Wajax Corporation (TSX:WJX) today announced a 33% increase in 2012 first quarter
earnings.
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Three Months Ended
(Dollars in millions, except per share data) March 31
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2012 2011
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CONSOLIDATED RESULTS
Revenue $ 358.1 $ 303.9
Net earnings $ 17.1 $ 12.8
Basic earnings per share $ 1.03 $ 0.77
SEGMENTS
Revenue - Equipment $ 170.4 $ 151.4
- Power Systems $ 95.9 $ 72.9
- Industrial Components $ 93.3 $ 80.7
Earnings - Equipment $ 13.1 $ 11.2
% margin 7.7% 7.4%
- Power Systems $ 8.7 $ 7.0
% margin 9.1% 9.6%
- Industrial Components $ 6.8 $ 4.4
% margin 7.3% 5.5%
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First Quarter Highlights
-- Consolidated first quarter revenue of $358.1 million increased $54.2
million, or 18% compared to last year. Wajax Equipment revenue increased
13% on higher revenue in most product categories. Wajax Power Systems
recorded a 32% increase in sales as a result of the acquisition of
Harper Power Products Inc. in May 2011 and improved equipment, parts and
service volumes in western Canada. Wajax Industrial Components revenue
increased 16% on stronger demand for all major product categories, with
the majority of the improvement attributable to the energy sector in
western Canada.
-- Net earnings for the quarter of $17.1 million, or $1.03 per share,
increased 33% compared to $12.8 million, or $0.77 per share recorded in
2011. The increase resulted mainly from higher sales volumes in all
three segments.
-- Consolidated backlog at March 31, 2012 of $262.9 million was up 22%
compared to March 31, 2011 and decreased 2% compared to December 31,
2011.
-- Funded net debt of $108.1 million at March 31, 2012 increased $44.4
million in the quarter and was consistent with the Corporation's
expectation. The increase was mainly a result of a $51.3 million
increase in inventories and other operating assets and liabilities.
The Corporation also announced monthly dividends of $0.27 per share ($3.24
annualized) for the months of May, June and July.
Outlook
Commenting on the first quarter results and the outlook for the remainder of
2012, Mark Foote, President and CEO, stated:
"With a 33% increase in earnings, we are very pleased with our 2012 first
quarter results. As we expected, improved results were led by sales growth from
the energy sector in western Canada and a relatively strong mining market across
Canada.
For the balance of 2012, we expect the level of Canadian economic activity to be
similar to what was experienced in the first quarter. Market concern pertaining
to the European debt crisis, the slowing Chinese economy and the related effect
on the Canadian resource sector has heightened recently. While we are concerned
about the effect these issues may have on our revenue base, quoting in most of
our end markets remains active and we continue to maintain a strong backlog. As
well, our distribution agreement for LeTourneau mining equipment came to an end
April 27th, however, we anticipate we will be able to deliver the $18.5 million
of equipment orders we have in backlog by the end of 2012. As a result, our view
regarding our full year 2012 earnings remains unchanged from last quarter, with
the balance of the year tracking more closely to the previous year."
Wajax Corporation is a leading Canadian distributor and service support provider
of mobile equipment, power systems and industrial components. 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 First Quarter Financial Results Conference Call. You are
invited to listen to the live Webcast on Tuesday, May 8, 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 for the
remainder of 2012, the impact of certain global economic events on the Canadian
resource sector and, in turn, our end markets, our expectations with respect to
the delivery of backlogged LeTourneau equipment orders, and our outlook with
respect to our 2012 full-year earnings.
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 - Q1 2012
The following management's discussion and analysis ("MD&A") discusses the
consolidated financial condition and results of operations of Wajax Corporation
("Wajax" or "Corporation") for the quarter ended March 31, 2012. This MD&A
should be read in conjunction with the information contained in the unaudited
Condensed Consolidated Financial Statements and accompany notes for the quarter
ended March 31, 2012, the annual Audited Consolidated Financial Statements and
accompanying notes for the year ended December 31, 2011 and the associated MD&A.
Information contained in this MD&A is based on information available to
management as of May 8, 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
unaudited Condensed Consolidated Financial Statements and accompanying notes,
and has in place appropriate information systems, procedures and controls to
ensure that information used internally by management and disclosed externally
is materially complete and reliable. Wajax's Board of Directors has approved
this MD&A and the unaudited Condensed Consolidated Financial Statements and
accompanying notes. In addition, Wajax's Audit Committee, on behalf of the Board
of Directors, provides an oversight role with respect to all public financial
disclosures made by Wajax, and has reviewed this MD&A and the unaudited
Condensed Consolidated Financial Statements and accompanying notes.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Wajax'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 March 31, 2012, 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 March 31, 2012, 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 $65.6 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 the
Harper operation will be fully integrated with the existing Power Systems
segment's control environment.
Other than the continuing integration of the Harper operation discussed above,
there was no change in Wajax's ICFR that occurred during the first quarter of
2012 that has materially affected, or is reasonably likely to materially affect,
Wajax's ICFR.
Wajax Corporation Overview
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 for the remainder of
2012, the impact of certain global economic events on the Canadian resource
sector and, in turn, our end markets, our expectations with respect to the
delivery of certain backlogged equipment orders, our outlook with respect to our
2012 full-year earnings, 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 aftermarket support
services and expansion into new Canadian geographic territories, our financing
and capital requirements and our objectives 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.
