Mining a Wealth
of Experience
Wajax Corporation
Annual Report 2011
Financial Highlights
Wajax 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, Wajax has
three distinct business divisions, which operate through a network of 117 branches across Canada.
The Company’s customer base covers core sectors of the Canadian economy – mining, oil and gas,
forestry, construction, manufacturing, industrial processing, transportation and utilities.
For the years ended December 31 ($ millions, except per share data)
2011
2010 (1)
2009 (1)(2)
Revenue
Earnings before income taxes
Net earnings
Cash flows from operating activities before
changes in operating assets and liabilities
Current assets net of current liabilities,
exclusive of funded net debt (3)
Funded net debt (3)
Shareholders’ equity
Basic earnings per share
Cash dividends declared
Funded net debt to equity
Weighted average number of shares outstanding
Revenue (2)
($ millions)
1,377.1
1,110.9
1,007.2
1,213.5
1,192.3
$ 1,377.1
$ 1,110.9
$ 1,007.2
87.5
63.8
106.2
165.0
63.7
227.6
3.84
2.14
53.9
56.4
73.4
118.3
45.6
199.3
3.39
3.40
32.2
34.2
45.1
150.9
70.3
200.4
2.06
2.47
0.28:1
0.23:1
0.35:1
16,629,444
16,613,676
16,596,853
Cash Flows from Operating Activities Before
Changes in Operating Assets and Liabilities (2)
106.2
73.4
45.1
($ millions)
87.5
85.0
2011
2010
2009
2008
2007
2011
2010
2009
2008
2007
Basic Earnings Per Share(1)(2) ($)
Net Earnings (1)(2) ($ millions)
3.84
3.39
4.57
4.34
63.8
56.4
75.8
72.0
2.06
34.2
2011
2010
2009
2008
2007
2011
2010
2009
2008
2007
(1) For years prior to 2011, Wajax was an income fund and effectively not subject to income tax.
(2) Years 2009, 2008 and 2007 reported under previous Canadian GAAP.
(3) Funded net debt includes bank debt and obligations under finance leases net of cash.
Wajax at a Glance
Overview
2011 Revenue by Region
2011 Revenue by Market
• Wajax has three distinct divisions, which operate
through a network of 117 branches across Canada.
• Wajax is a multi-line distributor and each of its
divisions represents a number of leading worldwide
manufacturers.
• Our customer base is diversified, spanning
natural resources, construction, transportation,
manufacturing, industrial processing and utilities.
Division Overview
Wajax Equipment
n Western Canada
n Eastern Canada
n Ontario
54%
29%
17%
2011 Division Revenue
By Product Type
• The largest multi-line distributor of mobile
equipment in Canada.
• 32 branches
• 980 employees
• 50% of total revenue and 47% of total earnings
before finance costs, taxes and corporate costs
• Business: Distribution, rental, modification
and servicing of mobile equipment from
leading manufacturers.
• Products: Excavators, lift trucks, mining trucks
and shovels, forest harvesting equipment, utility
equipment, road building equipment, loader
backhoes, container handlers, cranes (including
crawler and rough terrain cranes), skid steer
loaders, wheel loaders, shuttle cars and
continuous miners.
• Markets: Construction, materials handling,
forestry, mining, government, oil & gas, utilities
and manufacturing.
Wajax Industrial Components
By Market
• A leading distributor of industrial products
• Products: Bearings, power transmission parts,
in Canada.
• 57 branches
• 787 employees
• 25% of total revenue and 22% of total earnings
before finance costs, taxes and corporate costs
• Business: Distribution, servicing, custom design
and assembly of industrial components for in-plant
customers and original equipment manufacturers.
hydraulic components & systems, process pumps
& equipment, motors, cylinders, hoses & fittings,
hoists, filters and safety supplies.
• Markets: Metal processing, construction, mining,
food processing, oil & gas, forestry, resellers/
distributors, transportation and industrial/
manufacturing.
Wajax Power Systems
By Market
• One of the largest distributors of diesel engines
• Products: Diesel and natural gas engines,
and transmissions in Canada.
transmissions and power generators.
• 28 branches
• 949 employees
• 25% of total revenue and 31% of total earnings
before finance costs, taxes and corporate costs
• Business: Distribution, rental and servicing
of engines, transmissions and generators for
on-highway, off-highway and electric power
generation applications.
• Markets: Construction, mining, forestry, oil & gas,
industrial/commercial, transportation, utilities,
marine and military.
n Industrial/Commercial
n Construction
n Oil & Gas
n Oil Sands
n Mining
n Transportation
n Forestry
n Government & Utilities
n Metal Processing
n Other
n Construction
n Mining/Oil Sands
n Material Handling
n Forestry
n Crane & Utility
n Industrial/Manufacturing
n Mining
n Oil & Gas
n Forestry
n Metal Processing
n Construction
n Food & Beverage
n Transportation
n Other
16%
14%
13%
11%
11%
9%
9%
6%
4%
7%
33%
31%
16%
13%
7%
17%
14%
14%
14%
11%
6%
5%
4%
15%
n Oil & Gas
n On-Highway Transportation
n Industrial/Commercial
n Oil Sands
n Mining
n Other
34%
23%
20%
6%
3%
14%
Wajax Corporation Annual Report 2011 • 1
Message to Our Shareholders
Wajax Corporation’s 2011 Year in Review
We achieved record revenues and earnings before income tax in 2011, driven
by execution of our strategic initiatives and a stronger Canadian economy.
Revenues and earnings before tax rose to a record $1.38 billion and
Rebranding Initiative
$87.5 million respectively, from $1.11 billion and $53.9 million in
In 2011, we worked to strengthen our brand by capitalizing on the history
2010, representing year-over-year increases of 24% and 62%. The before
and legacy of the Wajax name. As part of a major rebranding initiative,
income tax comparison is appropriate for this first year after conversion
all three business segments now share the Wajax name and the stylized
from an income fund, when we were effectively not subject to income tax.
red “W” logo. Wajax Industries received a name update reflective of
These strong results enabled us to declare cash dividends to shareholders
its position as Canada’s largest multi-line equipment distributor and
totaling $2.14 per share in 2011.
Our revenue gains were driven by execution of our strategic initiatives
and by a stronger domestic economy, led by robust energy, mining,
forestry and construction markets, particularly in western Canada. These
factors resulted in increases in both product and parts and service sales
throughout the year. In addition to revenue growth, the increase in 2011
earnings before income tax was attributable to maintaining disciplined
control over selling and administrative costs in all three business segments.
Each of our business segments performed very well and contributed to
the overall increase in consolidated 2011 earnings. Wajax Equipment
was able to overcome the supply disruption to its Hitachi product line
caused by the March earthquake and tsunami in Japan, which resulted
in the delay of approximately $40 million in equipment deliveries. In
spite of this, Equipment posted a 29% increase in segment earnings on
a 23% growth in revenues. Wajax Industrial Components almost doubled
its 2010 earnings on a 15% increase in sales and Wajax Power Systems
recorded a 71% increase in segment earnings on 35% higher revenues,
which included results from the acquisition of Harper Power Products.
Harper Acquisition
With the acquisition of Harper in May, Wajax Power Systems took a major
now operates as Wajax Equipment. Kinecor and its Peacock division
now operate as Wajax Industrial Components. DDACE Power Systems,
Waterous Power Systems and the newly acquired Harper business now
operate as Wajax Power Systems. By bringing all three segments under
one common brand name, customers and suppliers will be able to
appreciate the company’s size, strength and integrated business approach.
This initiative also enhances our recruiting and retention programs, which
are designed to attract the industry’s highest calibre personnel.
2012
In 2012, we expect growth in the Canadian economy to be more modest
than that experienced in 2011. This is primarily a result of the continuing
high value of the Canadian dollar, and the dampening effects of the
European sovereign debt crisis and a slowing Chinese economy on world
economic activity. However, we expect global demand for commodities,
including energy, to remain relatively strong. This should bode well for
Canada’s resource-based economy and our three operating segments,
which are heavily weighted to the Canadian resource industry, including
the energy sector of western Canada.
For 2012, each business segment is continuing to implement strategies
designed to promote market share, revenue and earnings growth.
step towards becoming a Canada-wide total power systems solution
Through product sales and aftermarket initiatives, Wajax Equipment
provider. The addition of Harper’s nine branches, located in major
is continuing to focus on building market share across all of its key
markets including Toronto, Ottawa, Hamilton, London and Sudbury, have
product lines. In 2011, the segment made significant strides toward
given Wajax Power Systems a significant presence in Ontario, where it
improving its aftermarket support capabilities, which we believe is the
previously had limited coverage. As well, the acquisition means that we
foundation for increased market share. Parts availability and customer
are the authorized distributor of Detroit Diesel, Mercedes Benz and MTU
fill rates have been increased, and upgraded processes adopted for
engines, MTU Onsite generator sets and Allison transmissions across
inventory forecasting, ordering and stocking. As well, the segment is
Canada, with the exception of portions of British Columbia.
working to expand its operations in the growing mining sector by building
Results from the acquisition for eight months of 2011 have exceeded
our expectations, contributing meaningfully to revenues and earnings.
its organizational and support infrastructure to capitalize on market
opportunities, particularly in Ontario and eastern Canada.
In 2012, we expect to build upon this success, particularly in the off-
Following the reorganization of its business in 2010, Wajax Industrial
highway and power generation segments of the market, as the former
Components has undertaken significant initiatives to increase its
Harper business is fully integrated into the Wajax Power Systems segment.
operational efficiency. Enhancements are being made to inventory
2 • Wajax Corporation Annual Report 2011
Paul E. Gagné
Chairman of the Board
and supply chain management, and compensation and performance
Acknowledgments
management systems have been revamped. The segment continues to
After nearly a decade as President and Chief Executive Officer, Neil
further build and promote its higher margin, value-added engineering and
Manning is retiring. Neil has made an outstanding contribution to Wajax.
technical services capabilities, particularly in the fluid power and process
Under his leadership since 2002, the company has been transformed
equipment markets, and its ability to provide shop repair services. As
into a high-performing, valued distributor of mobile equipment, industrial
well, Wajax Industrial Components is in the midst of developing a full
components and power systems. From the time Neil took over as Chief
customer interfacing e-commerce capability, with completion scheduled
Executive Officer to the end of February 2012, the company’s share price
for the end of 2012.
Wajax Power Systems has recently broken ground on a new facility
in Drummondville, Quebec, which will be leveraged to increase and
consolidate its power generation and off-highway packaging and
integration capabilities. In 2011, the segment introduced a turn-key
has risen from $4.01 to $43.80 and the total return shareholders have
enjoyed during that same period was almost 1600%. On behalf of the
Board of Directors and the shareholders of Wajax, I thank Neil for these
contributions and his commitment to the company’s success. We wish
him health and happiness in his retirement.
power generation rental fleet initiative in western Canada. The success of
We welcome Mark Foote as the new President and Chief Executive Officer.
that program has led to our planned expansion of the rental fleet across
Mark arrives with a wealth of experience in distribution, supply chain
the rest of the country. Since the Harper acquisition, the segment has
management and logistics. Most recently, he served as the President and
further enhanced its product offering via new distribution agreements for
Chief Executive Officer of Zellers, and prior to that, was the President and
Doosan generators and Volvo Penta engines.
Chief Merchandising Officer at Loblaws Companies. Mark also had a career
At the corporate level, our strategic human resources initiative is underway
with the goal of implementing best practices consistently across all
business segments. This will support our efforts to entrench Wajax as the
of more than 20 years at Canadian Tire Corporation, including 5 years as
President, Canadian Tire Retail. We look forward to Mark’s contributions to
Wajax, its employees, suppliers, customers and shareholders.
employer of choice for the top talent in the industry. Strengthening our
On behalf of our shareholders, management, and our Board of directors I
workplace health and safety culture remains a top corporate priority, and
would also like to pay special thanks to Ivan Duvar and Valerie Nielsen,
in 2012 we will look to build on the 46% reduction in lost-time injuries
who will be retiring from the Board in May 2012. Ivan has been a long-
and 69% reduction in total lost days due to injuries achieved in 2011.
time Chairman of the Human Resources and Compensation Committee
With the foregoing initiatives, and a continuing focus on cost and asset
base management within a sound capital structure, we are confident
in our ability to continue to deliver a sustainable and superior return on
investment to the shareholders of Wajax Corporation.
It is important to emphasize that the conversion to a corporate entity has
not changed the fundamental business model that produced rewarding
results for Wajax Income Fund investors. We continue to operate as a
business with low ongoing capital requirements relative to our ability to
generate cash. We also continue to maintain our focus on operational
excellence and profitable growth across our three business segments
and, commencing in 2012, we have established an objective of declaring
annual dividends equal to at least 75% of earnings, paid on a monthly basis.
of the Board, and his counsel and advice over the last eleven years have
been invaluable. Since 1995, Valerie has made many contributions to
the work of the Audit and Governance Committees and she has seen the
Corporation through significant growth over her tenure. We also wish Ivan
and Valerie health and happiness in their retirement.
Finally, the past year’s success was made possible through the skill
and dedication of our management team and the everyday efforts of the
approximately 2,700 people employed throughout our operations. With
their support, and the continued loyalty of our customers and suppliers, I
am confident Wajax will continue its record of superior performance.
Paul E. Gagné
Chairman of the Board
March 6, 2012
Wajax Corporation Annual Report 2011 • 3
Management’s Discussion and Analysis
Management’s Discussion and Analysis
The following management’s discussion and analysis (“MD&A”) provides
As at December 31, 2011 Wajax’s management, under the supervision
a review of the consolidated financial condition and results of operations
of its CEO and CFO, had designed ICFR to provide reasonable
of Wajax Corporation (“Wajax” or “Corporation”) for the year ended
assurance regarding the reliability of financial reporting and the
December 31, 2011. On January 1, 2011, Wajax adopted International
preparation of financial statements for external purposes in accordance
Financial Reporting Standards (“IFRS”). The term “Canadian GAAP” refers
with IFRS. In completing the design, management used the criteria set
to Canadian generally accepted accounting principles before the adoption
forth by the Committee of Sponsoring Organizations of the Treadway
of IFRS. The following discussion should be read in conjunction with
Commission (“COSO”) in Internal Control – Integrated Framework. With
the Corporation’s Consolidated Financial Statements and accompanying
regard to general controls over information technology, management
notes. Information contained in this MD&A is based on information
also used the set of practices of Control Objectives for Information and
available to management as of March 6, 2012.
related Technology (“COBIT”) created by the IT Governance Institute.
Unless otherwise indicated, all financial information within this MD&A is
Wajax has not yet completed the design of DC&P and ICFR related to
in millions of dollars, except share and per share data.
the May 2, 2011 acquisition of the assets of Harper Power Products Inc.
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
(“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.
filings, interim filings or other reports filed or submitted under securities
Wajax’s core distribution businesses are engaged in the sale and
legislation is accumulated and communicated to Wajax’s management,
after-sale parts and service support of mobile equipment, industrial
including its CEO and CFO, as appropriate, to allow timely decisions
components and power systems through a network of 117 branches
regarding required disclosure.
across Canada. Wajax is a multi-line distributor and represents a
4 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
number of leading worldwide manufacturers in its core businesses. Its
revenue and earnings outlook, our plans and expectations for revenue
customer base is diversified, spanning natural resources, construction,
and earnings growth, planned marketing, strategic, operational and
transportation, manufacturing, industrial processing and utilities.
growth initiatives and their expected outcomes, our current and future
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.
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
Cautionary Statement Regarding Forward-Looking Information
in the supply and demand for, and the level of prices for, commodities,
This MD&A contains certain forward-looking statements and
fluctuations in financial market conditions, including interest rates, the
forward-looking information, as defined in applicable securities
level of demand for, and prices of, the products and services we offer,
laws (collectively, “forward-looking statements”). These forward-
market acceptance of the products we offer, termination of distribution
looking statements relate to future events or the Corporation’s future
or original equipment manufacturer agreements, unanticipated
performance. All statements other than statements of historical
operational difficulties (including failure of plant, equipment or
fact are forward-looking statements. Often, but not always, forward
processes to operate in accordance with specifications or expectations,
looking statements can be identified by the use of words such as
cost escalation, unavailability of quality products or inventory,
“plans”, “anticipates”, “intends”, “predicts”, “expects”, “is expected”,
supply disruptions, job action and unanticipated events related to
“scheduled”, “believes”, “estimates”, “projects” or “forecasts”, or
health, safety and environmental matters), our ability to attract and
variations of, or the negatives of, such words and phrases or state that
retain skilled staff and our ability to maintain our relationships with
certain actions, events or results “may”, “could”, “would”, “should”,
suppliers, employees and customers. The foregoing list of factors
“might” or “will” be taken, occur or be achieved. Forward looking
is not exhaustive. Further information concerning the risks and
statements involve known and unknown risks, uncertainties and other
uncertainties associated with these forward looking statements and the
factors beyond the Corporation’s ability to predict or control which
Corporation’s business may be found in this MD&A under the heading
may cause actual results, performance and achievements to differ
“Risk Management and Uncertainties” and in our Annual Information
materially from those anticipated or implied in such forward looking
Form for the year ended December 31, 2011, filed on SEDAR. The
statements. There can be no assurance that any forward looking
forward-looking statements contained in this MD&A are expressly
statement will materialize. Accordingly, readers should not place
qualified in their entirety by this cautionary statement. The Corporation
undue reliance on forward looking statements. The forward looking
does not undertake any obligation to publicly update such forward-
statements in this MD&A are made as of the date of this MD&A,
looking statements to reflect new information, subsequent events or
reflect management’s current beliefs and are based on information
otherwise unless so required by applicable securities laws. Readers
currently available to management. Although management believes
are further cautioned that the preparation of financial statements in
that the expectations represented in such forward-looking statements
accordance with IFRS requires management to make certain judgments
are reasonable, there is no assurance that such expectations will
and estimates that affect the reported amounts of assets, liabilities,
prove to be correct. Specifically, this MD&A includes forward looking
revenues and expenses. These estimates may change, having either
statements regarding, among other things, our expectations for the
a negative or positive effect on net earnings as further information
Canadian economy in 2012, the global demand for commodities and
becomes available, and as the economic environment changes.
the associated impact on the Canadian mining and energy sectors, our
Wajax Corporation Annual Report 2011 • 5
Management’s Discussion and Analysis
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
Revenue
Gross profit
Selling and administrative expenses
Earnings before finance costs and income taxes
Finance costs
Earnings before income taxes
Income tax expense (recovery)
Net earnings
Earnings per share
Basic
Diluted
2011
1,377.1
292.4
200.3
92.1
4.6
87.5
23.7
63.8
$3.84
$3.77
$
$
$
$
$
$
$
$
$
$
2010
1,110.9
237.9
179.6
58.2
4.3
53.9
(2.5)
56.4
$3.39
3.34
$
$
$
$
$
$
$
$
$
$
Revenue by Geographic Region
2011
2010
(cid:31) Western Canada 54%
(cid:31) Eastern Canada* 29%
(cid:31) Ontario 17%
(cid:31) Western Canada 49%
(cid:31)
Eastern Canada* 34%
(cid:31) Ontario 17 %
* Includes Quebec and the Atlantic provinces.
