts
and intends either to settle on a net basis or to realize the asset and settle
the liability simultaneously.
Transaction costs
Transaction costs related to the acquisition or amendment of bank debt are
deferred and amortized to finance costs using an effective yield method.
Deferred transaction costs are included in the carrying amount of the related
debt.
Finance costs
Finance costs comprise interest expense on borrowings and amortization of
transaction costs.
Provisions
Provisions are recognized when there is a present legal or constructive
obligation arising from past events, it is probable that an outflow of economic
benefits will be required to settle the obligation, and a reliable estimate can
be made of the obligation. The amount recognized as a provision is the best
estimate of the expenditure required to settle the present obligation. The best
estimate is the amount that the Corporation would rationally pay to settle the
obligation at the end of the reporting period or to transfer it to a third party
at that time. The amount has been determined using an expected cash flow
approach that reflects a range of possible outcomes that are probability
weighted.
Warranty claims
The Corporation provides for customer warranty claims that may not be covered by
the manufacturers' standard warranty. Warranties relate to products sold and
generally cover a period of 6 months to 5 years. The reserve is determined by
applying a claim rate to the value of each machine sold. The rate is developed
using management's best estimate of actual warranty expense, generally based on
recent claims experience, and is adjusted as required. The provision is not
discounted to reflect the time value of money, because the impact is not
considered material.
Guaranteed residual value and recourse contracts
From time to time the Corporation guarantees the resale value of equipment sold
("guaranteed residual value contracts") or guarantees a portion of a customers'
lease payments ("recourse contracts"). These contracts are subject to certain
conditions being met by the customer. A provision is recorded at management's
estimate of the amount that will eventually be required to settle the contracts
and is adjusted as required. The contracts are not discounted to reflect the
time value of money because the impact is not considered material.
Environmental
The Corporation is required to remediate certain environmental contamination at
some of its locations. A provision is recorded at management's estimate of the
amount of the cost of remediation. The provision is not discounted to reflect
the time value of money because the impact is not considered material.
Financial Instruments
The Corporation measures financial instruments held for trading at fair value
with subsequent changes in fair value being charged to earnings. Loans and
receivables and other financial liabilities are measured at amortized cost.
Derivative instruments are measured at fair value. All changes in their fair
value are recorded in earnings unless cash flow hedge accounting is used, in
which case changes in fair value are recorded in other comprehensive income with
any ineffectiveness charged to earnings. Cash was designated as held for trading
upon initial recognition.
The Corporation's non-derivative financial assets consist of cash and trade and
other receivables. Impairment of trade and other receivables is assessed by
performing an analysis of specific accounts. Provisions are maintained for
possible credit losses.
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 Stock Unit Plan ("DSUP").
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 consideration. The 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. Compensation expense is
based upon the fair value of the rights at date of grant, adjusted for
anticipated forfeitures and is charged to earnings on a straight-line basis over
the vesting period, with an offsetting adjustment to contributed surplus.
The MTIP and DSUP, which are settled in cash, consist of annual grants that vest
over three years and are based upon time and performance vesting criteria, a
portion of which is determined by the price of the Corporation's shares. The
fair value of the amounts payable in respect of the MTIP and DSUP is recognized
as compensation expense over the vesting periods with an offsetting adjustment
to other liabilities. The liabilities are remeasured at each reporting date and
at settlement date based on the market price of the Corporation's shares. Any
changes in fair value of the liabilities are recognized as compensation expense.
Employee benefits
Defined contribution plans
The Corporation has defined contribution pension plans for most of its
employees. Obligations for contributions to defined contribution pension plans
are recognized as an employee benefit expense in earnings in the periods during
which services are rendered by employees.
Defined benefit plans
The Corporation has defined benefit plans covering some of its employees. The
Corporation's net obligation in respect of defined benefit plans is calculated
by estimating the amount of future benefit that employees have earned in return
for their service in the current and prior periods. That benefit is discounted
to determine its present value. Any unrecognized past service costs and the fair
value of any plan assets are deducted. The discount rate is the yield at the
reporting date on long-term high-quality corporate fixed income investments that
have maturity dates approximating the terms of the Corporation's obligations and
that are denominated in the same currency in which the benefits are expected to
be paid. The calculation is performed annually by a qualified actuary using the
projected unit credit method. When the calculation results in a benefit to the
Corporation, the recognized asset is limited to the total of any unrecognized
past service costs and the present value of economic benefits available in the
form of any future refunds from the plan or reductions in future contributions
to the plan. In order to calculate the present value of economic benefits,
consideration is given to any minimum funding requirements that apply to any
plan in the Corporation. An economic benefit is available to the Corporation if
it is realizable during the life of the plan, or on settlement of the plan
liabilities.