Consolidated Results
Three months ended
March 31
2012 2011
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Revenue $ 358.1 $ 303.9
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Gross profit $ 77.9 $ 65.9
Selling and administrative expenses $ 53.7 $ 46.8
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Earnings before finance costs and income taxes $ 24.2 $ 19.0
Finance costs $ 0.8 $ 1.0
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Earnings before income taxes $ 23.3 $ 18.0
Income tax expense $ 6.2 $ 5.2
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Net earnings $ 17.1 $ 12.8
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Earnings per share
- Basic $ 1.03 $ 0.77
- Diluted $ 1.01 $ 0.76
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Revenue
Revenue in the first quarter of 2012 increased 18% or $54.2 million to $358.1
million, from $303.9 million in the first quarter of 2011 and included $15.7
million of revenue from the acquisition of the assets of Harper by the Power
Systems segment effective May 2, 2011. Segment revenue increased 13% in
Equipment, 32% in Power Systems (10% excluding Harper revenue) and 16% in
Industrial Components compared to the same quarter last year.
Gross profit
Gross profit in the first quarter of 2012 increased $12.0 million due mainly to
the positive impact of higher volumes compared to the first quarter last year.
The gross profit margin percentage for the quarter of 21.8% increased slightly
from 21.7% in the first quarter of 2011.
Selling and administrative expenses
Selling and administrative expenses increased $6.9 million in the first quarter
of 2012 compared to the same quarter last year. Of this increase, $2.8 million
related to Harper with most of the remainder attributable to higher personnel
costs, including a $1.5 million increase in stock based mid-term incentive
accruals, and higher sales related costs. Selling and administrative expenses as
a percentage of revenue decreased to 15.0% in the first quarter of 2012 from
15.4% in the same quarter of 2011.
Finance costs
Quarterly finance costs of $0.8 million decreased $0.2 million compared to the
same quarter last year due mainly to the Corporation's lower costs of borrowing.
Income tax expense
The effective income tax rate of 26.8% for the quarter decreased from 29.0% the
previous year due to the positive impact of reduced statutory income tax rates
and lower expenses not deductible for tax purposes.
Net earnings
Quarterly net earnings increased $4.3 million to $17.1 million, or $1.03 per
share, from $12.8 million, or $0.77 per share, in the same quarter of 2011. The
positive impact of the higher volumes and lower finance costs, more than offset
additional selling and administrative expenses and higher income tax expense
compared to the same quarter last year.
Comprehensive income
Comprehensive income for the first quarter of $16.8 million increased $3.6
million from $13.2 million compared to the same quarter in the previous year as
the $4.3 million increase in net earnings was only partially offset by $0.6
million increase in other comprehensive loss. The increase in other
comprehensive loss resulted primarily from 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 period.
Funded net debt
Funded net debt of $108.1 million at March 31, 2012 increased $44.4 million
compared to December 31, 2011. Funded net debt includes bank debt, bank
indebtedness and obligations under finance leases, net of cash. The increase
resulted mainly from net cash flows used in operating activities of $32.5
million, dividends paid of $10.0 million, investing activities of $1.2 million
and finance lease payments of $1.0 million. Wajax's quarter-end funded net
debt-to-equity ratio of 0.46:1 at March 31, 2012 increased from the December 31,
2011 ratio of 0.28:1.
Dividends
For the first quarter ended March 31, 2012 monthly dividends declared totaled
$0.67 per share and included $0.20 per share for the months of January and
February and $0.27 per share for the month of March. For the first quarter ended
March 31, 2011 monthly dividends declared were $0.45 per share.
On March 6, 2012, Wajax announced a monthly dividend of $0.27 per share ($3.24
annualized) for the month of April payable on May 20, 2012 to shareholders of
record on April 30, 2012. On May 8, 2012 Wajax announced monthly dividends of
$0.27 per share ($3.24 annualized) for each of the months of May, June and July
payable on June 20, 2012, July 20, 2012 and August 20, 2012 to shareholders of
record on May 31, 2012, June 29, 2012 and July 31, 2012 respectively.
Backlog
Consolidated backlog at March 31, 2012 of $262.9 million decreased $4.8 million
compared to December 31, 2011. Increases in the Industrial Components segment
were more than offset by reductions in the Equipment and Power Systems segments.
Consolidated backlog increased $47.2 million compared to March 31, 2012 due
mainly to higher mining and construction sector orders in the Equipment segment.
Backlog includes the total retail value of customer purchase orders for future
delivery or commissioning.
CEO
On March 5, 2012 Mark Foote, assumed the role of President and CEO of Wajax, and
was appointed a director effective March 6, 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
Three months ended March 31
2012 2011
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Equipment(i) $ 106.3 $ 87.5
Parts and service $ 64.1 $ 63.9
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Segment revenue $ 170.4 $ 151.4
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Segment earnings $ 13.1 $ 11.2
Segment earnings margin 7.7% 7.4%
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(i) Includes rental and other revenue.
Revenue in the first quarter of 2012 increased $19.0 million, or 13%, to $170.4
million from $151.4 million in the first quarter of 2011. Segment earnings for
the quarter increased $1.9 million to $13.1 million compared to the first
quarter of 2011. The following factors contributed to the Equipment segment's
first quarter results:
-- Equipment revenue for the first quarter increased $18.8 million compared
to the same quarter last year. Specific quarter-over-quarter variances
included the following:
-- Mining equipment sales increased $12.0 million due mainly to the
delivery of a LeTourneau loader in eastern Canada and increased
Hitachi mining equipment deliveries in western and eastern Canada.
-- Construction equipment revenue increased $3.9 million resulting from
increases in Hitachi construction excavator and JCB and other
equipment sales in western Canada and Ontario. These increases were
offset partially by lower Hitachi excavator and JCB equipment sales
in eastern Canada.
-- Material handling equipment revenue increased $2.7 million on higher
volumes in all regions.
-- Crane and utility equipment revenue increased $1.2 million
attributable to higher new equipment sales in western Canada, offset
in part by lower sales to utility customers in Ontario.
-- Forestry equipment revenues declined $1.1 million as lower Tigercat
product sales in eastern Canada and Ontario more than offset
increased sales of Tigercat and forestry related Hitachi equipment
in western Canada.
