Wajax Corporation ("Wajax" or the "Corporation") (TSX:WJX) today announced its
2011 fourth quarter earnings and increased its monthly dividend 35% to $0.27 per
share.
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(Dollars in millions, except per Three Months Year Ended December
share data) Ended December 31 31
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2011 2010 2011 2010
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CONSOLIDATED RESULTS
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Revenue $ 377.2 $ 316.4 $ 1,377.1 $ 1,110.9
Earnings before income tax $ 22.5 $ 14.9 $ 87.5 $ 53.9
Net earnings $ 16.6 $ 15.8 $ 63.8 $ 56.4
Basic earnings per share $ 1.00 $ 0.95 $ 3.84 $ 3.39
SEGMENTS
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Revenue - Equipment $ 192.3 $ 159.7 $ 685.8 $ 555.8
- Industrial Components $ 90.2 $ 77.8 $ 347.5 $ 302.2
- Power Systems $ 95.5 $ 80.2 $ 347.4 $ 257.3
Earnings - Equipment $ 14.3 $ 10.8 $ 50.2 $ 39.0
% margin 7.5% 6.8% 7.3% 7.0%
- Industrial Components $ 5.9 $ 2.6 $ 23.1 $ 12.0
% margin 6.5% 3.4% 6.6% 4.0%
- Power Systems $ 7.9 $ 6.5 $ 32.9 $ 19.2
% margin 8.3% 8.1% 9.5% 7.5%
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Fourth Quarter Highlights
Consolidated fourth quarter revenue of $377.2 million increased $60.8 million,
or 19%, compared to last year. Quarterly revenue included $19.9 million
attributable to the May 2, 2011 acquisition of Ontario based Harper Power
Products ("Harper"). Gains in the mining, energy, forestry, construction and
industrial sectors accounted for the majority of the balance of the increase.
The Equipment segment's revenue increased 20% on stronger demand for almost all
major product categories. Power Systems revenue increased 19% as a result of the
Harper acquisition and Industrial Components sales rose 16% on higher revenue
from energy, mining and industrial customers, with particular strength in
western Canada.
-- Earnings before tax of $22.5 million increased more than 50% over last
year's level as a result of the higher volumes, while disciplined
control over selling and administrative costs was maintained in all
three segments. Net earnings for the quarter of $16.6 million, or $1.00
per share, were higher than the $15.8 million, or $0.95 per share,
recorded in 2010 in spite of Wajax being an income fund at that time and
not subject to income taxes.
-- Consolidated backlog of $267.7 million at December 31, 2011 increased
$3.9 million from $263.8 million at September 30, 2011.
-- Funded net debt at December 31, 2011 of $63.7 million decreased $33.8
million compared to September 30, 2011 as net cash flows generated from
operating activities exceeded dividends paid, investing activities and
finance lease payments.
The Corporation announced a 35%, or $0.07 per share increase in its monthly
dividend beginning in March 2012. Dividends of $0.27 per share were declared for
March and April. Commencing in 2012, the Corporation has established an
objective of declaring annual dividends equal to at least 75% of earnings
subject to the Corporation's financial position, economic outlook and capital
requirements for growth including acquisitions.
Neil Manning retired as President and Chief Executive Officer and a director of
Wajax on March 5, 2012. His successor, Mark Foote, assumed the role of President
and Chief Executive Officer, and was appointed a director, on March 5, 2012.
Mark has extensive experience in distribution, supply chain management and
logistics. Most recently, he served as the President and Chief Executive Officer
of Zellers, and prior to that, was the President and Chief Merchandising Officer
at Loblaws Companies. Mark also had a career of more than 20 years at Canadian
Tire Corporation, including five years as President, Canadian Tire Retail. As
well, effective December 13, 2011, Richard Plain was appointed to the position
of Senior Vice President, Wajax Power Systems subsequent to the departure of Tim
Zawislak. Prior to his appointment, Richard held the position of Vice President
Sales and Marketing since joining Wajax Power Systems in 2009 and brings 18
years of experience in the power systems and equipment distribution businesses
in western Canada.
Outlook
In 2011 Wajax achieved record revenue and earnings before income tax of $1.38
billion and $87.5 million respectively. Year-over-year revenue increased 24%
while earnings before income tax increased 62%. The earnings before income tax
comparison is appropriate since 2011 was the first year after conversion from an
income fund when Wajax was effectively not subject to income tax. This
performance was driven by a stronger Canadian economy and the execution of the
Corporation's strategic initiatives, including the Harper acquisition.
Additionally, all three businesses maintained disciplined control over selling
and administrative costs. With its Canada-wide branch infrastructure and diverse
product lines, Wajax's business has exposure to virtually all of the goods
producing sectors of the Canadian economy. Stronger sectors of the economy
aiding the Corporation's revenue growth in 2011 were energy, mining,
construction and forestry, primarily in western Canada.
Looking forward to 2012, management expects growth in the Canadian economy to be
more modest than that experienced in 2011. This is a result of the continuing
high value of the Canadian dollar and the dampening effect of the European debt
crisis and the slowing Chinese economy on world economic activity. However, we
expect global demand for commodities to remain relatively strong, which should
bode well for Canada's mining and energy sectors, particularly in western
Canada. The revenue implication from phasing out the LeTourneau mining equipment
line at the end of April, is expected to be mitigated by additional Hitachi
mining equipment sales as Hitachi's manufacturing operations have recovered from
the effects of the March 2011 Japanese earthquake and tsunami. As well,
management has outlined growth initiatives that are expected to result in
increased market share for key product lines, the addition of new products and
expansion into new geographic territories. As a result, management expects
continued growth in revenue and earnings in 2012, but at a more modest pace than
experienced in 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 117 branches across Canada. Its customer base spans
natural resources, construction, transportation, manufacturing, industrial
processing and utilities.
Wajax will Webcast its Fourth Quarter Financial Results Conference Call. You are
invited to listen to the live Webcast on Tuesday, March 6, 2012 at 2:30 p.m. ET.
To access the Webcast, enter www.wajax.com and click on the link for the Webcast
on the Investor Relations page.
Cautionary Statement Regarding Forward Looking Information
This news release contains certain forward-looking statements and
forward-looking information, as defined in applicable securities laws
(collectively, "forward-looking statements"). These forward-looking statements
relate to future events or the Corporation's future performance. All statements
other than statements of historical fact are forward-looking statements. Often,
but not always, forward looking statements can be identified by the use of words
such as "plans", "anticipates", "intends", "predicts", "expects", "is expected",
"scheduled", "believes", "estimates", "projects" or "forecasts", or variations
of, or the negatives of, such words and phrases or state that certain actions,
events or results "may", "could", "would", "should", "might" or "will" be taken,
occur or be achieved. Forward looking statements involve known and unknown
risks, uncertainties and other factors beyond the Corporation's ability to
predict or control which may cause actual results, performance and achievements
to differ materially from those anticipated or implied in such forward looking
statements. There can be no assurance that any forward looking statement will
materialize. Accordingly, readers should not place undue reliance on forward
looking statements. The forward looking statements in this news release are made
as of the date of this news release, reflect management's current beliefs and
are based on information currently available to management. Although management
believes that the expectations represented in such forward-looking statements
are reasonable, there is no assurance that such expectations will prove to be
correct.
Specifically, this news release includes forward looking statements regarding,
among other things, our expectations for the Canadian economy in 2012, the
global demand for commodities and the associated impact on the Canadian mining
and energy sectors, our revenue and earnings outlook, planned strategic and
growth initiatives and their expected outcomes, and our objective with respect
to the future payment of dividends. These statements are based on a number of
assumptions which may prove to be incorrect, including, but not limited to,
assumptions regarding general business and economic conditions, the supply and
demand for, and the level and volatility of prices for, commodities, financial
market conditions, including interest rates, the future financial performance of
the Corporation, our costs, market competition, our ability to attract and
retain skilled staff, our ability to procure quality products and inventory and
our ongoing relations with suppliers, employees and customers. The foregoing
list of assumptions is not exhaustive. Factors that may cause actual results to
vary materially include, but are not limited to, a deterioration in general
business and economic conditions, volatility in the supply and demand for, and
the level of prices for, commodities, fluctuations in financial market
conditions, including interest rates, the level of demand for, and prices of,
the products and services we offer, market acceptance of the products we offer,
termination of distribution or original equipment manufacturer agreements,
unanticipated operational difficulties (including failure of plant, equipment or
processes to operate in accordance with specifications or expectations, cost
escalation, unavailability of quality products or inventory, supply disruptions,
job action and unanticipated events related to health, safety and environmental
matters), our ability to attract and retain skilled staff and our ability to
maintain our relationships with suppliers, employees and customers. The
foregoing list of factors is not exhaustive. The forward-looking statements
contained in this news release are expressly qualified in their entirety by this
cautionary statement. The Corporation 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.
Further information concerning the risks and uncertainties associated with these
forward looking statements and the Corporation's business may be found in our
Annual Information Form for the year ended December 31, 2011, filed on SEDAR.
Management's Discussion and Analysis - 2011
The following management's discussion and analysis ("MD&A") provides a review of
the consolidated financial condition and results of operations of Wajax
Corporation ("Wajax" or "Corporation") for the year ended December 31, 2011. On
January 1, 2011, Wajax adopted International Financial Reporting Standards
("IFRS"). The term "Canadian GAAP" refers to Canadian generally accepted
accounting principles before the adoption of IFRS. The following discussion
should be read in conjunction with the Corporation's Consolidated Financial
Statements and accompanying notes. Information contained in this MD&A is based
on information available to management as of March 6, 2012.
Unless otherwise indicated, all financial information within this MD&A is in
millions of dollars, except share and per share data.
Additional information, including Wajax's Annual Report and Annual Information
Form, are available on SEDAR 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
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
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 Consolidated Financial Statements and accompanying notes.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Wajax's management, under the supervision of its Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO"), is responsible for establishing and
maintaining disclosure controls and procedures ("DC&P") and internal control
over financial reporting ("ICFR").
As at December 31, 2011 Wajax's management, under the supervision of its CEO and
CFO, had designed DC&P to provide reasonable assurance that information required
to be disclosed by Wajax in annual filings, interim filings or other reports
filed or submitted under securities legislation is recorded, processed,
summarized and reported within the time periods specified in the securities
legislation. DC&P are designed to ensure that information required to be
disclosed by Wajax in annual filings, interim filings or other reports filed or
submitted under securities legislation is accumulated and communicated to
Wajax's management, including its CEO and CFO, as appropriate, to allow timely
decisions regarding required disclosure.
As at December 31, 2011 Wajax's management, under the supervision of its CEO and
CFO, had designed ICFR to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. In completing the design, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control - Integrated Framework. With regard to
general controls over information technology, management also used the set of
practices of Control Objectives for Information and related Technology ("COBIT")
created by the IT Governance Institute.
Wajax has not yet completed the design of DC&P and ICFR related to the May 2,
2011 acquisition of the assets of Harper Power Products Inc. ("Harper"). The
Harper operation has had revenues of approximately $49.3 million since the
acquisition. Wajax anticipates that the evaluation of the design of DC&P and
ICFR related to Harper will be completed prior to June 2012, at which time
Harper will be fully integrated with the existing Power Systems segment's
control environment.
As at December 31, 2011 Wajax's management, under the supervision of its CEO and
CFO, had evaluated the effectiveness and operation of its DC&P and ICFR. This
evaluation included a risk evaluation, documentation of key processes and tests
of effectiveness conducted on a sample basis throughout the year. Due to the
inherent limitations in all control systems, an evaluation of the DC&P and ICFR
can only provide reasonable assurance over the effectiveness of the controls. As
a result, DC&P and ICFR are not expected to prevent and detect all misstatements
due to error or fraud. With the exception of DC&P and ICFR related to the Harper
operation discussed above, the CEO and CFO have concluded that Wajax's DC&P and
ICFR were effective as at December 31, 2011.
Other than the integration of the Harper acquisition discussed earlier, there
was no change in Wajax's ICFR that occurred during the fourth quarter of 2011
that has materially affected, or is reasonably likely to materially affect,
Wajax's ICFR.
Wajax Corporation Overview
Effective January 1, 2011, Wajax Income Fund converted into a corporation
pursuant to a plan of arrangement under the Canada Business Corporations Act
("CBCA") and the shares of Wajax Corporation began trading on the Toronto Stock
Exchange on January 4, 2011 under the symbol WJX.
Wajax's core distribution businesses are engaged in the sale and after-sale
parts and service support of mobile equipment, industrial components and power
systems through a network of 117 branches across Canada. Wajax is a multi-line
distributor and represents a number of leading worldwide manufacturers in its
core businesses. Its customer base is diversified, spanning natural resources,
construction, transportation, manufacturing, industrial processing and
utilities.
Wajax's strategy is to continue to grow earnings in all segments through
continuous improvement of operating margins and revenue growth while maintaining
a strong balance sheet. Revenue growth will be achieved through market share
gains, the addition of new or complementary product lines and aftermarket
support services and expansion into new Canadian geographic territories, either
organically or through acquisitions.
Commencing in 2012, the Corporation has established an objective of declaring
annual dividends equal to at least 75% of earnings subject to the Corporation's
financial condition, economic outlook and capital requirements for growth
including acquisitions. The Corporation's intention is to continue paying
dividends on a monthly basis.
Cautionary Statement Regarding Forward-Looking Information
This MD&A contains certain forward-looking statements and forward-looking
information, as defined in applicable securities laws (collectively,
"forward-looking statements"). These forward-looking statements relate to future
events or the Corporation's future performance. All statements other than
statements of historical fact are forward-looking statements. Often, but not
always, forward looking statements can be identified by the use of words such as
"plans", "anticipates", "intends", "predicts", "expects", "is expected",
"scheduled", "believes", "estimates", "projects" or "forecasts", or variations
of, or the negatives of, such words and phrases or state that certain actions,
events or results "may", "could", "would", "should", "might" or "will" be taken,
occur or be achieved. Forward looking statements involve known and unknown
risks, uncertainties and other factors beyond the Corporation's ability to
predict or control which may cause actual results, performance and achievements
to differ materially from those anticipated or implied in such forward looking
statements. There can be no assurance that any forward looking statement will
materialize. Accordingly, readers should not place undue reliance on forward
looking statements. The forward looking statements in this MD&A are made as of
the date of this MD&A, reflect management's current beliefs and are based on
information currently available to management. Although management believes that
the expectations represented in such forward-looking statements are reasonable,
there is no assurance that such expectations will prove to be correct.
Specifically, this MD&A includes forward looking statements regarding, among
other things, our expectations for the Canadian economy in 2012, the global
demand for commodities and the associated impact on the Canadian mining and
energy sectors, our revenue and earnings outlook, our plans and expectations for
revenue and earnings growth, planned marketing, strategic, operational and
growth initiatives and their expected outcomes, our current and future plans
regarding the expansion of our business, the addition of new product offerings
and expansion into new geographic territories, and our objective with respect to
the future payment of dividends. These statements are based on a number of
assumptions which may prove to be incorrect, including, but not limited to,
assumptions regarding general business and economic conditions, the supply and
demand for, and the level and volatility of prices for, commodities, financial
market conditions, including interest rates, the future financial performance of
the Corporation, our costs, market competition, our ability to attract and
retain skilled staff, our ability to procure quality products and inventory and
our ongoing relations with suppliers, employees and customers. The foregoing
list of assumptions is not exhaustive.
Factors that may cause actual results to vary materially include, but are not
limited to, a deterioration in general business and economic conditions,
volatility in the supply and demand for, and the level of prices for,
commodities, fluctuations in financial market conditions, including interest
rates, the level of demand for, and prices of, the products and services we
offer, market acceptance of the products we offer, termination of distribution
or original equipment manufacturer agreements, unanticipated operational
difficulties (including failure of plant, equipment or processes to operate in
accordance with specifications or expectations, cost escalation, unavailability
of quality products or inventory, supply disruptions, job action and
unanticipated events related to health, safety and environmental matters), our
ability to attract and retain skilled staff and our ability to maintain our
relationships with suppliers, employees and customers. The foregoing list of
factors is not exhaustive. Further information concerning the risks and
uncertainties associated with these forward looking statements and the
Corporation's business may be found in this MD&A under the heading "Risk
Management and Uncertainties" and in our Annual Information Form for the year
ended December 31, 2011, filed on SEDAR. The forward-looking statements
contained in this MD&A are expressly qualified in their entirety by this
cautionary statement. The Corporation 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.
Readers 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.
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 IFRS transition date is January 1,
2010 and has prepared its Consolidated Financial Statements and accompanying
notes for the year ending December 31, 2011, with comparatives, in accordance
with IFRS as published by the International Accounting Standard Board ("IASB").
Prior to the adoption of IFRS, the financial statements of the Corporation were
prepared in accordance with Canadian GAAP.
The most significant impacts on the Corporation's Consolidated Financial
Statements resulting from the adoption of IFRS are discussed within the
applicable sections of this MD&A and Note 29 of the Consolidated Financial
Statements.
All comparative figures have been restated in accordance with IFRS, unless
otherwise indicated.