Revenue by Segment
2011
2010
(cid:31) Equipment 50%
(cid:31)
(cid:31) Power Systems 25%
Industrial Components 25%
Equipment 50%
Industrial Components 27%
(cid:31)
(cid:31)
(cid:31) Power Systems 23%
6 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
(cid:31) Equipment 47%
(cid:31)
(cid:31) Power Systems 31%
Industrial Components 22%
EBIT by Segment
2011
Revenue by Market
2011
Equipment 56%
Industrial Components 17%
(cid:31)
(cid:31)
(cid:31) Power Systems 27%
2010
2010
Industrial/Commercial 16%
(cid:31)
(cid:31) Construction 14%
(cid:31) Oil and Gas 13%
(cid:31) Oil Sands 11%
(cid:31) Mining 11%
(cid:31)
(cid:31)
(cid:31) Government & Utilities 6%
(cid:31) Metal Processing 4%
(cid:31) Other 7%
Transportation 9%
Forestry 9%
Industrial/Commercial 16%
(cid:31)
(cid:31) Construction 10%
(cid:31) Oil and Gas 10%
(cid:31) Oil Sands 12%
(cid:31) Mining 13%
(cid:31)
(cid:31)
(cid:31) Government & Utilities 7%
(cid:31) Metal Processing 5%
(cid:31) Other 6%
Transportation 11%
Forestry 10%
Revenue
$2.6 million increase in annual and mid-term incentive accruals, $7.5
Revenue in 2011 of $1,377.1 million increased 24%, or $266.2
million of selling and administrative expenses relating to Harper and
million, from $1,110.9 million in 2010 and included $49.3 million
higher sales related and occupancy costs. These increases were offset
of revenue from the acquisition of the assets of Harper by the Power
partially by lower bad debt expenses in the Equipment segment. Selling
Systems segment effective May 2, 2011. Equipment segment
and administrative expenses as a percentage of revenue decreased to
revenue increased 23%, or $130.0 million, due mainly to stronger
14.5% in 2011 from 16.2% in 2010.
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
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.
Wajax Corporation Annual Report 2011 • 7
Management’s Discussion and Analysis
Net earnings
Industrial Components segment more than offset the decreases in the
Net earnings for the year ended December 31, 2011 increased $7.4
Power Systems segment. Backlog includes the total retail value of
million to $63.8 million, or $3.84 per share, from $56.4 million, or
customer purchase orders for future delivery or commissioning.
$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
CEO succession
income tax expense.
Comprehensive income
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,
Comprehensive income for the year ended December 31, 2011 of
2012. Mark has extensive experience in distribution, supply chain
$62.9 million increased $6.7 million from $56.2 million the previous
management and logistics. Most recently, he served as the President
year due to higher net earnings of $7.4 million, offset partially by a
and Chief Executive Officer of Zellers, and prior to that, was the
$0.7 million increase in other comprehensive loss. The increase in
President and Chief Merchandising Officer at Loblaws Companies. Mark
other comprehensive loss resulted from increased actuarial losses
also had a career of more than 20 years at Canadian Tire Corporation,
on pension plans and a decrease in losses on derivative instruments
including five years as President, Canadian Tire Retail.
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
Results of Operations
Equipment
For the year ended December 31
Equipment*
Parts and service
Segment revenue
Segment earnings
Segment earnings margin
* Includes rental and other revenue.
Revenue by Product Type
Market
n Construction
n Mining/Oil Sands
n Material Handling
n Forestry
n Crane & Utility
2011
2010
$ 428.0 $ 332.4
$ 257.8 $ 223.4
$ 685.8 $ 555.8
$ $50.2 $
7.3%
39.0
7.0%
2011
33%
31%
16%
13%
7%
2010
30%
30%
17%
12%
11%
term portion, are no more restrictive than in the previous facility. See
Revenue increased 23%, or $130.0 million, to $685.8 million in 2011
Liquidity and Capital Resources section.
Dividends
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:
For the twelve months ended December 31, 2011 monthly dividends
declared totaled $2.14 per share. For the twelve months ended
• Equipment revenue increased by $95.6 million compared to last year.
December 31, 2010 monthly cash distributions declared as an income
Specific year-over-year variances included the following:
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
» 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.
8 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
» Material handling equipment revenue increased $14.5 million due
to higher market demand primarily in western and eastern Canada
Wajax Equipment’s strategy is to continue to focus on building the market
share of its key product lines, particularly construction and material
(Quebec and Atlantic provinces).
handling equipment, and to improve product support capabilities across
» 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
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 LeTourneau field facilities and distribution activities with its P&H
mining equipment operations. Sales and service of LeTourneau products
• The branch coverage in key metropolitan areas will continue to
be upgraded. The current Montreal Lachine facility operation is
in 2011 generated approximately $35 million of revenue for Wajax and
being replaced by two newer facilities to allow for improved market
contributed approximately $11 million to its earnings before finance costs
penetration. One facility was recently opened in Chambly and
and income tax expense. Exit costs or write downs, if any, are expected to
another in Laval is scheduled to open in mid-2012. A new Edmonton
be minimal.
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.
Wajax Corporation Annual Report 2011 • 9
2011
2010
its working capital requirements.
maximize its operational efficiency in order to increase margins and lower
Management’s Discussion and Analysis
Industrial Components
For the year ended December 31
Segment revenue
Segment earnings
Segment earnings margin
Revenue by Market
Market
n Industrial/Manufacturing
n Mining
n Oil & Gas
n Forestry
n Metal Processing
n Construction
n Food & Beverage
n Transportation
n Other
$ 347.5 $ 302.2
$
23.1 $
6.6%
12.0
4.0%
2011
17%
14%
14%
14%
11%
6%
5%
4%
15%
2010
17%
14%
10%
15%
13%
6%
5%
4%
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
10 • Wajax Corporation Annual Report 2011
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
Equipment*
Parts and service
Segment revenue
Segment earnings
Segment earnings margin
* Includes rental and other revenue
Revenue by Market
Market
n Oil & Gas
n On-highway
Transportation
n Industrial/Commercial
n Oil Sands
n Mining
n Other
2011
2010
$ 160.8 $ 116.6
$ 186.6 $ 140.7
$ 347.4 $ 257.3
$
32.9 $
9.5%
19.2
7.5%
2011
34%
23%
20%
6%
3%
14%
2010
27%
28%
24%
7%
3%
11%
Management’s Discussion and Analysis
Revenue increased $90.1 million, or 35%, to $347.4 million in 2011
of Canada except for portions of British Columbia. The Harper business
from $257.3 million in 2010. Excluding the Harper acquisition effective
is well established in the on-highway sector of the market and has been
May 2, 2011, Power Systems revenue increased $40.8 million, or 16%,
rebranded as Wajax Power Systems.
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.
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
• Segment earnings increased $13.7 million compared to last year as
product offering, as well as expanding to areas of British Columbia
a result of higher volumes and gross profit margins, offset by a $10.7
where it is currently not well represented. The segment also intends to
million increase in selling and administrative expenses. Gross profit
better penetrate the western Canada preventative maintenance service
margins increased mainly as a result of higher equipment margins.
business for standby and prime power diesel generators.
Increased selling and administrative expenses were attributable to
the Harper acquisition and higher personnel expenses including
commissions and severance costs.
• 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
Backlog of $76.3 million as of December 31, 2011 decreased $11.6
capabilities by leveraging its engineering and project management
million compared to December 31, 2010 as significant deliveries out
expertise to all major geographic markets.
of backlog more than offset the increase attributable to the Harper
acquisition.
• In 2012 the segment will begin to implement a common computer
system platform across all three regions of Power Systems to meet
Effective December 13, 2011, Richard Plain was appointed to the
current and future requirements.
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
Wajax Corporation Annual Report 2011 • 11
Management’s Discussion and Analysis
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.
Revenue
Earnings before income taxes
Net earnings
Earnings per share
Basic
Diluted
$
$
$
$
$
2011
2010
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
377.2 $ 361.9 $ 334.1 $ 303.9 $ 316.4 $ 294.4 $ 272.0 $ 228.1
22.5 $
16.6 $
24.6 $
17.9 $
22.4 $
16.5 $
18.0 $
12.8 $
14.9 $
15.8 $
18.7 $
19.6 $
11.9 $
12.2 $
8.5
8.9
1.00 $
0.98 $
1.08 $
1.06 $
0.99 $
0.98 $
0.77 $
0.76 $
0.95 $
0.93 $
1.18 $
1.16 $
0.73 $
0.72 $
0.53
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
Revenue
Earnings before income taxes
Net earnings
Earnings per share
Basic
Diluted
Total assets
Non-current liabilities
Dividends declared per share
Distributions declared per unit
2011
2010
2009(1)
$ 1,377.1
$ 1,110.9
$ 1,007.2
$
$
87.5
63.8
$
$
3.84
3.77
$ 589.9
$
99.9
$
2.14
–
$
$
53.9
56.4
$
$
3.39
3.34
$ 522.5
$
18.9
–
3.40
$
$
$
32.2
34.2
$
$
2.06
2.04
$ 448.2
$
87.8
–
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
Total assets increased $141.7 million between December 31, 2009
compared to 2010 due to the increased market demand for equipment
and December 31, 2011. The overall increase in total assets is mainly
and parts and service in all segments and the Harper acquisition in
attributable to higher inventories, accounts receivable and rental
May 2011 that accounted for $49.3 million of the increase. Revenue
equipment resulting from the increased sales activity throughout 2010
in 2010 of $1,110.9 million increased $103.7 million from $1,007.2
and 2011. The increase also includes $32.9 million of total assets
million in 2009 due to the general uplift in the Canadian economy that
resulting from the acquisition of Harper.
was experienced in all segments.
Earnings before income taxes increased $55.3 million from 2009 to
increased $81.0 million from December 31, 2010. This was primarily
2011. The increase was attributable to the increases in revenue noted
due to the reclassification of bank debt to non-current liabilities as the
above and higher gross profit margins, offset somewhat by increased
bank credit facility was extended from December 31, 2011 to August
selling and administrative and slightly higher finance costs.
12, 2016 and an increase in deferred taxes payable as the partnership
Non-current liabilities at December 31, 2011 of $99.9 million
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.
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.
12 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
Cash Flow, Liquidity and Capital Resources
While the IFRS adjustments do not impact the Corporation’s total cash
Net cash flows generated from operating activities
flows, cash flows generated from operating activities and cash flows
For the year ended December 31, 2011, net cash flows generated from
used in investing activities have each been adjusted, by equal and
operating activities amounted to $61.2 million, compared to $88.7
offsetting amounts to reflect the reclassification of rental equipment
million the previous year. The $27.5 million decrease was due primarily
additions as operating activities.
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.
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
Changes in operating assets and liabilities in 2011 compared to 2010
Systems segment paid a total of $23.2 million for the acquisition of the
include the following components:
assets of Harper on May 2, 2011.
Changes in operating assets and liabilities
For the year ended December 31
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
Accrued liabilities
Provisions
Total
2011
2010
27.1 $
35.0 $
0.6 $
(22.9) $
(19.1) $
(0.4) $
12.0
15.8
(0.6)
(51.5)
2.4
(0.5)
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.
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
• Inventories increased $35.0 million as a result of a continued growth
0.28:1 increased from last year’s ratio of 0.23:1.
in sales activity in all segments.
Fourth Quarter Consolidated Results
• Trade and other payables increased $22.9 million reflecting higher
For three months ended December 31
inventory related payables.
• Accrued liabilities increased $19.1 million on higher customer
deposits in the Equipment and Power Systems segments and higher
Revenue
Gross profit
Selling and administrative expenses
2011
2010
$ 377.2 $ 316.4
$
$
79.3 $
55.7 $
64.3
48.4
annual and mid-term incentive accruals.
Earnings before finance costs & income taxes $
23.6 $
15.9
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
Finance costs
Earnings before income taxes
Income tax expense (recovery)
Net earnings
primarily to the cash flow factors listed above, the Harper acquisition
Earnings per share
and a $9.1 million decrease in dividends payable related to the
payment in January 2011 of distributions declared in December 2010
Basic
Diluted
prior to converting from an income fund to a corporation.
$
$
$
$
$
$
1.2 $
1.0
22.5 $
5.9 $
14.9
(0.9)
16.6 $
15.8
1.00 $
0.95
0.98 $
0.93
Wajax Corporation Annual Report 2011 • 13
Management’s Discussion and Analysis
Revenue
Comprehensive income
Revenue in the fourth quarter of 2011 increased 19% or $60.8 million
Comprehensive income for the fourth quarter of $13.0 million
to $377.2 million, from $316.4 million in the fourth quarter of 2010
decreased $2.4 million from $15.4 million compared to the same
and included $19.9 million of revenue from the acquisition of the
quarter in the previous year as a $3.2 million increase in other
assets of Harper by the Power Systems segment effective May 2, 2011.
comprehensive loss more than offset the $0.8 million increase in
Segment revenue increased 20% in Equipment, 16% in Industrial
net earnings. The increase in other comprehensive loss resulted from
Components and 19% in Power Systems (a decrease of 6% excluding
increased actuarial losses on pension plans and gains on derivative
Harper revenue) compared to the same quarter last year.
instruments designated as cash flow hedges in prior periods reclassified
to cost of inventory or finance costs in the current period.
Gross profit
Gross profit in the fourth quarter of 2011 increased $15.0 million
Funded net debt
due to the positive impact of higher volumes and gross profit margins
Funded net debt of $63.7 million at December 31, 2011 decreased
compared to the fourth quarter last year. The gross profit margin
$33.8 million compared to September 30, 2011. The decrease
percentage for the quarter of 21.0% increased from 20.3% in the
resulted mainly from net cash flows generated from operating activities
fourth quarter of 2010 due mainly to improved gross profit margins in
of $48.7 million which were offset partially by dividends paid of $10.0
all segments.
Selling and administrative expenses
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,
Selling and administrative expenses increased $7.3 million in the
fourth quarter of 2011 compared to the same quarter last year. Of this
2011 ratio of 0.43:1.
increase, $3.0 million related to Harper with most of the remainder
Dividends
attributable to higher sales related costs and annual and mid-term
For the fourth quarter ended December 31, 2011 monthly dividends
incentive accruals. Selling and administrative expenses as a percentage
declared totaled $0.60 per share. For the fourth quarter ended
of revenue decreased to 14.8% in the fourth quarter of 2011 from
December 31, 2010 monthly cash distributions declared as an income
15.3% in the same quarter of 2010.
fund were $1.65 per unit.
Finance costs
Backlog
Quarterly finance costs of $1.2 million increased $0.2 million
Consolidated backlog at December 31, 2011 of $267.7 million
compared to the same quarter last year due to higher funded net debt,
increased $3.9 million from $263.8 million at September 30, 2011
mainly attributable to the acquisition of Harper on May 2, 2011.
and increased $50.4 million from $217.3 million at December 31,
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
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
Equipment*
Parts and service
Segment revenue
Segment earnings
Segment earnings margin
2011
2010
$ 125.4 $ 101.7
58.0
$
66.9 $
$ 192.3 $ 159.7
$
14.3 $
10.8
7.5%
6.8%
offset the negative impact of expenses not deductible for tax purposes.
* Includes rental and other revenue.
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 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.
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:
14 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
• Equipment revenue for the fourth quarter increased $23.7 million
regions. Sales to oil and gas customers in western Canada, metal
compared to the same quarter last year. Specific quarter-over-quarter
processing customers in Ontario and additional construction and food
variances included the following:
and beverage sector volumes in eastern Canada also contributed to
» 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
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
construction equipment sales across Canada.
and gas drilling activity in western Canada and increased sales to
» 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.
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
» Material handling equipment revenue increased $5.9 million on
higher volumes in eastern and western Canada offset by lower
of higher volumes outweighed a $0.5 million increase in selling and
administrative expenses. The increase in selling and administrative
sales stemming from reduced market demand in Ontario.
expenses resulted mainly from higher sales related costs and
» Crane and utility equipment revenue decreased $0.7 million.
computer system upgrade expenses.
» Forestry equipment sales decreased $1.1 million as lower demand
in Ontario and eastern Canada for Tigercat and Peterson Pacific
Backlog of $44.8 million as of December 31, 2011 decreased $2.5
million compared to September 30, 2011 and increased $9.4 million
products was somewhat offset by higher market demand related
compared to December 31, 2010.
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
Power Systems
For three months ended December 31
Equipment*
Parts and service
Segment revenue
Segment earnings
impact of higher volumes outweighed a $2.2 million increase in
Segment earnings margin
selling and administrative expenses resulting from higher sales
* Includes rental and other revenue.
related expenses and annual and mid-term incentive accruals.
$
$
$
$
2011
2010
43.9 $
51.6 $
44.5
35.7
95.5 $
80.2
7.9 $
6.5
8.3%
8.1%
2011
2010
in the fourth quarter compared to the same quarter in the previous year.
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
Segment revenue
Segment earnings
Segment earnings margin
$
$
90.2 $
77.8
5.9 $
2.6
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
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
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.
Wajax Corporation Annual Report 2011 • 15
Management’s Discussion and Analysis
• 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
On the consolidated statement of financial position at December 31,
2011, Wajax had employed $165.0 million in current assets net of
acquisition. Selling and administrative expenses increased $4.1 million
current liabilities, exclusive of funded net debt, compared to $191.9
due mostly to $3.0 million of selling and administrative expenses
million at September 30, 2011. The $26.9 million decrease was due
related to Harper and higher personnel and sales related costs.
primarily to the cash flow factors listed above.
Backlog of $76.3 million as of December 31, 2011 increased $5.8
Investing activities
million compared to September 30, 2011 and decreased $11.6 million
During the fourth quarter of 2011, Wajax invested $2.6 million in
compared to December 31, 2010.
capital asset additions net of disposals and $0.4 million in intangible
Fourth Quarter Cash Flows
Net cash flows generated from operating activities
asset additions, compared to $2.1 million and $0.5 million in the fourth
quarter of 2010, respectively.