-- Parts and service volumes for the first quarter increased slightly
compared to the same quarter last year. Higher construction and material
handling sector sales, primarily in western Canada, were partially
offset by lower mining sector sales in western Canada due to the timing
of major component replacements on large mining shovels.
-- Segment earnings for the first quarter increased $1.9 million to $13.1
million compared to the same quarter last year. The positive impact of
higher volumes outweighed the negative impact of lower gross profit
margins resulting from a higher proportion of equipment sales, and a
$0.6 million increase in selling and administrative expenses. Selling
and administrative expense increased compared to the same quarter last
year as a result of higher personnel and sales related expenses, offset
partially by lower bad debt expense.
Backlog of $143.4 million at March 31, 2012 decreased $3.2 million compared to
December 31, 2011 and includes $18.5 million of LeTourneau equipment orders.
Backlog increased $46.1 million compared to March 31, 2011 due mainly to higher
mining and construction sector orders.
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. Wajax Equipment continued to
provide parts and service on LeTourneau equipment until April 27, 2012, and has
equipment orders in backlog of $18.5 million that are expected to be delivered
by the end of 2012. 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.
Power Systems
Three months ended March 31
2012 2011
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Equipment(i) $ 40.5 $ 35.4
Parts and service $ 55.4 $ 37.5
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Segment revenue $ 95.9 $ 72.9
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Segment earnings $ 8.7 $ 7.0
Segment earnings margin 9.1% 9.6%
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(i) Includes rental and other revenue.
Revenue in the first quarter of 2012 increased $23.0 million, or 32%, to $95.9
million compared to $72.9 million in the same quarter of 2011. Excluding the
Harper acquisition, Power Systems revenue in the first quarter of 2012 increased
$7.2 million, or 10% compared to the same quarter last year. Segment earnings
increased $1.7 million to $8.7 million in the first quarter compared to the same
quarter in the previous year. The following factors impacted quarterly revenue
and earnings:
-- Equipment revenue increased $5.1 million compared to last year.
Increased power generation equipment sales in western Canada and $2.9
million of revenues related to the Harper acquisition more than offset
lower power generation equipment sales in eastern Canada.
-- Parts and service volumes increased $17.9 million compared to last year
due mainly to $12.8 million of revenue 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 first quarter of 2012 increased $1.7 million
compared to the same quarter last year and included $0.5 million related
to the Harper operation. The increase was due to the positive impact of
additional volumes and a higher gross profit margin that more than
offset a $4.6 million increase in selling and administrative expenses.
The higher gross profit margin resulted from higher parts and service
margins offset in part by lower generator set equipment margins compared
to last year. Selling and administrative expenses increased due mostly
to $2.8 million of expenses related to the Harper operation and higher
personnel and sales related costs in western Canada.
Backlog of $70.4 million as of March 31, 2012 decreased $5.9 million compared to
December 31, 2011 due primarily to significant deliveries out of backlog in
western Canada. Backlog decreased $2.5 million compared to March 31, 2011.
Industrial Components
Three months ended March 31
2012 2011
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Segment revenue $ 93.3 $ 80.7
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Segment earnings $ 6.8 $ 4.4
Segment earnings margin 7.3% 5.5%
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Revenue of $93.3 million in the first quarter of 2012 increased $12.6 million,
or 16%, from $80.7 million in the first quarter of 2011. Segment earnings
increased $2.4 million to $6.8 million in the first quarter compared to the same
quarter in the previous year. The following factors contributed to the segment's
first quarter results:
-- Bearings and power transmission parts sales increased $6.5 million
compared to the same quarter last year led by higher mining sector
volumes in eastern and western Canada and increased sales to metal
processing customers across all regions. Higher sales to oil and gas,
construction and forestry sector customers also contributed to the
increased sales.
-- Fluid power and process equipment products and service revenue in the
first quarter of 2012 increased $6.1 million due mainly to improved oil
and gas drilling activity in western Canada and higher sales to
industrial and metal processing customers across Canada that more than
offset lower sales to forestry customers.
-- Segment earnings in the first quarter of 2012 increased $2.4 million
compared to the same quarter last year. The positive impact of higher
volumes outweighed a $1.1 million increase in selling and administrative
expenses. The increase in selling and administrative expenses resulted
mainly from higher personnel and sales related costs and computer system
upgrade expenses.
Backlog of $49.2 million as of March 31, 2012 increased $4.4 million compared to
December 31, 2011 and increased $3.7 million compared to March 31, 2011.
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.
2012 2011 2010
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
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Revenue $ 358.1 $ 377.2 $361.9 $ 334.1 $ 303.9 $ 316.4 $ 294.4 $ 272.0
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Earnings
before
income taxes $ 23.3 $ 22.5 $ 24.6 $ 22.4 $ 18.0 $ 14.9 $ 18.7 $ 11.9
Net earnings $ 17.1 $ 16.6 $ 17.9 $ 16.5 $ 12.8 $ 15.8 $ 19.6 $ 12.2
Net earnings
per share
- Basic $ 1.03 $ 1.00 $ 1.08 $ 0.99 $ 0.77 $ 0.95 $ 1.18 $ 0.73
- Diluted $ 1.01 $ 0.98 $ 1.06 $ 0.98 $ 0.76 $ 0.93 $ 1.16 $ 0.72
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Significant seasonal trends in quarterly revenue and earnings have not been
evident over the last two years.
A discussion of Wajax's previous quarterly results can be found in Wajax's
quarterly MD&A reports available on SEDAR at www.sedar.com.