Consolidated Results
Year ended December 31 2011 2010
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Revenue $ 1,377.1 $ 1,110.9
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Gross profit $ 292.4 $ 237.9
Selling and administrative expenses $ 200.3 $ 179.6
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Earnings before finance costs and income taxes $ 92.1 $ 58.2
Finance costs $ 4.6 $ 4.3
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Earnings before income taxes $ 87.5 $ 53.9
Income tax expense (recovery) $ 23.7 $ (2.5)
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Net earnings $ 63.8 $ 56.4
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Earnings per share
- Basic $ 3.84 $ 3.39
- Diluted $ 3.77 $ 3.34
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Pie Charts - Revenue by Geographic Region
2011 2010
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Western Canada 54% 49%
Eastern Canada (i) 29% 34%
Ontario 17% 17%
(i) Includes Quebec and the Atlantic provinces.
Pie Charts - Revenue by Segment
2011 2010
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Equipment 50% 50%
Industrial Components 25% 27%
Power Systems 25% 23%
Pie Charts - EBIT by Segment
2011 2010
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Equipment 47% 56%
Industrial Components 22% 17%
Power Systems 31% 27%
Pie Charts - Revenue by Market
2011 2010
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Industrial/Commercial 16% 16%
Construction 14% 10%
Oil and Gas 13% 10%
Oil Sands 11% 12%
Mining 11% 13%
Transportation 9% 11%
Forestry 9% 10%
Government & Utilities 6% 7%
Metal Processing 4% 5%
Other 7% 6%
Revenue
Revenue in 2011 of $1,377.1 million increased 24%, or $266.2 million, from
$1,110.9 million in 2010 and included $49.3 million of revenue from the
acquisition of the assets of Harper by the Power Systems segment effective May
2, 2011. Equipment segment revenue increased 23%, or $130.0 million, due mainly
to stronger market demand for construction, forestry, mining and material
handling equipment and related parts and service volumes. Industrial Components
segment revenue increased 15%, or $45.3 million, attributable to improved oil
and gas drilling activity in western Canada and higher mining and industrial
sector volumes in all regions. Power Systems segment revenue increased 35%, or
$90.1 million, due to the acquisition of Harper and an increase in equipment and
parts and service revenues, mostly to off-highway oil and gas customers in
western Canada, that more than exceeded a reduction in eastern Canada (Quebec
and the Atlantic provinces) volumes.
Gross profit
Gross profit increased $54.5 million, or 23%, in 2011 due to the positive impact
of higher volumes compared to last year. The gross profit margin percentage
decreased slightly to 21.2% from 21.4% last year as the negative sales mix
variance resulting from a higher proportion of equipment sales was partially
offset by increased equipment margins.
Selling and administrative expenses
Selling and administrative expenses increased $20.7 million in the year. This
was due primarily to increased personnel costs including a $2.6 million increase
in annual and mid-term incentive accruals, $7.5 million of selling and
administrative expenses relating to Harper and higher sales related and
occupancy costs. These increases were offset partially by lower bad debt
expenses in the Equipment segment. Selling and administrative expenses as a
percentage of revenue decreased to 14.5% in 2011 from 16.2% in 2010.
Finance costs
Finance costs of $4.6 million increased $0.3 million compared to 2010 due to the
impact of higher funded net debt, mainly attributable to the acquisition of
Harper on May 2, 2011. Funded net debt includes bank debt and obligations under
finance leases, net of cash.
Earnings before income taxes
Earnings before income taxes increased $33.6 million in the year. The positive
impact of higher volumes more than offset the slightly lower gross profit margin
percentage, increased selling and administrative costs and higher finance costs
compared to 2010.
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 2011 effective income tax rate of 27.1% was less than the Corporation's
statutory income tax rate of 27.7%. The positive impact of partnership income
generated in 2011 which will be subject to tax in 2012 at a lower tax rate, more
than offset the negative impact of expenses not deductible for tax purposes.
Net earnings
Net earnings for the year ended December 31, 2011 increased $7.4 million to
$63.8 million, or $3.84 per share, from $56.4 million, or $3.39 per share, in
2010. The $33.6 million increase in earnings before income taxes, was partially
offset by a $26.2 million increase in income tax expense.
Comprehensive income
Comprehensive income for the year ended December 31, 2011 of $62.9 million
increased $6.7 million from $56.2 million the previous year due to higher net
earnings of $7.4 million, offset partially by a $0.7 million increase in other
comprehensive loss. The increase in other comprehensive loss resulted from
increased actuarial losses on pension plans and a decrease in losses on
derivative instruments designated as cash flow hedges in prior periods
reclassified to cost of inventory or finance costs in the current year, offset
partially by gains on derivative instruments designated as cash flow hedges
outstanding at the end of the year.
Funded net debt
Funded net debt of $63.7 million at December 31, 2011 increased $18.1 million
compared to December 31, 2010. This increase was mainly a result of net cash
flows generated from operating activities of $61.2 million being less than the
$29.2 million of cash flows used in investing activities including $23.2 million
used for the Harper acquisition, distributions and dividends of $44.7 million,
finance lease payments of $3.5 million and debt facility renewal costs of $1.1
million. As a result, Wajax's year-end funded net debt-to-equity ratio of 0.28:1
increased from last year's ratio of 0.23:1.
On August 12, 2011, Wajax amended and extended the term of its $175 million bank
credit facility to August 12, 2016 from December 31, 2011. The terms of the
fully secured facility, comprised of a $30 million non-revolving term portion
and a $145 million revolving term portion, are no more restrictive than in the
previous facility. See Liquidity and Capital Resources section.
Dividends
For the twelve months ended December 31, 2011 monthly dividends declared totaled
$2.14 per share. For the twelve months ended December 31, 2010 monthly cash
distributions declared as an income fund were $3.40 per unit.
Tax information relating to 2011 dividends and prior year distributions is
available on Wajax's website at www.wajax.com.
Backlog
Consolidated backlog at December 31, 2011 of $267.7 million increased $50.4
million, or 23%, from $217.3 million at December 31, 2010. Increases in the
Equipment segment, due mainly to higher mining and construction equipment
orders, and increases in the Industrial Components segment more than offset the
decreases in the Power Systems segment. Backlog includes the total retail value
of customer purchase orders for future delivery or commissioning.
CEO Succession
Neil Manning retired as President and CEO and a director of Wajax on March 5,
2012. His successor, Mark Foote, assumed the role of President and CEO, and was
appointed a director on March 5, 2012. Mark has extensive experience in
distribution, supply chain management and logistics. Most recently, he served as
the President and Chief Executive Officer of Zellers, and prior to that, was the
President and Chief Merchandising Officer at Loblaws Companies. Mark also had a
career of more than 20 years at Canadian Tire Corporation, including five years
as President, Canadian Tire Retail.
Results of Operations
Equipment
For the year ended December 31 2011 2010
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Equipment(i) $ 428.0 $ 332.4
Parts and service $ 257.8 $ 223.4
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Segment revenue $ 685.8 $ 555.8
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Segment earnings $ 50.2 $ 39.0
Segment earnings margin 7.3% 7.0%
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(i)Includes rental and other revenue.
Revenue by Product Type 2011 versus 2010
Market 2011 2010
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Construction 33% 30%
Forestry 13% 12%
Mining/Oil sands 31% 30%
Material Handling 16% 17%
Crane & Utility 7% 11%
Revenue increased 23%, or $130.0 million, to $685.8 million in 2011 from $555.8
million in 2010. Segment earnings increased $11.2 million to $50.2 million in
2011 compared to $39.0 million in 2010. The following factors contributed to the
improved results:
-- Equipment revenue increased by $95.6 million compared to last year.
Specific year-over-year variances included the following:
-- Construction equipment revenue increased $46.3 million due mostly to
increased market demand for Hitachi construction excavators in
western Canada and Ontario and for JCB equipment in all regions.
-- Forestry equipment sales increased $23.2 million attributable to
higher market demand for Tigercat and forestry related Hitachi
products across Canada.
-- Mining equipment revenue increased $22.3 million resulting from an
increase in Hitachi mining revenues in western Canada offset
partially by fewer deliveries of LeTourneau mining equipment.
-- Material handling equipment revenue increased $14.5 million due to
higher market demand primarily in western and eastern Canada (Quebec
and Atlantic provinces).
-- Crane and utility equipment revenue decreased $10.7 million due
primarily to lower sales to utility customers in Ontario.
-- Parts and service volumes increased $34.4 million compared to last year
resulting from higher mining, construction and material handling sales,
mainly in western Canada.
-- Segment earnings increased $11.2 million compared to last year. The
positive impact of higher volumes outweighed the negative impact of a
lower gross profit margin and a $6.7 million increase in selling and
administrative expenses. The lower gross profit margin resulted from a
higher proportion of equipment sales compared to last year. Selling and
administrative expenses increased as a result of higher personnel costs
including additional annual and mid-term incentive accruals and higher
sales related and occupancy costs. These increases were somewhat offset
by lower bad debt expenses compared to last year.
Backlog of $146.6 million at December 31, 2011 increased $52.6 million compared
to December 31, 2010 due mainly to increases in mining equipment orders in all
regions and construction equipment orders in western Canada. The backlog
includes $25.5 million of LeTourneau equipment orders.
During the second quarter of 2011, the Equipment segment entered into an
equipment supply agreement with Shell Canada Energy for a total of seven Hitachi
mining shovels and construction excavators, adding to the already existing fleet
of Hitachi equipment at Shell Albian Sands, Shell's oil sands operation in the
province of Alberta. In support of Shell Albian Sands' fleet of Hitachi
equipment, Wajax has also renewed and extended the existing commercial
arrangement with Shell Canada Energy for the supply of parts, components and
services until the end of April 2014.
On October 17, 2011, Wajax announced it had reached an agreement with LeTourneau
Technologies, Inc. ("LeTourneau") providing for the dealer agreement relating to
Wajax's distribution of LeTourneau mining equipment and parts products in Canada
to be discontinued effective April 27, 2012. Joy Global Inc. initially announced
the closing of its acquisition of LeTourneau on June 22, 2011 and indicated its
intention to integrate the LeTourneau field facilities and distribution
activities with its P&H mining equipment operations. Sales and service of
LeTourneau products in 2011 generated approximately $35 million of revenue for
Wajax and contributed approximately $11 million to its earnings before finance
costs and income tax expense. Exit costs or write downs, if any, are expected to
be minimal.
Wajax Equipment's strategy is to continue to focus on building the market share
of its key product lines, particularly construction and material handling
equipment, and to improve product support capabilities across all lines of
business. As well, the segment will work to expand its operations in the growing
mining sector by building its organizational and support infrastructure to
capitalize on market opportunities, particularly in Ontario and eastern Canada.
During 2011, the segment made significant strides toward improving its
aftermarket support capabilities. Parts availability and customer fill rates
have been increased, and upgraded processes adopted for inventory forecasting,
ordering and stocking. In addition, the sales force compensation plans were
revamped to be better aligned with market share targets.
The segment's focus going forward will include the following specific
initiatives to continue to build its equipment market share and its aftermarket
parts and service business:
-- The segment intends to expand its mining support infrastructure to
improve sales and after-sales support coverage of both above ground and
underground mining products in Ontario and eastern Canada. The segment
expects to continue to develop its product offering through the
introduction of two new underground mining lines, and the new 240 tonne
Hitachi mine truck at the end of 2012. The recently formed Rotating
Products Group in Fort McMurray, which distributes and services slurry
pumps and services equipment such as compressors and gear boxes, is
planned to be further developed in the Fort McMurray area prior to
expanding to other major mining areas in Canada.
-- Equipment will continue to focus on the quality and effectiveness of
sales personnel and management and provide them the appropriate sales
execution tools and training to support their market share improvement
objectives.
-- The efficiency and effectiveness of the service operations is planned to
be enhanced through standardization of procedures and quoting practices
across the country and implementation of technology to assist in
customer on-line access, process flow, job tracking and field technician
support.
-- The branch coverage in key metropolitan areas will continue to be
upgraded. The current Montreal Lachine facility operation is being
replaced by two newer facilities to allow for improved market
penetration. One facility was recently opened in Chambly and another in
Laval is scheduled to open in mid-2012. A new Edmonton mining facility
will be constructed with completion expected in early 2013, and a new
branch in eastern Toronto is expected to be opened in 2013 to better
serve that portion of the Greater Toronto Area.
Industrial Components
For the year ended December 31 2011 2010
----------------------------------------------------------------------------
Segment revenue $ 347.5 $ 302.2
----------------------------------------------------------------------------
Segment earnings $ 23.1 $ 12.0
Segment earnings margin 6.6% 4.0%
----------------------------------------------------------------------------
Revenue by Market 2011 versus 2010
Market 2011 2010
----------------------------------------------------------------------------
Industrial/Manufacturing 17% 17%
Mining 14% 14%
Oil & Gas 14% 10%
Forestry 14% 15%
Metal Processing 11% 13%
Construction 6% 6%
Food & Beverage 5% 5%
Transportation 4% 4%
Other 15% 16%
Revenue increased $45.3 million, or 15%, to $347.5 million from $302.2 million
in 2010. Segment earnings increased $11.1 million to $23.1 million compared to
$12.0 million in the previous year. The year-over-year changes in revenue and
earnings were a result of the following factors:
-- Bearings and power transmission parts sales increased $15.2 million due
mainly to higher mining revenues across all regions and increased
industrial volumes in eastern Canada and Ontario. Improved sales to food
and beverage, oil and gas, construction and agriculture customers also
contributed to the increase.
-- Fluid power and process equipment product and service revenue increased
$30.1 million on improved oil and gas drilling activity in western
Canada and increased sales to industrial, mining, forestry and
agriculture sector customers.
-- Segment earnings increased $11.1 million compared to last year. The
positive impact of higher volumes outweighed the negative impact of
lower gross profit margins on fluid power and process equipment products
and a $0.8 million increase in selling and administrative expenses. The
increase in selling and administrative expenses resulted from higher
sales related and occupancy costs and computer systems upgrade expenses,
somewhat offset by a reduction in personnel costs due to lower severance
costs.
Backlog of $44.8 million as of December 31, 2011 increased $9.4 million compared
to December 31, 2010.
The strategic direction of the Industrial Components segment is to continue to
grow revenue and earnings by capitalizing on its technical and engineering
capabilities by providing engineered solutions built around its product
offering. The segment also plans to continue to take steps to maximize its
operational efficiency in order to increase margins and lower its working
capital requirements.
Considerable effort has been undertaken over the last number of years to improve
Industrial Components revenue and profitability. In 2011, the segment was able
to leverage its selling and administrative expense base as revenue grew 15% and
segment earnings margins increased from 4.0% in 2010 to 6.6% in 2011.
Initiatives to further drive earnings improvements include:
-- The segment will continue to capitalize on its technical and engineering
expertise including further expansion of design and assembly
capabilities, shop and field repair and analysis services. This will be
supported by a national marketing program and dedicated technical sales
representatives in major markets.
-- Industrial Components expects to grow major product category sales in
under-represented territories. This is to include the opening of new
bearings and power transmission product branches in western Canada, the
addition of hydraulic product lines in Ontario and Quebec and selective
acquisitions.
-- In 2012 the segment plans to upgrade its e-commerce capability in order
to meet the evolving electronic transaction needs of its customers and
to improve the efficiency of its transactions with suppliers.
-- Industrial Components intends to improve its inventory management and
supply chain processes by further centralizing purchasing controls and
transitioning to a "hub and spoke" supply model in order to optimize
branch inventory levels, rationalize suppliers and reduce freight
expenses. As well it will invest in warehouse management system software
to better manage the flow of product inventory.
Power Systems
For the year ended December 31 2011 2010
----------------------------------------------------------------------------
Equipment(i) $ 160.8 $ 116.6
Parts and service $ 186.6 $ 140.7
----------------------------------------------------------------------------
Segment revenue $ 347.4 $ 257.3
----------------------------------------------------------------------------
Segment earnings $ 32.9 $ 19.2
Segment earnings margin 9.5% 7.5%
----------------------------------------------------------------------------
(i)Includes rental and other revenue.
Revenue by Market 2011 versus 2010
Market 2011 2010
----------------------------------------------------------------------------
Oil & Gas 34% 27%
On-highway Transportation 23% 28%
Industrial/Commercial 20% 24%
Oil Sands 6% 7%
Mining 3% 3%
Other 14% 11%
Revenue increased $90.1 million, or 35%, to $347.4 million in 2011 from $257.3
million in 2010. Excluding the Harper acquisition effective May 2, 2011, Power
Systems revenue increased $40.8 million, or 16%, compared to last year. Segment
earnings increased $13.7 million to $32.9 million in 2011 from $19.2 million in
2010. The following factors impacted year-over-year revenue and earnings:
-- Equipment revenue increased $44.2 million compared to last year driven
by increased sales to off-highway oil and gas customers in western
Canada, $17.1 million of revenues related to the Harper acquisition and
increased power generation rentals. These increases more than offset
lower power generation equipment sales in western Canada and the
delivery of a large order in eastern Canada for marine power packages
last year.
-- Parts and service volumes increased $45.9 million compared to last year
due mainly to $32.2 million of revenues related to the Harper
acquisition and higher sales to off-highway customers, primarily those
in the mining and oil and gas sectors.
-- Segment earnings increased $13.7 million compared to last year as a
result of higher volumes and gross profit margins, offset by a $10.7
million increase in selling and administrative expenses. Gross profit
margins increased mainly as a result of higher equipment margins.
Increased selling and administrative expenses were attributable to the
Harper acquisition and higher personnel expenses including commissions
and severance costs.
Backlog of $76.3 million as of December 31, 2011 decreased $11.6 million
compared to December 31, 2010 as significant deliveries out of backlog more than
offset the increase attributable to the Harper acquisition.
