Wajax
2018 Annual Report
With 160 years of experience offering world-class brands,
unwavering customer support and technical expertise for
multiple industries, Wajax is able to provide solutions that help
our customers get more done – efficiently and effectively.
Contents
Wajax at a Glance
Message to Shareholders
Our Strategy
Groupe Delom
Investing in Our People
Investing in Our Customers
Investing in Our Growth
Investing in Our Infrastructure
1
2
4
5
6
8
12
16
Message from the Chairman
Management’s Discussion and Analysis
Management’s Responsibility
for Financial Reporting
Independent Auditors’ Report
Consolidated Statements
of Financial Position
Consolidated Statements of Earnings
18
19
41
41
43
44
Consolidated Statements
of Comprehensive Income
Consolidated Statements
45
of Changes in Shareholders’ Equity
46
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements 47
66
Corporate Information
Branch Locations
44
Wajax at a Glance
Financial Highlights (in millions of Canadian dollars, except leverage ratio, share and per share data)
For the years ended December 31
Revenue
Net earnings
Adjusted net earnings(1)
Funded net debt (1)
Shareholders’ equity
Basic earnings per share
Adjusted basic earnings per share(1)
Cash dividends declared per share
Leverage ratio(1)
Weighted average number of shares outstanding(5)
$
$
2018
1,481.6
35.9
39.9
235.8
297.0
1.82
2.02
1.00
2017(4)
1,318.7
27.4
30.1
154.9
274.7
1.40
1.54
1.00
2.48
19,686,075
2.17
19,605,884
Year-Over-Year Revenue by Category (2)(4) ($ millions)
Revenue by End Market (3)
Targeted Growth
Construction
Material Handling
273.2
230.8
143.7
120.8
Engineered Repair Services (ERS)
88.1
63.1
Core Strength
Industrial Parts
Forestry
On-Highway
Power/Marine
136.4
144.3
104.1
109.4
95.8
71.9
Cyclical / Major Growth Opportunities
Mining
164.5
110.8
Engines/Transmissions
92.1
90.0
Crane/Utility
25.5
40.7
2018
2017
361.7
340.0
For the twelve months
ended December 31
2018
2017
n Construction
n Mining
n Forestry
n Industrial/Commercial
n Oil Sands
n Transportation
n Metal Processing
n Government and Utilities
n Oil and Gas
n Other
19%
16%
14%
11%
9%
9%
6%
4%
4%
8%
17%
13%
16%
12%
10%
9%
6%
6%
3%
8%
Revenue Sources ($ millions)
Revenue by Region ($ millions)
For the twelve months
ended December 31
%
2018 2017(4) change
For the twelve months
ended December 31
%
2018 2017(4) change
n Equipment
n Industrial Parts
n Product Support
n Rental
n ERS/Other
$ 542.8 $ 461.5 18%
6%
340.0
424.9 8%
32.3 8%
60.1 41%
361.7
457.6
34.9
84.6
n Western Canada $ 653.1 $ 572.0 14%
n Central Canada
(Ontario)
n Eastern Canada*
324.3
504.2
309.3
5%
437.4 15%
$ 1,481.6 $ 1,318.7 12%
$ 1,481.6 $ 1,318.7 12%
*Includes Quebec and the Atlantic provinces.
Forward-Looking Statements and Information
This Annual Report, including the accompanying Management’s Discussion and Analysis, includes forward-looking statements and information that is based on Wajax’s current beliefs, expectations,
estimates and assumptions in light of information currently available. Actual results, performance and achievements may differ materially from those anticipated or implied in such forward-looking
statements or information. Please see page 39 for a discussion of the risks and uncertainties related to such statements and information.
(1) These measures do not have standardized meaning prescribed by GAAP. See Management’s Discussion and Analysis, page 37.
(2) Category revenue includes all applicable equipment, parts, service and rentals. Consolidated categories may not match total revenue due to rounding.
(3) End markets are based on the North American Industry Classification System (NAICS).
(4) The Corporation has adjusted its comparative 2017 earnings and financial position as a result of the adoption on January 1, 2018 of IFRS 15 Revenue from
Contracts with Customers and its comparative 2017 earnings and financial position as a result of the adjustments to prior period financial statements identified
as part of the Finance Reorganization Plan. See the Adjustments to Prior Period Financial Statements section of the Consolidated Financial Statements.
(5) Weighted average number of shares outstanding is net of shares held in trust.
Wajax 2018 Annual Report 1
Message to Shareholders
2018 was a very rewarding year for our company. Wajax delivered
stronger financial results, introduced a renewed growth strategy
and made major progress on internal infrastructure projects that are
important contributors to our future. In addition, we are very proud
to report that 2018 was our safest year on record.
We are highly committed to
our strategy – it creates a
stronger company that has
clear growth priorities, a
strengthened infrastructure
and a culture centred on our
customers and employees.
The company’s ability to execute in the present while building a stronger future is a
testament to the hard work of the Wajax team – a group dedicated to the principle that
“Together, We Get More Done”. Our strategy is based on the One Wajax model, which has
combined our legacy product divisions into one organization whose national reach, deep
market knowledge and breadth of industrial products and services is uniquely positioned
to provide value to our 32,000 customers. We are highly committed to our strategy – it
creates a stronger company that has clear growth priorities, a strengthened infrastructure
and a culture centred on our customers and employees. The components of our strategy
are further described in the following pages of this Annual Report.
2018
Revenue of $1.48 billion grew 12.4% ($163 million) compared to 2017 driven by strong
execution of sales programs and improved market conditions. Regionally, sales in western
and eastern Canada were strong, growing 14.2% and 15.3%, respectively. Sales in
central Canada, which grew 4.8%, continue to represent an important area of opportunity.
Consistent with our strategy, the majority of our growth was driven by our “Targeted
Growth” categories of Construction, Material Handling and Engineered Repair Services,
which collectively contributed 55% ($90 million) of the total growth in revenue. Mining also
contributed meaningfully to 2018’s results, increasing 49% ($54 million) due primarily
to strength in western Canada. In addition, we saw strong growth in Power and Marine
(up 33% or $24 million) and Industrial Parts (up 6% or $22 million).
Adjusted net earnings of $39.9 million grew 32.6% compared to 2017 due to higher
revenue. A gross margin decline (18.4% in 2018 compared to 19.0% in 2017) was partially
offset by improved cost productivity (14.1% of sales in 2018 compared to 14.9% in 2017).
The gross margin decline relates primarily to sales programs designed to improve market
share in key categories. Our growth strategy is expected to result in competitive margin
Wajax Strategic Overview
Strong Foundation
Integrated company
provides a strong platform
for growth and consistent
level of customer service
Clear Expectations
for Organic Growth
and Acquisitions
Information systems
Training
Branch network
Sales and Marketing
Customer Support Centres
Customer and
Team Engagement
National branch network
Broad range of products
and services
Strong manufacturer
relationships
Diverse market expertise
One Wajax
Organization
5-year plan
Focus on investing in
more stable categories
with growth opportunities
Well-defined CDN/U.S.
acquisition objectives
Investments in
Our Business
Delivering the best
experience for
our customers
and teams.
2 Wajax 2018 Annual Report
pressure in the short to medium term. In order to mitigate this margin pressure, we
continue to focus on tactical programs that are accretive to gross margin and to structural
cost productivity improvements delivered through our infrastructure projects.
In October, we announced the acquisition of Groupe Delom, a leading industrial services
company whose revenue, capabilities and infrastructure will contribute greatly to our
Engineered Repair Services category. At the time of acquisition, Delom had sales of
$69.4 million and is expected to contribute $0.10 – $0.15 to EPS in 2019.(1) Importantly,
Delom brings a technical, sales and support workforce of over 350 employees whose skills
and experience will contribute greatly to Wajax.
Year end leverage of 2.48X increased 0.31X compared to 2017. Higher net debt resulted
from increases in working capital driven primarily by equipment inventory necessary to
support sales and due to the $52.1 million acquisition of Delom.(2) Leverage remains within
acceptable boundaries and the company maintains sufficient financial flexibility to execute
its 2019 business plan.
As disclosed on February 26th, 2019 and subsequently as part of the release of our
year end results, we reported on non-cash accounting errors affecting 2018 and prior
periods. The requirement for these adjustments was determined as financial statements
for 2018 were being prepared and is due to enhanced and standardized financial policies,
procedures and controls retrospectively applied to the three former operating divisions.
These standards improve financial processes and are in preparation for the implementation
of a new ERP system. In addition to the established controls regime, management believes
that the standardization of these processes, combined with new technology, will assist us in
avoiding such adjustments in future.
2019
Our plans are based on the expectation of generally stable market conditions in eastern
and central Canada. Market conditions in western Canada are uncertain at present, where
activity remains stable to positive in important end markets such as the oil sands, mining
and forestry, but is expected to slow temporarily in areas such as conventional oil and gas,
construction and related markets. In our view, the current conditions in western Canada
are more favourable to Wajax than those that prevailed when energy prices were weak in
2015 and 2016.
While recognizing the possible effect of these market conditions, we have not changed our
internal financial targets or operational plans which remain consistent with the original goals
of our strategic plan. As such, we expect full year adjusted net earnings to increase over
2018 based on consolidated revenue improvements and the full year effect of the acquisition
of Delom. 2019 is an important year for major projects such as our new ERP and Customer
Support Centres, both of which are scheduled to begin implementation in the first half of
2019. Our current view of the timing of revenue and operational expenditures suggests that
the expected earnings improvements will be weighted to the second half of the year.
Thank You
On behalf of the leadership team, I would like to thank our customers, manufacturing
partners and most importantly, our employees. It is a real privilege to work with such a
dedicated group who contribute every day to the success of our company. Amidst everything
that Wajax employees delivered, we reiterate how proud we are of the fact that 2018
was another record year for our safety program. A 26% reduction in recordable incidents
resulted in a TRIF rate of 1.02.(3) Members of the Wajax team know that the company’s most
important priority is that everyone goes home safe at the end of every shift. Our constant
attention to workplace safety continues to bring us closer to that goal.
33%
increase in adjusted
net earnings(4)
Revenue ($ millions)
1,451.3
1,481.6
1,273.3
1,221.9
1,318.7
2014
2015
2016
2017(4)
2018
Recordable Incidents
85
52
35
26
2015
2016
2017
2018
Mark Foote
Chief Executive Officer
(1) Sales for the 12 months ended September 30, 2018.
(2) $2 million of the $52.1 million remains subject to achievement of certain performance targets post-closing.
(3) Total Recordable Incident Frequency (TRIF) = Total Recordable Injuries X 200,000 / Number of Hours Worked.
(4) The Corporation has adjusted its comparative 2017 earnings and financial position as a result of the adoption on January 1, 2018 of IFRS 15
Revenue from Contracts with Customers and its comparative 2017 earnings and financial position as a result of the adjustments to prior period
financial statements identified as part of the Finance Reorganization Plan. See the Adjustments to Prior Period Financial Statements section of
the Consolidated Financial Statements.
Wajax 2018 Annual Report 3
Our Strategy
The focus of the One
Wajax strategy is to
provide customers
with access to our full
range of products and
services while delivering
a consistently excellent
level of customer service.
2,800
total team
members
32,000
customers
55%
of our revenue growth
was driven by “Targeted
Growth” categories in 2018
4 Wajax 2018 Annual Report
The focus of the One Wajax strategy is to provide customers with access to our full range
of products and services while delivering a consistently excellent level of customer service.
The strategy builds on our strengths of a well-trained and dedicated team of professionals,
a broad range of products and services, deep experience in a wide range of markets, strong
relationships with leading manufacturers and a national branch network. We are focused on
delivering a strong experience for our team, our customers and our investors by executing
clear plans in six important areas:
Investing in our team – The safety, well-being and engagement of our team of
2,800 technicians, sales professionals, support staff and leaders is the foundation of
our company. We are very proud of the Wajax team’s accomplishments in workplace
safety, our progress on personal wellness programs and enhanced training and
professional development.
Investing in our customers – We have the privilege of supporting 32,000 individual
customers across Canada ranging from small local contractors to the country’s largest
industrial and resource organizations. We continue to expand our “Voice of the Customer”
(VoC) program which evaluates our detailed customer service levels for each location and
shares customer feedback openly with all parts of the company. For an increasing number
of large customers, our VoC program also uses analytical systems and dedicated teams
to explore opportunities to increase our share-of-wallet with individual customers.