Cash Flow, Liquidity and Capital Resources
Net Cash Flows Used In Operating Activities
Net cash flows used in operating activities amounted to $32.5 million in the
first quarter of 2012, compared to $20.7 million in the same quarter of the
previous year. The $11.8 million increase in net cash flows used in operating
activities was due mainly to an increased use of operating assets and
liabilities of $17.0 million and higher other liabilities of $2.3 million. This
was partially offset by higher cash flows from operating activities before
changes in operating assets and liabilities of $5.9 million and lower rental
equipment additions of $1.4 million.
Changes in operating assets and liabilities for the first quarter in 2012
compared to the same periods in 2011 include the following components:
Three months ended March 31
Changes in operating assets and liabilities 2012 2011
----------------------------------------------------------------------------
Trade and other receivables $ 19.4 $ 16.7
Inventories $ 28.2 $ 10.5
Prepaid expenses $ 2.9 $ (1.3)
Trade and other payables $ (17.1) $ 5.3
Accrued liabilities $ 17.4 $ 2.8
Provisions $ 0.4 $ 0.2
----------------------------------------------------------------------------
Total $ 51.3 $ 34.2
----------------------------------------------------------------------------
Significant components of the changes in operating assets and liabilities for
the quarter ended March 31, 2012 are as follows:
-- Trade and other receivables increased $19.4 million due primarily to
mining equipment receivables in the Equipment segment and higher sales
activity in the Industrial Components segment.
-- Inventories increased $28.2 million, mostly in the Equipment and
Industrial Components segments in anticipation of increased sales
activity.
-- Trade and other payables increased $17.1 million reflecting higher
inventory related trade payables, primarily in the Equipment segment.
-- Accrued liabilities decreased $17.4 million due mainly to lower customer
deposits in the Equipment segment and payment of prior year annual and
mid-term incentive accruals.
On the consolidated statement of financial position at March 31, 2012, Wajax had
employed $186.5 million in current assets net of current liabilities, exclusive
of funded net debt, compared to $165.0 million at December 31, 2011. The $21.5
million increase was due primarily to the cash flow factors listed above, offset
partially by an increase of $28.4 million in income taxes payable due January 1,
2013. The $28.4 million increase in income taxes payable includes approximately
$23 million of tax on partnership income generated in 2011 and tax on income to
be included in 2012 taxable income resulting from the change in tax legislation
that has effectively removed the partnership income deferral benefit. See
Liquidity and Capital Resources section for further detail.
Investing Activities
During the first quarter of 2012, Wajax invested $1.2 million in capital asset
additions net of disposals, compared to $0.9 million in the first quarter of
2011.
Financing Activities
The Corporation generated $22.0 million of cash from financing activities in the
first quarter of 2012 compared to $18.4 million of cash used in financing
activities in the same quarter of 2011. Financing activities in the quarter
included bank debt borrowing of $33.0 million, offset partially by dividends
paid to shareholders totaling $10 million, or $0.60 per share and finance lease
payments of $1.0 million.
Funded net debt of $108.1 million at March 31, 2012 increased $44.4 million
compared to December 31, 2011. The increase resulted mainly from net cash flows
used in operating activities of $32.5 million, dividends paid of $10.0 million,
investing activities of $1.2 million and finance lease payments of $1.0 million.
Wajax's quarter-end funded net debt-to-equity ratio of 0.46:1 at March 31, 2012
increased from the December 31, 2011 ratio of 0.28:1.
Liquidity and Capital Resources
At March 31, 2012, Wajax had borrowed $94.8 million and issued $6.2 million of
letters of credit for a total utilization of $101.0 million of its $175 million
bank credit facility and had no utilization of its $15 million equipment
financing facility. Borrowing capacity under the bank credit facility is
dependent on the level of inventories on-hand and outstanding trade accounts
receivables. At March 31, 2012 borrowing capacity under the bank credit facility
was equal to $175.0 million.
Since conversion to a corporation on January 1, 2011, 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 tax on income
to be included in 2012 taxable income resulting from the 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 requirements. However, Wajax may be required to access the
equity or debt markets in order to fund acquisitions and growth related working
capital and capital expenditures.
Financial Instruments
Wajax uses derivative financial instruments in the management of its foreign
currency and interest rate exposures. Wajax's policy is not to utilize
derivative financial instruments for trading or speculative purposes.
Significant derivative financial instruments outstanding at the end of the year
were as follows:
-- As at March 31, 2012, Wajax had no interest rate swaps outstanding. (As
at March 31, 2011, 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 March 31,
2012, Wajax had contracts outstanding to buy U.S.$40.3 million and EUR
0.2 million and to sell U.S.$4.0 million (December 31, 2011 - to buy
U.S.$36.0 million and EUR 0.2 million and to sell U.S.$1.0 million,
March 31, 2011 - to buy U.S.$26.2 million and to sell U.S.$4.7 million).
The U.S. dollar contracts expire between April 2012 and March 2013, with
a weighted average U.S./Canadian dollar rate of 1.0153 and weighted
average Euro / Canadian dollar rate of 1.4172.
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 until the related hedged item is recorded and affects 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.
Currency Risk
There have been no material changes to currency risk since December 31, 2011.
Contractual Obligations
There have been no material changes to currency risk since December 31, 2011.
Off Balance Sheet Financing
The Equipment segment had $75.4 million (2011 - $38.0 million) of consigned
inventory on-hand from a major manufacturer at March 31, 2012. In the normal
course of business, Wajax receives inventory on consignment from this
manufacturer which is generally sold to customers or purchased by Wajax. This
consigned inventory is not included in Wajax's inventory as the manufacturer
retains title to the goods.
Wajax's off balance sheet financing arrangements, with non-bank lenders, include
operating lease contracts in relation to Wajax's long-term lift truck rental
fleet in the Equipment segment. At March 31, 2012, the non-discounted operating
lease commitments for rental fleet was $1.9 million (December 31, 2011 - $2.5
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.