Effective December 13, 2011, Richard Plain was appointed to the position of
Senior Vice President, Wajax Power Systems subsequent to the departure of Tim
Zawislak. Prior to his appointment, Richard held the position of Vice President
Sales and Marketing since joining Wajax Power Systems in 2009 and brings
eighteen years of experience in the power systems and equipment distribution
businesses in western Canada.
On May 2, 2011, Wajax Power Systems purchased the assets of 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 $23.2 million, including post closing adjustments.
The segment has assumed the operation of Harper's nine branches in Ontario
located in Toronto, Ottawa, Hamilton, London, Sudbury, Timmins, 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. The Harper business is well
established in the on-highway sector of the market and has been rebranded as
Wajax Power Systems.
The Harper acquisition represents a major step towards the segment's strategic
objective of expanding its off-highway and power generation business to become a
Canada-wide total power systems solution provider. Initiatives going forward
will include the following:
-- The segment intends to expand its western Canada electrical power
generation rental business into Ontario and eastern Canada. It provides
customers with a "turn-key" rental solution including the power
generator and related connectivity and support products and services.
-- Power System plans to continue to expand its product portfolio and
geographic territory. Through the Harper acquisition, it intends to
further develop its presence in the off-highway and power generation
sectors in Ontario and will capitalize on new distribution agreements
for Doosan generators in Canada and Volvo Penta engines in Ontario.
Power Systems plans to continue to fill gaps in its power generation
product offering, as well as expanding to areas of British Columbia
where it is currently not well represented. The segment also intends to
better penetrate the western Canada preventative maintenance service
business for standby and prime power diesel generators.
-- Wajax Power Systems has recently broken ground on a new facility in
Drummondville, Quebec, where it will focus on developing the segment's
off-highway and power generation packaging and integration capabilities
by leveraging its engineering and project management expertise to all
major geographic markets.
-- In 2012 the segment will begin to implement a common computer system
platform across all three regions of Power Systems to meet current and
future requirements.
Selected Quarterly Information
The following table summarizes unaudited quarterly consolidated financial data
for the eight most recently completed quarters. This quarterly information is
unaudited but has been prepared on the same basis as the 2011 annual audited
Consolidated Financial Statements.
2011
Q4 Q3 Q2 Q1
---------------------------------------------------------------------------
Revenue $ 377.2 $ 361.9 $ 334.1 $ 303.9
---------------------------------------------------------------------------
Earnings before income taxes $ 22.5 $ 24.6 $ 22.4 $ 18.0
Net earnings $ 16.6 $ 17.9 $ 16.5 $ 12.8
Net earnings per share
- Basic $ 1.00 $ 1.08 $ 0.99 $ 0.77
- Diluted $ 0.98 $ 1.06 $ 0.98 $ 0.76
---------------------------------------------------------------------------
2010
Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
Revenue $ 316.4 $ 294.4 $ 272.0 $ 228.1
----------------------------------------------------------------------------
Earnings before income taxes $ 14.9 $ 18.7 $ 11.9 $ 8.5
Net earnings $ 15.8 $ 19.6 $ 12.2 $ 8.9
Net earnings per share
- Basic $ 0.95 $ 1.18 $ 0.73 $ 0.53
- Diluted $ 0.93 $ 1.16 $ 0.72 $ 0.53
----------------------------------------------------------------------------
Trends in quarterly revenue and earnings have not been evident over the last two
years due in part to the recent strength of the Canadian economy.
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.
Selected Annual Information
2011 2010 2009(1)
----------------------------------------------------------------------------
Revenue $ 1,377.1 $ 1,110.9 $ 1,007.2
----------------------------------------------------------------------------
Earnings before income taxes $ 87.5 $ 53.9 $ 32.2
Net earnings $ 63.8 $ 56.4 $ 34.2
Net earnings per share - Basic $ 3.84 $ 3.39 $ 2.06
- Diluted $ 3.77 $ 3.34 $ 2.04
----------------------------------------------------------------------------
Total assets $ 589.9 $ 522.5 $ 448.2
Non-current liabilities $ 99.9 $ 18.9 $ 87.8
----------------------------------------------------------------------------
Dividends declared per share $ 2.14 - -
Distributions declared per unit - $ 3.40 $ 2.47
----------------------------------------------------------------------------
(1) 2009 financials are prepared in accordance with Canadian GAAP and
certain 2009 comparative amounts have been reclassified to conform with
the current period presentation. In particular, amounts recovered from
customers or manufacturers have been reclassified out of selling and
administrative expenses into revenue. The above reclassifications do
not affect net earnings or cashflows.
Revenue in 2011 of $1,377.1 million increased $266.2 million compared to 2010
due to the increased market demand for equipment and parts and service in all
segments and the Harper acquisition in May 2011 that accounted for $49.3 million
of the increase. Revenue in 2010 of $1,110.9 million increased $103.7 million
from $1,007.2 million in 2009 due to the general uplift in the Canadian economy
that was experienced in all segments.
Earnings before income taxes increased $55.3 million from 2009 to 2011. The
increase was attributable to the increases in revenue noted above and higher
gross profit margins, offset somewhat by increased selling and administrative
and slightly higher finance costs.
Net earnings increased $29.6 million, or $1.78 per share, from 2009 to 2011. The
$55.3 million increase in earnings before income taxes more than offset the
$25.7 million increase in income tax expense resulting from the conversion from
an income fund to a corporation effective January 1, 2011.
Total assets increased $141.7 million between December 31, 2009 and December 31,
2011. The overall increase in total assets is mainly attributable to higher
inventories, accounts receivable and rental equipment resulting from the
increased sales activity throughout 2010 and 2011. The increase also includes
$32.9 million of total assets resulting from the acquisition of Harper.
Non-current liabilities at December 31, 2011 of $99.9 million increased $81.0
million from December 31, 2010. This was primarily due to the reclassification
of bank debt to non-current liabilities as the bank credit facility was extended
from December 31, 2011 to August 12, 2016 and an increase in deferred taxes
payable as the partnership income generated in 2011 will be subject to tax in
2012. Non-current liabilities at December 31,2010 of $18.9 million was lower
compared to $87.8 million at December 31, 2009 as the $79.7 million of bank debt
was included in current liabilities at December 31, 2010 due to the December 31,
2011 maturity of the bank credit facility at that time. In addition, non-current
liabilities as at December 31, 2009 did not include obligations under finance
leases under Canadian GAAP.
Cash Flow, Liquidity and Capital Resources
Net Cash Flows Generated from Operating Activities
For the year ended December 31, 2011, net cash flows generated from operating
activities amounted to $61.2 million, compared to $88.7 million the previous
year. The $27.5 million decrease was due primarily to an increased use of
operating assets and liabilities of $42.7 million, higher rental equipment
additions in the Equipment and Power Systems segments of $14.4 million and
higher income taxes paid of $1.9 million. This was partially offset by higher
cash flows from operating activities before changes in operating assets and
liabilities of $32.8 million.
Changes in operating assets and liabilities in 2011 compared to 2010 include the
following components:
Changes in operating assets and liabilities
For the year ended December 31 2011 2010
----------------------------------------------------------------------------
Trade and other receivables $ 27.1 $ 12.0
Inventories $ 35.0 $ 15.8
Prepaid expenses $ 0.6 $ (0.6)
Trade and other payables $ (22.9) $ (51.5)
Accrued liabilities $ (19.1) $ 2.0
Provisions $ (0.4) -
----------------------------------------------------------------------------
Total $ 20.3 $ (22.4)
----------------------------------------------------------------------------
Significant components of the changes in operating assets and liabilities for
the twelve months ended December 31, 2011 are as follows:
-- Trade and other receivables increased $27.1 million due to the impact of
higher sales activity in all segments.
-- Inventories increased $35.0 million as a result of a continued growth in
sales activity in all segments.
-- Trade and other payables increased $22.9 million reflecting higher
inventory related payables.
-- Accrued liabilities increased $19.1 million on higher customer deposits
in the Equipment and Power Systems segments and higher annual and mid-
term incentive accruals.
On the consolidated statement of financial position at December 31, 2011, Wajax
had employed $165.0 million in current assets net of current liabilities,
exclusive of funded net debt, compared to $118.3 million at December 31, 2010.
The $46.7 million increase was due primarily to the cash flow factors listed
above, the Harper acquisition and a $9.1 million decrease in dividends payable
related to the payment in January 2011 of distributions declared in December
2010 prior to converting from an income fund to a corporation.
While the IFRS adjustments do not impact the Corporation's total cash flows,
cash flows generated 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.
Investing Activities
For the year ended December 31, 2011, Wajax invested $5.3 million in capital
asset additions net of disposals and $0.7 million in intangible asset additions,
compared to $1.7 million and $3.2 million for the year ended December 31, 2010,
respectively. In addition, the Power Systems segment paid a total of $23.2
million for the acquisition of the assets of Harper on May 2, 2011.
Financing Activities
For the year ended December 31, 2011, Wajax used $69.3 million of cash in
financing activities compared to $50.0 million in 2010. Financing activities in
the year included distributions and dividends paid to shareholders totaling
$44.7 million, or $2.69 per share, bank debt and finance lease payments of $23.5
million, and debt facility renewal costs of $1.1 million.
Funded net debt of $63.7 million at December 31, 2011 increased $18.1 million
compared to December 31, 2010. This increase was mainly a result of net cash
flows generated from operating activities of $61.2 million being less than the
$29.2 million of cash flows used in investing activities including $23.2 million
used for the Harper acquisition, distributions and dividends of $44.7 million,
finance lease payments of $3.5 million and debt facility renewal costs of $1.1
million. As a result, Wajax's year-end funded net debt-to-equity ratio of 0.28:1
increased from last year's ratio of 0.23:1.
Fourth Quarter Consolidated Results
For three months ended December 31 2011 2010
----------------------------------------------------------------------------
Revenue $ 377.2 $ 316.4
----------------------------------------------------------------------------
Gross profit $ 79.3 $ 64.3
Selling and administrative expenses $ 55.7 $ 48.4
----------------------------------------------------------------------------
Earnings before finance costs and income taxes $ 23.6 $ 15.9
Finance costs $ 1.2 $ 1.0
----------------------------------------------------------------------------
Earnings before income taxes $ 22.5 $ 14.9
Income tax expense (recovery) $ 5.9 $ (0.9)
----------------------------------------------------------------------------
Net earnings $ 16.6 $ 15.8
----------------------------------------------------------------------------
Earnings per share
- Basic $ 1.00 $ 0.95
- Diluted $ 0.98 $ 0.93
----------------------------------------------------------------------------
Revenue
Revenue in the fourth quarter of 2011 increased 19% or $60.8 million to $377.2
million, from $316.4 million in the fourth quarter of 2010 and included $19.9
million of revenue from the acquisition of the assets of Harper by the Power
Systems segment effective May 2, 2011. Segment revenue increased 20% in
Equipment, 16% in Industrial Components and 19% in Power Systems (a decrease of
6% excluding Harper revenue) compared to the same quarter last year.
Gross profit
Gross profit in the fourth quarter of 2011 increased $15.0 million due to the
positive impact of higher volumes and gross profit margins compared to the
fourth quarter last year. The gross profit margin percentage for the quarter of
21.0% increased from 20.3% in the fourth quarter of 2010 due mainly to improved
gross profit margins in all segments.
Selling and administrative expenses
Selling and administrative expenses increased $7.3 million in the fourth quarter
of 2011 compared to the same quarter last year. Of this increase, $3.0 million
related to Harper with most of the remainder attributable to higher sales
related costs and annual and mid-term incentive accruals. Selling and
administrative expenses as a percentage of revenue decreased to 14.8% in the
fourth quarter of 2011 from 15.3% in the same quarter of 2010.
Finance costs
Quarterly finance costs of $1.2 million increased $0.2 million compared to the
same quarter last year due to higher funded net debt, mainly attributable to the
acquisition of Harper on May 2, 2011.
Earnings before income taxes
Quarterly earnings before income taxes increased $7.6 million as the positive
impact of the higher volumes and increased gross profit margin percentage, more
than offset additional selling and administrative costs and higher finance costs
compared to the same quarter last year.
Income tax expense
For the three months ended December 31, 2011, the effective income tax rate of
26.3% was less than the Corporation's statutory income tax rate of 27.7%. The
positive impact of partnership income generated in 2011, which will be subject
to tax in 2012 at a lower rate, more than offset the negative impact of expenses
not deductible for tax purposes.
Net earnings
Quarterly net earnings increased $0.8 million to $16.6 million, or $1.00 per
share, from $15.8 million, or $0.95 per share, in the same quarter of 2010. The
$7.6 million increase in net earnings before income taxes more than offset the
$6.8 million increase in income tax expense resulting from the conversion from
an income fund to a corporation effective January 1, 2011.
Comprehensive income
Comprehensive income for the fourth quarter of $13.0 million decreased $2.4
million from $15.4 million compared to the same quarter in the previous year as
a $3.2 million increase in other comprehensive loss more than offset the $0.8
million increase in net earnings. The increase in other comprehensive loss
resulted from increased actuarial losses on pension plans and gains on
derivative instruments designated as cash flow hedges in prior periods
reclassified to cost of inventory or finance costs in the current period.
Funded net debt
Funded net debt of $63.7 million at December 31, 2011 decreased $33.8 million
compared to September 30, 2011. The decrease resulted mainly from net cash flows
generated from operating activities of $48.7 million which were offset partially
by dividends paid of $10.0 million, investing activities of $3.0 million and
finance lease payments of $1.0 million. Wajax's quarter-end funded net
debt-to-equity ratio of 0.28:1 at December 31, 2011 decreased from the September
30, 2011 ratio of 0.43:1.
Dividends
For the fourth quarter ended December 31, 2011 monthly dividends declared
totaled $0.60 per share. For the fourth quarter ended December 31, 2010 monthly
cash distributions declared as an income fund were $1.65 per unit.
Backlog
Consolidated backlog at December 31, 2011 of $267.7 million increased $3.9
million from $263.8 million at September 30, 2011 and increased $50.4 million
from $217.3 million at December 31, 2010. Backlog includes the total retail
value of customer purchase orders for future delivery or commissioning.
Fourth Quarter Results of Operations
Equipment
For three months ended December 31 2011 2010
----------------------------------------------------------------------------
Equipment(i) $ 125.4 $ 101.7
Parts and service $ 66.9 $ 58.0
----------------------------------------------------------------------------
Segment revenue $ 192.3 $ 159.7
----------------------------------------------------------------------------
Segment earnings $ 14.3 $ 10.8
Segment earnings margin 7.5% 6.8%
----------------------------------------------------------------------------
(i) Includes rental and other revenue.
Revenue in the fourth quarter of 2011 increased $32.6 million, or 20%, to $192.3
million from $159.7 million in the fourth quarter of 2010. Segment earnings for
the quarter increased $3.5 million to $14.3 million compared to the fourth
quarter of 2010. The following factors contributed to the Equipment segment's
fourth quarter results:
-- Equipment revenue for the fourth quarter increased $23.7 million
compared to the same quarter last year. Specific quarter-over-quarter
variances included the following:
-- Construction equipment revenue increased $12.0 million on increased
market demand for Hitachi construction excavators, in western Canada
and Ontario, and higher JCB and other construction equipment sales
across Canada.
-- Mining equipment sales increased $7.6 million due mainly to the
delivery of a large Hitachi mining shovel in western Canada offset
by the delivery of a LeTourneau loader in eastern Canada in 2010.
-- Material handling equipment revenue increased $5.9 million on higher
volumes in eastern and western Canada offset by lower sales stemming
from reduced market demand in Ontario.
-- Crane and utility equipment revenue decreased $0.7 million.
-- Forestry equipment sales decreased $1.1 million as lower demand in
Ontario and eastern Canada for Tigercat and Peterson Pacific
products was somewhat offset by higher market demand related sales
in western Canada primarily for Tigercat equipment.
-- Parts and service volumes for the fourth quarter increased $8.9 million
compared to the same quarter last year due principally to higher mining
and construction sector sales, primarily in western Canada.
-- Segment earnings for the fourth quarter increased $3.5 million to $14.3
million compared to the same quarter last year. The positive impact of
higher volumes outweighed a $2.2 million increase in selling and
administrative expenses resulting from higher sales related expenses and
annual and mid-term incentive accruals.
Backlog of $146.6 million at December 31, 2011 increased $0.7 million compared
to September 30, 2011 and increased $52.6 million compared to December 31, 2010.
Industrial Components
For three months ended December 31 2011 2010
----------------------------------------------------------------------------
Segment revenue $ 90.2 $ 77.8
----------------------------------------------------------------------------
Segment earnings $ 5.9 $ 2.6
Segment earnings margin 6.5% 3.4%
----------------------------------------------------------------------------
Revenue of $90.2 million in the fourth quarter of 2011 increased $12.4 million,
or 16%, from $77.8 million in the fourth quarter of 2010. Segment earnings
increased $3.3 million to $5.9 million in the fourth quarter compared to the
same quarter in the previous year. The following factors contributed to the
segment's fourth quarter results:
-- Bearings and power transmission parts sales in the fourth quarter of
2011 increased $4.6 million compared to the same quarter last year led
by higher mining and industrial sector volumes across all regions. Sales
to oil and gas customers in western Canada, metal processing customers
in Ontario and additional construction and food and beverage sector
volumes in eastern Canada also contributed to the increased sales.
-- Fluid power and process equipment products and service revenue in the
fourth quarter of 2011 increased $7.8 million on improved oil and gas
drilling activity in western Canada and increased sales to industrial
and agriculture sector customers in all regions.