Executing a clear organic growth strategy – We have classified our ten current product
and service categories based on a category’s contribution to sustainable growth. While
we are competitive in all of the categories we participate in, our classifications ensure
we allocate resources (such as inventory, personnel and marketing) appropriately.
Our classifications are “Targeted Growth” (which includes the Construction, Material
Handling and Engineered Repair Services categories), “Core Strength” (which includes
the Industrial Parts, Forestry, On-Highway and Power and Marine categories) and “Cyclical
and Major Projects” (which includes the Mining, Engines and Transmissions and Crane/
Utility categories). The majority of our strategic plan’s organic growth is expected to result
from “Targeted Growth” categories due to the relatively high opportunity for market share
increases, resilient aftermarkets, the strength of our product and service range and
related manufacturer relationships. In 2018, 55% of our revenue growth was driven by
“Targeted Growth” categories.
Accretive acquisitions strategy – Wajax has developed clear acquisition criteria for
the Canadian and U.S. markets. In Canada, the focus is primarily on acquisitions that
add to our scale in the Engineered Repair Services (ERS) business and secondarily to
extensions to our existing distribution businesses. In the U.S. market, the focus is on
reviewing growth opportunities related to distribution businesses that provide a long term
growth platform for the One Wajax multi-category model. Acquisitions are considered
when they can be achieved within acceptable leverage parameters, are consistent with
our product and service strategy, accretive to EBITDA margin, provide scale and have
effective management teams.
Investing in our infrastructure – We are making major changes to our infrastructure
to improve the consistency of customer service, lower fixed costs and add new sales
channels in an increasingly technology-enabled industry. Our current infrastructure
programs include the ongoing consolidation of our branch network to improve customer
service and to lower the cost of our physical footprint. In addition, we are investing in new
information systems and capabilities that replace the company’s aged legacy systems
and provide a platform for new customer-facing capabilities. In 2018, we completed the
majority of the configuration and testing of our new ERP system, which we expect to begin
implementing in the first half of 2019.
Ongoing refinements to our One Wajax organizational model – In 2016, Wajax made
major changes to how our team is organized in order to improve growth, drive consistency
and to lower fixed costs. The changes reduced costs by approximately $20 million at the
time of the change, primarily through the reduction of administrative personnel costs.
As the business has grown, we have reinvested those savings, primarily in revenue
generating roles, such as sales professionals, branch management and technicians. We
continue to refine our organizational model and expect additional improvements in cost
productivity, due primarily to technology investments.
Groupe Delom
The Canadian Engineered Repair Services (ERS)
market is estimated to be $5 billion annually for
commercial and resource customers.(1)
ERS is a major growth opportunity for Wajax. We provide shop and field maintenance and
repair, engineering, reliability and asset management services for plant applications such
as bearings and power transmission, hydraulics, process control and electromechanical
equipment. Our ERS teams provide an increasingly broad range of services, from emergency
equipment repair to complex engineering studies to improve the efficiency of continuous
plant processes. ERS is an important aspect of the One Wajax strategy. It can be an
accretive value add service for existing customers and it offers an effective means to build
new customer relationships that in turn can result in growth of other Wajax categories.
Consolidated ERS category
$140 million
in annual ERS revenue(3)
Wajax’s ERS strategy combines organic growth and
acquisitions that add scale and new capabilities.
In October 2018, Wajax acquired Groupe Delom (Delom). Founded in 1963, Delom’s six
locations specialize in the maintenance and repair of critical electromechanical and rotating
equipment for continuous process industries and power utilities. With the addition of
Delom’s $69.4 million in annual revenue and ~350 employees, Wajax’s ERS business now
includes 19 locations across Canada, annual revenue of approximately $140 million and a
team of over 500 technicians, engineers, sales and support professionals.(2)(3)
The combination of Wajax and Delom offers important synergies. Wajax’s 32,000
customers now have access to Delom’s capabilities in electromechanical repair, while
Delom gains access to Wajax’s national branch infrastructure and sales and marketing.
Wajax also benefits from the addition of important new capabilities relevant to major
customers and gains valuable expertise in new markets such as hydro, wind and
downstream petrochemical.
Through strong organic growth plans and the review of additional acquisitions, Wajax
will continue to drive its ERS business as a key differentiating aspect of the company’s
One Wajax strategy.
>500
team members
70 engineers
and technical
support personnel
19 locations
Groupe Delom specializes in a full range of services related
to electromechanical equipment. Specifically, complete
rewinding of large motors and generators, manufacturing of
replacement components and strategic spares such as rotor
poles coils and stator coils. Over the years, Groupe Delom
has developed a strong on-site reliability service including
emergency breakdown and predictive maintenance.
(1) Wajax internal estimates.
(2) 12 months ended September 30, 2018
(3) Based on Wajax base 2018 revenue of $70.0 million and
Delom TTM (September 2018) of $69.4 million.
Wajax 2018 Annual Report 5
Wajax 2018 Annual Report 5
Investing in Our People
The safety, well being and engagement of our team of 2,800 technicians,
sales professionals, support staff and leaders is the foundation of
our company. Our customer service level is a direct reflection of the
environment we create for our team.
26%
reduction in recordable
incidents in 2018
76%
reduction in recordable
incidents since the restructure
of safety program in 2014
1.02
TRIF rate in 2018
We are focussing on the following areas to attract and retain the best professionals in
the industry:
Workplace safety – The most important goal in our company is that everyone goes home
safe at the end of every shift. Individual dedication to personal safety is a fundamental
responsibility of all Wajax team members. Our safety programs continue to improve and
the effectiveness of those programs shows in the results. 2018 was our safest year
to date with a TRIF rate of 1.02, a reduction in recordable injuries of 26% compared
to 2017 and a 76% reduction in recordable injuries since our safety program was
restructured in 2014. As proud as we are of Wajax’s improvements in safety, one injury is
too many. We continue to invest in the tools, support and cultural systems necessary to
achieve zero workplace injuries.
Personal health and wellness – Improvements in workplace safety and the strength of
the environment we create for our team have been greatly enhanced through a focus
on personal health and wellness. Many of our employees operate regularly in harm’s
way and their physical health and mind-on-task is critical to their safety. Our physical
health programs have been expanded to include on-site health clinics, broader benefits
programs, ergonomics assessments and physical job analysis. In addition to our focus
on physical health and safety, Wajax has placed significant emphasis on mental health
support in order to better support our employees and their families. Based on the “Hey,
are you OK?” program, we have implemented a range of management and employee
training and support programs aimed at reducing the stigma of mental health issues.
We are pleased to report that Wajax’s mental health support programs were certified by
Excellence Canada in 2018.
Wajax is proud to validate our progress on safety under
the Certificate of Recognition (COR) program, achieving an
excellent 97% result during our 2018 re-certification audit.
2019 Canadian Mental Health Association (CMHA)
National Workplace Excellence Award
Wajax has been chosen as the recipient of the 2019
Workplace Excellence Award. This award is presented
annually to an outstanding organization that has advanced
the promotion of mental health in the workplace.
6 Wajax 2018 Annual Report
>700
Service Operations
technicians have access to
>600 technical courses from
13 major manufacturers
Training and development – Wajax’s diversified business leads to a requirement for
comprehensive management and technical training and the company has invested more
significantly in the support systems, scheduling and content necessary to deliver training
to employees. A major focus in 2018 has been on training for technicians in areas such
as safety and product support. Our Technician Safety Excellence Program packages
technician-specific safety training, including SafeStart® situational awareness, pre-work
hazard assessments, Life Saving rules and personal protective equipment. To continue
to improve product support training, individual curriculums were built for more than 700
Service Operations equipment and power train technicians, providing access to hundreds
of mandatory and elective courses from 13 major manufacturing partners.
Communications – Wajax is a branch-based company, meaning that effective
communications between locations is key to day-to-day operations and customer service.
Alignment on safety, business results and local, regional and company-wide objectives
are important factors in our organizational effectiveness. In addition to the many team,
manufacturer and customer meetings, we continue to utilize our Town Hall program,
which sees senior and regional leaders meeting face-to-face with employees in the field.
In 2018, Town Hall meetings were held in 20 major locations across Canada, involving
approximately 60% of all employees. Town Halls are used to gather direct feedback from
team members to establish overall organizational objectives. Senior managers are also
accountable for conducting quarterly safety meetings in the field to share and observe
best practices and to gather employee feedback on the effectiveness of our health and
wellness programs.
Wajax 2018 Annual Report 7
Investing in Our Customers
We have the privilege of supporting 32,000 individual customers across
Canada, ranging from small local contractors to the country’s largest
industrial and resource companies.
Wajax’s Voice of the Customer (VoC) program took two major steps forward in 2018:
Customer feedback systems – Wajax has implemented detailed customer feedback
systems based on Net Promoter Scores (NPS) for overall customer satisfaction and we
measure the customer’s experience at each “Moment of Truth” within equipment sales,
parts and service transactions. These “Moments of Truth” represent the major points
that drive customer satisfaction within each interaction with Wajax including aspects such
as fast access to knowledgeable staff, product availability, price competitiveness, delivery
timing and customer follow up. NPS scores are updated monthly and customer feedback
is shared openly with all locations where local action plans are developed and executed
in order to address priority areas for customer service improvement.
Dedicated VoC teams at large customers – We deployed dedicated teams of technical
sales and engineering staff to a number of large customers in 2018 to test our
effectiveness in identifying new opportunities to serve those customers and build a
stronger relationship. The results were very encouraging and represent a new way of
proactively serving customers where opportunities exist to grow our share-of-wallet
by increasing sales in currently-purchased categories or providing additional products
and services that displace a competitor. The One Wajax model is especially relevant to
large customers, for whom Wajax is uniquely positioned to satisfy customer demand
across a wide range of products and services. A constant focus on broadening our
offer to customers increases our relevance to them and is key to our strategy and
value proposition.
The breadth of Wajax’s product and service offer translates into diverse opportunities to
serve existing and new customers across every major resource and industrial market. The
following ten examples illustrate a range of customer interactions, from filtration systems
delivered to a hydroelectric customer to being an embedded partner with a major resource
customer. These customer stories are drawn from the approximately 900,000 customer
interactions we completed in 2018.
The One Wajax model is
especially relevant to large
customers, for whom Wajax
is uniquely positioned to
satisfy customer demand
across a wide range of
products and services.
One Wajax Solution Delivers
Significant Cost Savings
A leading producer and exporter of metallurgical coal
for the global steel industry acquired three additional
coal mines in Canada. Following the purchase,
Wajax was engaged to conduct a comprehensive
operational analysis. Wajax solution experts
conducted a week-long assessment at the three
sites to identify efficiency opportunities. Following
the assessment, Wajax partnered with leadership
to build a 3-5-year roadmap to help enhance their
business operations. Wajax’s breadth of product
and service offering enables the customer to
leverage a complementary mix of service, repair and
engineering solutions. Wajax deployed an integrated
team of experts to include strategists, engineers,
technicians and equipment experts to deliver
against the roadmap, which resulted in significant
cost savings. As a result, Wajax was recognized as
the ‘Most Innovative Partner’ by the client for the
approach to solution assessment – and its dynamic
approach to support business growth for the client.
8 Wajax 2018 Annual Report
8 Wajax 2018 Annual Report
Transloading Operation Required
Enhanced Material Handling
Wajax’s client was looking to open a new
transloading facility in British Columbia to increase
exporting capability. This included maximizing
capacity and efficiency in loading shipping
containers with grains, pulses and cereals. The
operation consisted of a rail loop corridor of more
than 100 railcars, a grain dumper pit, and a state-
of-the-art conveyance system. Wajax partnered with
the client to provide the optimal solution to drive its
business objectives, including supplying two Hyster
RS46-36 ReachStackers and the Hyster H60FT
forklift. Following Wajax’s recommendations, the new
transloading operation is now the first facility on the
west coast of Canada capable of handling a 100 car
unit train in a matter of three to four days all year
round. The client not only significantly increased
its operational capacity – but is well-positioned for
continued growth, serving as a strategic export
gateway from western Canada to Asia and beyond.