Net cash flows generated from operating activities amounted to $48.7
Financing activities
million in the fourth quarter of 2011, compared to $41.4 million in the
The Corporation used $37.9 million of cash in financing activities in the
same quarter of the previous year. The $7.3 million increase was due
fourth quarter of 2011 compared to $21.8 million in the same quarter of
mainly to higher cash flows from operating activities before changes in
2010. Financing activities in the quarter included bank debt and finance
operating assets and liabilities of $8.7 million and a decreased use of
lease payments of $28.0 million and dividends paid to shareholders
operating assets and liabilities of $1.4 million, partially offset by higher
totaling $10.0 million, or $0.60 per share.
rental equipment additions of $2.0 million in the Equipment and Power
Systems segments.
Liquidity and Capital Resources
On August 12, 2011, Wajax amended and extended the term of its $175
Changes in operating assets and liabilities for the fourth quarter in 2011
million bank credit facility to August 12, 2016 from December 31, 2011.
compared to the same periods in 2010 include the following components:
The $1.1 million cost of extending the facility has been capitalized and
Changes in operating assets and liabilities
For three months ended December 31
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
Accrued liabilities
Provisions
Total
2011
2010
(13.8) $
9.2 $
(1.5) $
(5.5) $
(15.4) $
0.3 $
(11.8)
3.6
1.5
(20.1)
3.0
(1.4)
(26.7) $
(25.2)
$
$
$
$
$
$
$
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
Significant components of the changes in operating assets and liabilities
of certain financial ratios all of which were met as at December 31,
for the quarter ended December 31, 2011 are as follows:
2011. Wajax is restricted from the declaration of monthly dividends
• 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.
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.
16 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
Wajax also has a $15 million demand inventory equipment financing
• As at December 31, 2011, Wajax had no interest rate swaps
facility with a non-bank lender. The equipment notes payable under the
outstanding. (As at December 31, 2010, Wajax had entered into
facility bear floating rates of interest at margins over Canadian dollar
interest rate swaps that effectively fixed the interest rate on $80 million
bankers’ acceptance yields. Principal repayments commence between
of debt until December 31, 2011).
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.
• 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)
Since conversion to a corporation, Wajax has not made, and will not
customers as part of its normal course of business. As at December
be required to make, any significant income tax payments until 2013
31, 2011, Wajax had contracts outstanding to buy U.S.$36.0 million
due to income tax payments being deferred as a result of its partnership
and €0.2 million and to sell U.S.$1.0 million (December 31, 2010 –
structure. In January 2013, Wajax will be required to make an income tax
to buy U.S.$34.1 million and to sell U.S.$0.3 million). The U.S. dollar
payment of approximately $44 million. This includes approximately $23
contracts expire between January 2012 and December 2012, with a
million of tax on partnership income generated in 2011 and the balance
weighted average U.S./Canadian dollar rate of 1.0249 and weighted
representing income to be included in 2012 taxable income resulting
average Euro / Canadian dollar rate of 1.3993.
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 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
Wajax’s $175 million bank credit facility along with an additional $15
are measured at fair value with subsequent changes in fair value being
million of capacity permitted under the credit facility, should be sufficient
charged to other comprehensive income. The fair value of derivative
to meet Wajax’s short-term normal course working capital, maintenance
instruments is estimated based upon market conditions using appropriate
capital and growth capital requirements, including the January 2013
valuation models. The carrying values reported in the balance sheet for
income tax payment. However, Wajax may be required to access the
financial instruments are not significantly different from their fair values.
equity or debt markets in order to fund significant acquisitions and growth
related working capital and capital expenditures.
Wajax is exposed to non-performance by counterparties to short-term
currency forward contracts. These counterparties are large financial
Wajax sponsors certain defined benefit plans that cover executive
institutions with “Stable” outlook and high short-term and long-term
employees, a small group of inactive employees and employees on
credit ratings from Standard and Poor’s. To date, no such counterparty
long-term disability benefits. The fair value of the defined benefit plans’
has failed to meet its financial obligations to Wajax. Management
assets decreased $1.3 million to $11.3 million at December 31, 2011
does not believe there is a significant risk of non-performance by
due to a $0.7 million loss on plan assets and excess benefits paid over
these counterparties and will continue to monitor the credit risk of
contributions for the year. The accrued benefit obligations of the plans
these counterparties.
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:
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
Wajax Corporation Annual Report 2011 • 17
Management’s Discussion and Analysis
to lower its selling prices as the U.S. dollar declines. As well, many of
imported from the U.S. Wajax will periodically institute price increases
Wajax’s customers export products to the U.S., and a strengthening
to offset the negative impact of foreign exchange rate increases and
Canadian dollar can negatively impact their overall competitiveness
volatility on imported goods to ensure margins are not eroded.
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
Wajax maintains a hedging policy whereby significant transactional
currency risks are identified and hedged.
Contractual Obligations
Bank debt
Operating leases
Obligations under finance leases
Total
60.0
71.3
10.3
$
$
$
< 1 year
1 – 5 years
$
$
$
–
16.8
3.6
$
$
$
60.0
33.3
6.7
After
5 years
$
–
$ 21.2
–
$
Total
$ 141.6
$
20.4
$ 100.0
$
21.2
The $60.0 million bank debt obligation relates to the bank term credit
Although Wajax’s consolidated contractual annual lease commitments
facility. On August 12, 2011, Wajax amended and extended the term of
decline year-by-year, it is anticipated that existing leases will either be
its $175 million bank credit facility to August 12, 2016 from December
renewed or replaced, resulting in lease commitments being sustained at
31, 2011.
current levels. In the alternative, Wajax may incur capital expenditures to
The obligations under finance leases relate to certain vehicles financed
acquire equivalent capacity.
under finance lease arrangements. The leases have a minimum one year
Under IFRS, vehicle leases that were previously classified as operating
term and are extended on a monthly basis thereafter until termination.
leases under Canadian GAAP are assessed as financing leases. Assets
For more information on Wajax’s operating lease obligations, see the Off
under finance lease are capitalized at the commencement of the lease at
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
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.
had guaranteed $5.3 million of contracts (2010 – $5.8 million) with
In addition, the Equipment segment had $41.5 million (2010 – $39.4
commitments arising between 2012 and 2014. The commitments made
million) of consigned inventory on-hand from a major manufacturer at
by Wajax in these contracts reflect the estimated future value of the
December 31, 2011. In the normal course of business, Wajax receives
equipment, based on the judgment and experience of management. Wajax
inventory on consignment from this manufacturer which is generally
has recorded a $0.1 million provision in 2011 (2010 – $0.5 million) as
sold to customers or purchased by Wajax. This consigned inventory is
an estimate of the financial loss likely to result from such commitments.
not included in Wajax’s inventory as the manufacturer retains title to
Off Balance Sheet Financing
the goods.
Off balance sheet financing arrangements include operating lease
In the event the inventory consignment program was terminated, Wajax
contracts entered into for facilities with various landlords, a portion of the
would utilize interest free financing, if any, made available by the
long-term lift truck rental fleet in Equipment with a non-bank lender and
manufacturer and/or utilize capacity under its credit facilities. Although
office equipment with various non-bank lenders. The total obligations for
management currently believes Wajax has adequate debt capacity,
all operating leases are detailed in the Contractual Obligations section. At
Wajax would have to access the equity or debt markets, or temporarily
December 31, 2011, the non-discounted operating lease commitments
reduce dividends to accommodate any shortfalls in Wajax’s credit
for facilities totaled $67.9 million, rental fleet $2.5 million, and office
facilities. See the Liquidity and Capital Resources section.
equipment $0.9 million.
18 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
Dividends and Distributions
Wajax seeks to distribute leading product lines in each of its regional
Dividends to shareholders for the periods January 1, 2011 to December
markets and its success is dependent upon continuing relationships
31, 2011 and distributions to unitholders as an income fund for the
with the manufacturers it represents. Wajax endeavours to align itself
periods January 1, 2010 to December 31, 2010 were declared as follows:
in long-term relationships with manufacturers that are committed to
Month (1)
January
February
March
April
May
June
July
August
September
October
November
December
2011 Dividends
Per Share Amount
2010 Distributions
Per Unit Amount
$ 0.15
0.15
0.15
0.15
0.18
0.18
0.18
0.20
0.20
0.20
0.20
0.20
$ 2.5
2.5
2.5
2.5
3.0
3.0
3.0
3.3
3.3
3.3
3.3
3.3
$ 0.15 $ 2.5
2.5
0.15
2.5
0.15
2.5
0.15
2.5
0.15
2.5
0.15
2.5
0.15
5.8
0.35
5.8
0.35
5.8
0.35
9.2
0.55
12.5
0.75
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.
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
Tax information relating to 2011 dividends and prior year distributions
as was the case in 2009. Fluctuations in working capital are generally
is available on Wajax’s website at www.wajax.com.
funded by, or used to repay, the bank credit facility.
Productive Capacity and Productive Capacity Management
Wajax may be required to access the equity or debt markets in order
Wajax is a distributor and service support provider. As such, Wajax’s
to fund significant acquisitions and growth related working capital and
productive capacity is determined primarily by its branch infrastructure
capital expenditures.
across Canada, manufacturer relationships and other maintenance and
growth capital employed.
Borrowing capacity under the bank credit facility is dependent on the
level of Wajax’s inventories on-hand and outstanding trade accounts
Wajax operates from 117 facilities throughout Canada, of which 88
receivables. At December 31, 2011, total borrowing capacity under the
are leased. During the second quarter of 2011, Wajax increased its
bank credit facility was equal to $175 million of which $66 million was
productive capacity through the acquisition of Harper which increased
utilized at December 31, 2011.
the Power Systems’ Ontario infrastructure by an additional 9 branches.
Wajax’s principal properties are primarily sales and service branches.
Wajax Corporation Annual Report 2011 • 19
Management’s Discussion and Analysis
The bank credit facility contains covenants that could restrict the
into account current economic conditions when determining the
ability of Wajax to make dividend payments, if (i) the leverage ratio
provision for inventory obsolescence, provision for doubtful accounts
(Debt to EBITDA) is greater than 3.0 at the time of declaration of the
and any impairment of goodwill and other assets. Note 3 to the annual
dividend, and (ii) an event of default exists or would exist as a result of
Consolidated Financial Statements describes the significant accounting
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
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.
Number
Amount
Provision for inventory obsolescence
Balance at the beginning of the year
Rights exercised
16,629,444 $ 105.9
–
–
The value of Wajax’s new and used equipment is evaluated by
management throughout the year. When required, provisions are
Balance at the end of the year
16,629,444 $ 105.9
recorded to ensure that the book value of equipment is valued at
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
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
20 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
carrying value to its recoverable amount. Recoverable amount is the
consolidated income statement and consolidated statement of
higher of value in use or fair value less costs to sell, if the fair value
comprehensive income for the year ended December 31, 2010 and of
can be readily determined. The value in use is the present value of
the consolidated statements of financial position as at January 1, 2010
future cash flows using a pre-tax discount rate that reflects the time
and December 31, 2010. These reconciliations provide explanations of
value of money and the risk specific to the assets. Any impairment
each difference.
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.
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
Customer lists and non-competition agreements are amortized on a
classification and measurement models for financial assets and
straight line basis over their useful lives which range from 2 to 7 years.
liabilities with a single model that has only two classification categories:
Computer application software is classified as an intangible asset and
amortized cost and fair value. The Corporation is currently assessing the
is amortized on a straight line basis over the useful life ranging from
impact of this standard on its consolidated financial statements.
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
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
Transition to International Financial Reporting Standards
of items in other comprehensive income, the Corporation does not
This is the first year that the Corporation has presented its Consolidated
expect the amendments to IAS 1 to have a material impact on the
Financial Statements in accordance with IFRS. The Corporation
financial statements.
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.
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
Note 29 of the Consolidated Financial Statements provides an
benefit obligation, and certain additional disclosures. The Corporation
explanation of the transition to IFRS. In addition, Note 29 provides
is currently assessing the impact of this standard on its consolidated
detailed reconciliations between Canadian GAAP and IFRS of the
financial statements.
Wajax Corporation Annual Report 2011 • 21
Management’s Discussion and Analysis
Risk Management and Uncertainties
payment terms for distributors. This may affect Wajax’s interest-free
As with most businesses, Wajax is subject to a number of marketplace
payment period or consignment terms, which may have a materially
and industry related risks and uncertainties which could have a
negative or positive impact on working capital balances such as cash,
material impact on operating results and Wajax’s ability to pay cash
inventories, trade and other payables and bank debt.
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.
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
Manufacturer relationships and product access
intensive and cyclical in nature, and as a result, customer demand for
Wajax seeks to distribute leading product lines in each of its regional
Wajax’s products and services may be affected by economic conditions
markets and its success is dependent upon continuing relations with
at both a global or local level. Changes in interest rates, consumer
the manufacturers it represents. Wajax endeavours to align itself in
and business confidence, corporate profits, credit conditions, foreign
long-term relationships with manufacturers that are committed to
exchange, commodity prices and the level of government infrastructure
achieving a competitive advantage and long-term market leadership
spending may influence Wajax’s customers’ operating, maintenance and
in their targeted market segments. In the Equipment and Power
capital spending, and therefore Wajax’s sales and results of operations.
Systems segments, and in certain cases in the hydraulics and process
Although Wajax has attempted to address its exposure to business and
pumps portion of the Industrial Components segment, manufacturer
industry cyclicality by diversifying its operations by geography, product
relationships are governed through effectively exclusive distribution
offerings and customer base, there can be no assurance that Wajax’s
agreements. Distribution agreements are for the most part open-ended,
results of operations or cash flows will not be adversely affected by
but are cancellable within a relatively short notification period specified
changes in economic conditions.
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.
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,
There is a continuing consolidation trend among industrial equipment
each of Wajax’s businesses is exposed to fluctuations in the price of oil
and component manufacturers. Consolidation may impact the products
and natural gas. A downward change in these commodity prices, and
distributed by Wajax, in either a favourable or unfavourable manner.
particularly in the price of oil and natural gas, could therefore adversely
Consolidation of manufacturers may have a negative impact on the
affect Wajax’s results of operations or cash flows.
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.
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:
Suppliers generally have the ability to unilaterally change distribution
identification of accretive new business or acquisition opportunities;
terms and conditions or limit supply of product in times of intense
negotiation of purchase agreements on satisfactory terms and prices;
market demand. Supplier changes in the area of product pricing and
prior approval of acquisitions by third parties, including regulatory
availability can have a negative or positive effect on Wajax’s revenue
authorities; securing attractive financing arrangements; and integration
and margins. As well, from time to time suppliers make changes to
of newly acquired operations into the existing business. All of these
22 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
activities may be more difficult to implement or may take longer
Wajax may be required to access the equity or debt markets or reduce
to execute than management anticipates. Further, any significant
dividends in order to fund significant acquisitions and growth related
expansion of the business may increase the operating complexity of
working capital and capital expenditures.
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 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
The facility contains restrictive covenants which place restrictions on,
impact of foreign exchange rate increases on imported goods. The
among other things, the ability of Wajax to encumber or dispose of its
inability of Wajax to mitigate exchange rate risks or increase prices to
assets, the amount of interest cost incurred and dividends made relative
offset foreign exchange rate increases, including sudden and volatile
to earnings and certain reporting obligations. A failure to comply with
changes in the U.S. dollar exchange rate, may have a material adverse
the obligations of the facility could result in an event of default which,
effect on the results of operations or financial condition of Wajax.
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.
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
Wajax’s short-term normal course working capital requirements can
require Wajax to lower its selling prices as the U.S. dollar declines.
swing widely quarter-to-quarter due to timing of large inventory
As well, many of Wajax’s customers export products to the U.S., and
purchases and/or sales and changes in market activity. In general, as
a strengthening Canadian dollar can negatively impact their overall
Wajax experiences growth, there is a need for additional working capital
competitiveness and demand for their products, which in turn may
as was the case in 2011. Conversely, as Wajax experiences economic
reduce product purchases from Wajax.
slowdowns working capital reduces reflecting the lower activity levels as
was the case in 2009.
Wajax Corporation Annual Report 2011 • 23
Management’s Discussion and Analysis
A strengthening U.S. dollar relative to the Canadian dollar can have a
Inventory obsolescence
positive effect on Wajax’s revenue as a result of certain products being
Wajax maintains substantial amounts of inventories in all three
imported from the U.S. Wajax will periodically institute price increases
core businesses. While Wajax believes it has appropriate inventory
to offset the negative impact of foreign exchange rate increases and
management systems in place, variations in market demand for the
volatility on imported goods to ensure margins are not eroded.
products it sells can result in certain items of inventory becoming
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
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.
equipment distributors that tend to handle a dedicated product line, such
Credit risk
as those offered by John Deere, Komatsu and Caterpillar. There can be
Wajax extends credit to its customers, generally on an unsecured basis.
no assurance that Wajax will be able to continue to compete on the basis
Although Wajax is not substantially dependant on any one customer
of product quality and price of product lines, distribution and servicing
and it has a system of credit management in place, the loss of a large
capabilities as well as proximity of its distribution sites to customers.
receivable would have an adverse effect on Wajax’s profitability.
In terms of the Industrial Components segment, the hydraulics
Guaranteed residual value, recourse and buy-back contracts
and process equipment branches compete with other distributors
In some circumstances Wajax makes certain guarantees to finance
of hydraulics components and process equipment on the basis of
providers on behalf of its customers. These guarantees can take the
quality and price of the product lines, the capacity to provide custom
form of assuring the resale value of equipment, guaranteeing a portion
engineered solutions and high service standards. The bearings and
of customer lease payments, or agreeing to buy back the equipment
power transmission product branches compete with a number of
at a specified price. These contracts are subject to certain conditions
distributors representing the same or competing product lines and rely
being met by the customer, such as maintaining the equipment in good
primarily on high service standards, price and value added services to
working condition. Historically, Wajax has not incurred substantial
gain market advantage.
losses on these types of contracts, however, there can be no assurance
that losses will not be incurred in the future. See Contractual
The Power Systems business competes with other major diesel engine
distributors representing such products as Cummins and Caterpillar.
Obligations section.
Competition is based primarily on product quality, pricing and the
Future warranty claims
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.