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
Dividends to shareholders were declared as follows:
Record Date Payment Date Per Share Amount
----------------------------------------------------------------------------
January 31, 2012 February 21, 2012 $ 0.20 $ 3.3
February 29, 2012 March 20, 2012 0.20 3.3
March 30, 2012 April 20, 2012 0.27 4.5
---------------------------------------------------------------------------
Three months ended March 31, 2012 $ 0.67 $ 11.1
---------------------------------------------------------------------------
On March 6, 2012, Wajax announced a monthly dividend of $0.27 per share ($3.24
annualized) for the month of April payable on May 20, 2012 to shareholders of
record on April 30, 2012.
On May 8, 2012 Wajax announced monthly dividends of $0.27 per share ($3.24
annualized) for each of the months of May, June and July payable on June 20,
2012, July 20, 2012 and August 20, 2012 to shareholders of record on May 31,
2012, June 29, 2012 and July 31, 2012 respectively.
Tax information relating to 2012 and prior year dividends is available on
Wajax's website at www.wajax.com.
Productive Capacity and Productive Capacity Management
There have been no material changes to the Corporation's productive capacity and
productive capacity management since December 31, 2011.
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
acquisitions and growth related working capital and capital expenditures.
Borrowing capacity under the bank credit facility is dependent on the level of
Wajax's inventories on-hand and outstanding trade accounts receivables. At March
31, 2012, total borrowing capacity under the bank credit facility was equal to
$175 million of which $101.0 million was utilized at March 31, 2012.
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 March 31, 2012 Number Amount
----------------------------------------------------------------------------
Balance at the beginning of the quarter 16,629,444 $ 105.4
Rights exercised - -
----------------------------------------------------------------------------
Balance at the end of the quarter 16,629,444 $ 105.4
----------------------------------------------------------------------------
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 $2.7 million for the quarter (2011 - $1.6 million) in
respect of these plans.
Critical Accounting Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Significant accounting estimates include the provision for inventory
obsolescence, provision for doubtful accounts and any impairment of goodwill and
other assets, classification of leases, warranty reserve and measurement of
employee benefit obligations. Wajax makes a provision for doubtful accounts when
there is evidence that a specific account may become uncollectible. Wajax does
not provide a general reserve for bad debts. As conditions change, actual
results could differ from those estimates. Critical accounting estimates used by
Wajax's management are discussed in detail in the MD&A for the year ended
December 31, 2011 which can be found on SEDAR at www.sedar.com.
Accounting Changes
Standards and interpretations not yet effective
In its MD&A for the year ended December 31, 2011 the Corporation described
numerous new accounting standards which have been published but which have not
yet been adopted by the Corporation. There have been no updates to these
standards except as follows:
During the quarter, the Corporation has assessed the impact of adopting IFRS 9
Financial Instruments and does not believe that it will have a material impact
on its consolidated financial statements because of the types of financial
instruments that it holds.
As of January 1, 2013, the Corporation will be required to adopt amendments to
IFRS 7 Financial Instruments: Disclosures, which contain new disclosure
requirements for financial assets and financial liabilities that are offset in
the statement of financial position. The Corporation is currently assessing the
impact of the amendments to this standard on its consolidated financial
statements.
As of January 1, 2014, the Corporation will be required to adopt amendments to
IAS 32 Financial Instruments: Presentation, which clarifies the conditions for
offsetting financial assets and financial liabilities. As the amendments only
require changes in the presentation of items in the statement of financial
position, the Corporation does not expect the amendments to IAS 32 to have a
material impact on the 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. There are however, a
number of risks that deserve particular comment which are discussed in detail in
the MD&A for the year ended December 31, 2011 which can be found on SEDAR at
www.sedar.com. There have been no material changes to the business of Wajax that
require an update to the discussion of the applicable risks discussed in the
MD&A for the year ended December 31, 2011.
Outlook
The Corporation's earnings increased 33% in the first quarter of 2012 compared
to the same quarter in 2011. As expected, improved results were led by sales
growth from the energy sector in western Canada and a relatively strong mining
market across Canada.
For the balance of 2012, management expects the level of Canadian economic
activity to be similar to what was experienced in the first quarter. Market
concern pertaining to the European debt crisis, the slowing Chinese economy and
the related effect on the Canadian resource sector has heightened recently.
While management is concerned about the effect these issues may have on Wajax's
revenue base, quoting in most of its end markets remains active and it continues
to maintain a strong backlog. As well, the distribution agreement for LeTourneau
mining equipment came to an end April 27th, however, management anticipates that
it will be able to deliver the $18.5 million of equipment orders in backlog by
the end of 2012. As a result, management's view regarding Wajax's full year 2012
earnings remains unchanged from last quarter, with the balance of the year
tracking more closely to the previous year.
Additional information, including Wajax's Annual Report and Annual Information
Form, are available on SEDAR at www.sedar.com.
WAJAX CORPORATION
Unaudited Condensed Consolidated Financial Statements
For the three months ended March 31, 2012
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 March December
dollars) Note 31, 2012 31, 2011
----------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ - $ 5,659
Trade and other receivables 193,610 174,233
Inventories 270,078 241,524
Prepaid expenses 10,900 8,033
----------------------------------------------------------------------------
474,588 429,449
----------------------------------------------------------------------------
NON-CURRENT
Rental equipment 3 30,467 28,060
Property, plant and equipment 4 47,762 47,924
Intangible assets 84,138 84,493
Deferred taxes 8 4,884 -
----------------------------------------------------------------------------
167,251 160,477
----------------------------------------------------------------------------
$ 641,839 $ 589,926
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness $ 5,978 $ -
Trade and other payables 5 180,025 163,108
Accrued liabilities 66,801 84,050
Provisions 5,290 5,704
Dividends payable 4,490 3,326
Income taxes payable 30,815 2,398
Obligations under finance leases 3,469 3,646
Derivative instruments 703 208
----------------------------------------------------------------------------
297,571 262,440
----------------------------------------------------------------------------
NON-CURRENT
Provisions 4,643 4,010
Deferred taxes 8 - 17,694
Employee benefits 6,825 6,843
Other liabilities 746 5,644
Obligations under finance leases 6,562 6,688
Bank debt 92,072 59,021
----------------------------------------------------------------------------
110,848 99,900
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 105,371 105,371
Contributed surplus 5,039 4,888
Retained earnings 123,436 117,477
Accumulated other comprehensive loss (426) (150)
----------------------------------------------------------------------------
Total shareholders' equity 233,420 227,586
----------------------------------------------------------------------------
$ 641,839 $ 589,926
----------------------------------------------------------------------------
----------------------------------------------------------------------------
These condensed consolidated financial statements were approved by the
Board of Directors on May 8, 2012.