All actuarial gains and losses are recognized immediately in other comprehensive
income in the period in which they occur. Actuarial valuations are generally
updated only at the end of the year unless there have been material changes to
the plans. Accordingly, there are no actuarial gains or losses to record in the
interim period.
Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred
tax are recognized in earnings except to the extent that it relates to a
business combination, or items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. Deferred tax is not recognized for the
following temporary differences: the initial recognition of assets or
liabilities in a transaction that is not a business combination and that affects
neither accounting nor taxable earnings. In addition, deferred tax is not
recognized for taxable temporary differences arising on the initial recognition
of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. Deferred tax assets and
liabilities are offset if there is a legally enforceable right to offset current
tax liabilities and assets, and they relate to income taxes levied by the same
tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses and deductible
temporary differences, to the extent that it is probable that future taxable
profits will be available against which they can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it
is no longer probable that the related tax benefit will be realized.
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.
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.
4. RENTAL EQUIPMENT
During the three months ended March 31, 2011 the Corporation acquired rental
equipment with a cost of $5,682 (2010 - $1,279). Rental equipment with a
carrying amount of $1,144 (2010 - $714) 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
During the three months ended March 31, 2011 the Corporation acquired property,
plant and equipment with a cost of $1,651 (2010 - $1,101). Assets with a
carrying amount of $58 (2010 - $178) were disposed of, resulting in a gain on
disposal of $16 (2010 - $173).
Included in the above are vehicles held under
finance leases:
March December
31, 2011 31, 2010
----------------------------------------------------------------------------
Cost $ 22,527 $ 22,006
Accumulated depreciation 13,149 12,542
----------------------------------------------------------------------------
Carrying amount $ 9,378 $ 9,464
----------------------------------------------------------------------------
All property, plant and equipment have been pledged as security
for bank debt.
6. PROVISIONS
Warranties Other Total
Provisions, January 1, 2011 $ 9,230 $ - $ 9,230
Charge for the period 1,103 - 1,103
Utilized in the period (737) - (737)
----------------------------------------------------------------------------
Provisions, March 31, 2011 $ 9,596 $ - $ 9,596
----------------------------------------------------------------------------
Current 5,119 - 5,119
----------------------------------------------------------------------------
Non-current 4,477 - 4,477
----------------------------------------------------------------------------
Total $ 9,596 $ - $ 9,596
----------------------------------------------------------------------------
Provisions, January 1, 2010 $ 8,199 $ 178 $ 8,377
Charge for the period 860 - 860
Utilized in the period (1,165) - (1,165)
----------------------------------------------------------------------------
Provisions, March 31, 2010 $ 7,894 $ 178 $ 8,072
----------------------------------------------------------------------------
Current 4,547 178 4,725
----------------------------------------------------------------------------
Non-Current 3,347 3,347
----------------------------------------------------------------------------
Total $ 7,894 $ 178 $ 8,072
----------------------------------------------------------------------------
7. LEASES
Operating leases - as lessor
The Corporation rents equipment to customers under rental agreements with
varying terms of up to 5 years. The rental agreements are subject to overtime
charges when usage exceeds the amount contemplated in the agreements. The
rentals may be cancelled subject to a cancellation fee. The future minimum
non-cancelable lease payments receivable under the agreements are as follows:
March 31, 2011
----------------------------------------------------------------------------
Present value of minimum lease
payments
----------------------------------------------------------------------------
For the remainder of 2011 $ 3,769
Between one and five years 4,218
----------------------------------------------------------------------------
$ 7,987
----------------------------------------------------------------------------
During the three months ended March 31, 2011 the Corporation recognized $38
(2010 - $15) of overtime charges under the rental agreements as contingent rent.