-- Segment earnings in the fourth quarter of 2011 increased $3.3 million
compared to the same quarter last year. The positive impact of higher
volumes outweighed a $0.5 million increase in selling and administrative
expenses. The increase in selling and administrative expenses resulted
mainly from higher sales related costs and computer system upgrade
expenses.
Backlog of $44.8 million as of December 31, 2011 decreased $2.5 million compared
to September 30, 2011 and increased $9.4 million compared to December 31, 2010.
Power Systems
For three months ended December 31 2011 2010
----------------------------------------------------------------------------
Equipment(i) $ 43.9 $ 44.5
Parts and service $ 51.6 $ 35.7
----------------------------------------------------------------------------
Segment revenue $ 95.5 $ 80.2
----------------------------------------------------------------------------
Segment earnings $ 7.9 $ 6.5
Segment earnings margin 8.3% 8.1%
----------------------------------------------------------------------------
(i) Includes rental and other revenue.
Revenue in the fourth quarter of 2011 increased $15.3 million, or 19%, to $95.5
million compared to $80.2 million in the same quarter of 2010. Excluding the
Harper acquisition, Power Systems revenue in the fourth quarter of 2011
decreased $4.6 million, or 6% compared to the same quarter last year. Segment
earnings increased $1.4 million to $7.9 million in the fourth quarter compared
to the same quarter in the previous year. The following factors impacted
quarterly revenue and earnings:
-- Equipment revenue decreased $0.6 million compared to last year.
Increased sales to off-highway oil and gas customers in western Canada
and $7.0 million of revenues related to the Harper acquisition were more
than offset by lower power generation equipment sales in western Canada
and the delivery of a large order in eastern Canada for marine power
packages last year.
-- Parts and service volumes increased $15.9 million compared to last year
due mainly to $12.9 million of revenues related to the Harper
acquisition and higher sales to off-highway customers, primarily in the
mining and oil and gas sectors.
-- Segment earnings in the fourth quarter of 2011 increased $1.4 million
compared to the same quarter last year mainly as a result of the Harper
acquisition. Selling and administrative expenses increased $4.1 million
due mostly to $3.0 million of selling and administrative expenses
related to Harper and higher personnel and sales related costs.
Backlog of $76.3 million as of December 31, 2011 increased $5.8 million compared
to September 30, 2011 and decreased $11.6 million compared to December 31, 2010.
Fourth Quarter Cash Flows
Net Cash Flows Generated from Operating Activities
Net cash flows generated from operating activities amounted to $48.7 million in
the fourth quarter of 2011, compared to $41.4 million in the same quarter of the
previous year. The $7.3 million increase was due mainly to higher cash flows
from operating activities before changes in operating assets and liabilities of
$8.7 million and a decreased use of operating assets and liabilities of $1.4
million, partially offset by higher rental equipment additions of $2.0 million
in the Equipment and Power Systems segments.
Changes in operating assets and liabilities for the fourth quarter in 2011
compared to the same periods in 2010 include the following components:
Changes in operating assets and liabilities
For three months ended December 31 2011 2010
----------------------------------------------------------------------------
Trade and other receivables $ (13.8) $ (11.8)
Inventories $ 9.2 $ 3.6
Prepaid expenses $ (1.5) $ 1.5
Trade and other payables $ (5.5) $ (20.1)
Accrued liabilities $ (15.4) $ 3.0
Provisions $ 0.3 $ (1.4)
----------------------------------------------------------------------------
Total $ (26.7) $ (25.2)
----------------------------------------------------------------------------
Significant components of the changes in operating assets and liabilities for
the quarter ended December 31, 2011 are as follows:
-- Trade and other receivables decreased $13.8 million due primarily to
collection of a large mining equipment receivable in the Equipment
segment and lower sales activity in the Power Systems segment.
-- Inventories increased $9.2 million, mostly in the Power Systems and
Industrial Components segments in anticipation of increased sales
activity.
-- Trade and other payables increased $5.5 million reflecting higher
inventory related trade payables.
-- Accrued liabilities increased $15.4 million due mainly to higher
customer deposits in the Equipment and Power Systems segments.
On the consolidated statement of financial position at December 31, 2011, Wajax
had employed $165.0 million in current assets net of current liabilities,
exclusive of funded net debt, compared to $191.9 million at September 30, 2011.
The $26.9 million decrease was due primarily to the cash flow factors listed
above.
Investing Activities
During the fourth quarter of 2011, Wajax invested $2.6 million in capital asset
additions net of disposals and $0.4 million in intangible asset additions,
compared to $2.1 million and $0.5 million in the fourth quarter of 2010,
respectively.
Financing Activities
The Corporation used $37.9 million of cash in financing activities in the fourth
quarter of 2011 compared to $21.8 million in the same quarter of 2010. Financing
activities in the quarter included bank debt and finance lease payments of $28.0
million and dividends paid to shareholders totaling $10.0 million, or $0.60 per
share.
Liquidity and Capital Resources
On August 12, 2011, Wajax amended and extended the term of its $175 million bank
credit facility to August 12, 2016 from December 31, 2011. The $1.1 million cost
of extending the facility has been capitalized and will be amortized over the
five year term. The terms of the $175 million bank credit facility include the
following:
-- The facility is fully secured, expiring August 12, 2016, made up of a
$30 million non-revolving term portion and a $145 million revolving term
portion.
-- Borrowing capacity is dependent upon the level of inventories on-hand
and the outstanding trade accounts receivable.
-- The facility contains customary restrictive covenants including
limitations on the payment of cash dividends and the maintenance of
certain financial ratios all of which were met as at December 31, 2011.
Wajax is restricted from the declaration of monthly dividends in the
event the ratio of funded debt to earnings before finance costs, income
taxes, depreciation and amortization and share-based compensation
expense (the "Leverage Ratio") exceeds three times.
-- Borrowings bear floating rates of interest at margins over Canadian
dollar bankers' acceptance yields, U.S. dollar LIBOR rates or prime.
Margins on the facility depend on Wajax's Leverage Ratio at the time of
borrowing and range between 1.5% and 3.0% for Canadian dollar bankers'
acceptances and US dollar LIBOR borrowings, and 0.5% and 2.0% for prime
rate borrowings.
At December 31, 2011, Wajax had borrowed $60.0 million and issued $6.0 million
of letters of credit for a total utilization of $66.0 million of its $175
million bank credit facility. At December 31, 2011 borrowing capacity under the
bank credit facility was equal to $175.0 million.
Wajax also has a $15 million demand inventory equipment financing facility with
a non-bank lender. The equipment notes payable under the facility bear floating
rates of interest at margins over Canadian dollar bankers' acceptance yields.
Principal repayments commence between 6 and 12 months from the date of financing
and the notes are due in full when the equipment is sold. At December 31, 2011
Wajax had no utilization of its $15 million equipment financing facility.
Since conversion to a corporation, Wajax has not made, and will not be required
to make, any significant income tax payments until 2013 due to income tax
payments being deferred as a result of its partnership structure. In January
2013, Wajax will be required to make an income tax payment of approximately $44
million. This includes approximately $23 million of tax on partnership income
generated in 2011 and the balance representing income to be included in 2012
taxable income resulting from the recent change in tax legislation that has
effectively removed the partnership income deferral benefit. The Corporation
will also commence making monthly income tax installments in January 2013.
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, including the January 2013 income tax payment. However,
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.
Wajax sponsors certain defined benefit plans that cover executive employees, a
small group of inactive employees and employees on long-term disability
benefits. The fair value of the defined benefit plans' assets decreased $1.3
million to $11.3 million at December 31, 2011 due to a $0.7 million loss on plan
assets and excess benefits paid over contributions for the year. The accrued
benefit obligations of the plans at December 31, 2011 were $18.6 million and
included a $4.3 million benefit obligation related to the Wajax Limited
Supplemental Executive Retirement Plan (SERP) that is not funded but secured by
a $4.6 million letter of credit. The resulting deficit for the plans at December
31, 2011 excluding the SERP was $3.1 million. The defined benefit plans are
subject to actuarial valuations in 2012 and 2013. Management does not expect
future cash contribution requirements to change materially from the 2011
contribution level of $1.0 million as a result of these valuations or any
declines in the fair value of the defined benefit plans' assets.
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 instruments outstanding at the end of the year
were as follows:
-- As at December 31, 2011, Wajax had no interest rate swaps outstanding.
(As at December 31, 2010, Wajax had entered into interest rate swaps
that effectively fixed the interest rate on $80 million of debt until
December 31, 2011).
-- 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 December 31,
2011, Wajax had contracts outstanding to buy U.S.$36.0 million and
EUR0.2 million and to sell U.S.$1.0 million (December 31, 2010 - to buy
U.S.$34.1 million and to sell U.S.$0.3 million). The U.S. dollar
contracts expire between January 2012 and December 2012, with a weighted
average U.S./Canadian dollar rate of 1.0249 and weighted average Euro /
Canadian dollar rate of 1.3993.
Wajax measures financial instruments held for trading and not accounted for as
hedging items, at fair value with subsequent changes in fair value being charged
to earnings. Derivatives designated as effective hedges are measured at fair
value with subsequent changes in fair value being charged to other comprehensive
income. The fair value of derivative instruments is estimated based upon market
conditions using appropriate valuation models. The carrying values reported in
the balance sheet for financial instruments are not significantly different from
their fair values.
Wajax is exposed to non-performance by counterparties to short-term currency
forward contracts. These counterparties are large financial institutions with
"Stable" outlook and high short-term and long-term credit ratings from Standard
and Poor's. To date, no such counterparty has failed to meet its financial
obligations to Wajax. Management does not believe there is a significant risk of
non-performance by these counterparties and will continue to monitor the credit
risk of these counterparties.
The transition to IFRS did not have a material effect on the Corporation's
accounting for financial instruments.
Currency Risk
Wajax's operating results are reported in Canadian dollars. While Wajax's sales
are primarily denominated in Canadian dollars, significant portions of its
purchases are in U.S. dollars. Changes in the U.S. dollar exchange rate can have
a negative or positive impact on Wajax's revenue, margins and working capital
balances. Wajax enters into short-term currency forward contracts to fix 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. See the Financial Instruments section.
A declining U.S. dollar relative to the Canadian dollar can have a negative
effect on Wajax's revenue and cash flows as a result of certain products being
imported from the U.S. Market conditions generally require Wajax to lower its
selling prices as the U.S. dollar declines. As well, many of Wajax's customers
export products to the U.S., and a strengthening Canadian dollar can negatively
impact their overall competitiveness and demand for their products, which in
turn may reduce product purchases from Wajax.
A strengthening U.S. dollar relative to the Canadian dollar can have a positive
effect on Wajax's revenue as a result of certain products being imported from
the U.S. Wajax will periodically institute price increases to offset the
negative impact of foreign exchange rate increases and volatility on imported
goods to ensure margins are not eroded.
Wajax maintains a hedging policy whereby significant transactional currency
risks are identified and hedged.
Contractual Obligations
Less than 1 - 5 After
Contractual Obligations Total 1 year years 5 years
----------------------------------------------------------------------------
Bank debt $ 60.0 $ - $ 60.0 $ -
Operating leases $ 71.3 $ 16.8 $ 33.3 $ 21.2
Obligations under finance
leases $ 10.3 $ 3.6 $ 6.7 $ -
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Total $ 141.6 $ 20.4 $ 100.0 $ 21.2
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The $60.0 million bank debt obligation relates to the bank term credit facility.
On August 12, 2011, Wajax amended and extended the term of its $175 million bank
credit facility to August 12, 2016 from December 31, 2011.
The obligations under finance leases relate to certain vehicles financed under
finance lease arrangements. The leases have a minimum one year term and are
extended on a monthly basis thereafter until termination. For more information
on Wajax's operating lease obligations, see the Off Balance Sheet Financing
section.
Wajax also has contingent contractual obligations where Wajax has guaranteed the
resale value of equipment sold ("guaranteed residual value contracts") or has
guaranteed a portion of customer lease payments ("recourse contracts"). These
contracts are subject to certain conditions being met by the customer. As at
December 31, 2011, Wajax had guaranteed $5.3 million of contracts (2010 - $5.8
million) with commitments arising between 2012 and 2014. The commitments made by
Wajax in these contracts reflect the estimated future value of the equipment,
based on the judgment and experience of management. Wajax has recorded a $0.1
million provision in 2011 (2010 - $0.5 million) as an estimate of the financial
loss likely to result from such commitments.
Off Balance Sheet Financing
Off balance sheet financing arrangements include operating lease contracts
entered into for facilities with various landlords, a portion of the long-term
lift truck rental fleet in Equipment with a non-bank lender and office equipment
with various non-bank lenders. The total obligations for all operating leases
are detailed in the Contractual Obligations section. At December 31, 2011, the
non-discounted operating lease commitments for facilities totaled $67.9 million,
rental fleet $2.5 million, and office equipment $0.9 million.
Although Wajax's consolidated contractual annual lease commitments decline
year-by-year, it is anticipated that existing leases will either be renewed or
replaced, resulting in lease commitments being sustained at current levels. In
the alternative, Wajax may incur capital expenditures to acquire equivalent
capacity.
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 costs and a reduction of the obligations under finance leases liability
so as to achieve a constant rate of return of interest on the remaining balance
of the liability.
In addition, the Equipment segment had $41.5 million (2010 - $39.4 million) of
consigned inventory on-hand from a major manufacturer at December 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.
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 credit facilities. 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 facilities. See the Liquidity and Capital Resources
section.
Dividends and distributions
Dividends to shareholders for the periods January 1, 2011 to December 31, 2011
and distributions to unitholders as an income fund for the periods January 1,
2010 to December 31, 2010 were declared as follows:
2011 Dividends 2010 Distributions
Month (1) Per Share Amount Per Unit Amount
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January $ 0.15 $ 2.5 $ 0.15 $ 2.5
February 0.15 2.5 0.15 2.5
March 0.15 2.5 0.15 2.5
April 0.15 2.5 0.15 2.5
May 0.18 3.0 0.15 2.5
June 0.18 3.0 0.15 2.5
July 0.18 3.0 0.15 2.5
August 0.20 3.3 0.35 5.8
September 0.20 3.3 0.35 5.8
October 0.20 3.3 0.35 5.8
November 0.20 3.3 0.55 9.2
December 0.20 3.3 0.75 12.5
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Total dividends /
distributions for the
years ended December 31 $ 2.14 $ 35.6 $ 3.40 $ 56.5
----------------------------------------------------------------------------
(1) The Corporation's monthly dividends / cash distributions were generally
payable to shareholders / unitholders of record on the last business
day of each calendar month and were paid on or about the 20th day of
the following month.
For the year ending December 31, 2011, Wajax declared dividends to shareholders
totaling $2.14 per share. For the year ending December 31, 2010, Wajax declared
monthly cash distributions to unitholders totaling $3.40 per unit. Dividends
paid in 2011 and distributions paid in 2010 were funded from cash generated from
operating activities.
Commencing in 2012, the Corporation has established an objective of declaring
annual dividends equal to at least 75% of earnings subject to the Corporation's
financial condition, economic outlook and capital requirements for growth
including acquisitions. The Corporation's intention is to continue paying
dividends on a monthly basis.
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
Wajax is a distributor and service support provider. As such, Wajax's productive
capacity is determined primarily by its branch infrastructure across Canada,
manufacturer relationships and other maintenance and growth capital employed.
Wajax operates from 117 facilities throughout Canada, of which 88 are leased.
During the second quarter of 2011, Wajax increased its productive capacity
through the acquisition of Harper which increased the Power Systems' Ontario
infrastructure by an additional 9 branches. Wajax's principal properties are
primarily sales and service branches.
Wajax seeks to distribute leading product lines in each of its regional markets
and its success is dependent upon continuing relationships with the
manufacturers it represents. Wajax endeavours to align itself in long-term
relationships with manufacturers that are committed to achieving a competitive
advantage and long-term market leadership in their targeted market segments. In
the Equipment and Power Systems segments, and in certain cases in the hydraulics
and process pumps portion of the Industrial Components segment, manufacturer
relationships are governed through effectively exclusive distribution
agreements. Distribution agreements are for the most part open-ended, but are
cancellable within a relatively short notification period specified in the
agreement.
Maintenance capital employed includes rental fleet in the Equipment and Power
Systems segments, which will vary with market demand, and other capital which is
employed primarily to support and maintain the branch network operations.
In addition, Wajax enters into off balance sheet financing arrangements
including operating lease contracts entered into for a portion of the long-term
lift truck rental fleet in Equipment and office equipment. At December 31, 2011,
the non-discounted operating lease commitments for rental fleet totaled $2.5
million and office equipment $0.9 million.
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.
Wajax's short-term normal course requirements for current assets net of current
liabilities, exclusive of funded net debt ("working capital") 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 2011. 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 facility.
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.
Borrowing capacity under the bank credit facility is dependent on the level of
Wajax's inventories on-hand and outstanding trade accounts receivables. At
December 31, 2011, total borrowing capacity under the bank credit facility was
equal to $175 million of which $66 million was utilized at December 31, 2011.
The bank credit facility contains covenants that could restrict the ability of
Wajax to make dividend payments, if (i) the leverage ratio (Debt to EBITDA) is
greater than 3.0 at the time of declaration of the dividend, and (ii) an event
of default exists or would exist as a result of a dividend payment.