Major Transit System Construction
A major Canadian city engaged in creating a high-
profile bus transit system, requiring 1.4 million
cubic meters of earth to be moved. Wajax’s client, a
leading excavation and removal services company,
was sub-contracted by the city to build a four
kilometre section of the transit system. To complete
the project in the most effective way, new machines
that were powerful, efficient and reliable were
required. Understanding the intricacies of the project
needs, Wajax put its extensive industry and product
knowledge to work. The recommended solution
included expanding the client’s fleet with Hitachi
ZX470LC-5, ZX350LC-5 and ZX225LC-3. In response
to the successful outcome of the project, the client
shared its experience working with Wajax saying,
“It’s not only the performance of the machines,
but also the service you get from the dealer. We’ve
worked with Wajax for over a decade and hope to
continue that relationship for many more years.”
Filtration System Cools Critical Pumps
to Keep Dam Functioning Reliably
A utilities client that manages the generation,
transmission and distribution of electricity regionally
in Canada required an efficient filtration system
to filter water used to cool down critical pump
seals at its dam facility. While the system needed
to optimize efficiency, the client also needed a
system that required minimum supervision and
maintenance. To help support the business and
operational objectives, Wajax worked with the client
to develop the optimal solution. This included the
implementation of advanced filter and strainer
systems based on technology that surpasses all
other designs in low pressure applications. The
exceptional performance of the system, expertise
of the engineering and service, and timely delivery
resulted in this client requesting the implementation
of a similar system in an additional dam in another
region in Canada. Wajax’s business with this client
includes projects such as this, power generation
systems and critical electromechanical equipment
repairs and maintenance.
Wajax 2018 Annual Report 9
Wajax 2018 Annual Report 9
Filtration Solutions Help Vaccine Production
Wajax’s client, a vaccine producer, urgently needed
to find the best filtration solution for an essential
clarification process. Faced with an aggressive and
highly infectious virus affecting people across the
globe, finding a timely and effective solution was
critical. Partnering with Wajax’s team of experts to help
determine the most effective filtration solution, the
focus was to enable the client to scale rapidly from
the lab to developing millions of doses of the critical
vaccine within a very aggressive timeline. At the same
time, it was imperative to ensure the system would
be fully certified for biopharmaceutical production. As
part of the solution, Wajax proposed and delivered
advanced 3M filters, which successfully became part of
the new filtration platform used in full-scale production.
Following the implementation of the solution, the plant
site subsequently became the production location for
the vaccines to meet global demand.
Custom Modifications Lead to Clean Water
With a focus on recycling water in the oil sands,
Wajax’s client required a system to clean and process
water with maximum efficiency. In needing to operate
at temperatures down to -45°C, the challenge was
to prevent the water from freezing. Leveraging it’s
technical and industry expertise, Wajax’s team worked
with the client to develop the most effective solution.
This included incorporating advanced and uniquely
configured Fluid Engineering strainers that enable
simplified maintenance and cleaning when required.
To prevent the water from freezing, Wajax’s engineering
team made several custom modifications to the
systems, including insulating the equipment and adding
custom heated covers. The client greatly appreciated
the innovative solutions implemented by Wajax, which
included key safety features such as explosion-proof
construction and design changes to improve safety
during maintenance. Wajax continues to develop its
overall business with this important oil sands client in
other categories.
10 Wajax 2018 Annual Report
10 Wajax 2018 Annual Report
Re-Powering the Canadian Coast Guard
The Canadian Coast Guard vessel Frederick G. Creed
was powered by a 30-year old propulsion system that
required replacement. The CCGS Frederick G. Creed
is a unique twin hull Canadian design that imposes
specific technical requirements on its propulsion
system. Wajax satisfied the vessel’s requirements with
a combined engine, transmission and mechatronics
system centered on Volvo Penta’s D13 engines
which supply the most cost effective power to
weight solution and meet the specific needs of this
project. Wajax continues to develop its longstanding
relationship with the Canadian Coast Guard with
projects like the CCGS Frederick G. Creed and
propulsion systems for the new high endurance
search and rescue lifeboats equipped with MTU
power. Working in partnership with companies such
as Rolls Royce Power Systems, MTU and Volvo, Wajax
continues to develop its commercial and defense
marine business.
Infrared Monitoring System Improves Safety
Wajax’s client required gigantic industrial ladles to
transport hundreds of tons of molten steel each
day within its facility. Due to the extreme heat of the
liquid metal, these vessels were prone to damage
and break-outs, which can threaten personnel safety
and create significant damage to the plant. Operators
were primarily reliant on personal judgement around
the number of ‘heats’ to evaluate the level of risk. To
ensure long-term safety and efficiency, Wajax partnered
with the client to help implement a system that would
enable the client to evaluate the structural integrity
of ladles using real-time data. Wajax implemented an
AMETEK Land system to help prevent these breakouts.
The system fed data from multiple thermal imaging
cameras into a software system that provided early
detection of hotspots. With more accurate and timely
information, the client was able to successfully improve
safety, prevent break-outs and extend the life of its
equipment. As one of Wajax’s largest customers, this
client’s business with the Company also includes
heavy equipment, industrial parts and Engineered
Repair Services.
Improvements to Pipeline System Offer Enhanced
Safety and Environmental Protection
A Wajax client that transports various grades of fuel through
a pipeline system required enhancements to its operational
processes. A key challenge was that when ambient
temperatures fluctuate, deep vacuums are created inside the
pipes for up to several hours. These can trigger mechanical
switches that monitor the pipeline pressures to leak fuel.
Fuel leaks can present a risk of explosion, require ground
remediation and harm the environment. Leveraging its technical
and industry expertise around safety and operational efficiency,
Wajax implemented a system to prevent leaks due to vacuums.
This system uses an all-stainless steel welded diaphragm
and sensors capable of withstanding full vacuum for several
days without calibration issues. In addition, a digital display
implemented eliminates the need for a mechanical gauge which
reduces potential leak paths. The solution enabled the client to
address environmental, safety and operational concerns.
Remote Communities in the Canadian Arctic
Implement Modernized Power Plants
In the Canadian Arctic, weather conditions can be extreme
and many remote communities depend on diesel generators
for their electrical power. During winter months, many of these
communities are accessible only by air, meaning that their
power systems have to be highly reliable and fuel efficient. In
2018, several remote communities required the replacement
of legacy generators and Wajax was selected to design and
supply the generators and control systems for new power
systems. The custom systems were engineered and fabricated
in Wajax’s 68,000 square foot Drummondville, Quebec power
systems integration centre. Four MTU series 4000 generators
were configured to provide 3.6 megawatts of power to 1,200
residents. The team completed the design, fabricated the
systems and delivered the project within very tight timelines to
ensure that these generators were up and running in time for
the winter season.
Wajax 2018 Annual Report 11
Wajax 2018 Annual Report 11
Investing in Our Growth
Wajax currently provides products and services in ten categories. Growth
planning focuses on the relative opportunities in each of these categories
considering market size and share, the strength of manufacturing
relationships, category profitability and the durability of opportunity
through the business cycle.
Revenue by Category Classification (%)
For the twelve months ended December 31
2018
n Targeted Growth
34%
n Core Strength
47%
n Cyclical/Major Project Opportunities 19%
Wajax’s peak to trough performance has historically been related to a high proportion
of profitability resulting from categories that are sensitive to commodity cycles. The
objective of revenue planning is to derive growth from categories where opportunities exist
and business conditions are more stable through the cycle, while not sacrificing growth
opportunities in more cyclical businesses.
Wajax’s ten product and service categories have been grouped into three classifications:
Targeted Growth – These categories represent the majority of planned growth due
to Wajax’s market share opportunities, excellent manufacturer relationships and
opportunities to grow through the cycle. Targeted Growth categories are Construction,
Material Handling and Engineered Repair Services, and growth is based on gaining
market share. In 2018, these categories collectively grew by 22%.
Core Strength – These categories are very important contributors to Wajax’s revenue
base and growth is expected to be generally consistent with long-term positive trends.
In these categories, Wajax has strong current market shares or performance.
Core Strength categories include Industrial Parts, Forestry, On-Highway and Power
Generation/Marine. In 2018, these categories collectively grew by 5%.
Cyclical/Major Project Opportunities – These categories address customer needs
in more cyclical industries or are sensitive to major capital projects that are difficult
to predict. Growth in the strategic plan in these categories has been estimated on
a conservative basis and is based on forecasts below peak levels. Wajax and its
manufacturing partners offer very strong products and services and we remain well-
positioned to benefit from upside in each of these categories. Cyclical/Major Project
Opportunities categories include Mining, Engines and Transmissions, and Crane/Utility.
In 2018, these categories collectively grew 17%.
Year-Over-Year Revenue Growth by Category Classification ($ millions)
2017
414.7
665.6
241.5
1,321.8(1)
For the twelve months ended December 31
n Targeted Growth
n Core Strength
n Cyclical/Major
Project Opportunities
2018
505.0
+22%
697.9
+5%
1,485.0(1)
282.1
+17%
Targeted Growth
Core Strength
Cyclical/Major Project Opportunities
Construction revenue increased 18% driven by
market share growth, our new Hitachi wheel-
loader program and positive market conditions.
Power and Marine revenue increased 33% based
on large project deliveries.
Industrial Parts revenue increased 6% based on a
Material Handling revenue increased 19%
broad range of categories.
driven by a 33% increase in new equipment
sales, ongoing investment in rental and positive
market conditions.
ERS revenue increased 40% driven by
organic growth of 11% and the acquisition
of Groupe Delom.
Strength in Power and Marine and Industrial Parts
offset minor declines in Forestry and On-Highway.
(1) Consolidated categories do not match total revenue due to exclusion of head office and eliminations.
12 Wajax 2018 Annual Report
Mining revenue increased 49% based on strong
equipment and product support revenue in
western Canada related primarily to coal and oil
sands customers.
Engines and Transmissions revenue grew slightly
due to refurbishment and re-power projects for
mining, well stimulation and oil sands customers.
Targeted Growth ($ millions)
Construction
Material Handling
Engineered Repair Services (ERS)
288.5
274.1
270.2
273.2
230.8
207.4
169.9
Working closely with our partners at Hitachi, Bell and other
manufacturers, we plan to continue to grow our market
share in construction equipment, focusing on excavators,
wheel loaders and articulated dump trucks. Wajax offers core
construction products, a full range of aftermarket services,
enhanced sales coverage and will increasingly offer new rental
options on heavy equipment to ensure we are meeting the
needs of our construction customers.
2012
2013
2014
2015
2016
2017
2018
Equipment
Product Support
122.5
125.1
122.8
124.1
120.8
109.3
143.7
2012
2013
2014
2015
2016
2017
2018
Equipment
Product Support
Rental
88.1
63.4
59.7
58.3
63.1
39.0
38.2
2012
2013
2014
2015
2016
2017
2018
Product Support
In partnership with Hyster-Yale Material Handling, our focus is
to build upon our strength in the material handling market and
expand our market share through enhanced sales coverage,
ancillary equipment and warehouse products, expanded
aftermarket services and investment in our rental fleet. Wajax
offers a broad range of products and services to address
the material handling needs of warehouse, industrial and
heavy-lift customers.
Wajax continues to build ERS capabilities, offering shop and
field services, commissioning, design, repairs and rebuilds,
reliability and installation services. Our organic growth strategy
includes a focus on major account development for industrial
and resource customers and enhanced services including
asset management, condition monitoring and predictive
maintenance. Acquisitions are expected to play an important
role in our business.
Note: Certain comparative information has been adjusted to conform to the current year’s presentation.
Wajax 2018 Annual Report 13
Investing in Our Growth
Core Strength ($ millions)
Industrial Parts
Forestry
On-Highway
Power Generation/Marine
Working closely with major vendors, including SKF, Timken,
ITT, 3M, Eaton and Moyno, Wajax offers its customers expert
service and support across a full range of bearings and power
transmission, process and fluid power products. Industrial Parts
is a very significant revenue contributor and an important
competitive differentiator. The category is consumed by virtually
all industrial users and offers access to a large number of
customers, generating sales and service opportunities in
other categories.
In partnership with Tigercat and Hitachi, Wajax offers an industry-
leading range of equipment and aftermarket services to logging
contractors and other forestry customers. Wajax has achieved
strong market share in a number of important product areas
and continues to see growth opportunities as manufacturing
partners invest in new product development that increases
the safety, productivity and cost effectiveness of the logging
operations of customers.
On-Highway product support covers a wide range of shop and
road services for municipalities, coach operators and large
vehicle customers. Working with partners such as Detroit and
Allison, who have excellent market share in the installed vehicle
population, Wajax is an industry leader in large engine and
transmission services. Continued growth is based on ongoing
improvements in our customer service and expansion of our
services to additional vehicle systems.