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
24 • Wajax Corporation Annual Report 2011
Management’s Discussion and Analysis
significant cost overruns may be incurred. If Wajax has miscalculated
Government regulation
the extent of maintenance work required, or if actual parts and service
Wajax’s business is subject to evolving laws and government
costs increase beyond the contracted inflationary adjustments, the
regulations, particularly in the areas of taxation, the environment, and
contract profitability will be adversely affected. In order to mitigate this
health and safety. Changes to such laws and regulations may impose
risk, Wajax closely monitors the contracts for early warning signs of cost
additional costs on Wajax and may adversely affect its business in other
overruns. In addition, the manufacturer may, in certain circumstances,
ways, including requiring additional compliance measures by Wajax.
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
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
Wajax maintains a program of insurance coverage that is ordinarily
the first year after conversion from an income fund when Wajax was
maintained by similar businesses, including property insurance and
effectively not subject to income tax. This performance was driven by
general liability insurance. Although the limits and deductibles of
a stronger Canadian economy and the execution of the Corporation’s
such insurance have been established through risk analysis and the
strategic initiatives, including the Harper acquisition. Additionally,
recommendation of professional advisors, there can be no assurance
all three businesses maintained disciplined control over selling and
that such insurance will remain available to Wajax at commercially
administrative costs. With its Canada-wide branch infrastructure and
reasonable rates or that the amount of such coverage will be adequate
diverse product lines, Wajax’s business has exposure to virtually all of
to cover all liability incurred by Wajax. If Wajax is held liable for
the goods producing sectors of the Canadian economy. Stronger sectors
amounts exceeding the limits of its insurance coverage or for claims
of the economy aiding the Corporation’s revenue growth in 2011 were
outside the scope of that coverage, its business, results of operations or
energy, mining, construction and forestry, primarily in western Canada.
financial condition could be adversely affected.
Information systems and technology
Looking forward to 2012, management expects growth in the Canadian
economy to be more modest than that experienced in 2011. This is
Information systems are an integral part of Wajax’s business processes,
a result of the continuing high value of the Canadian dollar and the
including marketing of equipment and support services, inventory
dampening effect on the world economy from the European debt crisis
and logistics, and finance. Some of these systems are integrated with
and the slowing Chinese economy. However, we expect global demand
certain suppliers’ core processes and systems. Any disruptions to these
for commodities to remain relatively strong, which should bode well for
systems due, for example, to the upgrade or conversion thereof, or the
Canada’s mining and energy sectors, particularly in western Canada.
failure of these systems to operate as expected could, depending on the
The revenue implication from phasing out the LeTourneau mining
magnitude of the problem, adversely affect Wajax’s operating results by
equipment line at the end of April, is expected to be mitigated by
limiting the ability to effectively monitor and control Wajax’s operations.
additional Hitachi mining equipment sales as Hitachi’s manufacturing
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
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.
believes its labour relations to be satisfactory and does not anticipate
Additional information, including Wajax’s Annual Report and Annual
it will be unable to renew the collective agreements. If Wajax is unable
Information Form, are available on SEDAR at www.sedar.com.
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.
Wajax Corporation Annual Report 2011 • 25
Management’s Responsibility for Financial Reporting
The consolidated financial statements of Wajax Corporation are the
Both the external and internal auditors have free and independent
responsibility of management and have been prepared in accordance
access to the Audit Committee to discuss the scope of their audits, the
with International Financial Reporting Standards. Where appropriate,
adequacy of the system of internal control and the adequacy of financial
the information reflects management’s judgement and estimates based
reporting. The Audit Committee reports its findings to the Board, which
on the available information. Management is also responsible for
reviews and approves the consolidated financial statements.
all other information in the Annual Report and for ensuring that this
information is consistent with the consolidated financial statements.
Wajax maintains a system of internal control designed to provide
financial information and the safeguarding of its assets. Wajax also
maintains an internal audit function, which reviews the system of
internal control and its application.
The Audit Committee of the Board, consisting solely of outside
directors, meets regularly during the year with management, internal
auditors and the external auditors, to review their respective activities
Wajax’s external auditors, KPMG LLP, are responsible for auditing the
consolidated financial statements and expressing an opinion thereon.
Mark Foote
President and
John J. Hamilton
Senior Vice President
Chief Executive Officer
and Chief Financial Officer
and the discharge of their responsibilities.
Mississauga, Canada, March 6, 2012
Independent Auditors’ Report
To the shareholders of Wajax Corporation
including the assessment of the risks of material misstatement of
We have audited the accompanying consolidated financial statements
the consolidated financial statements, whether due to fraud or error.
of Wajax Corporation, which comprise the consolidated statements
In making those risk assessments, we consider internal control
of financial position as at December 31, 2011, December 31, 2010
relevant to the entity’s preparation and fair presentation of the
and January 1, 2010, the consolidated statements of earnings,
consolidated financial statements in order to design audit procedures
comprehensive income, changes in shareholders’ equity and cash flows
that are appropriate in the circumstances, but not for the purpose
for the years ended December 31, 2011 and December 31, 2010,
of expressing an opinion on the effectiveness of the entity’s internal
and notes, comprising a summary of significant accounting policies and
control. An audit also includes evaluating the appropriateness of
other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation
accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
of these consolidated financial statements in accordance with
We believe that the audit evidence we have obtained in our audits is
International Financial Reporting Standards, and for such internal
sufficient and appropriate to provide a basis for our audit opinion.
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
Opinion
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
In our opinion, the consolidated financial statements present fairly,
in all material respects, the consolidated financial position of Wajax
Corporation as at December 31, 2011, December 31, 2010 and
Our responsibility is to express an opinion on these consolidated
January 1, 2010, and its consolidated financial performance and
financial statements based on our audits. We conducted our audits in
its consolidated cash flows for the years ended December 31, 2011
accordance with Canadian generally accepted auditing standards. Those
and December 31, 2010 in accordance with International Financial
standards require that we comply with ethical requirements and plan and
Reporting Standards.
perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
Chartered Accountants, Licensed Public Accountants
about the amounts and disclosures in the consolidated financial
Toronto, Canada, March 6, 2012
statements. The procedures selected depend on our judgment,
26 • Wajax Corporation Annual Report 2011
Consolidated Statements of Financial Position
Consolidated Financial Statements
As at
(in thousands of Canadian Dollars)
Assets
Current
Cash
Trade and other receivables (note 4)
Inventories (note 5)
Prepaid expenses
Non-Current
Rental equipment (note 6)
Property, plant and equipment (note 7)
Intangible assets (note 9)
Deferred taxes (note 23)
Employee benefits (note 11)
Liabilities and Shareholders’ Equity
Current
Trade and other payables (note 12)
Accrued liabilities
Provisions (note 10)
Dividends payable
Income taxes payable
Obligations under finance leases (note 8)
Derivative instruments
Bank debt (note 14)
Non-Current
Provisions (note 10)
Deferred taxes (note 23)
Employee benefits (note 11)
Other liabilities
Obligations under finance leases (note 8)
Derivative instruments
Bank debt (note 14)
Shareholders’ Equity
Share capital (note 17)
Trust units (note 18)
Contributed surplus (note 21)
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
On behalf of the Board:
Paul E. Gagné
Chairman
December 31
2011
December 31
2010
January 1
2010
$
5,659
174,233
241,524
8,033
429,449
28,060
47,924
84,493
–
–
$
42,954
135,517
196,460
7,244
382,175
15,794
43,268
75,794
5,277
240
$
9,207
123,537
177,909
7,800
318,453
16,370
45,974
75,539
2,229
–
160,477
140,373
138,112
$
589,926
$
522,548
$
456,565
$
$
163,108
84,050
5,704
3,326
2,398
3,646
208
–
262,440
4,010
17,694
6,843
5,644
6,688
–
59,021
99,900
105,371
–
4,888
117,477
(150)
227,586
$
134,832
63,762
5,353
12,472
2,072
3,677
2,452
79,680
304,300
4,338
–
4,132
5,221
5,227
–
–
18,918
–
105,371
3,931
91,805
(1,777)
199,330
83,723
66,089
4,859
2,491
274
3,850
–
–
161,286
3,518
–
3,699
841
6,140
2,643
79,461
96,302
–
105,129
3,538
92,543
(2,233)
198,977
$
589,926
$
522,548
$
456,565
Ian A. Bourne
Director
Wajax Corporation Annual Report 2011 • 27
Consolidated Financial Statements
Consolidated Statements of Earnings
For the years ended December 31 (in thousands of Canadian dollars, except per share data)
2011
2010
Revenue (note 19)
Cost of sales
Gross profit
Selling and administrative expenses
Earnings before finance costs and income taxes
Finance costs (note 20)
Earnings before income taxes
Income tax expense (recovery) (note 23)
Net earnings
Basic earnings per share (note 24)
Diluted earnings per share (note 24)
$ 1,377,100
$ 1,110,888
1,084,667
292,433
200,321
92,112
4,630
87,482
23,679
873,032
237,856
179,643
58,213
4,277
53,936
(2,454)
$
63,803
$
56,390
$
$
3.84
3.77
$
$
3.39
3.34
Consolidated Statements of Comprehensive Income
For the years ended December 31 (in thousands of Canadian dollars)
Net earnings
2011
2010
$
63,803
$
56,390
Actuarial losses on pension plans, net of tax of $885 (2010 – $217) (note 11)
(2,544)
(628)
Losses on derivative instruments designated as cash flow hedges in prior periods
reclassified to cost of inventory or finance costs in the current year,
net of tax of $237 (2010 – $109)
565
938
Gains (losses) on effective portion of derivative instruments designated as cash flow hedges,
net of tax of $381 (2010 – ($155))
Other comprehensive loss, net of tax
1,062
(917)
(482)
(172)
Total comprehensive income
$
62,886
$
56,218
28 • Wajax Corporation Annual Report 2011
Consolidated Financial Statements
Consolidated Statements of Changes
in Shareholders’ Equity
Accumulated other
comprehensive
(loss) income
For the year ended December 31, 2011
(in thousands of Canadian dollars)
Share
capital
Trust
units
Contributed
surplus
Retained
earnings
Cash flow
hedges
Total
January 1, 2011
$
–
105,371
3,931
91,805
(1,777) $ 199,330
Conversion to corporation
105,371
(105,371)
Net earnings
Other comprehensive loss
Actuarial losses on pension plans,
net of tax (note 11)
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 (note 16)
Share-based compensation expense (note 21)
–
–
–
–
–
–
–
–
December 31, 2011
$
105,371
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
957
4,888
–
63,803
–
–
–
63,803
(2,544)
–
(2,544)
–
–
(2,544)
61,259
(35,587)
–
565
565
1,062
1,627
1,627
–
–
1,062
(917)
62,886
(35,587)
957
117,477
(150) $ 227,586
Accumulated other
comprehensive
(loss) income
For the year ended December 31, 2010
(in thousands of Canadian dollars)
Share
capital
Trust
units
Contributed
surplus
Retained
earnings
Cash flow
hedges
Total
105,129
3,538
92,543
(2,233) $ 198,977
–
56,390
–
56,390
January 1, 2010
$
Net earnings
Other comprehensive loss
Actuarial losses on pension plans,
net of tax (note 11)
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 (note 16)
Unit rights plans exercised (note 21)
Unit-based compensation expense (note 21)
December 31, 2010
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(628)
–
(628)
–
–
(628)
55,762
(56,500)
–
–
938
938
(482)
456
456
–
–
–
(482)
(172)
56,218
(56,500)
–
635
91,805
(1,777) $ 199,330
Wajax Corporation Annual Report 2011 • 29
242
–
105,371
(242)
635
3,931
Consolidated Financial Statements
Consolidated Statements of Cash Flows
For the years ended December 31 (in thousands of Canadian dollars)
2011
2010
Operating activities
Net earnings
Items not affecting cash flow:
Depreciation and amortization
Rental equipment (note 6)
Property, plant and equipment
Assets under finance lease (note 7)
Intangible assets (note 9)
Share-based compensation expense (note 21)
Other liabilities
Non-cash rental expense
Employee benefits expense, net of payments
Finance costs
Income tax expense (recovery)
Cash flows from operating activities before changes
in operating assets and liabilities
Changes in operating assets and liabilities:
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
Accrued liabilities
Provisions
Cash flows generated from operating activities
Rental equipment additions (note 6)
Provisions, non-current
Finance costs paid
Income taxes (paid) received
Net cash flows generated from operating activities
Investing activities
Property, plant and equipment additions
Proceeds on disposal of property, plant and equipment
Intangible assets additions (note 9)
Acquisition of business (note 27)
Net cash flows used in investing activities
Financing activities
Decrease in bank debt
Debt facility renewal costs (note 14)
Finance lease payments
Dividends paid
Net cash flows used in financing activities
Net change in cash
Cash – beginning of year
Cash – end of year
30 • Wajax Corporation Annual Report 2011
$
63,803
$
56,390
4,838
4,410
3,031
1,216
957
423
(303)
(478)
4,630
23,679
3,568
4,065
2,645
966
635
4,380
103
(1,139)
4,277
(2,454)
106,206
73,436
(27,054)
(34,959)
(571)
22,904
19,076
351
(20,253)
85,953
(20,177)
(328)
(4,132)
(116)
61,200
(5,499)
193
(664)
(23,247)
(29,217)
(20,000)
(1,061)
(3,484)
(44,733)
(69,278)
(37,295)
42,954
(11,980)
(15,768)
556
51,537
(2,430)
494
22,409
95,845
(5,775)
820
(3,999)
1,778
88,669
(4,132)
2,393
(3,220)
–
(4,959)
–
(93)
(3,351)
(46,519)
(49,963)
33,747
9,207
$
5,659
$
42,954
Notes to the Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2011 (amounts in thousands of Canadian dollars, except share and per share data)
1. Corporation Profile
as the net total of the plan assets and the present value of the defined
Wajax Corporation (the “Corporation”) is incorporated in Canada. The
benefit obligation.
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 consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (“IFRS”)
Functional and presentation currency
These 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 consolidated financial statements in conformity
with IFRS requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, revenues and expenses. Actual
results could differ from those estimates. The Corporation bases its
estimates on historical experience and various other assumptions
that are believed to be reasonable in the circumstances. The more
significant judgements, estimates and assumptions that have an effect
on the amounts recognized in the consolidated financial statements are
discussed in the following notes:
Note 4 – provision for doubtful accounts
Note 5 – provision for inventory obsolescence
Notes 6, 7 and 9 – asset impairment
as published by the International Accounting Standards Board (“IASB”).
Note 8 – operating and finance leases
These are the Corporation’s first consolidated financial statements
prepared in accordance with IFRS and IFRS 1 First-time Adoption of
Note 9 – impairment of goodwill
International Financial Reporting Standards has been applied.
Note 10 – warranty provision
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 29. This note includes reconciliations
of equity and total comprehensive income for comparative periods
reported under previous Canadian generally accepted accounting
principles (“Canadian GAAP”) to those reported under IFRS for the
current periods. The Corporation’s date of transition to IFRS was
Note 11 – measurement of defined benefit obligations
3. Significant Accounting Policies
Principles of consolidation
These consolidated financial statements include the accounts of Wajax
Corporation and its subsidiary entities, which are all wholly-owned.
Intercompany balances and transactions are eliminated on consolidation.
January 1, 2010.
Revenue recognition
The consolidated financial statements were authorized for issue by the
Board of Directors on March 6, 2012.
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
Revenue is measured at the fair value of consideration received or
receivable and is recognized as it is earned in accordance with
the following:
• Revenue from the sale of equipment, parts and internally-
manufactured or assembled products is recorded at the time goods
are shipped to customers or when all contracted-upon conditions
have been fulfilled.
Wajax Corporation Annual Report 2011 • 31
Notes to the Consolidated Financial Statements
• Revenue from the rental of equipment is recognized on a straight-line
income with any ineffectiveness charged to earnings. If the cash flow
basis over the term of the lease.
• Revenue from the provision of engineering and technical services
to customers is recognized upon performance of contracted–upon
services with the customer.
• Revenue for separately priced extended warranty or product
maintenance contracts is recognized over the contract period in
proportion to the costs expected to be incurred in performing the
services under the contract. If insufficient historical evidence exists
to support this pattern, then revenue is recognized on a straight-line
basis over the term of the contract.
• Revenue from arrangements with separately identifiable components
is recognized separately for each component based on the relative
fair values.
Provision is made for expected returns, collection losses and warranty
costs based on past performance, and for estimated costs to fulfill
contractual obligations and other sales-related contingencies depending
on the terms of each individual contract.
Derivative financial instruments
The Corporation uses derivative financial instruments in the
management of its foreign currency and interest rate exposures. The
Corporation’s policy is not to utilize derivative financial instruments for
trading or speculative purposes.
Where the Corporation intends to apply hedge accounting it formally
documents all relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy
hedge of a firm commitment or forecast transaction results in the
recognition of a non-financial asset or liability, then, at the time the
asset or liability is recognized, the associated gains or losses on the
derivative that had previously been recognized in other comprehensive
income are included in the initial measurement of the asset or liability.
Foreign currency transactions and balances
The functional and presentation currency of the Corporation is
the Canadian dollar. Foreign currency transactions are translated
into Canadian dollars at exchange rates prevailing at the time the
transactions occur. Monetary assets and liabilities denominated in
foreign currencies, such as cash, trade and other receivables and trade
payables, are translated into Canadian dollars at the rate of exchange
in effect at the statement of financial position date. Exchange gains and
losses are included in earnings.
Inventories
Inventories are valued at the lower of cost and net realizable value.
Cost is determined using the weighted average method except where
the items are not ordinarily interchangeable, in which case the specific
identification method is used.
Cost of equipment and parts includes purchase cost, conversion cost if
applicable and cost incurred in bringing inventory to its present location
and condition.
Cost of work-in-progress and cost of conversion includes cost of direct
labour, direct materials and a portion of direct and indirect overheads,
allocated based on normal capacity.
for undertaking various hedge transactions. This process includes
Cost of inventories includes the associated gains or losses transferred
linking all derivatives to specific assets and liabilities on the statement
from other comprehensive income relating to forward contracts hedging
of financial position or to specific firm commitments or forecasted
the purchase of inventory.
transactions. The Corporation also assesses, at the hedge’s inception
as well as at the end of each quarter on a retrospective and prospective
basis, whether the derivatives that are used in hedging transactions
are effective in offsetting changes in fair values or cash flows of hedged
items. Hedge accounting has been applied when the hedge is effective.
The Corporation purchases foreign exchange forward contracts to fix
the cost of certain inbound inventory and the related accounts payable
and to hedge certain anticipated foreign currency denominated sales to
customers and the related accounts receivable.