Finance leases - as lessee
The Corporation finances certain vehicles under a finance lease arrangement. The
leases have a minimum six month term and are extended on a monthly basis
thereafter until terminated. On termination the difference between the lessor's
proceeds of disposal and the residual value is charged or refunded to the
Corporation as a rental adjustment. Obligations under finance leases are as
follows:
March 31, 2011
----------------------------------------------------------------------------
Present value
of minimum
Payment Interest lease payments
----------------------------------------------------------------------------
Less than one year $ 3,960 364 3,596
Between one and five years 5,588 552 5,036
----------------------------------------------------------------------------
Total minimum lease payments 9,548 916 8,632
----------------------------------------------------------------------------
Current 3,960 364 3,596
Non-current 5,588 552 5,036
----------------------------------------------------------------------------
Total minimum lease payments $ 9,548 916 8,632
----------------------------------------------------------------------------
8. DIVIDENDS DECLARED
During the three months ended March 31, 2011 the Corporation declared cash
dividends of $0.45 per share, or $7,483 (March 31, 2010, distributions of $0.45
per unit or $7,472).
9. SHARE CAPITAL
The Corporation is authorized to issue an unlimited number of common shares and
an unlimited number of preferred shares, issuable in series and without par
value.
Number of Shares Amount
----------------------------------------------------------------------------
Balance, January 1, 2011 - -
----------------------------------------------------------------------------
Converted on January 1, 2011 from trust
units 16,629,444 $ 105,892
----------------------------------------------------------------------------
Balance, March 31, 2011 16,629,444 $ 105,892
----------------------------------------------------------------------------
10. TRUST UNITS
In 2010 the Corporation was structured as an unincorporated open-ended limited
purpose investment trust called "Wajax Income Fund". The issued and fully paid
trust units of the Fund were included in shareholders' equity on the statement
of financial position and are summarized as follows:
Number of Units Amount
----------------------------------------------------------------------------
Balance, January 1, 2011 16,629,444 $ 105,892
----------------------------------------------------------------------------
Converted on January 1, 2011 to share capital 16,629,444 $ 105,892
----------------------------------------------------------------------------
Balance, March 31, 2011 - $ -
----------------------------------------------------------------------------
11. 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 Stock Unit Plan ("DSUP").
a) Share Rights Plan
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. The
rights are settled when the participant is no longer employed by the Corporation
or one if 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. Forfeitures are recognized as they occur. The Corporation recorded
compensation cost of $545 for the three months ending March 31, 2011 (2010 -
$292) in respect of these plans.
Share Ownership March 31, March 31,
Plan 2011 2010
----------------------------------------------------------------------------
Number of Fair value Number of Fair value
Rights at time of Rights at time of
grant grant
----------------------------------------------------------------------------
Outstanding at
beginning of
period 101,999 $ 2,326 126,125 $ 2,764
Granted in the
period 2,948 108 2,403 57
----------------------------------------------------------------------------
Outstanding at
end of period 104,947 $ 2,434 128,528 $ 2,821
----------------------------------------------------------------------------
At March 31, 2011 96,297 SOP rights were
vested.
Deferred Share March 31, March 31,
Program 2011 2010
----------------------------------------------------------------------------
Number of Fair value Number of Fair value
Rights at time of Rights at time of
grant grant
----------------------------------------------------------------------------
Outstanding at
beginning of
period 24,165 $ 738 21,944 $ 673
Granted in the
period 4,719 177 419 10
----------------------------------------------------------------------------
Outstanding at
end of period 28,884 $ 915 22,363 $ 683
----------------------------------------------------------------------------
No DSP rights have vested at March 31, 2011.
Directors'
Deferred Share March 31, March 31,
Unit Plan 2011 2010
----------------------------------------------------------------------------
Number of Fair value Number of Fair value
Rights at time of Rights at time of
grant grant
----------------------------------------------------------------------------
Outstanding at
beginning of
period 147,797 $ 3,641 117,518 $ 2,768
Granted in the
period 7,701 291 6,806 176
----------------------------------------------------------------------------
Outstanding at
end of period 155,498 $ 3,932 124,324 $ 2,944
----------------------------------------------------------------------------
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 $1,617
for the three months ending March 31, 2011 (2010 - $277) in respect of the
share-based portion of the MTIP. At March 31, 2011 the carrying amount of the
share-based portion of the MTIP liability was $4,898 (2010 - $966).
c) Deferred Stock 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. If the
vesting criteria for DSUP rights are satisfied, the amount earned is recast as a
share-based component. Compensation expense for vested DSUP rights varies with
the price of Corporation shares and is recognized immediately in earnings. The
rights are settled when the participant is no longer employed by the Corporation
or one if its subsidiary entities. The Corporation recorded no compensation cost
for the three months ending March 31, 2011 or March 31, 2010 in respect of the
share-based portion of the DSUP.