Standby, prime power and co-generation power systems are an
important focus for Wajax and our primary partner Rolls-Royce
Power Systems/MTU On-Site Energy. Wajax’s legacy strength in
resource industries have been augmented to focus on growth
areas including data centres, health care and water treatment.
In marine power generation and propulsion, Wajax enjoys strong
partnerships with Rolls-Royce and Volvo, providing growth
opportunities in commercial and defense marine.
321.1
326.7
348.6
329.9
320.4
340.0
361.7
2012
2013
2014
2015
2016
2017
2018
Parts
142.8
133.3
130.3
144.3
136.4
116.0
96.6
2012
2013
2014
2015
2016
2017
2018
Equipment
Product Support
106.6
97.7
101.8
109.4
104.1
95.7
89.2
2012
2013
2014
2015
2016
2017
2018
Product Support
96.3
91.8
86.1
83.7
95.8
77.6
71.9
2012
2013
2014
2015
2016
2017
2018
Equipment
Product Support
Rental
Note: Certain comparative information has been adjusted to conform to the current year’s presentation.
14 Wajax 2018 Annual Report
Investing in Our Growth
Cyclical/Major Project Opportunities ($ millions)
Mining
233.6
180.0
164.5
132.7
146.9
110.8
85.8
2012
2013
2014
2015
2016
2017
2018
Equipment
Product Support
157.0
124.6
122.8
95.6
90.0 92.1
70.5
2012
2013
2014
2015
2016
2017
2018
Equipment
Product Support
Working closely with Hitachi, Wajax is a leader in the sales
and service of large hydraulic mining shovels, used in surface
mining operations across Canada, and continues to develop new
opportunities in the rigid frame mining truck market. To expand
the range of products and services available to our mining
customers, Wajax has focused on new underground mining
equipment, working with partners such as Fletcher, and re-build
services for other major equipment to help our customers
extend the life and efficiency of their assets.
Wajax supports a very broad range of engines and
transmissions used in off-highway applications such as oil
and gas drilling, well stimulation and large vehicle or system
re-powers. Products and services include design engineering,
systems packaging, shop and field repair, and re-build services.
Our primary partners include Rolls Royce Power Systems/MTU,
Allison and others. To partially compensate for the cyclicality
in this category, Wajax continues to focus on aftermarket and
re-power services.
55.6
54.0
57.0
41.7
40.9
40.7
25.5
Working with partners such as Terex and Palfinger, Wajax offers
a broad range of design and fabrication services to provincial
utility and other customers. As utility customers adjust
their capital spending on new equipment, Wajax is reviewing
additional crane and utility opportunities.
Engines/Transmissions
Crane/Utility
2012
2013
2014
2015
2016
2017
2018
Equipment
Product Support
Note: Certain comparative information has been adjusted to conform to the current year’s presentation.
Wajax 2018 Annual Report 15
Investing in Our Infrastructure
We are making major changes to our infrastructure to improve the
consistency of customer service, lower fixed costs and add new sales
channels in an increasingly technology-enabled industry.
Our objectives include:
Consolidating our facility network – We have continued to reduce the number of
facilities we operate in order to improve the consistency of our customer service,
enhance the environment we provide for our team and lower our operating costs.
Wajax’s current facility count of 106 locations has been reduced by 12% over the past
5 years including a 3% reduction in 2018. Consolidation is driven by combining the
operations of legacy businesses that maintained separate networks prior to the One
Wajax reorganization. Re-thinking our network allows us to invest in improved facilities
and provides a better experience for our customers and team. In 2018, we opened or
renovated major facilities in key markets such as Quebec City and Fort McMurray and we
are in the process of major upgrades in markets such as London, Calgary and Red Deer.
Red Deer, Alberta
A new 35,903 sq. ft. design/
build facility is due to be
completed in May 2019 and
will co-locate two existing
locations. The 24,000 sq. ft.
shop area, with a dedicated
engine dyno and flexible
crane configuration, will
allow a variety of functions,
from assembling cranes to
rebuilding transport trucks
and buses. The new facility
will replace two existing sites
(totalling 53,570 sq. ft.) that
will be closing.
16 Wajax 2018 Annual Report
Fort McMurray, Alberta
This purpose built 24,000 sq. ft. truck and heavy equipment repair facility was
added in 2018. Combined with an existing site in the area, Wajax now operates
two efficient facilities, replacing the four facilities previously operated prior to the
reorganization of the company.
Our 2016 reorganization
reduced the number
of legacy information
systems and we begin
implementation of a single,
modern ERP system in 2019.
Improving our information systems – Wajax’s current information technology is based
on multiple legacy systems that are impediments to our strategy and operational
efficiency. Our 2016 reorganization reduced the number of legacy information systems
from four to two and we expect to begin implementation of a single, modern Enterprise
Resource Planning (ERP) system in 2019. The new ERP system will provide a stronger
platform from which to deliver our strategy, improved information transparency and
increased automation and will be the basis for the development of new customer support
capabilities and sales channels. We plan to begin implementation in the first half of
2019. Roll-out to all locations is expected to occur over an approximate 12 – 18 month
timeframe in order to manage the risks associated with a major technology change.
Delivering improved branch and customer support through regional Customer Support
Centres (CSCs) – The focus of the One Wajax strategy is to provide customers with
access to our full range of products and services while delivering a consistently excellent
level of customer service. Wajax’s breadth of products and services and the related
technical skills to service customers makes this commitment difficult for any one branch
to deliver. Based on work completed in 2018, we will begin implementation of regional
Customer Support Centres in 2019. After ramp-up, these centres will be capable of
handling 24/7 inbound and outbound multi-channel communications and will provide
direct support to customers or indirect support via the local branch for all categories.
CSCs will offer Wajax a new cost efficient customer support channel, provide new sales
opportunities and valuable assistance to our sales and operations teams.
Customer Support Centres (CSC) will ensure that our customers and branches have access to our full range of technical
expertise, products and services from any location, using the channel most convenient for them. They are designed to provide
customers with an improved, consistent, customer experience. The centres will provide new fulfillment capabilities and broader
market coverage, augmenting our branch network in the delivery of the One Wajax promise.
Wajax 2018 Annual Report 17
Message from the Chairman
Wajax’s primary focus during 2018 was the execution of the updated
growth strategy introduced earlier in the year. Building on work
completed in 2016 and 2017 to further integrate and streamline
its operations, the corporation again delivered stronger financial
results, while advancing major employee and customer initiatives,
infrastructure projects and completing an important acquisition.
It was another year of progress and change at Wajax, with the corporation’s updated growth
strategy taking centre stage. While maintaining the Corporation’s competitive position in
categories sensitive to commodity cycles, such as mining, oil sands, and oil and gas, Mark
and his team worked hard throughout the year to increase focus on categories offering
more resilient growth throughout such cycles. Consistent with those adjustments, and as
detailed elsewhere in this Annual Report, the majority of Wajax’s growth in 2018 came
from these Targeted Growth categories. In addition, significant progress was made during
the year on important initiatives designed to improve the health, safety and well-being of
employees, the quality of service received by Wajax customers, and to upgrade critical
infrastructure. Important investments were also made in technicians, sales personnel
and training, and the acquisition of Groupe Delom has added greatly to the technical and
service capabilities offered by Wajax.
As Wajax continues to transform its business, the board has maintained its focus on
testing and challenging the plans and assumptions of management, monitoring the pace
of change, and ensuring that the attendant risks are appropriately mitigated. Overall, the
board has been very pleased with the progress made since the strategic reorganization
announced by the corporation in March 2016, and continues to believe very strongly that
the growth priorities, improved integration and investments in people and technology set
forth in Wajax’s updated strategic plan will result in higher and more sustainable growth
throughout the business cycle.
As part of its own renewal process, the board welcomed Anne Bélec as a director in
November 2018. Anne brings over 33 years of experience in marketing and business
development, brand strategy and customer experience, and has held senior executive
roles at Ford Motor Company, Navistar and Bombardier Recreational Products. She is the
co-founder and presently serves as Chief Executive Officer of Mosaic Group, a firm offering
outsourced marketing services for brands in Canada, the United States and globally. We
look forward to her contributions as a director.
On behalf of the board, I would like to thank Wajax’s team of employees and managers
for their hard work as Wajax pushes toward its goal of becoming Canada’s leading
industrial products and services provider. We also thank Wajax’s many suppliers and loyal
customers for their support. To my fellow directors, thank you for your counsel and efforts
throughout the year.
Robert P. Dexter
Chairman of the Board
Board of Directors
Thomas M. Alford ▲n
Director since 2014
Mr. Alford is President, Well Services of
Precision Drilling Corporation.
Edward M. Barrett ●▲
Director since 2006
Mr. Barrett is Chairman and Co-Chief Executive
Officer of Barrett Corporation.
Anne E. Bélec ●▲
Director since 2018
Ms. Bélec is the Co-Founder and
Chief Executive Officer of Mosaic Group, LLC.
Douglas A. Carty ●n
Director since 2009
Mr. Carty is a corporate director and the Chairman
and Co-Founder of Switzer-Carty Transportation Inc.
Sylvia D. Chrominska ●▲
Director since 2015
Ms. Chrominska is a corporate director.
Robert P. Dexter
Director since 1988
Mr. Dexter is Chairman and Chief Executive Officer
of Maritime Travel Inc. and the Chairman of the
Board of Directors of the Corporation.
John C. Eby ●n
Director since 2006
Mr. Eby is a corporate director and a Founder
and the President of Developing Scholars.
A. Mark Foote
Director since 2012
Mr. Foote is President and Chief Executive Officer
of the Corporation.
Alexander S. Taylor ▲n
Director since 2009
Mr. Taylor is President, Nuclear
of SNC-Lavalin Group Inc.
● Audit Committee
▲ Human Resources and Compensation Committee
n Governance Committee
18 Wajax 2018 Annual Report
Management’s Discussion
and Analysis
The following management’s discussion and analysis (“MD&A”)
discusses the consolidated financial condition and results of
operations of Wajax Corporation (“Wajax” or the “Corporation”) for
the year ended December 31, 2018. This MD&A should be read
in conjunction with the information contained in the Corporation’s
consolidated financial statements and accompanying notes for
the year ended December 31, 2018. Information contained in this
MD&A is based on information available to management as of
March 21, 2019.
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.
Unless otherwise indicated, all financial information within this MD&A
is in millions of Canadian dollars, except ratio calculations, share,
share rights and per share data. Additional information, including
Wajax’s Annual Report and Annual Information Form, are available on
SEDAR at www.sedar.com.
Wajax Corporation Overview
Founded in 1858, Wajax (TSX: WJX) is one of Canada’s longest-
standing and most diversified industrial products and services
providers. The Corporation operates an integrated distribution system,
providing sales, parts and services to a broad range of customers
in diverse sectors of the Canadian economy, including: construction,
forestry, mining, industrial and commercial, oil sands, transportation,
metal processing, government and utilities and oil and gas.
Strategic Direction and Outlook
The focus of the One Wajax strategy is to provide customers with
access to the Corporation’s full range of products and services
while delivering a consistently excellent level of customer service.
The strategy builds on the Corporation’s strengths of a well-trained
and dedicated team of professionals, a broad range of products
and services, deep experience in a wide range of markets, strong
relationships with leading manufacturers and a national branch
network. The Corporation is focused on delivering a strong experience
for its team, customers and investors by executing clear plans in six
important areas:
Investing in the Wajax team – The safety, well-being and
engagement of the Corporation’s team of 2,800 technicians,
sales professionals, support staff and leaders is the foundation
of the Corporation. The Corporation is very proud of the
Wajax team’s accomplishments in workplace safety, progress
on personal wellness programs and enhanced training and
professional development.
Investing in Wajax’ customers – The Corporation has the privilege
of supporting 32,000 individual customers across Canada ranging
from small local contractors to the country’s largest industrial and
resource organizations. Wajax continues to expand its Voice of
the Customer (VoC) program which evaluates detailed customer
service levels for each location and shares customer feedback
openly with all parts of the Corporation. For an increasing number
of large customers, the VoC program also uses analytical systems
and dedicated teams to explore opportunities to increase the
Corporation’s share-of-wallet with individual customers.