All derivative instruments are recorded in the consolidated statements
of financial position at fair value unless exempted from derivative
treatment as a normal purchase and sale. All changes in their fair value
are recorded in earnings unless cash flow hedge accounting is used, in
which case changes in fair value are recorded in other comprehensive
Net realizable value is the estimated selling price in the ordinary course
of business, less the estimated costs to sell.
Rental equipment
Rental equipment assets are recorded at cost less accumulated
depreciation. Cost includes all expenditures directly attributable to the
acquisition of the asset. Assets are depreciated over their estimated
useful lives using the declining balance method at a rate of 20% per
year for material handling equipment and a units of production method
for power generation equipment.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation. Cost includes all expenditures directly attributable to the
acquisition of the asset. Assets are depreciated over their estimated
useful lives based on the following methods and annual rates:
32 • Wajax Corporation Annual Report 2011
Notes to the Consolidated Financial Statements
Method
Rate
The interest component of the lease is charged to earnings over the
Asset
Buildings
declining balance
4% – 5%
Equipment and vehicles declining balance
20% – 30%
Information systems
straight-line
3 – 7 years
Furniture and fixtures
declining balance
20%
Leasehold improvements
straight-line
over the remaining
terms of the leases
Depreciation methods and useful lives are reviewed at each reporting
date and adjusted if appropriate. Leased assets are depreciated over the
period of the lease using the effective interest method. All other leases
are classified as operating leases. The cost of operating leases is
charged to earnings on a straight-line basis over the periods of the leases.
The classification of leases involves the use of judgement with respect
to assessing whether substantially all the risks and rewards incidental
to ownership have been transferred. A different judgement with respect
to the classification of leases may have a significant effect on the
amounts recognized in the financial statements.
shorter of the lease term and their useful life.
Intangible assets
Property, plant and equipment and rental equipment are reviewed
at the end of each reporting period to determine if any indicators
of impairment exist. For any indicators of impairment identified,
Goodwill represents the excess of the purchase price of a business
acquisition over the fair value of the net identifiable assets acquired at
the date of acquisition.
an estimate is made of the recoverable amount of the asset. An
Product distribution rights represent the fair value attributed to these
impairment loss is recognized when the carrying amount of an asset
rights pursuant to an acquisition and are classified as indefinite life
held for use exceeds the recoverable amount. The recoverable amount
intangibles assets because the Corporation is generally able to renew
is the higher of value in use or fair value less costs to sell, if the fair
these rights with minimal cost of renewal.
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 asset. Where the asset
does not generate cash flows that are independent of other assets,
impairment is considered for the cash-generating unit (“CGU”) to which
the asset belongs. The impairment loss is measured as the amount by
which the asset’s carrying amount exceeds its recoverable amount.
Goodwill and indefinite life intangibles 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 CGUs that are expected to benefit from
the synergies of the acquisition. To test for impairment, the Corporation
compares each CGU’s carrying value to its recoverable amount.
Recoverable amount is the higher of value in use or fair value less costs
An impairment loss recognized in a prior year for an asset or a CGU,
to sell, if the fair value can be readily determined. The value in use is
other than goodwill, is reversed if there has been a change in the
the present value of future cash flows using a pre-tax discount rate that
estimates used to determine the asset’s recoverable amount since the
reflects the time value of money and the risk specific to the assets. Any
last impairment loss was recognized. An impairment loss is reversed
goodwill or indefinite life intangibles impairment would be recorded as
only to the extent that the asset’s carrying amount does not exceed the
a charge against earnings.
carrying amount that would have been determined, net of depreciation,
if no impairment loss had been recognized. A reversal of an impairment
loss is recognized immediately in earnings.
Leases
As lessor:
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
The Corporation’s equipment rentals and leases are classified as
to determine if any indicators of impairment exist. For any indicators
operating leases with amounts received included in revenue on a
of impairment identified, an estimate is made of the recoverable
straight-line basis over the term of the lease.
As lessee:
Leases are classified as finance leases when the terms of the lease
transfer substantially all the risks and rewards of ownership to the
amount of the asset. Impairment of an intangible asset is recognized
in an amount equal to the difference between the carrying value and
the recoverable amount of the related intangible asset and would be
recorded as a charge against earnings.
Corporation. Under finance leases the asset is recorded at the lower of
An impairment loss recognized in a prior year for an intangible asset,
its fair value and the present value of the minimum lease payments at
other than goodwill, is reversed if there has been a change in the
the inception of the lease. The liability is included in the statement of
estimates used to determine the asset’s recoverable amount since the
financial position and is classified as current and non-current liabilities.
last impairment loss was recognized. An impairment loss is reversed
Wajax Corporation Annual Report 2011 • 33
Notes to the Consolidated Financial Statements
only to the extent that the asset’s revised carrying amount does not
Share-based compensation plans
exceed the carrying amount that would have been determined, net of
The fair values of share-settled compensation plans are based on the
amortization, if no impairment loss had been recognized. A reversal of
trading price of a Wajax Corporation common share on the Toronto
an impairment loss is recognized immediately in earnings.
Stock Exchange (“TSX”). Compensation expense is based upon the fair
Cash
Cash includes cash on hand, demand deposits and bank indebtedness.
The Corporation considers bank indebtedness to be an integral part
value of the rights at the date of grant and is charged to selling and
administrative expenses on a straight-line basis over the vesting period,
with an offsetting adjustment to contributed surplus.
of the Corporation’s cash management. Cash and bank indebtedness
The fair values of cash-settled compensation plans are based on
are offset and the net amount presented in the statement of financial
the trading price of a Wajax Corporation common share on the TSX.
position to the extent that there is a right to set off and a practice of net
Compensation expense varies with the price of the Corporation’s shares
settlement.
Financing costs
and is recognized over the vesting period.
Employee benefits
Transaction costs directly attributable to the acquisition or amendment
The Corporation has defined contribution pension plans for most of its
of bank debt are deferred and amortized to finance costs over the term
employees. The cost of the defined contribution plans is recognized in
of the debt using an effective interest method. Deferred financing costs
earnings based on the contributions required to be made each year.
are included in the carrying amount of the related debt.
Provisions
The Corporation also has defined benefit plans covering some of
its employees. The benefits are based on years of service and the
Provisions are recognized when there is a present legal or constructive
employees’ earnings. Defined benefit plan obligations are accrued
obligation arising from past events, the settlement of which is expected
as the employees render the services necessary to earn the pension
to result in an outflow of economic benefits, and where the obligation
benefits. The Corporation has adopted the following policies:
can be reliably measured. The obligation is measured at the amount
that would rationally be paid to settle or transfer it to a third party
at the statement of financial position date. The amount has been
determined using an expected cash flow approach that reflects a range
of possible outcomes that are probability weighted.
The Corporation provides for customer warranty claims that may not
be covered by the manufacturers’ standard warranty. Warranties relate
to products sold and generally cover a period of 6 months to 5 years.
The reserve is determined by applying a claim rate to the value of
each machine sold. The rate is developed using management’s best
• The cost of pension benefits earned by employees is actuarially
determined using the projected unit credit method for defined benefit
plans and management’s best estimate of expected plan investment
performance, salary escalation, and retirement ages of employees.
• For purposes of calculating expected return on plan assets, those
assets are valued at fair value.
• Prior service costs are amortized on a straight-line basis over the
expected average period until the amended benefits become vested.
estimate of actual warranty expense, generally based on recent claims
experience, and is adjusted as required. The provision is not discounted
• When the restructuring of a benefit plan gives rise to both a
curtailment and a settlement of obligations, the curtailment is
to reflect the time value of money because the impact is not material.
accounted for prior to the settlement.
The Corporation has guaranteed the resale value of certain equipment sold
• The charge to earnings for the defined benefit plans is split between
and guaranteed a portion of certain customers’ lease payments. These
an operating cost and a finance charge. The finance charge
contracts are subject to certain conditions being met by the customers.
represents the interest cost on the accrued benefit obligation net of
Financial instruments
the expected return on plan assets.
The Corporation measures loans and receivables and other financial
• Actuarial gains and losses are recognized in full in the statement of
liabilities at amortized cost. Derivative instruments are measured at fair
comprehensive income in the year in which they occur.
value. All changes in their fair value are recorded in earnings unless
cash flow hedge accounting is used, in which case changes in fair value
Income taxes
are recorded in other comprehensive income with any ineffectiveness
charged to earnings. Cash was designated as loans and receivables
upon initial recognition.
Income tax expense comprises current and deferred tax. Current tax
and deferred tax are recognized in earnings except to the extent that it
relates to a business combination, or items recognized directly in equity
or in other comprehensive income.
34 • Wajax Corporation Annual Report 2011
Notes to the Consolidated Financial Statements
Current tax is the expected tax payable or receivable on the taxable
future from those that would never be reclassified to profit or loss. As
income or loss for the year, using tax rates enacted or substantively
the amendments only require changes in the presentation of items
enacted at the reporting date, and any adjustment to tax payable in
in other comprehensive income, the Corporation does not expect the
respect of previous years.
amendments to IAS 1 to have a material impact on its consolidated
Deferred tax is recognized in respect of temporary differences between
financial statements.
the carrying amounts of assets and liabilities for financial reporting
As of January 1, 2013, the Corporation will be required to adopt IAS
purposes and the amounts used for taxation purposes. Deferred tax is
19 Employee Benefits, which requires recognition of actuarial gains and
measured at the tax rates that are expected to be applied to temporary
losses immediately in other comprehensive income, the full recognition
differences when they reverse, based on the laws that have been
of past service costs immediately in profit or loss, recognition of the
enacted or substantively enacted by the reporting date.
expected return on plan assets in profit or loss to be calculated based
A deferred tax asset is recognized for unused tax losses and deductible
temporary differences, to the extent that it is probable that future
taxable profits will be available against which they can be utilized.
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.
Deferred tax assets are reviewed at each reporting date and are reduced
4. Trade and Other Receivables
to the extent that it is no longer probable that the related tax benefit
will be realized.
New standards and interpretations not yet adopted
The new standards or amendments to existing standards set out below
are not yet effective for the year ended December 31, 2011 and have
Trade accounts
receivable
Less: allowance
December 31 December 31
2011
2010
January 1
2010
$ 157,273 $ 125,108 $ 104,894
not been applied in preparing these consolidated financial statements.
for credit losses
(3,514)
(3,902)
(2,117)
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.
Net trade accounts
receivable
Other receivables
Total trade and
153,759
20,474
121,206
14,311
102,777
20,760
other receivables
$ 174,233 $ 135,517 $ 123,537
The Corporation is exposed to credit risk with respect to its trade
and other receivables. Provisions are made against trade and other
receivables that in the estimation of management may be impaired.
As of January 1, 2013, the Corporation will be required to adopt IFRS
Credit losses to date have been within management’s expectations,
10 Consolidated Financial Statements, which establishes principles for
however actual results could differ from management’s estimate.
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.
The Corporation’s exposure to credit and currency risks related to trade
and other receivables is disclosed in note 15.
5. Inventories
December 31 December 31
2010
2011
January 1
2010
Equipment
Parts
Work-in-process
$ 106,055 $
115,716
19,753
88,749 $ 74,623
88,150
89,996
15,136
17,715
Total inventories
$ 241,524 $ 196,460 $ 177,909
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
All amounts shown are net of obsolescence reserves of $11,495 (2010
– $11,145). During the year ended December 31, 2011, $3,209
(2010 – $3,959) was recorded in cost of sales for the write-down of
comprehensive income that may be reclassified to profit or loss in the
inventories to estimated net realizable value.
Wajax Corporation Annual Report 2011 • 35
Notes to the Consolidated Financial Statements
The value of the Corporation’s new and used equipment is evaluated
6. Rental Equipment
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. The Corporation
identifies slow moving or obsolete parts inventories and estimates
appropriate obsolescence provisions related thereto. The Corporation
takes advantage of supplier programs that allow for the return of eligible
parts for credit within specified time periods.
The Corporation recognized $974,424 (2010 – $783,210) of
inventories as an expense which is included in cost of sales for the year
ended December 31, 2011.
Substantially all of the Corporation’s inventories are pledged as security
for the bank credit facility (Note 14).
Cost
Accumulated
depreciation
Net book
value
January 1, 2011
Additions
Transfers to inventories
$
30,397 $
20,177
(7,126)
14,603 $ 15,794
15,339
(3,073)
4,838
(4,053)
December 31, 2011
January 1, 2010
Additions
Transfers to inventories
$
$
43,448 $
15,388 $ 28,060
31,548 $
5,775
(6,926)
15,178 $ 16,370
2,207
(2,783)
3,568
(4,143)
December 31, 2010
$
30,397 $
14,603 $ 15,794
Equipment
Land and
buildings and vehicles
Information
systems
Furniture
and fixtures
Leasehold
improvements
Total
33,686
1,088
35
(85)
34,724
32,611
1,578
(256)
(247)
57,374
7,968
1,246
(2,683)
4,260
471
21
(32)
9,143
989
239
(355)
10,067 $ 114,530
10,899
1,878
(3,159)
383
337
(4)
63,905
4,720
10,016
10,783 $ 124,148
56,479
4,456
(3,814)
253
15,334
256
(5,534)
(5,796)
9,070
206
(135)
2
10,041 $ 123,535
7,213
(10,424)
(5,794)
717
(685)
(6)
33,686
57,374
4,260
9,143
10,067 $ 114,530
13,142
780
(52)
39,763
5,158
(2,128)
3,397
384
(20)
7,479
396
(278)
7,481 $
723
(1)
71,262
7,441
(2,479)
13,870
42,793
3,761
7,597
8,203 $
76,224
12,495
756
(110)
1
38,184
4,538
(2,957)
(2)
12,141
393
(5,533)
(3,604)
13,142
39,763
3,397
20,854
20,116
20,54 4
21,112
18,295
17,611
959
3,193
863
7,201
391
(120)
7
7,479
2,419
1,869
1,664
7,540 $
632
(691)
–
77,561
6,710
(9,411)
(3,598)
7,481 $
71,262
2,580 $
47,924
2,501 $
45,974
2,586 $
43,268
7. Property, Plant, and Equipment
Cost
January 1, 2011
Additions
Acquisition of business (Note 27)
Disposals
December 31, 2011
January 1, 2010
Additions
Disposals
Transfers
December 31, 2010
Accumulated depreciation
January 1, 2011
Charge for the year
Disposals
December 31, 2011
January 1, 2010
Charge for the year
Disposals
Transfers
December 31, 2010
Carrying amount
December 31, 2011
January 1, 2010
December 31, 2010
36 • Wajax Corporation Annual Report 2011
$
$
$
$
$
$
$
$
$
$
$
Notes to the Consolidated Financial Statements
Included in property, plant and equipment are vehicles held under
Operating leases – as lessee
finance leases as follows:
Cost, beginning of year
Additions
Disposals
Purchased at end of lease
Cost, end of year
Accumulated depreciation,
beginning of year
Charge for the year
Disposals
Purchased at end of lease
The Corporation leases certain land and buildings, rental equipment
and office equipment. Some of the leases have renewal terms. The
rental equipment leases have purchase options with the purchase
option date varying between 1 and 13 years.
The future minimum non-cancelable payments due under the
agreements are as follows:
December 31 December 31
2010
2011
$
22,006 $ 22,433
3,081
(3,508)
–
5,400
(2,333)
(982)
24,091
22,006
12,542
3,031
(1,848)
(716)
12,589
2,645
(2,692)
–
Less than one year
Between one
and five years
More than five years
December 31 December 31
2010
2011
January 1
2010
$
16,827 $
16,225 $ 17,834
33,281
21,229
35,150
23,454
40,476
26,769
$
71,337 $
74,829 $ 85,079
Accumulated depreciation, end of year
13,009
12,542
Net book value
$
11,082 $
9,464
All property, plant and equipment except land and buildings and
vehicles held under finance leases have been pledged as security for
bank debt.
8. Operating and Finance Leases
Operating leases – as lessor
The Corporation rents equipment to customers under rental agreements
with terms of up to 5 years. The rentals have been classified as
operating leases. Certain rental agreements are subject to overtime
charges when usage exceeds the amount contemplated in the
agreements. The rentals may be cancelled subject to a cancellation fee.
The future minimum non-cancelable lease payments receivable under
the agreements are as follows:
Less than one year
Between one
and five years
More than five years
December 31 December 31
2010
2011
January 1
2010
$
6,187 $
4,727 $
6,136
8,199
17
12,404
–
9,404
–
$
14,403 $
17,131 $ 15,540
For the year ended December 31, 2011, the Corporation recognized
$110 (2010 – $68) of overtime charges under the rental agreements
as contingent rent.
The total future minimum sublease payments expected to be received
are $132 (2010 – $177).
Wajax Corporation Annual Report 2011 • 37
Notes to the Consolidated Financial Statements
Finance leases – as lessee
The Corporation finances certain vehicles under finance lease arrangements. The leases have a minimum one year term and are extended on a
monthly basis thereafter until terminated. On termination the difference between the lessor’s proceeds of disposal and the residual value is charged or
refunded to the Corporation as a rental adjustment. The leases have been classified as finance leases. Obligations under finance leases are as follows:
December 31, 2011
December 31, 2010
January 1, 2010
Present
value of
minimum
lease
payments
Payment
Interest
Payment
Interest
Present
value of
minimum
lease
payments
Payment
Interest
Present
value of
minimum
lease
payments
Less than one year
$
4,061
Between one and five years
7,586
More than five years
–
415
898
–
3,646 $ 3,967
6,688
6,006
–
–
290
779
–
3,677 $ 4,027
5,227
6,597
–
–
177
457
–
3,850
6,140
–
Total minimum
lease payments
Current
Non-current
Total minimum
11,647
1,313
10,334
9,973
1,069
8,904
10,624
634
9,990
4,061
7,586
415
898
3,646
6,688
3,967
6,006
290
779
3,677
5,227
4,027
6,597
177
457
3,850
6,140
lease payments
$ 11,647
1,313
10,334 $ 9,973
1,069
8,904 $ 10,624
634
9,990
9.