12. 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 and 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 three months ended March 31 2011 2010
----------------------------------------------------------------------------
Current $ 5,317 $ 126
Deferred - Origination and reversal of temporary
difference (135) 74
- Change in tax law and rate 46 (570)
----------------------------------------------------------------------------
Income tax expense (recovery) $ 5,228 $ (370)
----------------------------------------------------------------------------
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 three months ended March 31 2011 2010
----------------------------------------------------------------------------
Combined statutory income tax rate 27.7% 29.4%
Expected income tax expense at statutory rates $ 4,998 $ 2,501
Income of the Fund taxed directly to unitholders (2,892)
Non-deductible expenses 199 129
Deferred tax related to changes in tax law and
rates 46 (582)
Other (15) 474
----------------------------------------------------------------------------
Income tax expense (recovery) $ 5,228 $ (370)
----------------------------------------------------------------------------
Deferred income tax relates to book and tax basis differences for assets and
liabilities and is attributable to the following:
March 31, December
2011 31, 2010
----------------------------------------------------------------------------
Accrued liabilities and provisions not currently
deductible $ 8,375 $ 8,258
Property, plant and equipment (1,447) (1,418)
Vehicles under finance lease (173) (146)
Deductible goodwill and other assets (2,090) (2,052)
Deductible future financing costs (27) (38)
Derivative instrument liability not currently
deductible 546 673
Income tax losses available for carry forward 50
----------------------------------------------------------------------------
Net deferred income tax asset $ 5,234 $ 5,277
----------------------------------------------------------------------------
13.EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
March 31, March 31,
2011 2010
----------------------------------------------------------------------------
Numerator for basic and diluted earnings
per share:
- net earnings $ 12,816 $ 8,877
----------------------------------------------------------------------------
Denominator for basic earnings per share -
weighted average shares 16,629,444 16,603,423
----------------------------------------------------------------------------
Denominator for diluted earnings per share:
- weighted average shares 16,629,444 16,603,423
- effect of dilutive share rights 273,893 251,703
----------------------------------------------------------------------------
Denominator for diluted earnings per share 16,903,337 16,855,126
----------------------------------------------------------------------------
Basic earnings per share $ 0.77 $ 0.53
----------------------------------------------------------------------------
Diluted earnings per share $ 0.76 $ 0.53
----------------------------------------------------------------------------
----------------------------------------------------------------------------
No share rights were excluded from the above calculations as none
were anti-dilutive.
14. SEGMENTED INFORMATION
The Corporation operates through a network of 118 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
mobile equipment; ii) the distribution, servicing and assembly of industrial
components; and iii) the distribution and servicing of power systems.
----------------------------------------------------------------------------
For the three months ended
March 31, 2011 Segment
Eliminations
and
Industrial Power Unallocated
Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 80,500 $ $ 35,447 $ $ 115,947
Parts 44,823 80,724 24,081 149,628
Service 19,086 13,403 32,489
Rental and other 7,034 (1,169) 5,865
----------------------------------------------------------------------------
Revenue $ 151,443 $ 80,724 $ 72,931 $ (1,169) $ 303,929
----------------------------------------------------------------------------
Segment earnings
before finance
costs and income
taxes $ 11,191 $ 4,445 $ 7,014 $ $ 22,650
Corporate costs
and eliminations (3,630) (3,630)
----------------------------------------------------------------------------
Earnings before
finance costs
and income taxes 11,191 4,445 7,014 (3,630) 19,020
Finance costs 976 976
Income tax
expense 5,228 5,228
----------------------------------------------------------------------------
Net earnings $ 11,191 $ 4,445 $ 7,014 $ (9,834) $ 12,816
----------------------------------------------------------------------------
Segment assets
excluding
intangible
assets $ 224,817 $ 106,329 $ 100,502 $ $ 431,648
Intangible assets 21,541 45,868 5,444 72,853
Cash 2,873 2,873
Corporate and
other assets 5,355 5,355
----------------------------------------------------------------------------