Executing a clear organic growth strategy – The Corporation
has classified its ten current product and service categories
based on a category’s contribution to sustainable growth. While
Wajax is competitive in all of the categories it participates in,
these classifications ensure that resources (such as inventory,
personnel and marketing) are allocated appropriately. The
Corporation’s classifications are Targeted Growth (which includes
the Construction, Material Handling and Engineered Repair
Services categories), Core Strength (which includes the Industrial
Parts, Forestry, On-Highway and Power and Marine categories) and
Cyclical and Major Projects (which includes the Mining, Engines
and Transmissions and Crane/Utility categories). The majority of
the Corporation’s strategic plan’s organic growth is expected to
result from Targeted Growth categories due to the relatively high
opportunity for market share increases, resilient aftermarkets, the
strength of the Corporation’s product and service range and related
manufacturer relationships. In 2018, 55% of the Corporation’s
revenue growth was driven by Targeted Growth categories.
Accretive acquisitions strategy – Wajax has developed clear
acquisition criteria for the Canadian and U.S. markets. In Canada,
the focus is primarily on acquisitions that add to the Corporation’s
scale in the Engineered Repair Services (ERS) business and
secondarily to extensions to the Corporation’s existing distribution
businesses. In the U.S. market, the focus is on reviewing growth
opportunities related to distribution businesses that provide a
long-term growth platform for the One Wajax multi-category model.
Acquisitions are considered when they can be achieved within
acceptable leverage parameters, are consistent with our product
and service strategy, accretive to EBITDA margin, provide scale and
have effective management teams.
Investing in the Wajax infrastructure – The Corporation is making
major changes to its infrastructure to improve the consistency of
customer service, lower fixed costs and add new sales channels
in an increasingly technology-enabled industry. The Corporation’s
current infrastructure programs include the ongoing consolidation
of the branch network to improve customer service and to lower
the cost of its physical footprint. In addition, the Corporation
is investing in new information systems and capabilities that
replace the aged legacy systems and provide a platform for new
customer-facing capabilities. In 2018, the Corporation completed
the majority of the configuration and testing of its new ERP system,
which the Corporation expects to begin implementing in the first
half of 2019.
Ongoing refinements to the One Wajax organizational model –
In 2016, Wajax made major changes to how its team is organized
in order to improve growth, drive consistency and to lower fixed
costs. The changes reduced costs by approximately $20 million
at the time of the change, primarily through the reduction of
administrative personnel costs. As the business has grown, the
Corporation has reinvested those savings, primarily in revenue
generating roles, such as sales professionals and technicians.
Wajax continues to refine its organizational model and expects
additional improvements in cost productivity, due primarily to
technology investments.
Wajax 2018 Annual Report 19
Outlook
Wajax expects generally stable market conditions in eastern and
central Canada in 2019. Market conditions in western Canada are
uncertain at present where activity remains stable to positive in
important end markets such as the oil sands, mining and forestry,
but is expected to slow temporarily in areas such as conventional
oil and gas, construction and related markets. Wajax believes that
the current conditions in western Canada are more favourable to
the Corporation than those that prevailed when energy prices were
weak in 2015 and 2016. While recognizing the possible effect
of these market conditions, the Corporation has not changed its
internal financial targets or operational plans which remain consistent
with the original goals of its strategic plan. Wajax expects full year
adjusted net earnings to increase over 2018 based on consolidated
revenue improvements and the full year effect of the acquisition of
Groupe Delom Inc. (“Delom”). 2019 is an important year for major
projects such as the Corporation’s new ERP and Customer Support
Centres, both of which are scheduled to begin implementation in
the first half of 2019. The Corporation’s current view of the timing
of revenue and operational expenditures suggests that the expected
earnings improvements will be weighted to the second half of the
year. Leverage is expected to remain within acceptable boundaries
and the Corporation maintains sufficient financial flexibility to execute
the 2019 business plan. See the Non-GAAP and Additional GAAP
Measures and Cautionary Statement Regarding Forward-Looking
Information sections.
Annual and Fourth Quarter Highlights
2018 Full Year Highlights
Revenue increased $162.9 million or 12%, to $1,481.6 million, in
2018 versus $1,318.7 million in 2017.(2) Regionally:
Revenue in western Canada of $653.1 million increased 14%
over the prior year. Sales gains in the majority of product
categories, led by strong gains in construction and mining, more
than offset reductions in forestry.
Revenue in central Canada of $324.3 million increased 5%
over the prior year. Sales gains in construction, mining, material
handling and power generation more than offset reductions in
crane and utility.
Revenue in eastern Canada of $504.2 million increased 15%
over the prior year due to sales gains in the majority of product
categories, including higher ERS sales due primarily to the
acquisition of Delom on October 16, 2018.
Selling and administrative expenses as a percentage of revenue
decreased 80 basis points to 14.1% in 2018 from 14.9% in
2017.(2) Selling and administrative expenses increased by
$12.7 million compared to 2017 due mainly to higher sales-related
expenses and occupancy costs, non-cash losses on mark to
market of derivative instruments and higher personnel costs and
occupancy expenses resulting from the acquisition of Delom.(2) These
increases were partially offset by a $1.2 million gain recorded on
sales of properties in 2018.
EBIT increased $5.4 million, or 10.2%, to $58.6 million in 2018
versus $53.2 million in 2017.(1)(2) The year-over-year improvement
is primarily attributable to increased revenue and the acquisition of
Delom in the fourth quarter of 2018.
Based on the improved EBIT result, the Corporation generated
net earnings of $35.9 million, or $1.82 per share, in 2018
versus $27.4 million, or $1.40 per share, in 2017.(1)(2) The
Corporation generated adjusted net earnings of $39.9 million,
or $2.02 per share, in 2018 versus $30.1 million, or $1.54 per
share, in 2017.(1)(2)
Adjusted EBITDA margin increased to 6.2% in 2018 from 5.7%
in 2017.(1)(2)
The Corporation’s backlog at December 31, 2018 of
$206.9 million decreased $33.3 million, or 14%, compared to
September 30, 2018 due primarily to the fulfillment of forestry,
mining and material handling orders. The Corporation’s backlog at
December 31, 2018 of $206.9 million increased $28.0 million,
or 16%, compared to December 31, 2017 due primarily to higher
mining, power generation and crane and utility orders.(1)
Inventory of $366.0 million at December 31, 2018 decreased
$3.8 million from September 30, 2018 due primarily to lower
construction and mining inventory offset partially by higher ERS,
forestry and industrial parts inventory. Inventory of $366.0 million
at December 31, 2018 increased $53.0 million from
December 31, 2017 due primarily to higher construction, forestry,
power generation and industrial parts inventory.(2)
Working capital of $334.7 million at December 31, 2018
decreased $1.3 million from September 30, 2018. Trailing
four-quarter average working capital as a percentage of
the trailing 12-month sales was 21.9%, an increase of
0.6% from September 30, 2018 due primarily to the higher
trailing four-quarter average working capital. Working capital
at December 31, 2018 increased $45.0 million from
December 31, 2017 due primarily to higher inventory levels.
Trailing four-quarter average working capital as a percentage of the
trailing 12-month sales increased by 1.0% from 2017.(1)(2)
The Corporation’s leverage ratio increased to 2.48 times
at December 31, 2018 compared to 2.29 times at
September 30, 2018. The increase in the leverage ratio
was primarily due to the higher debt level associated with
the acquisition of Delom offset partially by the higher trailing
12-month pro-forma adjusted EBITDA. The Corporation’s leverage
ratio increased to 2.48 times at December 31, 2018 compared
to 2.17 times at December 31, 2017 due to the higher debt
level offset partially by the higher trailing 12-month pro-forma
adjusted EBITDA.(1)(2)
On October 16, 2018, the Corporation completed the acquisition
of all of the issued and outstanding shares of Montréal, Québec-
based Delom. The aggregate purchase price for the shares was
$52.1 million, including $2.0 million which is subject to the
achievement of certain performance targets post-closing.
On October 16, 2018, the Corporation also announced
amendments to its senior secured credit facilities. Pursuant to
such amendments, the aggregate commitments of the lenders
under such facilities have been increased from $300 million to
$400 million, and the maturity date has been extended from 2021
to 2023 representing a five year commitment from lenders.
On November 5, 2018, the Corporation announced the
appointment of Anne Bélec to its Board of Directors effective that
same date.
(1) “Backlog”, “Leverage ratio”, “Adjusted net earnings”, “EBITDA margin”, “Adjusted EBITDA”, “Adjusted EBITDA margin” and “Pro-forma adjusted EBITDA” do not have standardized meanings
prescribed by generally accepted accounting principles (“GAAP”). “EBIT” and “Working capital” are additional GAAP measures. See the Non-GAAP and Additional GAAP Measures section.
(2) The Corporation has adjusted its comparative 2017 earnings and financial position as a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with Customers and its
comparative 2017 earnings and financial position as a result of the adjustments to prior period financial statements identified as part of the Finance Reorganization Plan. See the Adjustments to
Prior Period Financial Statements section.
20 Wajax 2018 Annual Report
Management’s Discussion and Analysis During 2016, as part of its transition to the “One Wajax” operating
model, the Corporation consolidated its three former operating
divisions – Wajax Equipment, Wajax Power Systems and Wajax
Industrial Components - into one business. As a result, in 2017,
the Corporation began to report on its operations as one operating
segment, versus the prior three operating segments. In 2018, the
Corporation communicated plans to redesign its finance function
(“Finance Reorganization Plan”), with the following objectives:
(1) to better align the operation of the finance group with the
operation of the business, (2) to standardize financial policies,
procedures and controls of the three former operating divisions,
and (3) apply the standardized financial policies, procedures and
controls across the organization to support the implementation
of the Corporation’s new ERP system which is expected to begin
in 2019. The finance function redesign is being completed with
the support of external advisors to ensure adherence to industry
best practices.
Management has applied the now standardized financial
policies, procedures and controls to the three former operating
divisions and noted non-cash accounting errors in the current
and prior periods, primarily relating to accounts payable. Although
not material to any one year, management has corrected the
errors in the financial statements for the current period ending
December 31, 2018 and adjusted prior period comparative
information. The after-tax error for fiscal 2018 and 2017 totals
$1.8 million and $3.1 million, respectively. The cumulative after-
tax error for fiscal 2016 and prior periods totals $7.6 million. As
at December 31, 2018, the Corporation believes that the control
deficiencies have been rectified and its control environment has
been strengthened.
Fourth Quarter Highlights
Revenue in the fourth quarter of 2018 increased $14.3 million, or
4%, to $389.8 million from $375.5 million in the fourth quarter of
2017.(2) Regionally:
Revenue in western Canada of $166.2 million decreased 1%
from the prior year period.
Revenue in central Canada of $88.0 million increased 9% from
the prior year period due to sales gains in construction, power
generation, industrial parts and ERS offset partially by lower
crane and utility sales.
Revenue in eastern Canada of $135.5 million increased 7%
over the prior year period due to sales gains in industrial parts
and ERS offset partially by lower mining, crane and utility and
construction sales. The sales gains in ERS were primarily
attributable to the acquisition of Delom on October 16, 2018.
Selling and administrative expenses as a percentage of revenue
increased 80 basis points to 14.1% in the fourth quarter of
2018 from 13.3% in the same period of 2017.(2) Selling and
administrative expenses increased by $5.0 million compared to the
fourth quarter of 2017 due mainly to higher personnel costs and
occupancy expenses resulting from the acquisition of Delom and
non-cash losses on mark to market of derivative instruments.(2)
EBIT decreased $4.3 million, or 27.2%, to $11.5 million in the
fourth quarter of 2018 versus $15.7 million in the same period of
2017.(1)(2) The year-over-year decrease is attributable to lower gross
profit margins, increased selling and administrative expenses
and restructuring and other related costs of $0.7 million in the
current period.