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 December 31, 2011 Number Amount
----------------------------------------------------------------------------
Balance at the beginning of the year 16,629,444 $ 105.9
Rights exercised - -
----------------------------------------------------------------------------
Balance at the end of the year 16,629,444 $ 105.9
----------------------------------------------------------------------------
Wajax has five share-based compensation plans; the Wajax Share Ownership Plan
("SOP"), the Deferred Share Program ("DSP"), the Directors' Deferred Share Unit
Plan ("DDSUP"), the Mid-Term Incentive Plan for Senior Executives ("MTIP") and
the Deferred Share Unit Plan ("DSUP"). SOP, DSP and DDSUP rights are issued to
the participants and are settled by issuing Wajax Corporation shares. The
cash-settled MTIP and DSUP consist of annual grants that vest over three years
and are subject to time and performance vesting criteria. A portion of the MTIP
and the full amount of the DSUP grants are determined by the price of the
Corporation's shares. Compensation expense for the SOP, DSP and DDSUP is
determined based upon the fair value of the rights at the date of grant and
charged to earnings on a straight line basis over the vesting period, with an
offsetting adjustment to contributed surplus. Compensation expense for the DSUP
and the share-based portion of the MTIP varies with the price of the
Corporation's shares and is recognized over the vesting period. Wajax recorded
compensation cost of $7.2 million for the year (2010 - $5.0 million) in respect
of these plans.
At December 31, 2011, 109,788 (2010 - 101,999) rights were outstanding under the
SOP, 30,216 (2010 - 24,164) rights were outstanding under the DSP and 176,591
(2010 - 147,797) rights were outstanding under the DDSUP.
Effective January 1, 2011 the SOP, DSP, DDSUP and MTIP plans were amended to
reflect the conversion to a corporation. See Note 21 of the Consolidated
Financial Statements.
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. Wajax has taken into account current economic conditions when
determining the provision for inventory obsolescence, provision for doubtful
accounts and any impairment of goodwill and other assets. Note 3 to the annual
Consolidated Financial Statements describes the significant accounting policies
and methods used in preparation of the annual Consolidated Financial Statements.
Wajax bases its estimates on historical experience and various other assumptions
that are believed to be reasonable in the circumstances. The more significant
estimates include provisions for inventory obsolescence and doubtful accounts,
warranty provisions and fair market values for goodwill impairment tests.
Provision for inventory obsolescence
The value of Wajax's new and used equipment is evaluated by management
throughout the year. When required, provisions are recorded to ensure that the
book value of equipment is valued at the lower of cost or estimated net
realizable value. Wajax identifies slow moving or obsolete parts inventories and
estimates appropriate obsolescence provisions related thereto. Wajax takes
advantage of supplier programs that allow for the return of eligible parts for
credit within specified time periods. The inventory obsolescence charged to
earnings for 2011 was $3.2 million compared to $4.0 million in 2010.
Provision for doubtful accounts
Wajax is exposed to credit risk with respect to its trade and other receivables.
However, this is somewhat minimized by Wajax's large customer base which covers
most business sectors across Canada. Wajax follows a program of credit
evaluations of customers and limits the amount of credit extended when deemed
necessary. Wajax maintains provisions for possible credit losses, and any such
losses to date have been within management's expectations. The $3.5 million
provision for doubtful accounts at December 31, 2011 decreased $0.4 million from
$3.9 million in 2010. As conditions change, actual results could differ from
those estimates.
Warranty provisions
Wajax provides for customer warranty claims that may not be covered by the
manufacturers' standard warranty, primarily in Equipment where 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 adjusted as required.
Goodwill and intangible assets
Goodwill and indefinite life intangible assets are not amortized but are tested
at least annually for impairment, or more frequently if certain indicators arise
that indicate the assets might be impaired. Goodwill and indefinite life
intangibles are allocated to cash-generating units ("CGU") that are expected to
benefit from the synergies of the acquisition. To test for impairment, Wajax
compares each CGU's carrying value to its recoverable amount. Recoverable amount
is the higher of value in use or fair value less costs to sell, if the fair
value can be readily determined. The value in use is the present value of future
cash flows using a pre-tax discount rate that reflects the time value of money
and the risk specific to the assets. Any impairment would be recorded as a
charge against earnings. During the year, Wajax performed impairment tests,
based on value in use, of its goodwill and intangible assets with an indefinite
life and concluded that no impairment existed in either the goodwill associated
with any of Wajax's cash-generating units or the intangible assets with an
indefinite life.
Customer lists and non-competition agreements are amortized on a straight line
basis over their useful lives which range from 2 to 7 years. Computer
application software is classified as an intangible asset and is amortized on a
straight line basis over the useful life ranging from 1 to 7 years. They are
reviewed at the end of each reporting period to determine if any indicators of
impairment exist. For any indicators of impairment identified, an estimate is
made of the recoverable amount of the asset. Impairment of 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 earnings. Wajax concluded that no impairment of the carrying
value of the finite life intangible assets existed.
While Wajax uses available information to prepare its estimate of fair value,
actual results could differ significantly from management's estimates which
could result in future impairment and losses related to recorded goodwill and
other asset balances.
Financing costs
Transaction costs related to the acquisition or amendment of long-term debt are
deferred and amortized to finance costs using an effective yield method.
Deferred financing costs are included in the carrying amount of the related
debt.
Changes in Accounting Policy
Transition to International Financial Reporting Standards
This is the first year that the Corporation has presented its Consolidated
Financial Statements in accordance with IFRS. The Corporation provided
information on its transition to IFRS in its MD&A for the quarter ended March
31, 2011. This information has not changed materially from what was provided.
The most significant impacts on the Corporation's Consolidated Financial
Statements resulting from the adoption of IFRS are discussed within the
applicable sections of this MD&A and Note 29 of the Consolidated Financial
Statements.
Note 29 of the Consolidated Financial Statements provides an explanation of the
transition to IFRS. In addition, Note 29 provides detailed reconciliations
between Canadian GAAP and IFRS of the consolidated income statement and
consolidated statement of comprehensive income for the year ended December 31,
2010 and of the consolidated statements of financial position as at January 1,
2010 and December 31, 2010. These reconciliations provide explanations of each
difference.
New standards and interpretations not yet adopted
As of January 1, 2015, the Corporation will be required to adopt IFRS 9
Financial Instruments, which is the result of the first phase of the IASB's
project to replace IAS 39 Financial Instruments: Recognition and Measurement.
The new standard replaces the current multiple classification and measurement
models for financial assets and liabilities with a single model that has only
two classification categories: amortized cost and fair value. The Corporation is
currently assessing the impact of this standard on its consolidated financial
statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 10
Consolidated Financial Statements, which establishes principles for the
preparation and presentation of consolidated financial statements when an entity
controls one or more other entities. The Corporation does not expect IFRS 10 to
have a material impact on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 13 Fair
Value Measurement, which defines fair value and sets out a framework for
measuring fair value when fair value measurements are required or permitted by
other IFRSs. The Corporation is currently assessing the impact of this standard
on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt amendments to
IAS 1 Presentation of Financial Statements, which require that an entity present
separately the items of other comprehensive income that may be reclassified to
profit or loss in the future from those that would never be reclassified to
profit or loss. As the amendments only require changes in the presentation of
items in other comprehensive income, the Corporation does not expect the
amendments to IAS 1 to have a material impact on the financial statements.
As of January 1, 2013, the Corporation will be required to adopt amendments to
IAS 19 Employee Benefits, which requires recognition of actuarial gains and
losses immediately in other comprehensive income, the full recognition of past
service costs immediately in profit or loss, recognition of the expected return
on plan assets in profit or loss to be calculated based on the rate used to
discount the defined benefit obligation, and certain additional disclosures. The
Corporation is currently assessing the impact of this standard on its
consolidated financial statements.
Risk Management 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 and Wajax's ability to pay cash dividends to shareholders.
Wajax attempts to minimize many of these risks through diversification of core
businesses and through the geographic diversity of its operations. In addition,
Wajax has adopted an annual enterprise risk management assessment which is
prepared by the Corporation's senior management and overseen by the Board of
Directors and Committees of the Board. The enterprise risk management framework
sets out principles and tools for identifying, evaluating, prioritizing and
managing risk effectively and consistently across Wajax.
The following are a number of risks that deserve particular comment.
Manufacturer relationships and product access
Wajax seeks to distribute leading product lines in each of its regional markets
and its success is dependent upon continuing relations with the manufacturers it
represents. Wajax endeavours to align itself in long-term relationships with
manufacturers that are committed to achieving a competitive advantage and
long-term market leadership in their targeted market segments. In the Equipment
and Power Systems segments, and in certain cases in the hydraulics and process
pumps portion of the Industrial Components segment, manufacturer relationships
are governed through effectively exclusive distribution agreements. Distribution
agreements are for the most part open-ended, but are cancellable within a
relatively short notification period specified in each agreement. Although Wajax
enjoys good relationships with its major manufacturers and seeks to develop
additional strong long-term partnerships, a loss of a major product line without
a comparable replacement would have a significantly adverse effect on Wajax's
results of operations or cash flow.
There is a continuing consolidation trend among industrial equipment and
component manufacturers. Consolidation may impact the products distributed by
Wajax, in either a favourable or unfavourable manner. Consolidation of
manufacturers may have a negative impact on the results of operations or cash
flow if product lines Wajax distributes become unavailable as a result of the
consolidation. This was the case in the Equipment segment with the discontinued
distribution of the LeTourneau product line effective April 27 2012, due to the
purchase by Joy Global Inc. of LeTourneau Technologies Inc.
Suppliers generally have the ability to unilaterally change distribution terms
and conditions or limit supply of product in times of intense market demand.
Supplier changes in the area of product pricing and availability can have a
negative or positive effect on Wajax's revenue and margins. As well, from time
to time suppliers make changes to payment terms for distributors. This may
affect Wajax's interest-free payment period or consignment terms, which may have
a materially negative or positive impact on working capital balances such as
cash, inventories, trade and other payables and bank debt.
The ability of Wajax to realize its intention to focus its Industrial
Components' business on, among other things, the importation of high quality,
lower cost products from China or other Asian countries and eastern Europe is
dependent on the continued economic and political stability of these regions.
There is no assurance that Wajax will be able to import such components at a low
cost and/or on a consistent basis.
Economic conditions/Business cyclicality
Wajax's customer base consists of businesses operating in the natural resources,
construction, transportation, manufacturing, industrial processing and utilities
industries. These industries can be capital intensive and cyclical in nature,
and as a result, customer demand for Wajax's products and services may be
affected by economic conditions at both a global or local level. Changes in
interest rates, consumer and business confidence, corporate profits, credit
conditions, foreign exchange, commodity prices and the level of government
infrastructure spending may influence Wajax's customers' operating, maintenance
and capital spending, and therefore Wajax's sales and results of operations.
Although Wajax has attempted to address its exposure to business and industry
cyclicality by diversifying its operations by geography, product offerings and
customer base, there can be no assurance that Wajax's results of operations or
cash flows will not be adversely affected by changes in economic conditions.
Commodity prices
Many of Wajax's customers are directly and indirectly affected by fluctuations
in commodity prices in the forestry, metals and minerals and petroleum and
natural gas industries, and as a result Wajax is also indirectly affected by
fluctuations in these prices. In particular, each of Wajax's businesses is
exposed to fluctuations in the price of oil and natural gas. A downward change
in these commodity prices, and particularly in the price of oil and natural gas,
could therefore adversely affect Wajax's results of operations or cash flows.
Growth initiatives, integration of acquisitions and project execution
As part of its long-term strategy, Wajax intends to continue growing its
business through a combination of organic growth and strategic acquisitions.
Wajax's ability to successfully grow its business through acquisitions will be
dependent on a number of factors including: identification of accretive new
business or acquisition opportunities; negotiation of purchase agreements on
satisfactory terms and prices; prior approval of acquisitions by third parties,
including regulatory authorities; securing attractive financing arrangements;
and integration of newly acquired operations into the existing business. All of
these activities may be more difficult to implement or may take longer to
execute than management anticipates. Further, any significant expansion of the
business may increase the operating complexity of Wajax, and divert management
away from regular business activities. Any failure of Wajax to manage its
acquisition strategy successfully could have a material adverse impact on
Wajax's business, results of operations or financial condition.
Key personnel
The success of Wajax is largely dependent on the abilities and experience of its
senior management team and other key personnel. Its future performance will also
depend on its ability to attract, develop and retain highly qualified employees
in all areas of its business. Competition for skilled management, sales and
technical personnel is intense, particularly in certain markets where Wajax
competes. Wajax continuously reviews and makes adjustments to its hiring,
training and compensation practices in an effort to attract and retain a highly
competent workforce. However, there can be no assurance that Wajax will be
successful in its efforts and a loss of key employees, or failure to attract and
retain new talent as needed, may have an adverse impact on Wajax's current
operations or future prospects.
Leverage, credit availability and restrictive covenants
Wajax has a $175 million bank credit facility which expires August 12, 2016
comprised of a $30 million non-revolving term portion and a $145 million
revolving term portion. (see Liquidity and Capital Resources section above).
While management believes this facility will be adequate to meet the
Corporation's normal course working capital requirements, there can be no
assurance that additional credit will become available if required, or that an
appropriate amount of credit with comparable terms and conditions will be
available when the facility matures. See Financing Strategies section.
The facility contains restrictive covenants which place restrictions on, among
other things, the ability of Wajax to encumber or dispose of its assets, the
amount of interest cost incurred and dividends made relative to earnings and
certain reporting obligations. A failure to comply with the obligations of the
facility could result in an event of default which, if not cured or waived,
could require an accelerated repayment of the facilities. There can be no
assurance that Wajax's assets would be sufficient to repay the facility in full.
Wajax's short-term normal course working capital requirements can swing widely
quarter-to-quarter due to 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 2011. Conversely, as
Wajax experiences economic slowdowns working capital reduces reflecting the
lower activity levels as was the case in 2009.
Wajax may 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.
The amount of debt service obligations under the credit facility will be
dependant on the level of borrowings and fluctuations in interest rates to the
extent the rate is unhedged. As a result, fluctuations in debt servicing costs
may have a detrimental effect on future earnings or cash flow.
Wajax also has credit lines available with other financial institutions for
purposes of financing inventory and off balance sheet financing of long-term
rental fleet. See Liquidity and Capital Resources section. These facilities are
not committed lines and their future availability cannot be assured, which may
have a negative impact on cash available for dividends and future growth
opportunities.
Quality of products distributed
The ability of Wajax to maintain and expand its customer base is dependent upon
the ability of the manufacturers represented by Wajax to improve and sustain the
quality of their products. The quality and reputation of such products are not
within Wajax's control, and there can be no assurance that manufacturers will be
successful in meeting these goals. The failure of these manufacturers to
maintain a market presence could adversely affect Wajax's results of operations
or cash flow.
Foreign exchange exposure
Wajax's operating results are reported in Canadian dollars. While the majority
of Wajax's sales are in Canadian dollars, significant portions of its purchases
are in U.S. dollars. Changes in the U.S. dollar exchange rate can have a
negative or positive impact on Wajax's revenue, margins and working capital
balances. Wajax mitigates certain exchange rate risks by entering into
short-term foreign currency forward contracts to fix the cost of certain inbound
inventory and to hedge certain foreign-currency denominated sales to customers.
In addition, Wajax will periodically institute price increases to offset the
negative impact of foreign exchange rate increases on imported goods. The
inability of Wajax to mitigate exchange rate risks or increase prices to offset
foreign exchange rate increases, including sudden and volatile changes in the
U.S. dollar exchange rate, may have a material adverse effect on the results of
operations or financial condition of Wajax.
A declining U.S. dollar relative to the Canadian dollar can have a negative
effect on Wajax's revenue and cash flows as a result of certain products being
imported from the U.S. In some cases market conditions require Wajax to lower
its selling prices as the U.S. dollar declines. As well, many of Wajax's
customers export products to the U.S., and a strengthening Canadian dollar can
negatively impact their overall competitiveness and demand for their products,
which in turn may reduce product purchases from Wajax.
A strengthening U.S. dollar relative to the Canadian dollar can have a positive
effect on Wajax's revenue as a result of certain products being imported from
the U.S. Wajax will periodically institute price increases to offset the
negative impact of foreign exchange rate increases and volatility on imported
goods to ensure margins are not eroded.
Competition
The equipment, industrial components and power systems distribution industries
in which Wajax competes are highly competitive. In the Equipment segment, Wajax
primarily competes against regional equipment distributors that tend to handle a
dedicated product line, such as those offered by John Deere, Komatsu and
Caterpillar. There can be no assurance that Wajax will be able to continue to
compete on the basis of product quality and price of product lines, distribution
and servicing capabilities as well as proximity of its distribution sites to
customers.
In terms of the Industrial Components segment, the hydraulics and process
equipment branches compete with other distributors of hydraulics components and
process equipment on the basis of quality and price of the product lines, the
capacity to provide custom-engineered solutions and high service standards. The
bearings and power transmission product branches compete with a number of
distributors representing the same or competing product lines and rely primarily
on high service standards, price and value added services to gain market
advantage.
The Power Systems business competes with other major diesel engine distributors
representing such products as Cummins and Caterpillar. Competition is based
primarily on product quality, pricing and the ability to service the product
after the sale.
There can be no assurance that Wajax will be able to continue to effectively
compete. Increased competitive pressures or the inability of Wajax to maintain
the factors which have enhanced its competitive position could adversely affect
its results of operations or cash flow.