Total assets $ 246,358 $ 152,197 $ 105,946 $ 8,228 $ 512,729
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended
March 31, 2010 Segment
Eliminations
and
Industrial Power Unallocated
Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 49,745 $ $ 13,609 $ $ 63,354
Parts 35,873 72,584 21,263 129,720
Service 15,228 12,569 27,797
Rental and other 7,539 (970) 6,569
----------------------------------------------------------------------------
Revenue $ 108,385 $ 72,584 $ 47,441 $ (970) $ 227,440
----------------------------------------------------------------------------
Segment earnings
before finance
costs and income
taxes $ 7,919 $ 3,147 944 $ $ 12,010
Corporate costs
and
eliminations (2,436) (2,436)
----------------------------------------------------------------------------
Earnings before
finance costs
and income taxes 7,919 3,147 944 (2,436) 9,574
Finance costs 1,067 1,067
Income tax
recovery (370) (370)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 7,919 $ 3,147 $ 944 $ (3,133) $ 8,877
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets
excluding
intangible
assets $ 197,594 $ 99,893 $ 88,412 $ $ 385,899
Intangible
assets 21,541 46,344 5,444 73,329
Corporate and
other assets 2,747 2,747
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets $ 219,135 $ 146,237 $ 93,856 $ 2,747 $ 461,975
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
15. SUBSEQUENT EVENTS
On May 2, 2011, the Corporation's Power Systems segment acquired the assets of
Harper Power Products Inc. ("Harper") for $21,600, subject to post-closing
adjustments. The acquisition price was funded through the Corporation's existing
bank lines. This acquisition secures the Ontario distribution rights to certain
product lines and complements the segment's existing distribution rights in the
rest of Canada, except for portions of British Columbia. Harper had 2010
adjusted annual revenue of approximately $71,000. The Corporation has not yet
fully determined details of goodwill recognized or acquisition-date fair values
of net assets acquired. It is anticipated that the amount eventually attributed
to goodwill will be 75% deductible for income tax purposes.
16. 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 have been applied in preparing the
financial statements for the three months ended March 31, 2011, the comparative
information presented in these financial statements for both the three months
ended March 31, 2010 and year ended December 31, 2010 and in the preparation of
an opening IFRS statement of financial position at January 1, 2010 (the
Corporation's date of transition).
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 ENDED
MARCH 31, 2010 Canadian Employee Leases Inventory IFRS
GAAP Benefits IAS 17 IAS 2
IAS 19
----------------------------------------------------------------------------
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
Revenue $ 227,440 $ 227,440
Cost of sales 176,261 (438) 175,829
----------------------------------------------------------------------------
Gross profit 51,179 432 51,611
----------------------------------------------------------------------------
Selling and administrative
expenses 42,351 (35) (279) 42,037
----------------------------------------------------------------------------
Earnings before finance costs
and income taxes 8,828 35 279 432 9,574
Finance costs 1,031 36 1,067
----------------------------------------------------------------------------
Earnings before income taxes 7,797 35 243 432 8,507
Income tax expense (recovery) (565) 9 65 121 (370)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 8,362 26 178 311 $ 8,877
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Comprehensive Income
Canadian Employee Leases Inventory IFRS
FOR THE THREE MONTHS ENDED GAAP Benefits IAS 17 IAS 2
MARCH 31, 2010 IAS 19
----------------------------------------------------------------------------
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
Net earnings $ 8,362 26 178 311 $ 8,877
----------------------------------------------------------------------------
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 139 139
Losses on derivative
instruments designated
as cash flow hedges during
the period, net of tax (706) (706)
----------------------------------------------------------------------------
Other comprehensive loss,
net of tax (567) (567)
----------------------------------------------------------------------------
Total comprehensive income $ 7,795 26 178 311 $ 8,310
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Income Statement
Canadian Employee Leases Inventory IFRS
FOR THE YEAR ENDED GAAP Benefits IAS 17 IAS 2
DECEMBER 31, 2010 IAS 19
----------------------------------------------------------------------------
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
Revenue $ 1,110,888 $ 1,110,888
Cost of sales 874,327 (29) 874,298
----------------------------------------------------------------------------
Gross profit 236,561 (29) 236,590