WAJAX CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited, in thousands of Canadian dollars,
except per share data) Note 2012 2011
----------------------------------------------------------------------------
Revenue $ 358,076 $ 303,929
Cost of sales 280,187 238,066
----------------------------------------------------------------------------
Gross profit 77,889 65,863
----------------------------------------------------------------------------
Selling and administrative expenses 53,724 46,843
----------------------------------------------------------------------------
Earnings before finance costs and income
taxes 24,165 19,020
Finance costs 816 976
----------------------------------------------------------------------------
Earnings before income taxes 23,349 18,044
Income tax expense 8 6,248 5,228
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 17,101 $ 12,816
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per share 9 $ 1.03 $ 0.77
Diluted earnings per share 9 $ 1.01 $ 0.76
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited, in thousands of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Net earnings $17,101 $12,816
----------------------------------------------------------------------------
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 $3 (2011 - $230) 8 607
Losses on derivative instruments designated as cash
flow hedges during the period, net of tax of $101
(2011 - $103) (284) (272)
----------------------------------------------------------------------------
Other comprehensive (loss) income, net of tax (276) 335
----------------------------------------------------------------------------
Total comprehensive income $16,825 $13,151
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March
31, 2012
(unaudited, in thousands of Share Contributed Retained
Canadian dollars) Note capital surplus earnings
----------------------------------------------------------------------------
January 1, 2012 $ 105,371 4,888 117,477
----------------------------------------------------------------------------
Net earnings - - 17,101
Other comprehensive loss - - -
----------------------------------------------------------------------------
Total comprehensive income for the
period - - 17,101
----------------------------------------------------------------------------
Dividends 6 - - (11,142)
----------------------------------------------------------------------------
Share-based compensation expense 7 - 151 -
----------------------------------------------------------------------------
March 31, 2012 $ 105,371 5,039 123,436
----------------------------------------------------------------------------
Accumulated other
comprehensive
(loss) income
("AOCL")
---------------------
For the three months ended March
31, 2012
(unaudited, in thousands of
Canadian dollars) Note Cash flow hedges Total
----------------------------------------------------------------------------
January 1, 2012 (150) $ 227,586
----------------------------------------------------------------------------
Net earnings - 17,101
Other comprehensive loss (276) (276)
----------------------------------------------------------------------------
Total comprehensive income for the
period (276) 16,825
----------------------------------------------------------------------------
Dividends 6 - (11,142)
----------------------------------------------------------------------------
Share-based compensation expense 7 - 151
----------------------------------------------------------------------------
March 31, 2012 (426) $ 233,420
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March
31, 2011
(unaudited, in thousands of Share Trust Contributed
Canadian dollars) Note capital units surplus
----------------------------------------------------------------------------
January 1, 2011 $ - 105,371 3,931
----------------------------------------------------------------------------
Conversion to corporation 105,371 (105,371) -
Net earnings - - -
Other comprehensive income - - -
----------------------------------------------------------------------------
Total comprehensive income for the
period - - -
----------------------------------------------------------------------------
Dividends 6 - - -
----------------------------------------------------------------------------
Share-based compensation expense 7 - - 545
----------------------------------------------------------------------------
March 31, 2011 $ 105,371 - 4,476
----------------------------------------------------------------------------
AOCL
--------------
For the three months ended March
31, 2011
(unaudited, in thousands of Retained Cash flow
Canadian dollars) Note earnings hedges Total
----------------------------------------------------------------------------
January 1, 2011 91,805 (1,777) $ 199,330
----------------------------------------------------------------------------
Conversion to corporation - - -
Net earnings 12,816 - 12,816
Other comprehensive income - 335 335
----------------------------------------------------------------------------
Total comprehensive income for the
period 12,816 335 13,151
----------------------------------------------------------------------------
Dividends 6 (7,483) - (7,483)
----------------------------------------------------------------------------
Share-based compensation expense 7 - - 545
----------------------------------------------------------------------------
March 31, 2011 97,138 (1,442) $ 205,543
----------------------------------------------------------------------------
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited, in thousands of Canadian
dollars) Note 2012 2011
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 17,101 $ 12,816
Items not affecting cash flow:
Depreciation and amortization
Rental equipment 1,566 962
Property, plant and equipment 1,108 976
Assets under finance lease 857 720
Intangible assets 366 280
Loss (gain) on disposal of property,
plant and equipment 4 51 (16)
Share-based compensation expense 7 151 545
Non-cash rental (income) expense (142) 30
Employee benefits income, net of
payments (18) (178)
Non-cash loss on derivative instruments 121 -
Finance costs 816 976
Income tax expense 8 6,248 5,228
----------------------------------------------------------------------------
Cash flows from operating activities before
changes in operating assets and liabilities 28,225 22,339
----------------------------------------------------------------------------
Changes in operating assets and liabilities:
Trade and other receivables (19,377) (16,659)
Inventories (28,243) (10,521)
Prepaid expenses (2,867) 1,299
Trade and other payables 17,059 (5,320)
Accrued liabilities (17,416) (2,843)
Provisions (414) (200)
----------------------------------------------------------------------------
(51,258) (34,244)
----------------------------------------------------------------------------
Cash flows used in operating activities (23,033) (11,905)
----------------------------------------------------------------------------
Rental equipment additions 3 (4,284) (5,682)
Provisions, non-current 633 139
Other liabilities (4,898) (2,620)
Finance costs paid (599) (856)
Income taxes (paid) received (310) 169
----------------------------------------------------------------------------
Net cash flows used in operating activities (32,491) (20,755)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment additions 4 (1,209) (968)
Proceeds on disposal of property, plant
and equipment 4 40 54
Intangible assets additions (11) (25)
----------------------------------------------------------------------------
Net cash flows used in investing activities (1,180) (939)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in bank debt 32,998 -
Finance lease payments (986) (926)
Dividends paid (9,978) (17,461)
----------------------------------------------------------------------------
Net cash flows generated from (used in)
financing activities 22,034 (18,387)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net change in cash (11,637) (40,081)
----------------------------------------------------------------------------
Cash - beginning of period 5,659 42,954
----------------------------------------------------------------------------
(Bank indebtedness) cash - end of period $ (5,978) $ 2,873
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WAJAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2012
(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.