Litigation and product liability claims
In the ordinary course of its business, Wajax may be party to various legal
actions, the outcome of which cannot be predicted with certainty. One category
of potential legal actions is product liability claims. Wajax carries product
liability insurance, and management believes that this insurance is adequate to
protect against potential product liability claims. Not all risks, however, are
covered by insurance, and no assurance can be given that insurance will be
consistently available, or will be consistently available on an economically
feasible basis, or that the amounts of insurance will at all times be sufficient
to cover each and every loss or claim that may occur involving Wajax's assets or
operations.
Inventory obsolescence
Wajax maintains substantial amounts of inventories in all three core businesses.
While Wajax believes it has appropriate inventory management systems in place,
variations in market demand for the products it sells can result in certain
items of inventory becoming obsolete. This could result in a requirement for
Wajax to take a material write down of its inventory balance resulting in Wajax
not being able to realize expected revenue and cash flows from its inventory,
which would negatively affect results from operations or cash flow.
Credit risk
Wajax extends credit to its customers, generally on an unsecured basis. Although
Wajax is not substantially dependant on any one customer and it has a system of
credit management in place, the loss of a large receivable would have an adverse
effect on Wajax's profitability.
Guaranteed residual value, recourse and buy-back contracts
In some circumstances Wajax makes certain guarantees to finance providers on
behalf of its customers. These guarantees can take the form of assuring the
resale value of equipment, guaranteeing a portion of customer lease payments, or
agreeing to buy back the equipment at a specified price. These contracts are
subject to certain conditions being met by the customer, such as maintaining the
equipment in good working condition. Historically, Wajax has not incurred
substantial losses on these types of contracts, however, there can be no
assurance that losses will not be incurred in the future. See Contractual
Obligations section.
Future warranty claims
Wajax provides manufacturers' and/or dealer warranties for most of the product
it sells. In some cases, the product warranty claim risk is shared jointly with
the manufacturer. In addition, Wajax provides limited warranties for workmanship
on services provided. Accordingly, Wajax has some liability for warranty claims.
There is a risk that a possible product quality erosion or a lack of a skilled
workforce could increase warranty claims in the future, or may be greater than
management anticipates. If Wajax's liability in respect of such claims is
greater than anticipated, it may have a material adverse impact on Wajax's
business, results of operations or financial condition.
Maintenance and repair contracts
Wajax frequently enters into long-term maintenance and repair contracts with its
customers, whereby Wajax is obligated to maintain certain fleets of equipment at
various negotiated performance levels. The length of these contracts varies
significantly, often ranging up to five or more years. The contracts are
generally fixed price, although many contracts have additional provisions for
inflationary adjustments. Due to the long-term nature of these contracts, there
is a risk that significant cost overruns may be incurred. If Wajax has
miscalculated the extent of maintenance work required, or if actual parts and
service costs increase beyond the contracted inflationary adjustments, the
contract profitability will be adversely affected. In order to mitigate this
risk, Wajax closely monitors the contracts for early warning signs of cost
overruns. In addition, the manufacturer may, in certain circumstances, share in
the cost overruns if profitability falls below a certain threshold. Any failure
by Wajax to effectively price and manage these contracts could have a material
adverse impact on Wajax's business, results of operations or financial
condition.
Insurance
Wajax maintains a program of insurance coverage that is ordinarily maintained by
similar businesses, including property insurance and general liability
insurance. Although the limits and deductibles of such insurance have been
established through risk analysis and the recommendation of professional
advisors, there can be no assurance that such insurance will remain available to
Wajax at commercially reasonable rates or that the amount of such coverage will
be adequate to cover all liability incurred by Wajax. If Wajax is held liable
for amounts exceeding the limits of its insurance coverage or for claims outside
the scope of that coverage, its business, results of operations or financial
condition could be adversely affected.
Information systems and technology
Information systems are an integral part of Wajax's business processes,
including marketing of equipment and support services, inventory and logistics,
and finance. Some of these systems are integrated with certain suppliers' core
processes and systems. Any disruptions to these systems due, for example, to the
upgrade or conversion thereof, or the failure of these systems to operate as
expected could, depending on the magnitude of the problem, adversely affect
Wajax's operating results by limiting the ability to effectively monitor and
control Wajax's operations.
Labour relations
Wajax has approximately 2,738 employees. Wajax is a party to thirteen collective
agreements covering a total of approximately 416 employees. Of these, seven
collective agreements covering 113 employees have expired on or before December
31, 2011 and are currently being re-negotiated. Of the remaining six collective
agreements, two expire in 2012, three expire in 2013, and one expires in 2014.
Overall, Wajax believes its labour relations to be satisfactory and does not
anticipate it will be unable to renew the collective agreements. If Wajax is
unable to renew or negotiate collective agreements from time to time, it could
result in work stoppages and other labour disturbances. The failure to renew
collective agreements upon satisfactory terms could have a material adverse
impact on Wajax's businesses, results of operations or financial condition.
Government regulation
Wajax's business is subject to evolving laws and government regulations,
particularly in the areas of taxation, the environment, and health and safety.
Changes to such laws and regulations may impose additional costs on Wajax and
may adversely affect its business in other ways, including requiring additional
compliance measures by Wajax.
Strategic Direction and Outlook
In 2011 Wajax achieved record revenue and earnings before income tax of $1.38
billion and $87.5 million respectively. Year-over-year revenue increased 24%
while earnings before income tax increased 62%. The earnings before income tax
comparison is appropriate since 2011 was the first year after conversion from an
income fund when Wajax was effectively not subject to income tax. This
performance was driven by a stronger Canadian economy and the execution of the
Corporation's strategic initiatives, including the Harper acquisition.
Additionally, all three businesses maintained disciplined control over selling
and administrative costs. With its Canada-wide branch infrastructure and diverse
product lines, Wajax's business has exposure to virtually all of the goods
producing sectors of the Canadian economy. Stronger sectors of the economy
aiding the Corporation's revenue growth in 2011 were energy, mining,
construction and forestry, primarily in western Canada.
Looking forward to 2012, management expects growth in the Canadian economy to be
more modest than that experienced in 2011. This is a result of the continuing
high value of the Canadian dollar and the dampening effect on the world economy
from the European debt crisis and the slowing Chinese economy. However, we
expect global demand for commodities to remain relatively strong, which should
bode well for Canada's mining and energy sectors, particularly in western
Canada. The revenue implication from phasing out the LeTourneau mining equipment
line at the end of April, is expected to be mitigated by additional Hitachi
mining equipment sales as Hitachi's manufacturing operations have recovered from
the effects of the Japanese earthquake and tsunami in March 2011. As well,
management has outlined growth initiatives that are expected to result in
increased market share for key product lines, the addition of new products and
expansion into new geographic territories. As a result, management expects
continued growth in revenue and earnings in 2012, but at a more modest pace than
experienced in 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 and twelve months ended December 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 Canadian December December
dollars) Note 31, 2011 31, 2010
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 5,659 $ 42,954
Trade and other receivables 174,233 135,517
Inventories 241,524 196,460
Prepaid expenses 8,033 7,244
----------------------------------------------------------------------------
429,449 382,175
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 4 28,060 15,794
Property, plant and equipment 5 47,924 43,268
Intangible assets 6 84,493 75,794
Deferred taxes 10 - 5,277
Employee benefits - 240
----------------------------------------------------------------------------
160,477 140,373
----------------------------------------------------------------------------
$ 589,926 $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Trade and other payables 7 $ 163,108 $ 134,832
Accrued liabilities 84,050 63,762
Provisions 5,704 5,353
Dividends payable 3,326 12,472
Income taxes payable 2,398 2,072
Obligations under finance leases 3,646 3,677
Derivative instruments 208 2,452
Bank debt - 79,680
----------------------------------------------------------------------------
262,440 304,300
----------------------------------------------------------------------------
NON-CURRENT
Provisions 4,010 4,338
Deferred taxes 10 17,694 -
Employee benefits 6,843 4,132
Other liabilities 5,644 5,221
Obligations under finance leases 6,688 5,227
Bank debt 59,021 -
----------------------------------------------------------------------------
99,900 18,918
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 105,371 -
Trust units - 105,371
Contributed surplus 9 4,888 3,931
Retained earnings 117,477 91,805
Accumulated other comprehensive loss (150) (1,777)
----------------------------------------------------------------------------
Total shareholders' equity 227,586 199,330
----------------------------------------------------------------------------
$ 589,926 $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
These condensed consolidated financial statements were approved by the Board of
Directors on March 6, 2012.
WAJAX CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in
thousands of
Canadian dollars,
except per share Three months ended Twelve months ended
data) Note December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue $ 377,182 $ 316,356 $ 1,377,100 $ 1,110,888
Cost of sales 297,850 252,074 1,084,667 873,032
----------------------------------------------------------------------------
Gross profit 79,332 64,282 292,433 237,856
Selling and
administrative
expenses 55,698 48,393 200,321 179,643
----------------------------------------------------------------------------
Earnings before
finance costs and
income taxes 23,634 15,889 92,112 58,213
Finance costs 1,153 1,014 4,630 4,277
----------------------------------------------------------------------------
Earnings before
income taxes 22,481 14,875 87,482 53,936
Income tax expense
(recovery) 10 5,920 (912) 23,679 (2,454)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 16,561 $ 15,787 $ 63,803 $ 56,390
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per
share 11 $ 1.00 $ 0.95 $ 3.84 $ 3.39
Diluted earnings per
share 11 $ 0.98 $ 0.93 $ 3.77 $ 3.34
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(unaudited, in thousands of Three months ended Twelve months ended
Canadian dollars) December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Net earnings $ 16,561 $ 15,787 $ 63,803 $ 56,390
----------------------------------------------------------------------------
Actuarial losses on pension
plans, net of tax (2,544) (628) (2,544) (628)
(Gains) 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 ($224) (2010 - $139) and
year to date, net of tax of
$237 (2010 - $109) (649) 661 565 938
(Losses) gains on derivative
instruments designated as
cash flow hedges during the
period, net of tax of ($126)
(2010 - ($75)) and year to
date, net of tax of $381
(2010 - ($155)) (354) (365) 1,062 (482)
----------------------------------------------------------------------------
Other comprehensive loss, net
of tax (3,547) (332) (917) (172)
----------------------------------------------------------------------------
Total comprehensive income $ 13,014 $ 15,455 $ 62,886 $ 56,218
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
For the twelve months ended
December 31, 2011
(in thousands of Canadian Share Contributed
dollars) Note capital Trust units surplus
---------------------------------------------------------------------------
January 1, 2011 $ - 105,371 3,931
---------------------------------------------------------------------------
Conversion to corporation 105,371 (105,371) -
Net earnings - - -
Other comprehensive loss
Actuarial losses on pension
plans, net of tax - - -
Losses on derivative
instruments designated as
cash flow hedges in prior
years reclassified to cost of
inventory or finance costs in
the current year, net of tax - - -
Gains on effective portion of
derivative instruments
designated as cash flow
hedges, net of tax - - -
---------------------------------------------------------------------------
Total other comprehensive loss - - -
---------------------------------------------------------------------------
Total comprehensive income for
the year - - -
---------------------------------------------------------------------------
Dividends 8 - - -
---------------------------------------------------------------------------
Share-based compensation
expense 9 - - 957
---------------------------------------------------------------------------
December 31, 2011 $ 105,371 - 4,888
---------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
other
comprehensive
(loss) income
("AOCL")
-------------
For the twelve months ended
December 31, 2011
(in thousands of Canadian Retained Cash flow
dollars) Note earnings hedges Total
----------------------------------------------------------------------------
January 1, 2011 91,805 (1,777) $ 199,330
----------------------------------------------------------------------------
Conversion to corporation - - -
Net earnings 63,803 - 63,803
Other comprehensive loss
Actuarial losses on pension
plans, net of tax (2,544) - (2,544)
Losses on derivative
instruments designated as
cash flow hedges in prior
years reclassified to cost of
inventory or finance costs in
the current year, net of tax - 565 565
Gains on effective portion of
derivative instruments
designated as cash flow
hedges, net of tax - 1,062 1,062
----------------------------------------------------------------------------
Total other comprehensive loss (2,544) 1,627 (917)
----------------------------------------------------------------------------
Total comprehensive income for
the year 61,259 1,627 62,886
----------------------------------------------------------------------------
Dividends 8 (35,587) - (35,587)
----------------------------------------------------------------------------
Share-based compensation
expense 9 - - 957
----------------------------------------------------------------------------
December 31, 2011 117,477 (150) $ 227,586
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
For the twelve months ended
December 31, 2010 Share Trust Contributed
(in thousands of Canadian dollars) Note capital units surplus
----------------------------------------------------------------------------
January 1, 2010 $ - 105,129 3,538
----------------------------------------------------------------------------
Net earnings - - -
Other comprehensive loss
Actuarial losses on pension plans,
net of tax - - -
Losses on derivative instruments
designated as cash flow hedges in
prior years reclassified to cost of
inventory or finance costs in the
current year, net of tax - - -
Losses on effective portion of
derivative instruments designated
as cash flow hedges, net of tax - - -
----------------------------------------------------------------------------
Total other comprehensive loss - - -
----------------------------------------------------------------------------
Total comprehensive income for the
year - - -
----------------------------------------------------------------------------
Distributions 8 - - -
----------------------------------------------------------------------------
Unit rights plans exercised 9 - 242 (242)
----------------------------------------------------------------------------
Unit-based compensation expense 9 - - 635
----------------------------------------------------------------------------
December 31, 2010 $ - 105,371 3,931
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
AOCL
---------
For the twelve months ended
December 31, 2010 Retained Cash flow
(in thousands of Canadian dollars) Note earnings hedges Total
----------------------------------------------------------------------------
January 1, 2010 92,543 (2,233) $ 198,977
----------------------------------------------------------------------------
Net earnings 56,390 - 56,390
Other comprehensive loss
Actuarial losses on pension plans,
net of tax (628) - (628)
Losses on derivative instruments
designated as cash flow hedges in
prior years reclassified to cost of
inventory or finance costs in the
current year, net of tax - 938 938
Losses on effective portion of
derivative instruments designated
as cash flow hedges, net of tax - (482) (482)
----------------------------------------------------------------------------
Total other comprehensive loss (628) 456 (172)
----------------------------------------------------------------------------
Total comprehensive income for the
year 55,762 456 56,218
----------------------------------------------------------------------------
Distributions 8 (56,500) - (56,500)
----------------------------------------------------------------------------
Unit rights plans exercised 9 - - -
----------------------------------------------------------------------------
Unit-based compensation expense 9 - - 635
----------------------------------------------------------------------------
December 31, 2010 91,805 (1,777) $ 199,330
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
Three Twelve
(unaudited, in thousands months ended months ended
of Canadian dollars) December 31 December 31
Note 2011 2010 2011 2010
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 16,561 $ 15,787 $ 63,803 $ 56,390
Items not affecting
cash flow:
Depreciation and
amortization
Rental equipment 1,471 957 4,838 3,568
Property, plant
and equipment 1,233 1,073 4,410 4,065
Assets under
finance lease 802 716 3,031 2,645
Intangible assets 6 315 239 1,216 966
Share-based
compensation
expense 9 (386) (232) 957 635
Other liabilities 1,639 2,221 423 4,380
Non-cash rental
expense (125) 24 (303) 103
Employee benefits
expense, net of
payments 46 (999) (478) (1,139)
Finance costs 1,153 1,014 4,630 4,277
Income tax expense
(recovery) 10 5,920 (912) 23,679 (2,454)
----------------------------------------------------------------------------
Cash flows from
operating
activities before
changes in
operating assets
and liabilities 28,629 19,888 106,206 73,436
----------------------------------------------------------------------------
Changes in operating
assets and
liabilities:
Trade and other
receivables 13,770 11,756 (27,054) (11,980)
Inventories (9,250) (3,615) (34,959) (15,768)
Prepaid expenses 1,535 (1,446) (571) 556
Trade and other
payables 5,549 20,089 22,904 51,537
Accrued liabilities 15,359 (3,001) 19,076 (2,430)
Provisions (308) 1,439 351 494
----------------------------------------------------------------------------
26,655 25,222 (20,253) 22,409
----------------------------------------------------------------------------
Cash flows generated
from operating
activities 55,284 45,110 85,953 95,845
----------------------------------------------------------------------------
Rental equipment
additions 4 (4,996) (2,979) (20,177) (5,775)
Provisions, non-
current (598) 112 (328) 820
Finance costs paid (1,011) (835) (4,132) (3,999)
Income taxes
received (paid) (18) - (116) 1,778
----------------------------------------------------------------------------
Net cash flows
generated from
operating
activities 48,661 41,408 61,200 88,669
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and
equipment additions (2,682) (2,105) (5,499) (4,132)
Proceeds on disposal
of property, plant
and equipment 122 30 193 2,393
Intangible assets
additions (413) (514) (664) (3,220)
Acquisition of
business 12 10 - (23,247) -
----------------------------------------------------------------------------
Net cash flows used
in investing
activities (2,963) (2,589) (29,217) (4,959)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease in bank
debt (27,000) - (20,000) -
Debt facility
renewal costs 11 - (1,061) (93)
Finance lease
payments (975) (1,061) (3,484) (3,351)
Dividends paid 8 (9,978) (20,774) (44,733) (46,519)
----------------------------------------------------------------------------
Net cash flows used
in financing
activities (37,942) (21,835) (69,278) (49,963)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net change in cash 7,756 16,984 (37,295) 33,747
----------------------------------------------------------------------------
(Bank indebtedness)
cash - beginning of
period (2,097) 25,970 42,954 9,207
----------------------------------------------------------------------------
Cash - end of period $ 5,659 $ 42,954 $ 5,659 $ 42,954
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 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 equipment, industrial components and
power systems, through a network of 117 branches across Canada. The Corporation
is a multi-line distributor and represents a number of leading worldwide
manufacturers across its core businesses. Its customer base is diversified,
spanning natural resources, construction, transportation, manufacturing,
industrial processing and utilities.