Intangible Assets
Cost
January 1, 2011
Acquisition of business (Note 27)
Additions
December 31, 2011
January 1, 2010
Additions
Disposals
December 31, 2010
Accumulated amortization
January 1, 2011
Amortization for the year
December 31, 2011
January 1, 2010
Amortization for the year
Disposals
December 31, 2010
Carrying amount
December 31, 2011
January 1, 2010
December 31, 2010
38 • Wajax Corporation Annual Report 2011
$
$
$
Goodwill
66,335
4,309
–
70,644
66,335
–
–
$
66,335
–
–
–
–
–
–
–
$
$
$
$
$
$
$
Product Customer lists/
distribution non-competition
agreements
rights
Software
Total
4,900
3,900
–
8,800
4,900
–
–
4,900
–
–
–
–
–
–
–
4,302
1,000
–
5,302
4,302
–
–
4,302
2,565
530
3,095
2,032
533
–
2,565
2,207
2,270
1,737
7,053 $
42
664
82,590
9,251
664
7,759 $
92,505
7,093 $
3,220
(3,260)
82,630
3,220
(3,260)
7,053 $
82,590
4,231 $
686
6,796
1,216
4,917 $
8,012
7,059 $
433
(3,261)
9,091
966
(3,261)
4,231 $
6,796
2,842 $
84,493
34 $
73,539
2,822 $
75,794
70,644
66,335
66,335
8,800
4,900
4,900
Notes to the Consolidated Financial Statements
Amortization of intangible assets is charged to selling and administrative expenses.
Product distribution rights have an indefinite life as the Corporation intends to renew these agreements indefinitely and has historically been able to
do so in most cases without incurring significant costs.
Goodwill and indefinite life intangible assets have been allocated to the Corporation’s cash-generating units that are expected to benefit from the
synergies of the acquisition that gave rise to the goodwill or indefinite life intangible assets as follows:
Cash-generating units
Equipment
Industrial Components
Power Systems East
Power Systems Central
Power Systems West
2011
2011
2010
2010
Product
distribution
Goodwill
rights
Goodwill
$
21,341
41,050
1,409
4,309
2,535
– $
3,300
–
3,900
1,600
21,341
41,050
1,409
–
2,535
$
70,644
8,800 $
66,335
Product
distribution
rights
–
3,300
–
–
1,600
4,900
The Corporation tests goodwill and other indefinite life intangibles
10. Provisions
annually for impairment, or more frequently if certain indicators arise that
Warranties
Other
Total
indicate they are impaired. The Corporation tests finite life intangibles
and other long lived assets when events or changes in circumstances
indicate that the carrying value may not be recoverable. The recoverable
Provisions
January 1, 2011
Charge for the year
$
9,230 $
6,931
461 $
118
9,691
7,049
amount in most cases is estimated based on the value in use determined
Utilized in the year
(6,529)
(497)
(7,026)
as 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 asset.
The estimation process is complex and different assumptions may result
in material differences. In particular, if different estimates of the projected
future cash flows or different selection of an appropriate discount rate
were made, these changes could materially alter the present value of the
cash flows and as a consequence materially different amounts could be
reported in the financial statements.
In 2011, the Corporation performed impairment tests, based on value
in use, of its goodwill and intangible assets with an indefinite life. The
Corporation concluded that no impairment existed in either the goodwill
associated with any of the Corporation’s cash-generating units or the
intangible assets with an indefinite life.
Provisions
December 31, 2011
Current
Non-current
Total
Provisions
January 1, 2010
Charge for the year
Utilized in the year
Provisions
December 31, 2010
Current
Non-current
$
9,632 $
82 $
9,714
5,622
4,010
82
–
5,704
4,010
$
9,632 $
82 $
9,714
$
8,199 $
5,418
178 $
461
8,377
5,879
(4,387)
(178)
(4,565)
$
9,230 $
461 $
9,691
4,892
4,338
461
–
5,353
4,338
The value in use has been estimated using the budget prepared by
Total
$
9,230 $
461 $
9,691
management for the next three years. The key assumptions for the
estimate are those regarding revenue growth, gross margin and the level
of working capital required to support the business. These estimates
are based on past experience and management’s expectations of future
changes in the market. To prepare the value in use calculations the
budget is extrapolated beyond the three year period at the estimated
long term inflation rate (2%) and discounted back to present value. The
discount rate is based on the Corporation’s pretax weighted average
cost of capital of approximately 12% to reflect a market participant’s
view of the cash-generating unit.
As at December 31, 2011, the Corporation had guaranteed $5,325
of contracts (2010 – $5,789), with commitments arising between
2012 and 2014. The commitments made by the Corporation in these
contracts reflect the estimated future value of the equipment, based
on the judgment and experience of management. The Corporation has
recorded an $82 provision in 2011 (2010 – $461) as an estimate of
the financial exposure likely to result from such commitments.
Wajax Corporation Annual Report 2011 • 39
Notes to the Consolidated Financial Statements
Litigation
The following significant actuarial assumptions were employed to
In the ordinary course of business, the Corporation is contingently
determine the periodic pension income and the accrued benefit
liable for litigation in varying amounts. These liabilities could arise from
obligations:
litigation, environmental matters or other sources. It is not possible to
determine the amounts that may ultimately be assessed against the
Corporation, but management believes that any such amounts would
not have a material impact on the business or financial position of the
Corporation as they generally are fully covered by insurance. Provisions
have been made in these consolidated financial statements when the
liability is expected to result in an outflow of economic benefits, and
where the obligation can be reliably measured.
11. Employee Benefits
The Corporation sponsors three pension plans: the Wajax Limited
Pension Plan (the “Employees’ Plan”) which, except for a small group
of employees collecting long-term disability benefits and a small group
of inactive members, has been converted to a defined contribution
plan (“DC”) and two defined benefit plans (“DB”): the Pension Plan
for Executive Employees of Wajax Limited (the “Executive Plan”) and
the Wajax Limited Supplementary Executive Retirement Plan (the
“SERP”). The Corporation also contributes to several union sponsored
multi-employer plans for a small number of employees. Two of these
are target benefit plans but they are all accounted for as DC plans as
the Corporation has no involvement in the management of these plans
and does not have sufficient information to account for the plans as
DB plans. During 2011 the Wajax Pension Plan for Salaried Midwest
Employees (the “Midwest Plan”) and the Wajax Pension Plan for Hourly
Midwest Employees were merged with the Employees’ Plan.
The Corporation uses actuarial reports prepared by independent
actuaries for funding and accounting purposes and measures its
accrued benefit obligations and the fair value of plan assets for
accounting purposes as at December 31 of each year. These actuarial
assumptions include discount rates, expected long-term rate of
return on plan assets, compensation increases and service life. While
management believes that the actuarial assumptions are appropriate,
December 31 December 31
2010
2011
January 1
2010
Expected long-term rate
of return on plan assets
Discount rate –
at beginning of year
6.0%
7.0%
7.0%
(to determine plan expenses) 5.0% 5.5%–5.75%
6.0%–6.5%
Discount rate – at end of year
(to determine accrued
benefit obligation)
4.0%
Rate of compensation increase 3.0%
5.0% 5.5%–5.75%
3.0%
3.0%
The expected long-term rate of return on plan assets has been derived
as the weighted average of the expected returns from each of the main
asset classes. The expected return for each asset class is determined
by reference to long-term government bond rates plus a risk premium.
The risk premiums are long-term assumptions and were set after taking
actuarial advice.
Plan assets for the DC plans are invested according to the directions of
the plan members. Plan assets for defined benefit plans are invested in
the following major categories of plan assets as a percentage of total
plan assets:
Cash
Fixed Income
Canadian Equities
Foreign Equities
December 31 December 31
2010
2011
January 1
2010
6.2%
32.3%
29.3%
32.2%
2.5%
36.1%
30.2%
31.2%
4.4%
35.1%
28.2%
32.3%
100.0%
100.0%
100.0%
any significant changes to those used would affect the statement of
The history of experience adjustments on the defined benefit plans for
financial position and statement of earnings.
the current and prior year:
Actuarial valuations of the pension plans for funding purposes were
as follows:
Experience gain
2011
2010
Plan
Previous valuation
Next valuation
Employees’ Plan
Executive Plan
SERP
January 1, 2011
January 1, 2009
January 1, 2009
January 1, 2014
January 1, 2012
January 1, 2012
on accrued benefit obligation
$
47 $
109
Experience (loss) gain
on plan assets
$ (1,566) $
89
40 • Wajax Corporation Annual Report 2011
Notes to the Consolidated Financial Statements
Total cash payments
Plan assets
2011
2010
Total cash payments for employee future benefits for 2011, consisting
of cash contributed by the Corporation to its funded pension plans,
cash payments directly to beneficiaries for its unfunded pension plans,
and cash contributed to its DC plans was $7,561 (2010 – $7,234).
The Corporation expects to contribute $487 to the defined benefit
pension plans in the year ended December 31, 2012.
The plan expenses recognized in earnings are as follows:
Fair value of plan assets, beginning of year
Actual gain (loss) on plan assets
Participant contributions
Employer contributions
Benefits paid
Administration expenses
$ 12,557 $ 10,972
892
43
1,561
(831)
(80)
(683)
43
954
(1,522)
(80)
Fair value of plan assets, end of year
$ 11,269 $ 12,557
2011
2010
Funded status
December 31
2011
December 31
2010
January 1
2010
Defined contribution plans
Current service cost
Defined benefit plans
$ 6,678 $ 5,683
Current service cost
Administration expenses
Finance cost on accrued benefit obligation
346
80
850
290
80
881
Expected return on plan assets
(883)
(803)
Fair value of plan assets,
end of year
Present value of benefit
obligation, end of year
$
11,269 $
12,557 $
10,972
(18,599)
(17,019)
(15,702)
Plan deficit
$
(7,330) $
(4,462) $
(4,730)
Total plan expense recognized
in the statement of earnings
$ 7,071 $ 6,131
of financial position as follows:
The accrued benefit liability is included in the Corporation’s statement
Of the amounts recognized in earnings, $2,958 (2010 – $2,528) is
included in cost of sales and $4,113 (2010 – $3,603) is included in
selling and administrative expenses.
The amounts recognized in other comprehensive income are as follows:
December 31
2011
December 31
2010
January 1
2010
Employee benefits asset $
Trade and other payables
Employee benefits liability
– $
(487)
(6,843)
240 $
(570)
(4,132)
–
(1,031)
(3,699)
Plan deficit
$
(7,330) $
(4,462) $
(4,730)
Net actuarial losses
Deferred tax
Amount recognized
2011
2010
$ 3,429 $
(885)
845
(217)
Present value of benefit obligation includes a benefit obligation of
$4,279 (2010 – $3,815) related to the SERP that is not funded. This
obligation is secured by a letter of credit of $4,550 (2010 – $4,320).
in other comprehensive income
$ 2,544 $
628
12. Trade and Other Payables
Cumulative actuarial losses
$ 3,172 $
628
Information about the Corporation’s defined benefit pension plans, in
aggregate, is as follows:
Present value of benefit obligation
2011
2010
Present value of benefit obligation,
beginning of year
Current service cost
Participant contributions
Interest cost
Actuarial loss
Benefits paid
Present value of benefit obligation,
$ 17,019 $ 15,702
290
43
881
934
(831)
346
43
850
1,863
(1,522)
end of year
$ 18,599 $ 17,019
Trade payables
Other payables
Deferred income
Total trade and
other payables
December 31
2011
December 31
2010
January 1
2010
$ 139,828 $ 124,852 $
12,362
10,918
7,103
2,877
77,444
6,279
–
$ 163,108 $ 134,832 $
83,723
13. Equipment Notes Payable
The Corporation has a $15,000 demand wholesale financing
facility. The notes payable bear floating rates of interest at margins
over Canadian dollar bankers’ acceptance yields, are secured by
the applicable equipment and are due in full when the applicable
equipment is sold.
As the facility was not used during the year, interest on the equipment
notes payable amounted to nil.
Wajax Corporation Annual Report 2011 • 41
Notes to the Consolidated Financial Statements
14. Bank Debt
15. Financial Instruments
On August 12, 2011, the Corporation amended and extended the
The Corporation categorizes its financial assets and financial liabilities
term of its $175,000 bank credit facility to August 12, 2016 from
as follows:
December 31, 2011. The $175,000 fully secured bank credit facility
consists of a $30,000 non-revolving term portion and a $145,000
revolving term portion. Borrowing capacity under the bank credit
facility is dependent upon the level of the Corporation’s inventories
on hand and the outstanding trade accounts receivable. At December
31, 2011 borrowing capacity under the bank credit facility was equal
to $175,000. In addition, the bank credit facility contains 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. The Corporation will be restricted from the
declaration of monthly cash dividends in the event the Corporation’s
ratio of debt to earnings before interest, taxes, depreciation and
amortization and share-based compensation expense (the “Leverage
Ratio”) exceeds three times. Borrowings under the facility bear floating
rates of interest at applicable margins over Canadian dollar bankers’
acceptance yields, U.S. dollar LIBOR rates or prime rates.
December 31 December 31
2010
2011
January 1
2010
Loans and receivables:
Cash
Trade and other receivables 174,233
$
5,659 $
42,954 $
135,517
9,207
123,537
Other financial liabilities:
Trade and other
payables
$ (163,108) $ (134,832) $
Accrued liabilities
Dividends payable
Other liabilities
Bank debt
(84,050)
(3,326)
(5,644)
(59,021)
(63,762)
(12,472)
(5,221)
(79,680)
(83,723)
(66,089)
(2,491)
(841)
(79,461)
Derivative instruments –
cash flow hedges:
Foreign exchange
December 31 December 31
2010
2011
January 1
2010
forward contracts $
Interest rate swaps
(208) $
–
(1,332) $
(1,120)
(267)
(2,376)
Bank credit facility, repayable
August 12, 2016
Non-revolving
term portion
$
30,000 $
Revolving term portion 30,000
30,000 $
50,000
30,000
50,000
60,000
80,000
80,000
Deferred financing costs,
net of accumulated
amortization of $82
(2010 – $1,055 and
January 1, 2010 – $743)
(979)
(320)
(539)
Total bank debt
$
59,021 $
79,680 $
79,461
The Corporation had $5,952 (2010 – $5,115) letters of credit
outstanding at the end of the year.
$
(208) $
(2,452) $
(2,643)
The Corporation measures loans and receivables and other financial
liabilities at amortized cost. Derivatives designated as effective hedges
are measured at fair value with subsequent changes in fair value
being charged to other comprehensive income. Cash was designated
as loans and receivables upon initial recognition. The fair value of
derivative instruments is estimated based upon market conditions
using appropriate valuation models. The carrying values reported in
the statement of financial position for financial instruments are not
significantly different from their fair values. The fair value of trade
and other receivables and other financial liabilities approximates their
recorded values due to the short-term maturities of these instruments.
The classification of fair value measurements is based upon a fair value
hierarchy that reflects the significance of the inputs used in making the
Finance costs on bank debt amounted to $4,232 (2010 – $4,094).
measurements. The level within which the fair value measurement is
categorized is based upon the lowest level of input that is significant to
the measurement. Level inputs are as follows:
Level 1 – quoted prices in active markets for identical
financial instruments
Level 2 – significant observable inputs other than quoted prices
included in Level 1
Level 3 – significant unobservable inputs
42 • Wajax Corporation Annual Report 2011
Notes to the Consolidated Financial Statements
As of December 31, 2011, the inputs used to value the Corporation’s
The carrying amounts of accounts receivable represent the maximum
derivative financial instruments were Level 2 and Level 1 for cash of
credit exposure.
the fair value hierarchy. The Corporation did not apply any Level 3
measurements. The Corporation did not move any instruments between
levels of the fair value hierarchy during the years ended December 31,
2011 and 2010.
The following methods and assumptions were used to determine the
fair value of each class of assets and liabilities recorded at fair value on
the consolidated statement of financial position.
Cash (Level 1)
The Corporation maintains provisions for possible credit losses by
performing an analysis of specific accounts. Any such losses to date
have been within management’s expectations. Movement of the
allowance for credit losses is as follows:
December 31 December 31
2010
2011
January 1
2010
Opening balance
Additions
$
3,902 $
592
2,117 $
2,635
2,061
1,664
The fair value of cash is determined using quoted market prices in
Utilization
(980)
(850)
(1,608)
active markets for foreign denominated cash.
Derivative instruments (Level 2)
Closing balance
$
3,514 $
3,902 $
2,117
The fair value of foreign currency forward contracts and interest rate
Liquidity risk
swaps is determined by discounting contracted future cash flows using
Liquidity risk is the risk that the Corporation will encounter difficulty
a discount rate derived from swap curves for comparable assets and
in meeting obligations associated with its financial liabilities. The
liabilities adjusted for changes in credit risk of the counterparties.
contractual maturity of bank debt is August 12, 2016. At December
Contractual cash flows are calculated using a forward price at maturity
31, 2011 the Corporation had borrowed $60,000 (2010 and January
date derived from observed forward prices.
Credit risk
The Corporation is exposed to non-performance by counterparties
to interest rate swaps and short-term currency forward contracts.
These counterparties are large financial institutions with “Stable”
outlook and high short-term and long-term credit ratings. To date, no
1, 2010 – $80,000) and issued $5,952 (2010 – $5,115 and January
1, 2010 – $4,712) of letters of credit for a total utilization of $65,952
(2010 – $85,115 and January 1, 2010 – $84,712) of its $175,000
(2010 and January 1, 2010 – $175,000) bank credit facility and
had not utilized any (2010 and January 1, 2010 – nil) of its $15,000
(2010 and January 1, 2010 – $15,000) equipment financing facility.
such counterparty has failed to meet its financial obligations to the
The Corporation’s $175,000 bank credit facility along with $15,000 of
Corporation. Management does not believe there is a significant risk of
capacity permitted in addition to the credit facility should be sufficient
non-performance by these counterparties and will continue to monitor
to meet the Corporation’s short-term normal course working capital,
the credit risk of these counterparties.
maintenance capital and growth capital requirements.
The Corporation is also exposed to credit risk with respect to its
In the long-term the Corporation may be required to access the equity
trade and other receivables. This risk is somewhat minimized by the
or debt markets in order to fund significant acquisitions and growth
Corporation’s large customer base which covers many business sectors
related working capital and capital expenditures.
across Canada. The Corporation follows a program of credit evaluations
of customers and limits the amount of credit extended when deemed
necessary. The Corporation’s trade and other receivables consist of
trade accounts receivable from customers and other accounts receivable
generally from suppliers for warranty and rebates. The aging of the
trade accounts receivable is as follows:
Financial risk management policy
The Corporation has in place a financial risk management policy
that addresses the Corporation’s financial exposure to currency risk
and interest rate risk. The Corporation’s tolerance to interest rate risk
decreases as the percentage of debt to tangible net worth increases.
To manage this risk prudently, guideline percentages of floating interest
December 31 December 31
2010
2011
January 1
2010
rate debt decrease as the percentage of debt to tangible net worth
increases. The policy also defines acceptable levels of exposure to
Current
$
Less than 60 days overdue
More than 60 days overdue
93,268 $
58,408
5,597
76,183 $
42,164
6,761
56,618
43,436
4,840
transactional currency risk. The exposure to currency and interest rate
risk is managed through the use of various derivative instruments.