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
and 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 Corporation for the year ended December 31, 2011. The
significant accounting policies follow those disclosed in the most recently
reported annual consolidated financial statements.
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 employee benefit liability is recognized as the net total of the
pension 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 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. RENTAL EQUIPMENT
During the three months ended March 31, 2012 the Corporation acquired rental
equipment with a cost of $4,284 (2011 - $5,682). Rental equipment with a
carrying amount of $311 (2011 - $1,144) ceased to be rented and was classified
as held for sale in the normal course of business and transferred to inventory.
4. PROPERTY, PLANT AND EQUIPMENT
During the three months ended March 31, 2012 the Corporation acquired property,
plant and equipment with a cost of $1,209 (2011 - $968). Assets with a carrying
amount of $91 (2011 - $38) were disposed of, resulting in a loss on disposal of
$51 (2011 - gain of $16).
5. TRADE AND OTHER PAYABLES
March December
31, 2012 31, 2011
----------------------------------------------------------------------------
Trade payables $ 152,328 $ 139,828
Other payables 14,073 12,362
Deferred income 13,624 10,918
----------------------------------------------------------------------------
Total trade and other payables $ 180,025 $ 163,108
----------------------------------------------------------------------------
6. DIVIDENDS DECLARED
During the three months ended March 31, 2012 the Corporation declared cash
dividends of $0.67 per share, or $11,142 (March 31, 2011, dividends of $0.45 per
share or $7,483).
The Corporation has declared dividends of $4,490 ($0.27 per share) for the month
of April 2012.
7. 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
The Corporation recorded compensation cost of $151 for the three months ending
March 31, 2012 (2011 - $545) in respect of these plans.
Share Ownership Plan March 31, 2012 March 31, 2011
----------------------------------------------------------------------------
Fair value Fair value
Number of at time of Number of at time of
Rights grant Rights grant
----------------------------------------------------------------------------
Outstanding at beginning of
period 109,788 $ 1,024 101,999 $ 1,024
Granted in the
period - new grants - - - -
- dividend
equivalents 1,518 - 2,948 -
----------------------------------------------------------------------------
Outstanding at end of period 111,306 $ 1,024 104,947 $ 1,024
----------------------------------------------------------------------------
At March 31, 2012 101,668 SOP rights were vested (March 31, 2011 - 96,297).
Deferred Share Program March 31, 2012 March 31, 2011
----------------------------------------------------------------------------
Fair value Fair value
Number of at time of Number of at time of
Rights grant Rights grant
----------------------------------------------------------------------------
Outstanding at beginning of
period 30,216 $ 750 24,165 $ 600
Granted in the
period - new grants - - 3,989 150
- dividend
equivalents 418 - 730 -
----------------------------------------------------------------------------
Outstanding at end of period 30,634 $ 750 28,884 $ 750
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All DSP rights have vested at March 31, 2012 (no rights had vested at March 31,
2011).
Directors' Deferred Share Unit
Plan March 31, 2012 March 31, 2011
----------------------------------------------------------------------------
Fair value Fair value
Number of at time of Number of at time of
Rights grant Rights grant
----------------------------------------------------------------------------
Outstanding at beginning of
period 176,591 $ 3,134 147,797 $ 2,509
Granted in the
period - new grants 2,951 145 3,430 135
- dividend
equivalents 2,443 - 4,271 -
----------------------------------------------------------------------------
Outstanding at end of period 181,985 $ 3,279 155,498 $ 2,644
----------------------------------------------------------------------------
DDSUP rights vest immediately upon grant.
b) Mid-Term Incentive Plan for Senior Executives ("MTIP")
The Corporation recorded compensation cost of $2,516 for the three months ending
March 31, 2012 (2011 - $1,046) in respect of the share-based portion of the
MTIP. At March 31, 2012 the carrying amount of the share-based portion of the
MTIP liability was $5,814 (2010 - $4,898).
c) Deferred Share Unit Plan ("DSUP")
The Corporation recorded compensation cost of $58 for the three months ended
March 31, 2012 (three months ended March 31, 2011 - nil) in respect of the
share-based portion of the DSUP. At March 31, 2012 the carrying amount of the
DSUP liability was $250 (2011 - nil).