In 2010 the Corporation was structured as an unincorporated, open-ended, limited
purpose investment trust called Wajax Income Fund (the "Fund"). On January 1,
2011, the Fund converted into a corporation pursuant to a Plan of Arrangement
under the Canada Business Corporations Act. Unitholders of the Fund
automatically received one common share of the Corporation in exchange for each
unit of the Fund. The conversion was accounted for as a continuity of interests.
The business continues to be carried on by the same management team that was in
place prior to the completion of the conversion.
2. BASIS OF PREPARATION
Statement of compliance
These condensed consolidated financial statements have been prepared in
accordance with International Accounting Standard 34 Interim Financial
Reporting. These are the Corporation's interim International Financial Reporting
Standards ("IFRS") condensed consolidated financial statements for part of the
period covered by the first IFRS annual financial statements, and IFRS 1
First-time Adoption of International Financial Reporting Standards has been
applied. The condensed consolidated financial statements do not include all of
the disclosures required for full annual consolidated financial statements.
Accordingly, these condensed consolidated financial statements should be read in
conjunction with the annual consolidated financial statements of Wajax Income
Fund for the year ended December 31, 2010 reported under previous Canadian
generally accepted accounting principles ("Canadian GAAP") and the condensed
consolidated financial statements of the Corporation for the three months ended
March 31, 2011, which were the first financial statements presented under IFRS.
An explanation of how the transition to IFRS has affected the reported financial
position, financial performance and cash flows of the Corporation is provided in
Note 14. This note includes reconciliations of equity and total comprehensive
income for comparative periods 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 was
January 1, 2010.
Basis of measurement
The consolidated financial statements have been prepared under the historical
cost basis except for derivative financial instruments and liabilities for
cash-settled share-based payment arrangements that have been measured at fair
value. The defined benefit liability is recognized as the net total of the plan
assets, plus unrecognized past service cost and unrecognized actuarial losses,
less unrecognized actuarial gains and the present value of the defined benefit
obligation.
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 in applying the Corporation's accounting policies
and the key sources of estimation uncertainty are expected to be the same as
those to be applied in the first annual IFRS financial statements. The more
significant judgements and assumptions that have an effect on the amounts
recognized in the condensed consolidated financial statements are provision for
doubtful accounts, inventory obsolescence, asset impairment, classification of
leases, impairment of intangible assets, warranty reserve and measurement of
employee benefit obligations.
3. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
The new standards or amendments to existing standards set out below are not yet
effective for the three and twelve months ended December 31, 2011 and have not
been applied in preparing these condensed consolidated financial statements.
As of January 1, 2015, the Corporation will be required to adopt IFRS 9
Financial Instruments, which is the result of the first phase of the IASB's
project to replace IAS 39 Financial Instruments: Recognition and Measurement.
The new standard replaces the current multiple classification and measurement
models for financial assets and liabilities with a single model that has only
two classification categories: amortized cost and fair value. The Corporation is
currently assessing the impact of this standard on its consolidated financial
statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 10
Consolidated Financial Statements, which establishes principles for the
preparation and presentation of consolidated financial statements when an entity
controls one or more other entities. The Corporation does not expect IFRS 10 to
have a material impact on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt IFRS 13 Fair
Value Measurement, which defines fair value and sets out a framework for
measuring fair value when fair value measurements are required or permitted by
other standards. The Corporation is currently assessing the impact of this
standard on its consolidated financial statements.
As of January 1, 2013, the Corporation will be required to adopt amendments to
IAS 1 Presentation of Financial Statements, which require that an entity present
separately the items of other comprehensive income that may be reclassified to
profit or loss in the future from those that would never be reclassified to
profit or loss. As the amendments only require changes in the presentation of
items in other comprehensive income, the Corporation does not expect the
amendments to IAS 1 to have a material impact on the financial statements.
As of January 1, 2013, the Corporation will be required to adopt IAS 19 Employee
Benefits, which requires recognition of actuarial gains and losses immediately
in other comprehensive income, the full recognition of past service costs
immediately in profit or loss, recognition of the expected return on plan assets
in profit or loss to be calculated based on the rate used to discount the
defined benefit obligation, and certain additional disclosures. The Corporation
is currently assessing the impact of this standard on its consolidated financial
statements.
4. RENTAL EQUIPMENT
The Corporation acquired rental equipment with a cost of $4,996 during the
quarter (2010 - $2,979) and $20,177 year to date (2010 - $5,775). Rental
equipment with a carrying amount of $777 during the quarter (2010 - $689) and
$3,073 year to date (2010 - $2,624) ceased to be rented and was classified as
held for sale in the normal course of business and transferred to inventory.
5. PROPERTY, PLANT AND EQUIPMENT
The Corporation acquired property, plant and equipment with a cost of $4,642
during the quarter (2010 - $3,143) and $12,777 year to date (2010 - $7,213).
Assets with a carrying amount of $220 during the quarter (2010 - $264) and $680
year to date (2010 - $1,013) were disposed of, resulting in losses on disposal
of $75 during the quarter (2010 - $10) and $61 year to date (2010 - gains of
$111).
Included in property, plant and equipment are vehicles held under finance leases
as follows:
Three months ended Twelve months ended
December 31 December 31
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Cost, beginning of period $ 22,748 $ 21,412 $ 22,006 $ 22,433
Additions 1,968 1,469 5,400 3,081
Disposals (452) (875) (2,333) (3,508)
Purchased at end of lease (173) - (982) -
----------------------------------------------------------------------------
Cost, end of period $ 24,091 $ 22,006 $ 24,091 $ 22,006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated depreciation,
beginning of period 12,687 12,472 12,542 12,589
Charge for the period 802 716 3,031 2,645
Disposals (353) (646) (1,848) (2,692)
Purchased at end of lease (127) - (716) -
----------------------------------------------------------------------------
Accumulated depreciation,
end of period 13,009 12,542 13,009 12,542
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net book value $ 11,082 $ 9,464 $ 11,082 $ 9,464
----------------------------------------------------------------------------
All property, plant and equipment except vehicles held under finance leases have
been pledged as security for bank debt.
6. INTANGIBLE ASSETS
Customer
Product lists/Non-
distribution competition
Goodwill rights agreements Software Total
----------------------------------------------------------------------------
Cost
January 1, 2011 $ 66,335 4,900 4,302 7,053 $ 82,590
Acquisition of
business (Note 12) 4,309 3,900 1,000 42 9,251
Additions 664 664
----------------------------------------------------------------------------
December 31, 2011 $ 70,644 8,800 5,302 7,759 $ 92,505
----------------------------------------------------------------------------
January 1, 2010 $ 66,335 4,900 4,302 7,093 $ 82,630
Additions 3,220 3,220
Disposals (3,260) (3,260)
----------------------------------------------------------------------------
December 31, 2010 $ 66,335 4,900 4,302 7,053 $ 82,590
----------------------------------------------------------------------------
Accumulated
amortization
January 1, 2011 $ - - 2,565 4,231 $ 6,796
Amortization for the
year - - 530 686 1,216
----------------------------------------------------------------------------
December 31, 2011 $ - - 3,095 4,917 $ 8,012
----------------------------------------------------------------------------
January 1, 2010 $ - - 2,032 7,059 $ 9,091
Amortization for the
year - - 533 433 966
Disposals (3,261) (3,261)
----------------------------------------------------------------------------
December 31, 2010 $ - - 2,565 4,231 $ 6,796
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Carrying amount
----------------------------------------------------------------------------
December 31, 2011 $ 70,644 8,800 2,207 2,842 $ 84,493
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2010 $ 66,335 4,900 2,270 34 $ 73,539
----------------------------------------------------------------------------
December 31, 2010 $ 66,335 4,900 1,737 2,822 $ 75,794
----------------------------------------------------------------------------
7. TRADE AND OTHER PAYABLES
December 31, 2011 December 31, 2010
----------------------------------------------------------------------------
Trade payables $ 139,828 $ 124,852
Other payables 12,362 7,103
Deferred income 10,918 2,877
----------------------------------------------------------------------------
Total trade and other payables $ 163,108 $ 134,832
----------------------------------------------------------------------------
8. DIVIDENDS DECLARED
During the three months ended December 31, 2011 the Corporation declared cash
dividends of $0.60 per share, or $9,978 (December 31, 2010, distributions of
$1.65 per unit or $27,437).
Year to date, the Corporation declared cash dividends of $2.14 per share, or
$35,587 (December 31, 2010, distributions of $3.40 per unit or $56,500).
The Corporation has declared dividends of $3,326 ($0.20 per share) for the month
of January 2012.
9. SHARE-BASED COMPENSATION PLANS
The Corporation has five share-based compensation plans: the Wajax Share
Ownership Plan ("SOP"), the Deferred Share Program ("DSP"), the Directors'
Deferred Share Unit Plan ("DDSUP"), the Mid-Term Incentive Plan for Senior
Executives ("MTIP") and the Deferred Share Unit Plan ("DSUP").
a) Share Rights Plans
Under the SOP, DSP and the DDSUP, rights are issued to the participants which,
upon satisfaction of certain time and performance vesting conditions, are
settled by issuing Wajax Corporation shares for no cash consideration. 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. 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.
Whenever dividends are paid on the Corporation's shares, participants of these
plans are granted a number of additional rights equal to the aggregate dollar
value of the dividends that would have been paid to each participant if they had
received shares under this plan rather than rights, divided by the value of
shares on the date that such dividends are paid ("dividend equivalents"). No
compensation cost is recorded for these additional rights.
The Corporation recorded compensation recovery of $386 for the quarter (2010 -
recovery of $232) and compensation cost of $957 for the year to date (2010 -
cost of $635) in respect of these plans.
Share Ownership Plan December 31, 2011 December 31, 2010
----------------------------------------------------------------------------
Fair Fair
value at value at
Number of time of Number of time of
Rights grant Rights grant
----------------------------------------------------------------------------
Outstanding at beginning of
year 101,999 $ 1,024 126,125 $ 1,346
Granted in the
year - new grants - - - -
- dividend
equivalents 7,789 - 11,025 -
Settled in the year - - (26,021) (242)
Forfeited in the year - - (9,130) (80)
----------------------------------------------------------------------------
Outstanding at end of year 109,788 $ 1,024 101,999 $ 1,024
----------------------------------------------------------------------------
At December 31, 2011 105,213 SOP rights were vested (December 31, 2010 - 93,593).
Deferred Share Program December 31, 2011 December 31, 2010
----------------------------------------------------------------------------
Fair Fair
value at value at
Number of time of Number of time of
Rights grant Rights grant
----------------------------------------------------------------------------
Outstanding at beginning of year 24,164 $ 600 21,944 $ 600
Granted in the year - new grants 3,989 150 2,220 -
- dividend
equivalents 2,063 - -
----------------------------------------------------------------------------
Outstanding at end of year 30,216 $ 750 24,164 $ 600
----------------------------------------------------------------------------
All DSP rights have vested at December 31, 2011 (no rights had vested at
December 31, 2010).
Directors' Deferred Share Unit
Plan December 31, 2011 December 31, 2010
----------------------------------------------------------------------------
Fair Fair
value at value at
Number of time of Number of time of
Rights grant Rights grant
----------------------------------------------------------------------------
Outstanding at beginning of year 147,797 $ 2,509 117,518 $ 2,008
Granted in the year - new grants 17,148 625 17,562 501
- dividend
equivalents 11,646 - 12,717 -
----------------------------------------------------------------------------
Outstanding at end of year 176,591 $ 3,134 147,797 $ 2,509
----------------------------------------------------------------------------
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 vesting period. The Corporation recorded compensation cost of $399 for the
quarter (2010 - $1,000) and $4,251 for the year to date (2010 - $3,163) in
respect of the share-based portion of the MTIP. At December 31, 2011 the
carrying amount of the share-based portion of the MTIP liability was $8,103
(2010 - $3,852).
c) Deferred Share Unit Plan ("DSUP")
The DSUP, which is settled in cash, consists of an annual grant that vests over
three years and is based upon time and performance vesting criteria.
Compensation expense for DSUP rights varies with the price of the Corporation's
shares and is recognized over the vesting period. Vested rights are settled when
the participant is no longer employed by the Corporation or one of its
subsidiary entities. The Corporation recorded compensation cost of $169 for the
year ended December 31, 2011 (year ended December 31, 2010 - nil) in respect of
the share-based portion of the DSUP. At December 31, 2011 the carrying amount of
the DSUP liability was $169 (2010 - nil).
10. INCOME TAXES
On January 1, 2011, a plan of arrangement was completed and Wajax Income Fund
was converted to Wajax Corporation. The arrangement resulted in the
reorganization of the Fund into a corporate structure which is subject to income
tax on all of its taxable income at combined federal and provincial rates.
Prior to conversion, the Corporation 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 year ended December 31 2011 2010
----------------------------------------------------------------------------
Current $ 442 $ 112
Deferred - Origination and reversal of temporary
difference 24,401 117
- Change in tax law and rate (1,164) (2,683)
----------------------------------------------------------------------------
Income tax expense (recovery) $ 23,679 $ (2,454)
----------------------------------------------------------------------------
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 year ended December 31 2011 2010
----------------------------------------------------------------------------
Combined statutory income tax rate 27.7% 29.4%
Expected income tax expense at statutory rates $ 24,233 $ 15,857
Income of the Fund taxed directly to unitholders - (15,961)
Non-deductible expenses 621 315
Deferred tax related to changes in tax law and
rates (1,164) (2,683)
Other (11) 18
----------------------------------------------------------------------------
Income tax expense (recovery) $ 23,679 $ (2,454)
----------------------------------------------------------------------------
Recognized deferred tax assets and liabilities
Recognized deferred tax assets and liabilities and the movement in temporary
differences during the year are as follows:
Recognized
December Recognized in other December
31, in profit comprehensive 31,
2010 or loss income 2011
----------------------------------------------------------------------------
Accrued liabilities $ 4,792 457 $ 5,249
Provisions 2,400 104 2,504
Employee benefits 1,065 (198) 885 1,752
Property, plant and
equipment (1,418) (355) (1,773)
Finance leases (147) (48) (195)
Intangible assets (2,052) (303) (2,355)
Deferred financing
costs (38) 9 (29)
Partnership income
not currently
taxable (23,236) (23,236)
Tax loss
carryforwards 333 333
Derivative
instruments 675 (619) 56
----------------------------------------------------------------------------
Net deferred tax
assets
(liabilities) $ 5,277 (23,237) 266 $ (17,694)
----------------------------------------------------------------------------
Recognized
January Recognized in other December
1, in profit comprehensive 31,
2010 or loss income 2010
----------------------------------------------------------------------------
Accrued liabilities $ 1,538 3,254 $ 4,792
Provisions 2,178 222 2,400
Employee benefits 883 (35) 217 1,065
Property, plant and
equipment (1,308) (110) (1,418)
Finance leases 38 (185) (147)
Intangible assets (1,910) (142) (2,052)
Deferred financing costs (46) 8 (38)
Partnership income not
currently taxable
Tax loss carryforwards 446 (446)
Derivative instruments 410 265 675
----------------------------------------------------------------------------
Net deferred tax assets $ 2,229 2,566 482 $ 5,277
----------------------------------------------------------------------------
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three months ended Twelve months ended
December 31 December 31
2011 2010 2011 2010
Numerator for basic and
diluted earnings per
unit:
- net earnings $ 16,561 $ 15,787 $ 63,803 $ 56,390
----------------------------------------------------------------------------
Denominator for basic
earnings per unit:
- weighted average units 16,629,444 16,629,444 16,629,444 16,613,676
----------------------------------------------------------------------------
Denominator for diluted
earnings per unit:
- weighted average units 16,629,444 16,629,444 16,629,444 16,613,676
- effect of dilutive unit
rights 307,790 256,635 294,555 260,924
----------------------------------------------------------------------------
Denominator for diluted
earnings per unit 16,937,234 16,886,079 16,923,999 16,874,600
----------------------------------------------------------------------------
Basic earnings per unit $ 1.00 $ 0.95 $ 3.84 $ 3.39
----------------------------------------------------------------------------
Diluted earnings per unit $ 0.98 $ 0.93 $ 3.77 $ 3.34
----------------------------------------------------------------------------
No share rights were excluded from the above calculations as none were
anti-dilutive.
12. ACQUISITION OF BUSINESS
On May 2, 2011, the Corporation's Power Systems segment acquired certain assets
of Harper Power Products Inc. ("Harper") for consideration of $23,247. The
acquisition price was funded through the Corporation's existing bank credit
facility. The acquisition secures the Ontario distribution rights for certain
product lines and complements the segment's existing product distribution rights
in the rest of Canada, except for portions of British Columbia.
For the eight months since the acquisition, Harper contributed revenue of
$49,311 and net earnings of $2,978 to the year to date results. Had the
acquisition occurred on January 1, 2011 the Corporation estimates that it would
have reported revenue of $1,401,755 and net earnings of $65,013 on its
consolidated statement of earnings for the year ended December 31, 2011. In
determining these amounts, management has assumed that the level of business
activity experienced by Harper after May 2, 2011 is representative of the level
of business activity that it would have experienced prior to the acquisition.