----------------------------------------------------------------------------
Selling and
administrative expenses 180,131 (140) (877) 179,114
----------------------------------------------------------------------------
Earnings before finance
costs and income taxes 56,430 140 877 (29) 57,476
Finance costs 4,094 183 4,277
----------------------------------------------------------------------------
Earnings before income
taxes 52,336 140 694 (29) 53,199
Income tax expense
(recovery) (2,683) 35 185 (9) (2,454)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 55,019 105 509 20 $ 55,653
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Comprehensive Income
Canadian Employee Leases Inventory IFRS
FOR THE YEAR ENDED GAAP Benefits IAS 17 IAS 2
DECEMBER 31, 2010 IAS 19
----------------------------------------------------------------------------
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
Net earnings $ 55,019 105 509 20 $ 55,653
----------------------------------------------------------------------------
Actuarial losses on pension
plans, net of tax (628) (628)
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 938 938
Losses on derivative
instruments designated as
cash flow hedges during the
period, net of tax (482) (482)
----------------------------------------------------------------------------
Other comprehensive income
(loss), net of tax 456 (628) (172)
----------------------------------------------------------------------------
Total comprehensive income $ 55,475 (523) 509 20 $ 55,481
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Financial Position
AS AT MARCH 31, 2010 Canadian Employee Leases Inventory Income IFRS
GAAP Benefits IAS 17 IAS 2 Tax IAS
IAS 19 12
----------------------------------------------------------------------------
(In thousands of
Canadian dollars)
----------------------------------------------------------------------------
ASSETS
CURRENT
Trade and other
receivables $ 131,846 $ 131,846
Inventories 182,233 2,110 184,343
Prepaid expenses 8,711 8,711
Income taxes
receivable 124 (585) 461
Deferred tax assets 3,731 (3,731) -
----------------------------------------------------------------------------
326,645 1,525 (3,270) 324,900
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 16,086 16,086
Property, plant and
equipment 35,729 9,154 44,883
Intangible assets 73,329 73,329
Deferred tax assets - 874 (27) 1,870 2,717
Pension asset 2,164 (2,104) 60
----------------------------------------------------------------------------
127,308 (1,230) 9,127 1,870 137,075
----------------------------------------------------------------------------
$ 453,953 (1,230) 9,127 1,525 (1,400) $ 461,975
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness $ 3,354 $ 3,354
Trade and other
payables 88,468 393 88,861
Accrued liabilities 61,849 61,849
Provisions 4,725 4,725
Distributions payable 2,491 2,491
Income taxes payable - 461 461
Obligations under
finance leases - 3,704 3,704
----------------------------------------------------------------------------
160,887 393 3,704 461 165,445
----------------------------------------------------------------------------
NON-CURRENT
Provisions 3,347 3,347
Deferred income taxes 1,861 (1,861) -
Employee benefits 2,966 841 3,807
Derivative instrument
liability 3,203 3,203
Bank debt 79,448 79,448
Other liabilities 1,265 1,265
Obligations under
finance leases - 5,353 5,353
----------------------------------------------------------------------------
92,090 841 5,353 (1,861) 96,423
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Trust units 105,307 105,307
----------------------------------------------------------------------------
Contributed surplus 5,937 5,937
----------------------------------------------------------------------------
Retained earnings 92,532 (2,464) 70 1,525 91,663
Accumulated other
comprehensive loss (2,800) (2,800)
----------------------------------------------------------------------------
89,732 (2,464) 70 1,525 88,863
----------------------------------------------------------------------------
Total shareholders'
equity 200,976 (2,464) 70 1,525 200,107
----------------------------------------------------------------------------
$ 453,953 (1,230) 9,127 1,525 (1,400) $ 461,975
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Financial Position
AS AT JANUARY 1, 2010 Canadian Employee Leases Inventory Income IFRS
GAAP Benefits IAS 17 IAS 2 Tax
IAS 19 IAS 12
----------------------------------------------------------------------------
(In thousands of
Canadian dollars)
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 9,207 $ 9,207
Trade and other
receivables 123,537 123,537
Inventories 176,230 1,679 177,909
Income taxes
receivable 190 (464) 274
Deferred tax assets 3,191 (3,191)
Prepaid expenses 7,800 7,800
----------------------------------------------------------------------------
320,155 1,215 (2,917) 318,453
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 16,370 16,370