8. INCOME TAXES
Income tax expense comprises current and deferred tax as follows:
For the three months ended March 31 2012 2011
------------------------------------------------------------------------
Current $ 28,727 $ 5,317
Deferred - Origination and reversal of temporary
difference (22,479) (135)
- Change in tax law and rates - 46
------------------------------------------------------------------------
Income tax expense $ 6,248 $ 5,228
------------------------------------------------------------------------
The calculation of current tax is based on a combined federal and provincial
statutory income tax rate of 26.2% (2011 - 27.7%). The tax rate for the current
year is 1.5% lower than 2011 due to the effect of the reduced statutory tax
rates. Deferred tax assets and liabilities are measured at tax rates that are
expected to apply to the period when the asset is realized or the liability is
settled. Deferred tax assets and liabilities have been measured using an
expected average combined statutory income tax rate of 25.9% based on the tax
rates in years when the temporary differences are expected to reverse.
The reconciliation of effective income tax is as follows:
For the three months ended March 31 2012 2011
----------------------------------------------------------------------------
Combined statutory income tax rate 26.2% 27.7%
Expected income tax expense at statutory rates $ 6,117 $ 4,998
Non-deductible expenses 114 199
Deferred tax related to changes in tax law and rates - 46
Other 17 (15)
----------------------------------------------------------------------------
Income tax expense $ 6,248 $ 5,228
----------------------------------------------------------------------------
Recognized deferred tax assets and liabilities
Recognized deferred tax assets and liabilities are comprised as follows:
March December
31, 2012 31, 2011
----------------------------------------------------------------------------
Accrued liabilities $ 5,246 $ 5,249
Provisions 1,936 2,504
Employee benefits 1,795 1,752
Property, plant and equipment (1,764) (1,773)
Finance leases (275) (195)
Intangible assets (2,431) (2,355)
Deferred financing costs (29) (29)
Partnership income not currently taxable (168) (23,236)
Tax loss carryforwards 420 333
Derivative instruments 154 56
----------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 4,884 $ (17,694)
----------------------------------------------------------------------------
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
For the three months ended March 31 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Numerator for basic and diluted earnings per
share:
- net earnings $ 17,101 $ 12,816
----------------------------------------------------------------------------
Denominator for basic earnings per share:
- weighted average shares 16,629,444 16,629,444
----------------------------------------------------------------------------
Denominator for diluted earnings per share:
- weighted average shares 16,629,444 16,629,444
- effect of dilutive share rights 318,380 273,893
----------------------------------------------------------------------------
Denominator for diluted earnings per share 16,947,824 16,903,337
----------------------------------------------------------------------------
Basic earnings per share $ 1.03 $ 0.77
----------------------------------------------------------------------------
Diluted earnings per share $ 1.01 $ 0.76
----------------------------------------------------------------------------
----------------------------------------------------------------------------
No share rights were excluded from the above calculations as none were
anti-dilutive.
10. 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 and servicing of power systems; and iii) the
distribution, servicing and assembly of industrial components.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment
Eliminations
For the three months and
ended Power Industrial Unallocated
March 31, 2012 Equipment Systems Components Amounts Total
----------------------------------------------------------------------------
Equipment $ 98,710 $ 39,025 $ $ $ 137,735
Parts 40,709 38,348 88,120 167,177
Service 23,374 17,081 5,161 45,616
Rental and other 7,573 1,448 (1,473) 7,548
----------------------------------------------------------------------------
Revenue $ 170,366 $ 95,902 $ 93,281 $ (1,473) $ 358,076
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and income
taxes $ 13,139 $ 8,687 $ 6,807 $ $ 28,633
Corporate costs and
eliminations (4,468) (4,468)
----------------------------------------------------------------------------
Earnings before
finance costs and
income taxes 13,139 8,687 6,807 (4,468) 24,165
Finance costs 816 816
Income tax expense 6,248 6,248
----------------------------------------------------------------------------
Net earnings $ 13,139 $ 8,687 $ 6,807 $ (11,532) $ 17,101
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets
excluding
intangible assets $ 283,616 $ 148,744 $ 120,296 $ $ 552,656
Intangible assets 22,025 14,683 47,412 18 84,138
Corporate and other
assets 5,045 5,045
----------------------------------------------------------------------------
Total assets $ 305,641 $ 163,427 $ 167,708 $ 5,063 $ 641,839
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment
Eliminations
For the three months and
ended Power Industrial Unallocated
March 31, 2011 Equipment Systems Components Amounts Total
----------------------------------------------------------------------------
Equipment $ 80,500 $ 33,734 $ $ $ 114,234
Parts 44,823 24,081 76,730 145,634
Service 19,086 13,403 3,994 36,483
Rental and other 7,034 1,713 (1,169) 7,578
----------------------------------------------------------------------------
Revenue $ 151,443 $ 72,931 $ 80,724 $ (1,169) 303,929
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment earnings
before finance
costs and income
taxes $ 11,191 $ 7,014 $ 4,445 $ $ 22,650
Corporate costs and
eliminations (3,630) (3,630)
----------------------------------------------------------------------------
Earnings before
finance costs and
income taxes 11,191 $ 7,014 $ 4,445 (3,630) 19,020
Finance costs 976 976
Income tax expense 5,228 5,228
----------------------------------------------------------------------------
Net earnings $ 11,191 $ 7,014 $ 4,445 $ (9,834) $ 12,816
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segment assets
excluding
intangible assets $ 224,732 $ 100,229 $ 104,016 $ $ 428,977
Intangible assets 21,626 5,717 48,181 15 75,539
Cash 2,873 2,873
Corporate and other
assets 5,340 5,340
----------------------------------------------------------------------------
Total assets $ 246,358 $ 105,946 $ 152,197 $ 8,228 $ 512,729
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
11. COMPARATIVE INFORMATION
Certain comparative amounts have been reclassified to conform with the current
period presentation.
Diamondex Resources Ltd. (Tier1) (TSXV:DSP)
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