Recognized amounts of identifiable assets acquired and liabilities assumed are
as follows:
Trade and other receivables $ 11,662
Inventories 7,032
Prepaid expenses 218
Property, plant and equipment 1,878
Trade and other payables (6,794)
--------------------------------------------------
Tangible net assets acquired 13,996
Intangible assets (note 6) 9,251
--------------------------------------------------
Total $ 23,247
--------------------------------------------------
An amount of $21,603 was paid on closing based upon a preliminary estimate of
tangible net assets acquired. In the third quarter an additional amount of
$1,644 was paid to the vendors based on an updated determination of the value of
the tangible net assets acquired.
The goodwill is mainly attributable to the skills and technical talent of
Harper's workforce and its existing branch network, synergies expected to be
achieved from integrating the business into the existing Power Systems segment
and the value expected to be generated from initiatives, such as growing the
power generation business in Ontario. Amounts attributed to intangible assets
will be 75% deductible for income tax purposes.
The Corporation incurred acquisition-related costs of $385 relating to external
legal fees and due diligence costs. These costs have been included in selling
and administrative expenses on the consolidated statement of earnings.
13. OPERATING SEGMENTS
The Corporation operates through a network of 117 branches in Canada in three
core businesses which reflect the internal organization and management structure
according to the nature of the products and services provided. The Corporation's
three core businesses are: i) the distribution, modification and servicing of
equipment; ii) the distribution, servicing and assembly of industrial
components; and iii) the distribution and servicing of power systems.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment
Eliminations
For the three and
months ended Industrial Power Unallocated
December 31, 2011 Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 117,581 $ $ 42,341 $ $ 159,922
Parts 44,004 85,185 35,273 164,462
Service 22,854 5,007 16,329 44,190
Rental and other 7,849 1,546 (787) 8,608
----------------------------------------------------------------------------
Revenue $ 192,288 $ 90,192 $ 95,489 $ (787) $ 377,182
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and income
taxes $ 14,337 $ 5,902 $ 7,885 $ $ 28,124
Corporate costs and
eliminations (4,490) (4,490)
----------------------------------------------------------------------------
Earnings before
finance costs and
income taxes 14,337 5,902 7,885 (4,490) 23,634
Finance costs 1,153 1,153
Income tax expense 5,920 5,920
----------------------------------------------------------------------------
Net earnings $ 14,337 $ 5,902 $ 7,885 $ (11,563) $ 16,561
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment
For the twelve Eliminations
months ended and
December 31, Industrial Power Unallocated
2011 Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 397,613 $ $ 155,876 $ $ 553,489
Parts 173,188 328,993 125,509 627,690
Service 84,697 18,545 61,134 164,376
Rental and
other 30,342 4,906 (3,703) 31,545
----------------------------------------------------------------------------
Revenue $ 685,840 $ 347,538 $ 347,425 $ (3,703) $ 1,377,100
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment
earnings
before finance
costs and
income taxes $ 50,193 $ 23,106 $ 32,915 $ $ 106,214
Corporate costs
and
eliminations (14,102) (14,102)
----------------------------------------------------------------------------
Earnings before
finance costs
and income
taxes 50,193 23,106 32,915 (14,102) 92,112
Finance costs 4,630 4,630
Income tax
expense 23,679 23,679
----------------------------------------------------------------------------
Net earnings $ 50,193 $ 23,106 $ 32,915 $ (42,411) $ 63,803
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets
excluding
intangible
assets $ 238,161 $ 114,714 $ 146,695 $ $ 499,570
Intangible
assets 22,083 47,643 14,760 7 84,493
Cash 5,659 5,659
Corporate and
other assets 204 204
----------------------------------------------------------------------------
Total assets $ 260,244 $ 162,357 $ 161,455 $ 5,870 $ 589,926
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment
Eliminations
For the three and
months ended Industrial Power Unallocated
December 31, 2010 Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 94,306 $ $ 43,752 $ $ 138,058
Parts 39,468 72,880 21,810 134,158
Service 18,597 4,900 13,871 37,368
Rental and other 7,349 717 (1,294) 6,772
----------------------------------------------------------------------------
Revenue $ 159,720 $ 77,780 $ 80,150 $ (1,294) $ 316,356
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and income
taxes $ 10,834 2,622 6,477 $ $ 19,933
Corporate costs and
eliminations (4,044) (4,044)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings before
finance costs and
income taxes 10,834 2,622 6,477 (4,044) 15,889
Finance costs 1,014 1,014
Income tax recovery (912) (912)
----------------------------------------------------------------------------
Net earnings $ 10,834 $ 2,622 $ 6,477 $ (4,146) $ 15,787
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment
For the twelve Eliminations
months ended and
December 31, Industrial Power Unallocated
2010 Equipment Components Systems Amounts Total
----------------------------------------------------------------------------
Equipment $ 301,605 $ $ 114,230 $ $ 415,835
Parts 153,708 285,270 88,237 527,215
Service 69,744 16,928 52,479 139,151
Rental and
other 30,754 2,347 (4,414) 28,687
----------------------------------------------------------------------------
Revenue $ 555,811 $ 302,198 $ 257,293 $ (4,414) $ 1,110,888
----------------------------------------------------------------------------
Segment
earnings
before
finance costs
and income
taxes $ 39,006 $ 11,998 $ 19,176 $ $ 70,180
Corporate
costs and
eliminations (11,967) (11,967)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings
before
finance costs
and income
taxes 39,006 $ 11,998 $ 19,176 (11,967) 58,213
Finance costs 4,277 4,277
Income tax
recovery (2,454) (2,454)
----------------------------------------------------------------------------
Net earnings $ 39,006 $ 11,998 $ 19,176 $ (13,790) $ 56,390
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets
excluding
intangible
assets $ 208,266 $ 101,548 $ 88,770 $ $ 398,584
Intangible
assets 21,631 48,414 5,733 16 75,794
Cash 42,954 42,954
Corporate and
other assets 5,216 5,216
----------------------------------------------------------------------------
Total assets $ 229,897 $ 149,962 $ 94,503 $ 48,186 $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets do not include assets associated with the corporate office,
financing or income taxes. Additions to corporate assets, and depreciation of
these assets, are included in segment eliminations and unallocated amounts.
14. EXPLANATION OF TRANSITION TO IFRS
This is the first year that the Corporation has presented its condensed
consolidated financial statements in accordance with IFRS. In the year ended
December 31, 2010, the Corporation reported under previous Canadian GAAP.
The accounting policies set out in Note 3 of the condensed consolidated
financial statements of the Corporation for the three months ended March 31,
2011 have been applied in preparing the condensed consolidated financial
statements for the three and twelve months ended December 31, 2011.
In preparing its opening IFRS statement of financial position, the Corporation
has adjusted amounts reported previously in financial statements prepared in
accordance with previous Canadian GAAP. An explanation of how the transition
from previous Canadian GAAP to IFRS has affected the Corporation's reported
financial position, financial performance and cash flows is set out in the
tables below and the notes that accompany the tables.
IFRS 1 First-time Adoption of International Financial Reporting Standards sets
forth guidance for the initial adoption of IFRS. Under IFRS 1, the standards are
applied retrospectively at the transitional statement of financial position date
and, in general, all adjustments to assets and liabilities are taken to retained
earnings, unless certain exemptions are elected and certain mandatory exceptions
are applied. In preparing its opening IFRS statement of financial position, the
Corporation has elected the following exemptions:
Business combinations before January 1, 2010 (IFRS 3 "Business Combinations")
The Corporation has elected not to apply IFRS 3 retrospectively to business
combinations that took place before January 1, 2010. In addition, and as a
condition under IFRS 1 for applying this exemption, goodwill relating to
business combinations that occurred prior to January 1, 2010 was tested for
impairment even though no impairment indicators were identified. No impairment
existed at the date of transition.
Employee Benefits - actuarial gains and losses (IAS 19 "Employee Benefits")
Under IFRS, the Corporation's accounting policy is to recognize all actuarial
gains and losses immediately in other comprehensive income. At the date of
transition, the Corporation has elected to recognize all cumulative actuarial
gains and losses in retained earnings.
Employee Benefits - pension costs (IAS 19 "Employee Benefits")
The Corporation has elected to disclose the present value of the defined benefit
obligation, fair value of the plan assets, surplus or deficit in the plan, and
the experience adjustments arising on the plan assets or liabilities, for each
accounting period prospectively from the date of transition to IFRS.
Reconciliation of Consolidated Statement of Earnings
For the three Share-
months ended Employee based
December 31, Canadian Benefits Leases Inventory payment
2010 GAAP IAS 19 IAS 17 IAS 2 IFRS 2 IFRS
----------------------------------------------------------------------------
(In thousands
of Canadian
dollars)
----------------------------------------------------------------------------
Revenue $ 316,356 $ 316,356
Cost of sales 251,698 376 252,074
----------------------------------------------------------------------------
Gross profit 64,658 (376) 64,282
----------------------------------------------------------------------------
Selling and
administrative
expenses 49,564 (35) (399) (737) 48,393
----------------------------------------------------------------------------
Earnings before
finance costs
and income
taxes 15,094 35 399 (376) 737 15,889
Finance costs 951 63 1,014
----------------------------------------------------------------------------
Earnings before
income taxes 14,143 35 336 (376) 737 14,875
Income tax
expense
(recovery) (905) 8 89 (104) (912)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 15,048 27 247 (272) 737 $ 15,787
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Comprehensive Income
For the three Share-
months ended Employee based
December 31, Canadian Benefits Leases Inventory payment
2010 GAAP IAS 19 IAS 17 IAS 2 IFRS 2 IFRS
----------------------------------------------------------------------------
(In thousands
of Canadian
dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 15,048 27 247 (272) 737 $ 15,787
----------------------------------------------------------------------------
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 661 661
Gains on
derivative
instruments
designated as
cash flow
hedges during
the period,
net of tax (365) (365)
----------------------------------------------------------------------------
Other
comprehensive
income, net of
tax 296 (628) - - (332)
----------------------------------------------------------------------------
Total
comprehensive
income $ 15,344 (601) 247 (272) 737 $ 15,455
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Earnings
For the
twelve Share-
months ended Employee based
December 31, Canadian Benefits Leases Inventory payment
2010 GAAP IAS 19 IAS 17 IAS 2 IFRS 2 IFRS
----------------------------------------------------------------------------
(In thousands
of Canadian
dollars)
----------------------------------------------------------------------------
Revenue $ 1,110,888 $ 1,110,888
Cost of sales 873,061 (29) 873,032
----------------------------------------------------------------------------
Gross profit 237,827 29 237,856
----------------------------------------------------------------------------
Selling and
adminis-
trative
expenses 181,397 (140) (877) (737) 179,643
----------------------------------------------------------------------------
Earnings
before
finance
costs and
income taxes 56,430 140 877 29 737 58,213
Finance costs 4,094 183 4,277
----------------------------------------------------------------------------
Earnings
before
income taxes 52,336 140 694 29 737 53,936
Income tax
expense
(recovery) (2,683) 35 185 9 (2,454)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 55,019 105 509 20 737 $ 56,390
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Comprehensive Income
For the twelve Share-
months ended Employee based
December 31, Canadian Benefits Leases Inventory payment
2010 GAAP IAS 19 IAS 17 IAS 2 IFRS 2 IFRS
----------------------------------------------------------------------------
(In thousands of
Canadian
dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 55,019 105 509 20 737 $ 56,390
----------------------------------------------------------------------------
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
Gains on
derivative
instruments
designated as
cash flow
hedges during
the period, net
of tax (482) (482)
----------------------------------------------------------------------------
Other
comprehensive
income, net of
tax 456 (628) - - (172)
----------------------------------------------------------------------------
Total
comprehensive
income $ 55,475 (523) 509 20 737 $ 56,218
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Financial Position
Employee
Canadian Benefits Leases IAS Inventory
As at December 31, 2010 GAAP IAS 19 17 IAS 2
----------------------------------------------------------------------------
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 42,954
Trade and other receivables 135,517
Inventories 194,752 1,708
Prepaid expenses 7,244
Deferred taxes 6,466
----------------------------------------------------------------------------
386,933 1,708
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 15,794
Property, plant and
equipment 36,626 9,464
Intangible assets 72,972
Deferred taxes - 1,065 (146)
Employee benefits 3,013 (2,773)
----------------------------------------------------------------------------
128,405 (1,708) 9,318
----------------------------------------------------------------------------
$ 515,338 (1,708) 9,318 1,708
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT
Trade and other payables $ 134,540 292
Accrued liabilities 64,229
Provisions 4,892
Distributions payable 12,472
Income taxes payable 1,599 473
Obligations under finance
leases - 3,677
Derivative instruments 2,452
Bank debt 79,680
----------------------------------------------------------------------------
299,864 292 3,677 473
----------------------------------------------------------------------------
NON-CURRENT
Provisions 4,338
Deferred taxes 2,108
Employee benefits 3,118 1,014
Other liabilities 5,221
Obligations under finance
leases - 5,227
----------------------------------------------------------------------------
14,785 1,014 5,227
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Trust units 105,892
Contributed surplus 6,426
Retained earnings 90,148 (3,014) 414 1,235
Accumulated other
comprehensive loss (1,777)
----------------------------------------------------------------------------
Total shareholders' equity 200,689 (3,014) 414 1,235
----------------------------------------------------------------------------
$ 515,338 (1,708) 9,318 1,708
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Consolidated Statement of Financial Position
Share-
based
payment Income Tax
As at December 31, 2010 IFRS 2 IAS 12 Reclass IFRS
----------------------------------------------------------------------------
(In thousands of Canadian
dollars)
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 42,954
Trade and other receivables 135,517
Inventories 196,460
Prepaid expenses 7,244
Deferred taxes (6,466) -
----------------------------------------------------------------------------
(6,466) 382,175
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 15,794
Property, plant and
equipment (2,822) 43,268
Intangible assets 2,822 75,794
Deferred taxes 4,358 5,277
Employee benefits 240
----------------------------------------------------------------------------
4,358 140,373
----------------------------------------------------------------------------
(2,108) $ 522,548
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT
Trade and other payables $ 134,832
Accrued liabilities (6) (461) 63,762
Provisions 461 5,353
Distributions payable 12,472
Income taxes payable 2,072
Obligations under finance
leases 3,677
Derivative instruments 2,452
Bank debt 79,680
----------------------------------------------------------------------------
(6) 304,300
----------------------------------------------------------------------------
NON-CURRENT
Provisions 4,338
Deferred taxes (2,108) -
Employee benefits 4,132
Other liabilities 5,221
Obligations under finance
leases 5,227
----------------------------------------------------------------------------
(2,108) 18,918
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Trust units (521) 105,371
Contributed surplus (2,495) 3,931
Retained earnings 3,022 91,805
Accumulated other
comprehensive loss (1,777)
----------------------------------------------------------------------------
Total shareholders' equity 6 199,330
----------------------------------------------------------------------------
(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. Rental equipment additions are classified as
operating activities whereas they were previously classified as investing
activities. There are no other material differences between the statement of
cash flows presented under IFRS and the statement of cash flows presented under
previous Canadian GAAP.
Notes to the reconciliations
(a) Employee Benefits (IAS 19)
Under Canadian GAAP, the Corporation accounted for post-employment benefits
under CICA Handbook Section 3461, Employee Future Benefits, whereby defined
benefit pension plan net actuarial gains or losses over 10% of the greater of
the benefit obligation and the fair value of the plan assets were amortized to
income over the average remaining service life of active employees. Under IAS
19, Employee Benefits, the Corporation has adopted the policy of recognizing
actuarial gains and losses in full in other comprehensive income in the period
in which they occur.
(b) Leases (IAS 17)
Under Canadian GAAP, the Corporation assessed vehicle leases under CICA Handbook
Section 3065, Leases, as operating leases. Under IAS 17, Leases, the Corporation
has assessed the vehicle leases as financing leases. Under finance leases the
asset is recorded at the lower of its fair value and the present value of the
minimum lease payments at the inception of the lease. The liability is included
in the statement of financial position and classified between current and
non-current amounts. The interest component of the lease payments is charged to
earnings over the period of the lease so as to achieve a constant rate of
interest on the remaining balance of the liability.
(c) Inventory (IAS 2)
Under Canadian GAAP, the Corporation did not allocate overhead to work in
process inventory relating to customer repair orders. Under IFRS the Corporation
allocates overhead to work in process inventory relating to customer repair
orders resulting in an adjustment to inventory and opening retained earnings.
(d) Income Taxes (IAS 12)
The effect of applying IAS 12, Income Taxes, is that all deferred tax balances
are now classified as non-current. No other changes arise from this section.
Applicable income tax rates have been applied to all IFRS adjustments.
(e) Share-based Payment (IFRS 2)
Under Canadian GAAP, the Corporation expensed dividend equivalents granted on
share rights plans. Under IFRS the grant date fair value reflects all dividend
rights therefore no additional compensation cost is recorded.
(f) Comparative Information
Certain comparative amounts have been reclassified to conform with the current
period presentation.
In particular, cash discounts provided to customers in an amount of $261 for the
quarter and $978 year to date have been reclassified out of selling and
administrative expenses into revenue. In addition, cash discounts received from
vendors in an amount of $352 for the quarter and $1,265 year to date have been
reclassified out of selling and administrative expenses into cost of sales.
Software with a net book value of $2,822 at December 31, 2010 has been
reclassified out of property, plant and equipment and into intangible assets.
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