Property, plant and
equipment 36,164 9,844 46,008
Intangible assets 73,505 73,505
Deferred tax assets - 883 38 1,308 2,229
Pension asset 2,013 (2,013)
----------------------------------------------------------------------------
128,052 (1,130) 9,882 1,308 138,112
----------------------------------------------------------------------------
$ 448,207 (1,130) 9,882 1,215 (1,609) $ 456,565
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT
Trade and other
payables $ 83,066 657 $ 83,723
Accrued liabilities 66,089 66,089
Provisions 4,859 4,859
Distributions payable 2,491 2,491
Income taxes payable - 274 274
Obligations under
finance leases - 3,850 3,850
----------------------------------------------------------------------------
156,505 657 3,850 274 161,286
----------------------------------------------------------------------------
NON-CURRENT
Provisions 3,518 3,518
Deferred income tax 1,883 (1,883)
Employee benefits 2,995 704 3,699
Derivative instrument
liability 2,643 2,643
Bank debt 79,461 79,461
Other liabilities 841 841
Obligations under
finance leases - 6,140 6,140
----------------------------------------------------------------------------
91,341 704 6,140 (1,883) 96,302
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Trust units 105,307 105,307
----------------------------------------------------------------------------
Contributed surplus 5,645 5,645
----------------------------------------------------------------------------
Retained earnings 91,642 (2,491) (108) 1,215 90,258
Accumulated other
comprehensive loss (2,233) (2,233)
----------------------------------------------------------------------------
89,409 (2,491) (108) 1,215 88,025
----------------------------------------------------------------------------
Total shareholders'
equity 200,361 (2,491) (108) 1,215 198,977
----------------------------------------------------------------------------
$ 448,207 (1,130) 9,882 1,215 (1,609) $ 456,565
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Financial Position
AS AT DECEMBER 31, Canadian Employee Leases Inventory Income IFRS
2010 GAAP Benefits IAS 17 IAS 2 Tax
IAS 19 IAS 12
----------------------------------------------------------------------------
(In thousands of
Canadian dollars)
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 42,954 $ 42,954
Trade and other
receivables 135,517 135,517
Inventories 194,752 1,708 196,460
Prepaid expenses 7,244 7,244
Deferred tax assets 6,466 (6,466) -
----------------------------------------------------------------------------
386,933 1,708 (6,466) 382,175
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 15,794 15,794
Property, plant and
equipment 36,626 9,464 46,090
Intangible assets 72,972 72,972
Deferred tax assets - 1,065 (146) 4,358 5,277
Pension asset 3,013 (2,773) 240
----------------------------------------------------------------------------
128,405 (1,708) 9,318 4,358 140,373
----------------------------------------------------------------------------
$ 515,338 (1,708) 9,318 1,708 (2,108) $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT
Trade and other
payables $ 134,540 292 $ 134,832
Accrued liabilities 64,229 64,229
Provisions 4,892 4,892
Distributions payable 12,472 12,472
Income taxes payable 1,599 473 2,072
Obligations under
finance leases - 3,677 3,677
Derivative instrument
liability 2,452 2,452
Bank debt 79,680 79,680
----------------------------------------------------------------------------
299,864 292 3,677 473 304,306
----------------------------------------------------------------------------
NON-CURRENT
Provisions 4,338 4,338
Deferred income tax 2,108 (2,108) -
Employee benefits 3,118 1,014 4,132
Other liabilities 5,221 5,221
Obligations under
finance leases - 5,227 5,227
----------------------------------------------------------------------------
14,785 1,014 5,227 (2,108) 18,918
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Trust units 105,892 105,892
----------------------------------------------------------------------------
Contributed surplus 6,426 6,426
----------------------------------------------------------------------------
Retained earnings 90,148 (2,386) 414 1,235 89,411
Accumulated other
comprehensive loss (1,777) (628) (2,405)
----------------------------------------------------------------------------
88,371 (3,014) 414 1,235 87,006
----------------------------------------------------------------------------
Total shareholders'
equity 200,689 (3,014) 414 1,235 199,324
----------------------------------------------------------------------------
$ 515,338 (1,708) 9,318 1,708 (2,108) $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 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, 2010 cash discounts provided to customers in an amount of $237
for the quarter and $978 for the full year have been reclassified out of selling
and administrative expenses into revenue.
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