Derivative instruments are used only to hedge risks as determined
Total trade
accounts receivable
$ 157,273 $ 125,108 $ 104,894
within these policy guidelines.
Wajax Corporation Annual Report 2011 • 43
Notes to the Consolidated Financial Statements
Currency risk
The Corporation enters into short-term currency forward contracts to fix the cost of certain inbound inventory and to hedge certain foreign currency-
denominated sales to customers along with the associated receivables as part of its normal course of business. The impact of a change in foreign
currency relative to the Canadian dollar on the Corporation’s financial statements of unhedged foreign currency-denominated sales to customers
along with the associated receivables and purchases from vendors along with the associated payables would be insignificant. The Corporation’s
commitments to buy and sell foreign currencies are summarized as follows:
December 31, 2011
Purchase contracts
Purchase contracts
Sales contracts
December 31, 2010
Notional
amount
Fair value
Average
exchange rate
Maturity
USD
EUR
USD
$
$
35,952
220
979
$
$
(201)
(16)
9
1.0249
1.3993
1.0262
January to December 2012
January to June 2012
January to February 2012
Notional
amount
Fair value
Average
exchange rate
Maturity
Purchase contracts
USD
$
34,147
$
(1,338)
1.0373
Sales contracts
USD
278
6
1.0190
January 2011
to December 2012
April to May 2011
The Corporation maintains a hedging policy whereby significant transactional currency risks are usually identified and hedged.
Interest rate risk
17. Share Capital
The Corporation’s borrowing costs are impacted by changes in
The Corporation is authorized to issue an unlimited number of shares,
interest rates. In order to manage this risk to an acceptable level, the
with each share entitling the holder of record to one vote at all meetings
Corporation may use derivative instruments such as interest rate swap
of shareholders. The shares have no par value and all issued shares
agreements. As at December 31, 2011 the Corporation had not entered
are fully paid. Each share represents an equal beneficial interest in any
into any interest rate swaps with its lenders (2010 – interest rate
distributions of the Corporation and in the net assets of the Corporation
swaps to fix interest payments on $80,000 of debt having a fair value
in the event of its termination or winding-up.
of ($1,120) and January 1, 2010 – interest rate swaps to fix interest
payments on $80,000 of debt having a fair value of ($2,376)).
Sensitivity analysis
Balance, January 1, 2011
Converted on January 1, 2011
Number
of shares
Amount
– $
–
A 1.00 percentage point change in interest rates, all things being
equal, would result in a change to earnings before income taxes of
from trust units
Shares issued
16,629,444
–
105,371
–
approximately $912 for the year.
16. Dividends Declared
Balance, December 31, 2011
16,629,444 $ 105,371
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.
18. Trust Units
In 2010 the Corporation was structured as an unincorporated open-
ended limited purpose investment trust called Wajax Income Fund.
The issued and fully paid trust units of the Fund were included in
shareholders’ equity on the statement of financial position and are
During the period between January 1, 2011 and December 31,
summarized as follows:
2011 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.
Number
of units
Amount
Balance, January 1, 2010
Units issued
16,603,423 $ 105,129
242
26,021
Balance, January 1, 2011
Converted on January 1, 2011
16,629,444
105,371
to share capital
16,629,444
105,371
Balance, December 31, 2011
– $
–
44 • Wajax Corporation Annual Report 2011
Notes to the Consolidated Financial Statements
2011
2010
Under the SOP, DSP and the DDSUP, rights are issued to the participants
a) Share rights plans
19. Revenue
Equipment
Parts
Service
Rental and other
Total revenues
20. Finance Costs
Interest on bank debt
Interest on finance leases
$ 553,489 $ 415,835
527,215
627,690
139,151
164,376
28,687
31,545
$ 1,377,100 $ 1,110,888
2011
$
4,232 $
398
2010
4,094
183
Finance costs
$
4,630 $
4,277
21. 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”).
Share Ownership Plan
Outstanding at beginning of year
Granted in the year – new grants
– dividend equivalents
Settled in the year
Forfeited in the year
Outstanding at end of year
which, upon satisfaction of certain time and performance vesting
conditions, are settled by issuing Wajax Corporation shares for no cash
consideration. Vested rights are settled when the participant is no longer
employed by the Corporation or one of its subsidiary entities or no longer
sits on its board. The aggregate number of shares issuable to satisfy
entitlements under these plans may not exceed 1,050,000 shares.
Compensation expense is based upon the fair value of the rights at the
date of grant and is charged to earnings on a straight-line basis over the
vesting period, with an offsetting adjustment to contributed surplus.
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 cost of $957 for the year ended
December 31, 2011 (year ended December 31, 2010 – $635) in respect
of these plans.
December 31, 2011
December 31, 2010
Number
of rights
Fair value at
time of grant
Number
of rights
Fair value at
time of grant
101,999
–
7,789
–
–
$
1,024
–
–
–
–
$
126,125
–
11,025
(26,021)
(9,130)
1,346
–
–
(242)
(80)
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
Outstanding at beginning of year
Granted in the year – new grants
– dividend equivalents
Outstanding at end of year
Number
of rights
24,164
3,989
2,063
$
30,216
$
Fair value at
time of grant
Number
of rights
Fair value at
time of grant
600
150
–
750
$
21,944
2,220
–
24,164
$
600
–
–
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
Outstanding at beginning of year
Granted in the year – new grants
– dividend equivalents
Outstanding at end of year
DDSUP rights vest immediately upon grant.
Number
of rights
Fair value at
time of grant
Number
of rights
Fair value at
time of grant
147,797
17,148
11,646
$
2,509
625
–
117,518
17,562
12,717
$
2,008
501
–
176,591
$
3,134
147,797
$
2,509
Wajax Corporation Annual Report 2011 • 45
Notes to the Consolidated Financial Statements
The outstanding aggregate number of shares issuable to satisfy
23. Income Taxes
entitlements under these plans is as follows:
On January 1, 2011, a plan of arrangement was completed and Wajax
2011
2010
Number
of shares
Number
of units
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.
Approved by shareholders
1,050,000
1,050,000
Exercised to date
Rights outstanding
(46,914)
(46,914)
(316,595)
(273,960)
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
Available for future grants
686,491
729,126
to the terms of the Declaration of Trust, all taxable income earned by
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 $4,251 for the year ended
December 31, 2011 (year ended December 31, 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).
22. Employee Costs
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:
Current
Deferred – Origination and reversal
2011
2010
$
442 $
112
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:
Employee costs for the Corporation during the year amounted to:
2011
2010
2011
2010
Combined statutory income tax rate
27.7%
29.4%
Wages and salaries, including bonuses
$ 193,152 $ 173,845
Other benefits
Pension costs – defined contribution plans
Pension costs – defined benefit plans
Share-based payments expense
28,008
25,303
6,678
393
5,377
5,683
448
3,798
Expected income tax expense
at statutory rates
Income of the Fund taxed
directly to unitholders
Non-deductible expenses
Deferred tax related to changes
$ 233,608 $ 209,077
in tax law and rates
Other
$ 24,233
$ 15,857
–
(15,961)
621
315
(1,164)
(2,683)
(11)
18
Income tax expense (recovery)
$ 23,679 $ (2,454)
46 • Wajax Corporation Annual Report 2011
Notes to the Consolidated Financial Statements
Recognized deferred tax assets and liabilities
Recognized deferred tax assets and liabilities and the movement in temporary differences during the year are as follows:
December 31 Recognized in
profit or loss
2010
Recognized in other
comprehensive income
December 31
2011
Accrued liabilities
Provisions
Employee benefits
Property, plant and equipment
Finance leases
Intangible assets
Deferred financing costs
Partnership income not currently taxable
Tax loss carryforwards
Derivative instruments
$
4,792
2,400
1,065
(1,418)
(147)
(2,052)
(38)
–
–
675
457
104
(198)
(355)
(48)
(303)
9
(23,236)
333
–
Net deferred tax assets (liabilities)
$
5,277
(23,237)
–
–
885
–
–
–
–
–
–
(619)
266
$
5,249
2,504
1,752
(1,773)
(195)
(2,355)
(29)
(23,236)
333
56
$
(17,694)
January 1
2010
Recognized in
profit or loss
Recognized in other
comprehensive income
December 31
2010
Accrued liabilities
Provisions
Employee benefits
Property, plant and equipment
Finance leases
Intangible assets
Deferred financing costs
Tax loss carryforwards
Derivative instruments
$
1,538
2,178
883
(1,308)
38
(1,910)
(46)
446
410
Net deferred tax assets
$
2,229
3,254
222
(35)
(110)
(185)
(142)
8
(446)
–
2,566
–
–
217
–
–
–
–
–
265
482
$
4,792
2,400
1,065
(1,418)
(147)
(2,052)
(38)
–
675
$
5,277
24. Earnings Per Share
25. Capital Management
The following table sets forth the computation of basic and diluted
Objective
earnings per share:
Numerator for basic and diluted
earnings per share:
2011
2010
– net earnings
$
63,803 $
56,390
Denominator for basic
earnings per share:
– weighted average shares
16,629,444
16,613,676
Denominator for diluted
earnings per share:
– weighted average shares
– effect of dilutive share rights
Denominator for diluted
earnings per share
Basic earnings per share
Diluted earnings per share
16,629,444
294,555
16,613,676
260,924
16,923,999
16,874,600
$
$
3.84 $
3.77 $
3.39
3.34
No share rights were excluded from the above calculations as none
were anti-dilutive.
The Corporation defines its capital as the total of its shareholders’
equity and bank debt and obligations under finance leases (“interest
bearing debt”). The Corporation’s objective when managing capital is
to have a capital structure and capacity to support the Corporation’s
operations and strategic objectives set by the Board of Directors.
Management of capital
The Corporation’s capital structure is managed such that it maintains a
relatively low Leverage Ratio as the Corporation distributes a significant
portion of its cash flow from operating activities before changes in
operating assets and liabilities.
The Corporation’s level of interest bearing debt is determined by a
combination of the Corporation’s cash flow required to meet its strategic
objectives and the value of its tangible assets.
Wajax Corporation Annual Report 2011 • 47
Notes to the Consolidated Financial Statements
Although management currently believes the Corporation has adequate
For the eight months since the acquisition, Harper contributed revenue
debt capacity, the Corporation may have to access the equity or debt
of $49,311 and net earnings of $2,978 to the year to date results. Had
markets, or temporarily reduce distributions to accommodate any
the acquisition occurred on January 1, 2011 the Corporation estimates
shortfalls in the Corporation’s credit facilities or significant growth
that it would have reported revenue of $1,401,755 and net earnings of
capital requirements.
There were no changes in the Corporation’s approach to capital
management during the year.
Restrictions on capital
The Corporation’s interest bearing debt includes a $175,000 bank
credit facility which expires August 12, 2016 and a $15,000 demand
equipment financing facility. The bank credit facility contains the
following covenants:
• Borrowing capacity is dependent upon the level of the Corporation’s
inventories on-hand and the outstanding trade accounts receivable
(“borrowing base”). The Corporation’s borrowing base was in excess
of $175,000 at December 31, 2011 and, as a result, did not restrict
the borrowing capacity under the bank credit facility.
• The Corporation’s ratio of EBITDA to interest expense (the “Interest
Coverage Ratio”) must not be lower than three times. As at December
31, 2011 the Corporation’s Interest Coverage Ratio was 23.5 times.
The Corporation will be restricted from the declaration of monthly cash
dividends in the event the Corporation’s Leverage Ratio exceeds three
times. As at December 31, 2011 the Corporation’s Leverage Ratio was
0.7 times and there were no restrictions on the declaration of monthly
cash dividends.
26. Related Party Transactions
There are no related party transactions requiring disclosure other than
the compensation of directors and key management personnel which is
set out in the following table:
Salaries, bonus and other
short-term employee benefits
Defined benefit pension
Share-based compensation expense
2011
2010
$ 5,422 $ 5,517
398
3,248
335
4,407
$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
Inventories
Prepaid expenses
Property, plant and equipment
Trade and other payables
Tangible net assets acquired
Intangible assets (note 9)
Total
$
11,662
7,032
218
1,878
(6,794)
13,996
9,251
$
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.
28. Operating Segments
The Corporation operates through a network of 117 branches in
Total compensation
$ 10,164 $ 9,163
Canada in three core businesses which reflect the internal organization
27. 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.
48 • Wajax Corporation Annual Report 2011
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.
Information regarding the results of each reportable segment is
shown below. Performance is measured based on segment earnings
before finance costs and income taxes, as included in the internal
management reports that are reviewed by the Corporation’s chief
operating decision maker.
Notes to the Consolidated Financial Statements
2011
Equipment
Parts
Service
Rental and other
Revenue
Equipment
Components
Industrial
Segment
eliminations
Power and unallocated
amounts
Systems
Total
$
397,613 $
173,188
84,697
30,342
– $
328,993
18,545
155,876 $
125,509
61,134
– $ 553,489
627,690
–
164,376
–
–
4,906
(3,703)
31,545
$
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
Earnings before finance costs and income taxes
Finance costs
Income tax expense
Net earnings
Segment assets excluding goodwill
and other intangible assets
Intangible assets
Cash
Corporate and other assets
50,193
23,106
32,915
(14,102)
(14,102)
(14,102)
4,630
23,679
92,112
4,630
23,679
$
50,193 $
23,106 $
32,915 $
(42,411) $
63,803
$
238,161 $
114,714 $
146,695 $
22,083
47,643
14,760
– $ 499,570
84,493
7
5,659
5,659
204
204
Total assets
$
260,244 $
162,357 $
161,455 $
5,870 $ 589,926
Segment liabilities
Corporate and other liabilities
$
144,762 $
45,969 $
69,787 $
– $ 260,518
101,822
101,822
Total liabilities
$
144,762 $
45,969 $
69,787 $
101,822 $ 362,340
Asset additions
Rental equipment
Property, plant and equipment
Intangible assets
Asset depreciation
Rental equipment
Property, plant and equipment
Intangible assets
$
15,495 $
– $
2,378
495
1,200
156
4,682 $
1,789
–
– $
132
13
20,177
5,499
664
$
18,368 $
1,356 $
6,471 $
145 $
26,340
$
4,129 $
1,591
43
– $
709 $
– $
1,097
927
1,605
225
117
21
4,838
4,410
1,216
$
5,763 $
2,024 $
2,539 $
138 $
10,464
Wajax Corporation Annual Report 2011 • 49
Notes to the Consolidated Financial Statements
2010
Equipment
Parts
Service
Rental and other
Revenue
Equipment
Components
Industrial
Segment
eliminations
Power and unallocated
amounts
Systems
Total
$
301,605 $
153,708
69,744
30,754
– $
114,230 $
285,270
16,928
–
88,237
52,479
2,347
– $ 415,835
527,215
–
139,151
–
28,687
(4,414)
$
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
Earnings before finance costs and income taxes
Finance costs
Income tax recovery
39,006
11,998
19,176
(11,967)
(11,967)
(11,967)
4,277
(2,454)
58,213
4,277
(2,454)
Net earnings
$
39,006 $
11,998 $
19,176 $
(13,790) $
56,390
Segment assets excluding goodwill
and other intangible assets
Intangible assets
Cash
Corporate and other assets
$
208,266 $
101,548 $
88,770 $
21,631
48,414
5,733
– $ 398,584
75,794
42,954
5,216
16
42,954
5,216
Total assets
$
229,897 $
149,962 $
94,503 $
48,186 $ 522,548
Segment liabilities
Corporate and other liabilities
Total liabilities
Asset additions
Rental equipment
Property, plant and equipment
Intangible assets
Asset depreciation
Rental equipment
Property, plant and equipment
Intangible assets
$
125,246 $
44,758 $
44,771 $
– $ 214,775
108,443
108,443
$
125,246 $
44,758 $
44,771 $
108,443 $ 323,218
$
3,698 $
1,548
104
– $
1,381
2,778
2,077 $
1,109
317
– $
94
21
5,775
4,132
3,220
$
5,350 $
4,159 $
3,503 $
115 $
13,127
$
3,202 $
1,502
61
– $
366 $
– $
1,133
854
1,294
28
136
23
3,568
4,065
966
$
4,765 $
1,987 $
1,688 $
159 $
8,599
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.
29. Explanation of Transition to IFRS
financial statements for the year ended December 31, 2010 and in
This is the first year that the Corporation has presented its consolidated
the preparation of an opening IFRS statement of financial position at
financial statements in accordance with IFRS. In the year ended December
January 1, 2010 (the Corporation’s transition date).
31, 2010, the Corporation reported under previous Canadian GAAP.
In preparing its opening IFRS statement of financial position, the
The accounting policies set out in Note 3 have been applied in
Corporation has adjusted amounts reported previously in financial
preparing the consolidated financial statements for the year ended
statements prepared in accordance with previous Canadian GAAP. An
December 31, 2011, the comparative information presented in these
explanation of how the transition from previous Canadian GAAP to
50 • Wajax Corporation Annual Report 2011
Notes to the Consolidated Financial Statements
IFRS has affected the Corporation’s reported financial position, financial
addition, and as a condition under IFRS 1 for applying this exemption,
performance and cash flows is set out in the tables below and the notes
goodwill relating to business combinations that occurred prior to
that accompany the tables.
January 1, 2010 was tested for impairment. No impairment existed at
IFRS 1 First-time Adoption of International Financial Reporting
the date of transition.
Standards sets forth guidance for the initial adoption of IFRS. Under
Employee Benefits – actuarial gains and losses (IAS 19
IFRS 1, the standards are applied retrospectively at the transitional
“Employee Benefits”)
statement of financial position date and, in general, all adjustments
Under IFRS, the Corporation’s accounting policy is to recognize all
to assets and liabilities are taken to retained earnings, unless certain
actuarial gains and losses immediately in other comprehensive income.
exemptions are elected and certain mandatory exceptions are applied.
At the date of transition, the Corporation has elected to recognize all
In preparing its opening IFRS statement of financial position, the
cumulative actuarial gains and losses in retained earnings.
Corporation has elected the following exemptions:
Business combinations before January 1, 2010 (IFRS 3
The Corporation has elected to disclose the present value of the defined
“Business Combinations”)
benefit obligation, fair value of the plan assets, surplus or deficit in
The Corporation has elected not to apply IFRS 3 retrospectively to
the plan, and the experience adjustments arising on the plan assets
business combinations that took place before January 1, 2010. In
or liabilities, for each accounting year prospectively from the date of
Employee Benefits – pension costs (IAS 19 “Employee Benefits”)
transition to IFRS.