Adjusted EBITDA margin increased to 6.0% in the fourth quarter of
2018 from 5.5% in the same period of 2017.(1)(2)
The Corporation generated net earnings of $6.1 million, or $0.31
per share, in the fourth quarter of 2018 versus $6.1 million, or
$0.31 per share, in the same period of 2017.(2) The Corporation
generated adjusted net earnings of $8.3 million, or $0.42 per
share, in the fourth quarter of 2018 versus $9.1 million, or $0.47
per share, in the same period of 2017.(1)(2)
Summary of Annual Operating Results
For the twelve months
ended December 31
2018
2017
(As adjusted)(4)
% change
Revenue
$ 1,481.6 $ 1,318.7
$
272.3 $
250.0
Gross profit
Selling and
administrative
expenses
Restructuring and
other related costs
Earnings before
finance costs and
income taxes(1)
Finance costs
Earnings before
income taxes(1)
Income tax expense
Net earnings
– Basic earnings
per share(2)
– Diluted earnings
per share(2)
$
$
$
$
$
$
$
$
$
209.5 $
196.8
4.1 $
—
58.6 $
8.8 $
49.8 $
14.0 $
35.9 $
53.2
15.2
37.9
10.6
27.4
1.82 $
1.40
1.78 $
1.36
30.1
12.4%
8.9%
6.5%
—%
10.2%
(42.1)%
31.4%
32.1%
31.0%
30.0%
30.9%
32.6%
Adjusted net earnings(1)(4) $
39.9 $
– Adjusted basic
earnings per
share(1)(2)(3)
– Adjusted diluted
earnings per
share(1)(2)(3)
Adjusted EBITDA(1)
Key ratios:
Gross profit margin
Selling and
administrative
expenses as a
percentage of
revenue
EBIT margin(1)
Adjusted EBITDA
margin(1)
Effective income
tax rate
$
2.02 $
1.54
31.2%
$
$
1.98 $
91.2 $
1.50
74.9
32.0%
21.8%
18.4%
19.0%
14.1%
4.0%
14.9%
4.0%
6.2%
5.7%
28.0%
27.8%
Wajax 2018 Annual Report 21
Management’s Discussion and Analysis
Statement of financial position highlights
Backlog
As at December 31
2018
2017
(As adjusted)(4)
$
Trade and other receivables
Inventory
$
Accounts payable and accrued liabilities $
Other working capital amounts(1)
$
206.3 $
366.0 $
(253.0) $
15.4 $
203.9
313.0
(236.2)
9.0
Working capital(1)
Rental equipment
Property, plant and equipment
Funded net debt(1)
Key ratio:
Leverage ratio(1)
$
$
$
$
334.7 $
289.7
73.7 $
59.0 $
60.4
43.6
235.8 $
154.9
2.48
2.17
(1) These measures do not have a standardized meaning prescribed by GAAP. See the Non-
GAAP and Additional GAAP Measures section.
(2) Weighted average shares outstanding for calculation of basic and diluted earnings per
share for the twelve months ended December 31, 2018 was 19,686,075 (2017 –
19,605,884) and 20,147,902 (2017 – 20,204,738), respectively.
(3) Net earnings excluding the following:
a. after-tax restructuring and other related costs of $3.0 million (2017 – nil), or basic
and diluted earnings per share of $0.15 (2017 – nil), for the twelve months ended
December 31, 2018.
b. after-tax gain recorded on sales of properties of $0.9 million (2017 – $1.2 million),
or basic and diluted earnings per share of $(0.04) (2017 – $(0.06) per share) for the
twelve months ended December 31, 2018.
c. after-tax non-cash losses on mark to market of derivative instruments of $1.6 million
(2017 – nil), or basic and diluted earnings per share of $0.08 (2017 – nil) for the twelve
months ended December 31, 2018.
d. after-tax Delom transaction costs of $0.3 million (2017 – nil), or basic and diluted earnings
per share of $0.02 (2017 – nil) for the twelve months ended December 31, 2018.
e. after-tax senior notes redemption costs of $4.0 million, or basic and diluted earnings per
share of $0.20, for the twelve months ended December 31, 2017.
(4) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Annual Results of Operations
Revenue in 2018 increased 12.4%, or $162.9 million, to
$1,481.6 million, from $1,318.7 million in 2017. In addition
to regional revenue commentary provided previously herein, the
following factors contributed to the increase in revenue:
Equipment sales have increased due to higher construction,
mining, material handling and power generation sales in all
regions. These increases were partially offset by a decrease in
crane and utility sales in all regions.
Revenue from industrial parts has increased due primarily to
increased bearings and hydraulics sales in all regions.
Product support sales have increased on strength in mining
parts and service sales in all regions offset partially by lower
construction parts and service sales in all regions.
ERS/Other sales have increased due to higher ERS revenues in all
regions. The ERS increases in central and eastern Canada were
primarily due to the acquisition of Delom in the fourth quarter
of 2018.
Backlog of $206.9 million at December 31, 2018 increased
$28.0 million compared to December 31, 2017 due primarily to
increases in mining, power generation and crane and utility orders.
Gross profit
Gross profit increased $22.2 million, or 8.9%, in 2018 compared to
the prior year, primarily as a result of higher volumes offset partially
by lower product support margin rates. Gross profit margin of 18.4%
in 2018 decreased from 19.0% in the prior year, due primarily to
lower product support margin rates.
Selling and administrative expenses
Selling and administrative expenses increased $12.7 million in 2018
compared to the prior year. This increase was primarily due to higher
sales-related expenses and occupancy costs, non-cash losses on
mark to market of derivative instruments and higher personnel costs
and occupancy expenses resulting from the acquisition of Delom.
Selling and administrative expenses as a percentage of revenue
decreased to 14.1% in 2018 from 14.9% in 2017.
Restructuring and other related costs (recoveries)
In the first quarter of 2018, the Corporation commenced the Finance
Reorganization Plan and a leadership re-alignment within its ERS
function. The cost of the Finance Reorganization Plan is expected
to be approximately $5.6 million in severance, project management
and interim duplicate labour costs, of which $3.5 million has been
recognized in 2018 and $0.3 million recognized in 2017. The
remaining $1.8 million in anticipated costs, primarily relating to
project management and interim duplicate labour costs, will be
expensed as incurred over the remaining project period. Management
anticipates that the majority of the remaining project work will be
completed by the first half of 2019.
During the first quarter of 2018, the Corporation also commenced
a leadership re-alignment within its ERS function, which is also
intended to better align such function with the One Wajax model.
The costs of the re-alignment are estimated at $0.5 million of
which $0.4 million has been recognized in the twelve months ended
December 31, 2018.
During the second quarter of 2018, the Corporation incurred
$0.3 million (net of a $0.5 million recovery) of additional severance
related costs associated with the 2016 strategic reorganization which
were expensed and paid during the three months ended June 30,
2018. No additional severance related costs associated with the
2016 strategic reorganization were recognized in the second half of
2018 and the Corporation does not anticipate any further related
costs to be incurred.
Finance costs
Finance costs of $8.8 million in 2018 decreased $6.5 million
compared to 2017 due primarily to lower average interest rates
relating to the senior notes redemption in the fourth quarter of 2017
offset partially by higher average debt levels. See the Liquidity and
Capital Resources section.
Income tax expense
The Corporation’s effective income tax rate in 2018 was 28.0%
(2017 – 27.8%) compared to the statutory rate of 26.9%
(2017 – 26.9%) due to the impact of expenses not deductible for
tax purposes. The statutory income tax rate of 26.9% is unchanged
compared to 2017.
22 Wajax 2018 Annual Report
Management’s Discussion and Analysis
Revenue by Geographic Region ($ millions)
2018
(cid:31) Western Canada
(cid:31) Central Canada
(cid:31) Eastern Canada*
Total
$ 653.1
324.3
504.2
$ 1,481.6
* Includes Quebec and the Atlantic provinces.
Revenue by Market
2018
(cid:31) Construction
(cid:31) Mining
(cid:31) Forestry
(cid:31) Industrial/Commercial
(cid:31) Oil Sands
(cid:31) Transportation
(cid:31) Metal Processing
(cid:31) Government and Utilities
(cid:31) Oil and Gas
(cid:31) Other
19%
16%
14%
11%
9%
9%
6%
4%
4%
8%
(cid:31) Equipment sales
(cid:31) Equipment rental
(cid:31) Industrial parts
(cid:31) Product support
(cid:31) ERS/Other
Total
$ 542.8
34.9
361.7
457.6
84.6
$ 1,481.6
Revenue Sources ($ millions)
2018
2017
(As adjusted)(1)
2017
(As adjusted)(1)
2017
(As adjusted)(1)
(cid:31) Western Canada
(cid:31) Central Canada
(cid:31) Eastern Canada*
Total
$ 572.0
309.3
437.4
$ 1,318.7
(cid:31) Construction
(cid:31) Mining
(cid:31) Forestry
(cid:31) Industrial/Commercial
(cid:31) Oil Sands
(cid:31) Transportation
(cid:31) Metal Processing
(cid:31) Government and Utilities
(cid:31) Oil and Gas
(cid:31) Other
17%
13%
16%
12%
10%
9%
6%
6%
3%
8%
(cid:31) Equipment sales
(cid:31) Equipment rental
(cid:31) Industrial parts
(cid:31) Product support
(cid:31) ERS/Other
Total
$ 461.5
32.3
340.0
424.9
60.1
$ 1,318.7
(1) The Corporation has adjusted its comparative 2017 earnings and financial position as a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with Customers and its
comparative 2017 earnings and financial position as a result of the adjustments to prior period financial statements identified as part of the Finance Reorganization Plan. See the Adjustments to
Prior Period Financial Statements section.
Net earnings
Comprehensive income
In 2018, the Corporation had net earnings of $35.9 million, or
$1.82 per share, compared to $27.4 million, or $1.40 per share, in
2017. The $8.5 million increase in net earnings resulted primarily
from higher volumes, improved selling and administrative expense
efficiency and lower finance costs. These increases were partially
offset by restructuring and other related costs of $3.0 million after-
tax in the current year.
Adjusted net earnings (See the Non-GAAP
and Additional GAAP Measures section)
Adjusted net earnings in 2018 excludes restructuring and other
related costs of $3.0 million after-tax, or $0.15 per share (2017 –
nil), a gain recorded on sales of properties of $0.9 million after-tax,
or $0.04 per share (2017 – gain recorded on sales of properties of
$1.2 million after-tax, or $0.06 per share), non-cash losses on mark
to market of derivative instruments of $1.6 million after-tax, or $0.08
per share (2017 – nil) and Delom transaction costs of $0.3 million
after-tax, or $0.02 per share (2017 – nil).
As such, adjusted net earnings increased $9.8 million to
$39.9 million, or $2.02 per share, in 2018, from $30.1 million, or
$1.54 per share, in 2017. The $9.8 million increase in adjusted net
earnings resulted primarily from higher volumes, improved selling and
administrative expense efficiency and lower finance costs.
In 2018, the total comprehensive income of $34.6 million included
net earnings of $35.9 million and an other comprehensive loss
of $1.2 million. The other comprehensive loss of $1.2 million in
the current year resulted primarily from $0.7 million of losses
on derivative instruments outstanding at the end of the period
designated as cash flow hedges and $0.6 million of gains on
derivative instruments designated as cash flow hedges in prior
periods reclassified to net earnings during the current year.
Acquisition of Delom
On October 16, 2018, the Corporation completed the acquisition
of all of the issued and outstanding shares of Delom. The
aggregate purchase price for the shares was $52.1 million,
including $2.0 million which is subject to the achievement of
certain performance targets post-closing. Founded in 1963,
Delom specializes in the maintenance and repair of critical
electromechanical and rotating equipment for continuous
process industries, and has annual sales of approximately
$70 million. Serving customers in diverse end markets, including
hydroelectric, wind and nuclear power generation, mining, pulp
and paper, petrochemical, aluminum smelting, and rail and marine
transportation, Delom has six branches across Eastern Canada and
employs more than 350 people. Consistent with the Corporation’s
strategy, the acquisition of Delom is expected to provide meaningful
growth in the Corporation’s ERS business.
Wajax 2018 Annual Report 23
Management’s Discussion and Analysis
Selected Annual Information
The following selected annual information is audited and has
been prepared on the same basis as the 2018 annual audited
consolidated financial statements except for 2016 which has not
been adjusted as a result of the adoption on January 1, 2018 of
IFRS 15 Revenue from Contracts with Customers and as a result of
the adjustments to prior period financial statements identified as
part of the Finance Reorganization Plan. See the Adjustments to Prior
Period Financial Statements section.