Reconciliation of Consolidated Statement of Earnings
For the year ended December 31, 2010
(In thousands of Canadian dollars)
Revenue
Cost of sales
Gross profit
Canadian
GAAP
Employee
Benefits
IAS 19
Inventory
IAS 2
Share-based
Payment
IFRS 2
Leases
IAS 17
IFRS
$ 1,110,888
873,061
237,827
(29)
29
$ 1,110,888
873,032
237,856
Selling and administrative expenses
181,397
(140)
(877)
(737) 179,643
Earnings before finance costs and income taxes
56,430
140
Finance costs
Earnings before income taxes
Income tax (recovery) expense
Net earnings
4,094
52,336
(2,683)
$
55,019
140
35
105
877
183
694
185
509
29
737
58,213
4,277
737
53,936
(2,454)
737 $ 56,390
29
9
20
Reconciliation of Consolidated Statement of Comprehensive Income
For the year ended December 31, 2010
(In thousands of Canadian dollars)
Canadian
GAAP
Employee
Benefits
IAS 19
Inventory
IAS 2
Share-based
Payment
IFRS 2
Leases
IAS 17
IFRS
Net earnings
$
55,019
105
509
20
737 $ 56,390
Actuarial losses on pension plans, net of tax
–
(628)
Gains on derivative instruments designated as
cash flow hedges in prior periods reclassified to
cost of inventory or finance costs during the period, net of tax
Losses on effective portion of derivative
instruments designated as cash flow hedges
during the period, net of tax
938
(482)
(628)
938
(482)
Other comprehensive loss, net of tax
456
(628)
–
Total comprehensive income
$
55,475
(523)
509
–
20
–
(172)
737 $ 56,218
Wajax Corporation Annual Report 2011 • 51
Notes to the Consolidated Financial Statements
Reconciliation of Consolidated Statement of Financial Position
As at January 1, 2010
(In thousands of Canadian dollars)
Canadian
GAAP
Employee
Benefits
IAS 19
Inventory
IAS 2
Share-based
Payment
IFRS 2
Leases
IAS 17
Income
Tax
IAS 12 Reclass
IFRS
Assets
Current
Cash
Trade and other receivables
Inventories
Prepaid expenses
Income taxes receivable
Deferred taxes
Non-Current
Rental equipment
Property, plant and equipment
Intangible assets
Deferred taxes
Employee benefits
Liabilities and Shareholders’ Equity
Current
Trade and other payables
Accrued liabilities
Provisions
Distributions payable
Income taxes payable
Obligations under finance leases
Non-Current
Provisions
Deferred taxes
Employee benefits
Other liabilities
Obligations under finance leases
Derivative instruments
Bank debt
$
9,207
123,537
176,230
7,800
190
3,191
320,155
1,679
(464)
274
(3,191)
$ 9,207
123,537
177,909
7,800
–
–
–
–
1,215
–
(2,917)
–
318,453
16,370
36,164
73,505
–
2,013
9,844
38
883
(2,013)
16,370
(34) 45,974
73,539
34
2,229
–
1,308
128,052
(1,130)
9,882
–
$ 448,207
(1,130)
9,882
1,215
–
–
1,308
–
138,112
(1,609)
– $456,565
657
$
83,066
66,089
4,859
2,491
–
–
3,850
$ 83,723
66,089
4,859
2,491
274
3,850
274
156,505
657
3,850
–
–
274
–
161,286
3,518
1,883
2,995
841
–
2,643
79,461
704
6,140
(1,883)
3,518
–
3,699
841
6,140
2,643
79,461
91,341
704
6,140
–
–
(1,883)
–
96,302
Shareholders’ Equity
Trust units
Contributed surplus
Retained earnings
105,307
5,645
91,642
(2,491)
(108)
1,215
(178)
(2,107)
2,285
Accumulated other comprehensive loss
(2,233)
Total shareholders’ equity
200,361
(2,491)
(108)
1,215
$ 448,207
(1,130)
9,882
1,215
52 • Wajax Corporation Annual Report 2011
105,129
3,538
92,543
(2,233)
–
–
–
–
198,977
(1,609)
– $456,565
Reconciliation of Consolidated Statement of Financial Position
As at December 31, 2010
(In thousands of Canadian dollars)
Canadian
GAAP
Employee
Benefits
IAS 19
Notes to the Consolidated Financial Statements
Inventory
IAS 2
Share-based
Payment
IFRS 2
Leases
IAS 17
Income
Tax
IAS 12 Reclass
IFRS
Assets
Current
Cash
Trade and other receivables
Inventories
Prepaid expenses
Deferred taxes
Non-Current
Rental equipment
Property, plant and equipment
Intangible assets
Deferred taxes
Employee benefits
$
42,954
135,517
194,752
7,244
6,466
386,933
1,708
(6,466)
$ 42,954
135,517
196,460
7,244
–
–
–
1,708
–
(6,466)
–
382,175
15,794
36,626
72,972
–
3,013
9,464
(146)
1,065
(2,773)
15,794
(2,822) 43,268
75,794
2,822
5,277
240
4,358
128,405
(1,708)
9,318
–
$ 515,338
(1,708)
9,318
1,708
–
–
4,358
–
140,373
(2,108)
– $522,548
Liabilities and Shareholders’ Equity
Current
Trade and other payables
Accrued liabilities
Provisions
Distributions payable
Income taxes payable
Obligations under finance leases
Derivative instruments
Bank debt
$ 134,540
64,229
4,892
12,472
1,599
–
2,452
79,680
292
(6)
473
3,677
$ 134,832
(461) 63,762
5,353
461
12,472
2,072
3,677
2,452
79,680
299,864
292
3,677
473
(6)
–
–
304,300
Non-Current
Provisions
Deferred taxes
Employee benefits
Other liabilities
Obligations under finance leases
4,338
2,108
3,118
5,221
–
1,014
5,227
(2,108)
4,338
–
4,132
5,221
5,227
14,785
1,014
5,227
–
–
(2,108)
–
18,918
Shareholders’ Equity
Trust units
Contributed surplus
Retained earnings
105,892
6,426
90,148
(3,014)
414
1,235
(521)
(2,495)
3,022
Accumulated other comprehensive loss
(1,777)
Total shareholders’ equity
200,689
(3,014)
414
1,235
$ 515,338
(1,708)
9,318
1,708
105,371
3,931
91,805
(1,777)
6
–
–
–
199,330
(2,108)
– $522,548
Wajax Corporation Annual Report 2011 • 53
Notes to the Consolidated Financial Statements
Material adjustments to the statement of cash flows for 2010
(c) Inventory (IAS 2)
Consistent with the Corporation’s accounting policy choice under
Under Canadian GAAP, the Corporation did not allocate overhead to
IAS 7 Statement of Cash Flows, interest paid and income taxes paid
work in process inventory relating to customer repair orders. Under
have moved into the body of the Statement of Cash Flows, whereas
IFRS the Corporation allocates overhead to work in process inventory
they were previously disclosed as supplementary information. Rental
relating to customer repair orders resulting in an adjustment to
equipment additions are classified as operating activities whereas they
inventory and opening retained earnings.
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)
(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.
Under Canadian GAAP, the Corporation accounted for post-employment
(e) Share-based Payment (IFRS 2)
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 year 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
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
$978 have been reclassified out of selling and administrative expenses
into revenue.
IAS 17, Leases, the Corporation has assessed the vehicle leases as
In addition, cash discounts received from vendors in an amount
financing leases. Under finance leases the asset is recorded at the lower
of $1,265 have been reclassified out of selling and administrative
of its fair value and the present value of the minimum lease payments
expenses into cost of sales.
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.
Software with a net book value of $2,822 at December 31, 2010 and
$34 at January 1, 2010 has been reclassified out of property, plant
and equipment and into intangible assets.
54 • Wajax Corporation Annual Report 2011
Summary of Quarterly Data – Unaudited
($ millions , except per share data)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Revenue
Net earnings
Earnings per share – Basic
Earnings per share – Diluted
$ 303.9 $ 334.1 $ 361.9 $ 377.2 $ 228.1 $ 272.0 $ 294.4 $ 316.4
12.8
16.5
17.9
16.6
8.9
12.2
19.6
15.8
$ 0.77 $ 0.99 $ 1.08 $
1.00 $ 0.53 $ 0.73 $ 1.18 $ 0.95
0.76
0.98
1.06
0.98
0.53
0.72
1.16
0.93
2011
2010
Eleven Year Summary – Unaudited
For the years ended December 31 ($ millions, except per share data)
(2001 – 2009 reported under previous Canadian GAAP)
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
$ 1,377.1 $ 1,110.9 $ 1,007.2 $ 1,213.5 $ 1,192.3 $ 1,206.5 $ 1,049.4 $ 871.4 $ 884.0 $ 908.8 $ 1,047.6
63.8
56.4
34.2
75.8
72.0
71.5
35.6
17.6
9.6
(25.8)
8.7
5.5
5.2
4.5
4.7
4.9
4.5
4.6
7.5
10.9
15.8
18.2
Operating Results
Revenue*
Net earnings (loss)*
Finance costs
Cash flows from operating activities
before changes in operating
assets and liabilities*
106.2
73.4
45.1
87.5
85.0
85.1
46.0
29.5
29.7
Property, plant and equipment – net
5.3
Rental equipment expenditures – net
20.2
1.7
5.8
Depreciation and amortization
13.5
11.2
7.0
0.4
9.7
7.4
7.0
9.7
4.0
8.6
9.9
8.3
7.9
4.7
6.2
3.5
5.4
1.4
6.6
9.5
7.4
1.2
26.2
16.9
0.8
10.0
10.0
10.3
11.9
12.3
15.2
Per Share
Net earnings (loss) – Basic*
Dividends declared
Distributions declared
Equity
Financial Position
Working capital*
Rental equipment
$ 3.84 $ 3.39 $ 2.06 $ 4.57 $ 4.34 $ 4.31 $
2.19 $ 1.12 $ 0.61 $
(1.64) $ 0.55
2.14
–
–
–
–
–
0.14
0.16
–
3.40
2.47
4.13
4.36
4.43
1.89
–
–
–
–
–
–
–
13.69 12.00 12.07 12.40 11.94 11.89
11.88 12.39 11.38 10.83 13.05
$ 167.0 $ 77.9 $ 160.1 $ 198.8 $ 147.4 $ 147.8 $ 129.8 $ 153.0 $ 157.1 $ 155.0 $ 241.6
28.1
15.8
16.4
21.8
21.7
18.9
17.2
16.4
16.2
14.5
11.3
64.2
Property, plant and equipment – net
47.9
43.3
36.2
33.6
29.5
33.3
29.0
28.8
31.9
37.4
Long-term debt excluding
current portion
Shareholders’ equity
Total assets*
Other Information
Number of employees
59.0
–
79.5 116.2
53.9
59.0
33.4
70.9
79.8
98.4 176.4
227.6 199.3 200.4 205.7 198.1 197.2
197.1 195.0 178.7 170.0 204.8
589.9 522.5 448.2 529.6 468.2 500.6
437.9 418.1 409.7 442.0 554.5
2,738 2,382 2,291 2,662 2,551 2,566
2,387 2,357 2,279 2,308 2,601
Shares outstanding (thousands)
16,629 16,629 16,603 16,585 16,585 16,585 16,582 15,739 15,697 15,697 15,697
Price range of shares
High
Low
$ 44.94 $ 38.50 $ 23.40 $ 35.75 $ 37.95 $ 47.00 $ 32.45 $ 14.90 $ 8.25 $ 7.25 $ 6.00
27.80 21.65 10.95 14.00 24.80 24.60
13.00
7.70
3.10
3.76
4.00
* 2006, 2005 and 2004 exclude discontinued operations.
Wajax Corporation Annual Report 2011 • 55
Corporate Information
Directors
Paul E. Gagné
Chairman, Wajax Corporation
Corporate Director
Edward M. Barrett 1, 2
Chairman and Co-Chief Executive Officer,
Barrett Corporation
Ian A. Bourne 1
Corporate Director
Douglas A. Carty 1, 2
Corporate Director
Officers
Paul E. Gagné
Chairman
A. Mark Foote
President and Chief Executive Officer
John J. Hamilton
Senior Vice President
and Chief Financial Officer
Brian M. Dyck
Senior Vice President,
Wajax Equipment
Robert P. Dexter, Q.C. 2
Chairman and Chief Executive Officer,
Maritime Travel Inc.
Adrian A. Trotman
Senior Vice President,
Wajax Industrial Components
Ivan E. H. Duvar 2
Corporate Director
John C. Eby 3
Corporate Director
Richard M. G. Plain
Senior Vice President,
Wajax Power Systems
Linda J. Corbett
Treasurer
A. Mark Foote
President and Chief Executive Officer,
Wajax Corporation
Andrew W. H. Tam
General Counsel and Secretary
JD Hole 2, 3
Corporate Director
Valerie A. A. Nielsen 1, 3
Corporate Director
Alexander S. Taylor 2, 3
Senior Vice President, Oil, Gas
and Petrochemical Business Unit,
ABB Inc.
1 Member of the Audit Committee
2 Member of the Human Resources
and Compensation Committee
3 Member of the Governance Committee
Honourary Director
H. Gordon MacNeill
56 • Wajax Corporation Annual Report 2011
Head Office
3280 Wharton Way
Mississauga, Ontario
L4X 2C5
Tel: (905) 212-3300
Fax: (905) 212-3350
Shareholder Information
Transfer Agent and Registrar
For information relating to shareholdings,
dividends, lost certificates, changes of
address or estate transfers, please contact
our transfer agent:
Computershare Trust Company of Canada
100 University Ave., 9th Floor
Toronto, ON M5J 2Y1
Tel: (514) 982-7555 or 1-800-564-6253
Fax: (514) 982-7635 or 1-888-453-0330
E-mail: services@computershare.com
Auditors
KPMG LLP
Exchange Listing
Toronto Stock Exchange
Symbol: WJX
Wajax Corporation Share Trading Information
(January 1 – December 31, 2011)
Open
High
Low
Volume of
Close Shares Traded
$37.00 $44.94 $27.80 $38.56
9,649,238
Quarterly Earnings Reports
Quarterly earnings for the balance of 2012 are
anticipated to be announced on May 8, August
10 and November 6.
2012 Dividend Dates
Monthly dividends are payable to shareholders
of record on the last business day of each
month and are generally paid on the 20th day
of the following month or the next following
business day.
Investor Information
John Hamilton
Senior Vice President
and Chief Financial Officer
Tel: (905) 212-3300
Fax: (905) 212-3350
E-mail: ir@wajax.com
To obtain a delayed share quote, read
news releases, listen to the latest analysts’
conference call, and stay abreast of other
Corporation news, visit our website at
www.wajax.com.
Annual Meeting
Shareholders are invited to attend the Annual
Meeting of Wajax Corporation, to be held at the
Sheraton Gateway Hotel, Terminal 3, Toronto
Pearson International Airport, Toronto, Ontario,
on Tuesday, May 8, 2012, at 11:00 a.m.
Vous pouvez obtenir la version française de ce
rapport en écrivant à la Secrétaire,
Corporation Wajax
3280 Wharton way
Mississauga (ON) L4X 2C5
m
o
c
.
y
a
m
n
e
t
Operating Units and Branch Listings
Operating Units
Wajax Equipment
16745 – 111th Avenue
Edmonton, Alberta T5M 2S4
Brian Dyck,
Senior Vice President,
Wajax Equipment
Wajax Power Systems
10025 – 51st Avenue
Edmonton, Alberta T6E 0A8
Richard Plain,
Senior Vice President,
Wajax Power Systems
Wajax Industrial Components
2200 – 52nd Avenue
Lachine, Québec H8T 2Y3
Adrian Trotman,
Senior Vice President,
Wajax Industrial Components
Branch Listings
Wajax Equipment
West
Kamloops, BC
Langley, BC
Nanaimo, BC
Prince George, BC
Sparwood, BC
Blackfalds, AB
Calgary, AB
Clairmont, AB
Edmonton, AB (2)
Fort McKay, AB
Fort McMurray, AB
Saskatoon, SK
Winnipeg, MB
Central
Hamilton, ON
Kitchener, ON
London, ON
Mississauga, ON
Ottawa, ON
Sudbury, ON
Thunder Bay, ON
Timmins, ON
Windsor, ON
East
Chambly, QC
Lachine, QC
Québec City, QC
St-Félicien, QC
Moncton, NB
Dartmouth, NS
Mount Pearl, NL
Pasadena, NL
Wabush, NL
Wajax Power Systems
West
Fort St. John, BC
Calgary, AB
Edmonton, AB
Fort McMurray, AB
Grande Prairie, AB
Red Deer, AB
Redcliff, AB
Regina, SK
Saskatoon, SK
Winnipeg, MB
Thunder Bay, ON
Central
Cornwall, ON
Hamilton, ON
Sudbury, ON
London, ON
Niagara Falls, ON
Ottawa, ON
Pembroke, ON
Timmins, ON
Toronto, ON
East
Concord, ON
Dorval, QC
Québec City, QC
Saint Nicephore, QC
Val d’Or, QC
Moncton, NB
Dartmouth, NS
Mount Pearl, NL
Wajax Industrial Components
West
Fort St. John, BC
Prince George, BC
Surrey, BC
Calgary, AB
Edmonton, AB
Nisku, AB
Regina, SK
Saskatoon, SK
Flin Flon, MB
Thompson, MB
Winnipeg, MB
Yellowknife, NW
Central
Belleville, ON
Concord, ON
Espanola, ON
Guelph, ON
Kapuskasing, ON
London, ON
Mississauga, ON
Sarnia, ON
Sault Ste. Marie, ON
Stoney Creek, ON
Sudbury, ON
Thunder Bay, ON (2)
Timmins, ON
Windsor, ON
Temiscaming, QC
East
Ottawa, ON
Chicoutimi, QC
Drummondville, QC
Granby, QC
Lachine, QC
LaSalle, QC
Laval, QC
Longueuil, QC
Noranda, QC
Québec City, QC
Rimouski, QC
Sept Iles, QC
Sherbrooke, QC
Thetford Mines, QC
Tracy, QC
Trois Rivières, QC
Val d’Or, QC
Valleyfield, QC
Ville d’Anjou, QC
Bathurst, NB
Edmundston, NB
Moncton, NB
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Wajax Corporation
3280 Wharton Way
Mississauga, ON L4X 2C5
Web: www.wajax.com
Tel: 905-212-3300
Fax: 905-212-3350