For the twelve months
ended December 31
2018
2017
(As adjusted)(1)
2016
Revenue
$ 1,481.6 $ 1,318.7 $ 1,221.9
Net earnings
$
Basic earnings per share $
Diluted earnings
per share
$
35.9 $
1.82 $
27.4 $
1.40 $
11.0
0.55
1.78 $
1.36 $
0.54
Total assets (as adjusted) $
$
Non-current liabilities
831.2 $
244.1 $
694.4 $
160.9 $
664.9
138.6
Dividends declared
per share
$
1.00 $
1.00 $
1.00
(1) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Revenue in 2018 of $1,481.6 million increased $162.9 million
compared to 2017. The increase is due to growth in all regions, led
by strong gains in construction, mining, material handling, power
generation and industrial parts. These gains were partially offset by
lower crane and utility revenue primarily in central Canada. Revenue
in 2017 of $1,318.7 million increased $96.8 million compared to
2016. The increase is attributable to strength in western Canada,
led by strong gains in construction and forestry and higher industrial
parts revenue in eastern Canada. These gains were partially offset by
lower mining equipment revenue primarily in western Canada.
Net earnings in 2018 of $35.9 million increased $24.9 million, or
$1.27 per share, from 2016. Excluding the after-tax restructuring
and other related costs of $3.0 million ($0.15 per share), after-tax
gain recorded on sales of properties of $0.9 million ($0.04 per
share), after-tax non-cash losses on mark to market of derivative
instruments of $1.6 million ($0.08 per share) and after-tax Delom
transaction costs of $0.3 million ($0.02 per share) in 2018 and the
after-tax restructuring and other related costs of $9.1 million ($0.46
per share) in 2016, net earnings increased $19.7 million, or $1.01
per share. This increase was due principally to higher volumes and
reduced finance costs offset partially by lower gross profit margins.
See the Non-GAAP and Additional GAAP Measures and Liquidity and
Capital Resources sections.
The $166.3 million increase in total assets between
December 31, 2016 and December 31, 2018 was mainly
attributable to higher contract assets, inventory, rental equipment
and goodwill and intangible assets offset partially by a reduction in
cash and deposits on inventory.
Non-current liabilities at December 31, 2018 of $244.1 million
increased $105.5 million from December 31, 2016 primarily
attributable to a $96.2 million increase in long-term debt. The
increase in long-term debt resulted mainly from higher working capital
at December 31, 2018 compared to December 31, 2016 and the
acquisition of Delom in 2018.
Selected Quarterly Information
The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters.
Revenue
Net earnings
Net earnings per share
– Basic
– Diluted
2018
2017
(As adjusted)(1)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$ 389.8 $ 367.1 $ 382.3 $ 342.4 $ 375.5 $ 297.9 $ 325.9 $ 319.4
$
6.1 $
9.1 $
11.4 $
9.3 $
6.1 $
8.1 $
7.5 $
5.7
$
$
0.31 $
0.30 $
0.46 $
0.45 $
0.58 $
0.56 $
0.48 $
0.46 $
0.31 $
0.30 $
0.41 $
0.40 $
0.38 $
0.37 $
0.29
0.28
(1) The Corporation has adjusted its comparative 2017 earnings and financial position as a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with Customers and its
comparative 2017 earnings and financial position as a result of the adjustments to prior period financial statements identified as part of the Finance Reorganization Plan. See the Adjustments to
Prior Period Financial Statements section.
The following table summarizes unaudited quarterly consolidated financial data for the seven most recently completed quarters as
previously reported.
2018
As previously reported
Q2
Q3
Q4
Q1
Q4
2017
As previously reported
Q2
Q3
Q1
$ 389.8 $ 367.4 $ 382.7 $ 342.7 $ 375.5 $ 297.9 $ 325.9 $ 319.4
$
6.1 $
10.3 $
12.2 $
9.9 $
7.7 $
8.7 $
7.7 $
6.3
$
$
0.31 $
0.30 $
0.52 $
0.51 $
0.62 $
0.60 $
0.51 $
0.49 $
0.39 $
0.38 $
0.45 $
0.43 $
0.40 $
0.38 $
0.32
0.31
Revenue
Net earnings
Net earnings per share
– Basic
– Diluted
24 Wajax 2018 Annual Report
Management’s Discussion and Analysis
Although quarterly fluctuations in revenue and net earnings are
difficult to predict, during times of weak energy sector activity, the
first quarter will tend to have seasonally lower results. As well,
large deliveries of mining trucks and shovels and power generation
packages can shift the revenue and net earnings throughout the year.
Fourth quarter 2017 net earnings of $6.1 million included an after-
tax gain recorded on sales of properties of $1.2 million and after-tax
senior notes redemption costs of $4.0 million. Excluding the gain
recorded on sales of properties and senior notes redemption costs,
fourth quarter 2017 adjusted net earnings were $9.1 million. The
first quarter 2018 net earnings of $9.3 million included after-tax
restructuring and other related costs of $1.4 million and after-tax
gain recorded on sales of properties of $0.9 million. Excluding
the restructuring and other related costs and gain recorded on
sales of properties, first quarter 2018 adjusted net earnings
were $9.8 million. The second quarter 2018 net earnings of
$11.4 million included after-tax restructuring and other related costs
of $0.9 million. Excluding the restructuring and other related costs,
second quarter 2018 adjusted net earnings were $12.3 million. The
third quarter 2018 net earnings of $9.1 million included after-tax
restructuring and other related costs of $0.4 million. Excluding the
restructuring and other related costs, third quarter 2018 adjusted
net earnings were $9.5 million. The fourth quarter 2018 net earnings
of $6.1 million included after-tax restructuring and other related
costs of $0.5 million, after-tax non-cash losses on mark to market of
derivative instruments of $1.5 million and after-tax Delom transaction
costs of $0.3 million. Excluding the restructuring and other related
costs, gain recorded on sales of properties, non-cash losses on mark
to market of derivative instruments and Delom transaction costs,
fourth quarter 2018 adjusted net earnings were $8.3 million. See the
Non-GAAP and Additional GAAP Measures section.
A discussion of Wajax’s previous quarterly results can be found in
Wajax’s quarterly MD&A available on SEDAR at www.sedar.com.
Consolidated Financial Condition
Capital Structure and Key Financial Condition Measures
Shareholders’ equity
Funded net debt(1)
Total capital
December 31
2018
2017
(As adjusted)(2)
$
297.0 $
235.8
274.7
154.9
$
532.8 $
429.6
Funded net debt to total capital(1)
Leverage ratio(1)
44.3%
2.48
36.1%
2.17
(1) See the Non-GAAP and Additional GAAP Measures section.
(2) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
The Corporation’s objective is to maintain a leverage ratio between
1.5 times and 2.0 times. However, there may be instances where the
Corporation is willing to maintain a leverage ratio outside this range
to either support key growth initiatives or fluctuations in working
capital levels during changes in economic cycles. The Corporation’s
current leverage ratio above target has been driven by recent
investments made in inventory to satisfy customer demands and the
acquisition of Delom. See the Funded Net Debt section below.
Shareholders’ Equity
The Corporation’s shareholders’ equity at December 31, 2018 of
$297.0 million increased $22.3 million from December 31, 2017, as
earnings of $35.9 million and the net sale of shares held in trust of
$9.1 million net of tax exceeded dividends declared of $19.7 million.
The Corporation’s share capital, included in shareholders’ equity on
the balance sheet, consists of:
Number of
Common
Shares
Amount
Issued and outstanding,
December 31, 2017
Common shares issued to settle
share-based compensation plans
20,026,819 $
180.6
105,375 $
1.4
Issued and outstanding,
December 31, 2018
Shares held in trust,
December 31, 2017
Net shares sold by trust
Shares held in trust,
December 31, 2018
Issued and outstanding,
net of shares held in trust,
December 31, 2018
20,132,194 $
182.0
(522,712) $
347,032 $
(4.7)
3.1
(175,680) $
(1.6)
19,956,514 $
180.4
At the date of this MD&A, the Corporation had 19,956,514 common
shares issued and outstanding, net of shares held in trust.
At December 31, 2018, Wajax had four share-based compensation
plans; the Wajax Share Ownership Plan (“SOP”), the Directors’
Deferred Share Unit Plan (“DDSUP”), the Mid-Term Incentive Plan
for Senior Executives (“MTIP”) (with MTIP awards being composed
of performance share units (“PSUs”) and restricted share units
(“RSUs”)) and the Deferred Share Unit Plan (“DSUP”).
As of December 31, 2018, there were 325,171 (2017 – 388,983)
SOP and DDSUP (treasury share settled) rights outstanding
and 285,595 (2017 – 203,096) MTIP PSUs and DSUP (market-
purchased share settled) rights outstanding. On August 10, 2018,
the Corporation changed the settlement terms of the MTIP RSUs
from share-settled to cash-settled, resulting in a fair value liability
of $4.6 million. At December 31, 2018 and December 31, 2017,
all SOP and DDSUP rights were vested. Depending on the actual
level of achievement of the performance targets associated with
the outstanding MTIP PSUs and the outstanding DSUP grants,
the number of market-purchased shares required to satisfy the
Corporation’s obligations could be higher or lower.
Wajax recorded compensation expense of $1.8 million for the year
(2017 – $3.8 million) in respect of these plans.
Funded Net Debt (See the Non-GAAP and
Additional GAAP Measures section)
Bank indebtedness
Obligations under finance lease
Long-term debt
December 31
2018
$
3.9 $
13.7
218.1
2017
1.7
9.5
143.7
Funded net debt(1)
$
235.8 $
154.9
(1) See the Non-GAAP and Additional GAAP Measures section.
Wajax 2018 Annual Report 25
Management’s Discussion and Analysis
Funded net debt of $235.8 million at December 31, 2018 increased
$80.9 million compared to $154.9 million at December 31, 2017.
The increase during the year was due primarily to acquisition costs
of $51.1 million relating to Delom, dividends paid of $19.6 million,
finance lease payments of $4.2 million and cash used in operating
activities of $2.9 million.
Wajax has entered into total return swap contracts to hedge the
exposure to share price market risk on a class of MTIP rights
that are cash-settled. All total return swap contracts are recorded
in the consolidated financial statements at fair value. As at
December 31, 2018, Wajax had the following total return swap
contracts outstanding:
contracts totaling 440,000 shares at an initial share value of
$11.5 million, expiring between March 2019 and March 2021.
Wajax measures derivative instruments not accounted for as hedging
items at fair value with subsequent changes in fair value being
recorded in earnings. Derivatives designated as effective hedges are
measured at fair value with subsequent changes in fair value being
recorded in other comprehensive income until the related hedged
item is recorded and affects income or inventory. 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.
A change in foreign currency, relative to the Canadian dollar, on
transactions with customers that include unhedged foreign currency
exposures is not expected to have a material impact on the
Corporation’s results of operations or financial condition over the
longer term.
Wajax will periodically institute price increases to offset the negative
impact of foreign exchange rate increases and volatility on imported
goods to ensure margins are not eroded. However, a sudden
strengthening of the U.S. dollar relative to the Canadian dollar can
have a negative impact mainly on parts margins in the short term
prior to price increases taking effect.
The impact of a change in the Corporation’s share price on cash-
settled MTIP rights is not expected to have a material impact on the
Corporation’s results of operations or financial condition over the
longer term.
Wajax is exposed to the risk of non-performance by counterparties
to foreign exchange forward contracts, long-term interest rate hedge
contracts and total return swap contracts. These counterparties are
large financial institutions that maintain high short-term and long-term
credit ratings. To date, no such counterparty has failed to meet its
financial obligations to Wajax. Management does not believe there is
a significant risk of non-performance by these counterparties and will
continue to monitor the credit risk of these counterparties.
Contractual Obligations
Contractual
Obligations
Total
< 1 year
1 – 5
years
After
5 years
$
Operating leases
Obligations under
finance leases(1) $
Bank debt
99.7 $
20.2 $
52.3 $
27.1
13.7 $
$ 220.0 $
4.6 $
9.1 $
— $ 220.0 $
—
—
Total
$ 333.4 $
24.8 $ 281.4 $
27.1
(1) Amounts exclude finance costs.
The Corporation’s ratio of funded net debt to total capital increased
to 44.3% at December 31, 2018 from 36.1% at December 31, 2017,
primarily due to the higher funded net debt level in the current period.
The Corporation’s leverage ratio of 2.48 times at December 31, 2018
increased from the December 31, 2017 ratio of 2.17 times due to
the higher debt levels offset partially by the higher trailing 12-month
pro-forma adjusted EBITDA. See the Non-GAAP and Additional GAAP
Measures section.
See the Liquidity and Capital Resources section.
Financial Instruments
Wajax uses derivative financial instruments in the management of
its foreign currency, interest rate and share-based compensation
exposures. Wajax policy restricts the use of derivative financial
instruments for trading or speculative purposes.
Wajax monitors the proportion of variable rate debt to its total debt
portfolio and may enter into interest rate hedge contracts to mitigate
a portion of the interest rate risk on its variable rate debt. A change
in interest rates, in particular related to the Corporation’s unhedged
variable rate debt, is not expected to have a material impact on the
Corporation’s results of operations or financial condition over the
longer term.
Wajax has entered into interest rate hedge contracts to minimize
exposure to interest rate fluctuations on its variable rate debt.
All interest rate hedge contracts are recorded in the consolidated
financial statements at fair value. As at December 31, 2018, Wajax
had the following interest rate hedge contracts outstanding:
$104.0 million, expiring in November 2023, with a weighted average
interest rate of 2.70% (December 31, 2017 – $40.0 million,
expiring between November 2019 and November 2022, with a
weighted average interest rate of 2.01%).
Wajax enters into foreign exchange forward contracts to hedge
the exchange risk associated with the cost of certain inbound
inventory and foreign currency-denominated sales to customers
along with the associated receivables as part of its normal course
of business. As at December 31, 2018, Wajax had the following
contracts outstanding:
to buy U.S. $34.3 million (December 31, 2017 – to buy
U.S. $48.5 million),
to sell U.S. $20.9 million (December 31, 2017 – to sell
U.S. $13.8 million),
to buy Euro €0.2 million (December 31, 2017 – nil), and
to sell Euro €2.8 million (December 31, 2017 – nil).
The U.S. dollar contracts expire between January 2019 and August
2020, with an average U.S./Canadian dollar rate of 1.3037.
The Euro contracts expire between January 2019 and November
2019, with an average Euro/Canadian dollar rate of 1.5307.
26 Wajax 2018 Annual Report
Management’s Discussion and Analysis
The operating leases relate primarily to contracts entered into
for facilities, a portion of the long-term lift truck rental fleet and
office equipment. See the Off Balance Sheet Financing section for
additional information.
The obligations under finance leases relate to certain leased vehicles
that have a minimum one year term and are extended on a monthly
basis thereafter until termination.
The bank debt obligation relates to the bank credit facility. See the
Liquidity and Capital Resources section.
The above table does not include obligations to fund pension
benefits. Wajax sponsors certain defined benefit plans that cover
executive employees, a small group of inactive employees and certain
employees on long-term disability benefits. The defined benefit plans
are subject to actuarial valuations in 2021. Management does not
expect future cash contribution requirements to change materially
from the 2018 contribution level of $0.8 million as a result of these
valuations or any declines in the fair value of the defined benefit
plans’ assets.
Related Party Transactions
The Corporation’s related party transactions, consisting of the
compensation of the Board of Directors and key management
personnel, totaled $7.9 million in 2018 (2017 – $10.6 million).
Off Balance Sheet Financing
Off balance sheet financing arrangements include operating lease
contracts for facilities with various landlords and other equipment
related mainly to office equipment. The total obligations for all
operating leases are detailed in the Contractual Obligations section
above. At December 31, 2018, the non-discounted operating lease
commitments for facilities totaled $98.7 million, for vehicles totaled
$0.5 million and for rental fleet totaled $0.4 million.
Although Wajax’s consolidated contractual annual lease commitments
decline year-by-year, it is anticipated that existing leases will either
be renewed or replaced, resulting in lease commitments being
sustained at current levels. In the alternative, Wajax may incur capital
expenditures to acquire equivalent capacity.
The Corporation had $129.0 million (2017 – $90.6 million)
of consigned inventory on hand from a major manufacturer at
December 31, 2018, net of deposits of $13.0 million (2017 –
$6.4 million). In the normal course of business, Wajax receives
inventory on consignment from this manufacturer which is generally
sold or rented to customers or purchased by Wajax. Under the terms
of the consignment program, Wajax is required to make periodic
deposits to the manufacturer on the consigned inventory that is
rented to Wajax customers or on-hand for greater than nine months.
This consigned inventory is not included in Wajax’s inventory as the
manufacturer retains title to the goods. In the event the inventory
consignment program was terminated, Wajax would utilize interest free
financing, if any, made available by the manufacturer and/or utilize
capacity under its credit facility to finance the purchase of inventory.
Although management currently believes Wajax has adequate debt
capacity, Wajax would have to access the equity or debt markets, or
reduce dividends to accommodate any shortfalls in Wajax’s credit
facility. See the Liquidity and Capital Resources section.
Liquidity and Capital Resources
The Corporation’s liquidity is maintained through various sources,
including bank and non-bank credit facilities and cash generated
from operations.
Bank and Non-bank Credit Facilities
On October 16, 2018, the Corporation amended its bank credit
facility, increasing the limit from $300 million to $400 million
and extending the maturity date from September 20, 2021 to
September 20, 2023. There were no changes to the existing
financial covenants under the credit facility restricting distributions,
acquisitions and investments. The $0.9 million cost of amending the
facility has been capitalized and will be amortized over the remaining
term of the facility.
The terms of the $400 million bank credit facility include the following:
The facility is fully secured and expires September 20, 2023.
Borrowing capacity is dependent upon the level of inventory on
hand and the outstanding trade accounts receivable.
The bank credit facility contains customary restrictive covenants,
including limitations on the payment of cash dividends and the
maintenance of certain financial ratios, all of which were met as
at December 31, 2018. In particular, the Corporation is restricted
from declaring dividends in the event the Corporation’s leverage
ratio, as defined in the bank credit facility agreement, exceeds
4.0 times.
Borrowings under the bank credit facility 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 the Corporation’s leverage ratio at the time of borrowing
and range between 1.5% and 3.0% for Canadian dollar bankers’
acceptances and U.S. dollar LIBOR borrowings, and 0.5% and 2.0%
for prime rate borrowings.
At December 31, 2018, Wajax had borrowed $220.0 million
and issued $6.1 million of letters of credit for a total utilization
of $226.1 million of its $400 million bank credit facility. At
December 31, 2018, borrowing capacity under the bank credit facility
was equal to $379 million.
Under the terms of the bank credit facility, Wajax is permitted to have
additional interest bearing debt of $25 million. As such, Wajax has
up to $25 million of demand inventory equipment financing capacity
with two non-bank lenders. At December 31, 2018, Wajax had no
utilization of the interest bearing equipment financing facilities.
As at December 31, 2018, $173.9 million was unutilized under
the bank facility and $25 million was unutilized under the non-bank
facilities. As of March 21, 2019, Wajax maintained a bank credit
facility with a limit of $400 million and an additional $25 million
in credit facilities with non-bank lenders, which is permitted under
the bank credit facility. Wajax maintains sufficient liquidity to meet
short-term normal course working capital and maintenance capital
requirements and certain strategic investments. However, Wajax
may be required to access the equity or debt markets to fund
significant acquisitions.
In addition, the Corporation’s tolerance to interest rate risk decreases/
increases as the Corporation’s leverage ratio increases/decreases.
At December 31, 2018, $104 million of the Corporation’s funded
net debt, or 44%, was at a fixed interest rate which is within the
Corporation’s interest rate risk policy.
Wajax 2018 Annual Report 27
Management’s Discussion and Analysis Cash Flow
The following table highlights the major components of cash flow as
reflected in the Consolidated Statements of Cash Flows for the years
ended December 31, 2018 and December 31, 2017:
2018
2017
(As adjusted)(1)
Change
$
Net earnings
Items not affecting
cash flow
Net change in
non-cash operating
working capital
Finance costs paid
Income taxes paid
Rental equipment additions
Other non-current liabilities
35.9 $
27.4 $
54.7
52.2
(33.5)
(8.4)
(6.5)
(43.6)
(1.4)
(30.1)
(14.8)
(7.4)
(19.3)
(1.3)
8.5
2.5
(3.4)
6.4
0.9
(24.3)
(0.1)
Cash (used in)
generated from
operating activities
Cash used in
investing activities
Cash generated
from (used in)
financing activities
$
$
(2.9) $
6.8 $
(9.7)
(58.9) $
(1.5) $
(57.4)
$
59.6 $
(11.9) $
71.5
(1) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Cash Used In Operating Activities
The $9.7 million year over year decrease in cash flows generated
from operating activities was mainly attributable to a decrease in
cash generated from changes in non-cash operating working capital
of $3.4 million and an increase in rental equipment additions
of $24.3 million, offset partially by increased net earnings of
$8.5 million and lower finance costs paid of $6.4 million.
Rental equipment additions in 2018 of $43.6 million (2017 –
$19.3 million) related primarily to lift trucks.
Significant components of non-cash operating working capital,
along with changes for the years ended December 31, 2018 and
December 31, 2017 include the following:
Changes in Non-cash
Operating Working Capital(1)
2018
2017
(As adjusted)(2)
$
Trade and other receivables
Contract assets
Inventory
Deposits on inventory
Prepaid expenses
Accounts payable and accrued liabilities
Contract liabilities
12.6 $
(3.0)
(33.2)
(6.6)
(2.0)
3.3
(4.6)
(12.5)
3.0
(35.7)
12.5
1.1
(5.1)
6.6
Total Changes in Non-cash
Operating Working Capital
(1) Increase (decrease) in cash flow
$
(33.5) $
(30.1)
(2) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Significant components of the changes in non-cash operating working
capital for the year ended December 31, 2018 compared to the year
ended December 31, 2017 are as follows:
28 Wajax 2018 Annual Report
Trade and other receivables decreased $12.6 million in 2018
compared to an increase of $12.5 million in 2017. The decrease
in 2018 resulted primarily from lower trade receivables mainly due
to the sale of selected trade accounts receivable in the current
year compared to the same period in 2017. The increase in 2017
resulted primarily from higher trade receivables from a large oil and
gas customer.
Contract assets increased $3.0 million in 2018 compared to a
decrease of $3.0 million in 2017. The increase in 2018 resulted
primarily from increased contracts in progress due mainly to the
acquisition of Delom.
Inventory increased $33.2 million in 2018 compared to an
increase of $35.7 million in 2017. The increase in 2018 was due
mainly to higher construction and forestry equipment inventory and
higher parts inventory partially offset by lower mining equipment
inventory. The increase in 2017 was due to higher construction,
mining and material handling equipment inventory.
Deposits on inventory increased $6.6 million in 2018 compared
to a decrease of $12.5 million in 2017. The increase in 2018
resulted from an increase in deposits on consignment inventory.
The decrease in 2017 resulted from a decrease in deposits on
consignment inventory. See the Off Balance Sheet Financing section.
Investing Activities
For the year ended December 31, 2018, Wajax invested $5.5 million
in property, plant and equipment additions, compared to $3.1 million
for the year ended December 31, 2017. Proceeds on disposal of
property, plant and equipment, consisting primarily of proceeds on
disposal of properties, amounted to $2.5 million for the year ended
December 31, 2018, compared to $2.8 million for the year ended
December 31, 2017. Intangible assets additions of $4.8 million
(2017 – $1.3 million) for the year ended December 31, 2018
resulted primarily from software additions relating to the new ERP
system currently being implemented.
For the year ended December 31, 2018, Wajax invested $51.1 million
(2017 – nil) on the acquisition of Delom.
Financing Activities
The Corporation generated $59.6 million of cash from financing
activities in 2018 compared to a use of cash of $11.9 million in
2017. Financing activities during the year included a net bank credit
facility borrowing of $75.0 million (2017 – $20.0 million) and the net
sale of shares held in trust of $9.5 million (2017 – net purchase of
shares held in trust of $7.5 million) offset partially by dividends paid
to shareholders of $19.6 million (2017 – $19.7 million) and finance
lease payments of $4.2 million (2017 – $4.0 million).
Dividends
Dividends to shareholders for the periods January 1, 2018 to
December 31, 2018 and January 1, 2017 to December 31, 2017
were declared and payable to shareholders of record as follows:
2018
2017
Per Share
Amount Per Share
Amount
$
$
$
$
0.25 $
0.25 $
0.25 $
0.25 $
4.9 $
4.9 $
5.0 $
5.0 $
0.25 $
0.25 $
0.25 $
0.25 $
5.0
4.9
4.9
4.9
Month
March
June
September
December
Total dividends for
the years ended
December 31
$
1.00 $
19.7 $
1.00 $
19.6
For the years ended December 31, 2018 and December 31, 2017,
Wajax declared dividends to shareholders totaling $1.00 per share in
each year. Dividends paid in 2018 were funded from cash generated
from operating activities.
Management’s Discussion and Analysis
On March 21, 2019, the Corporation declared a dividend of $0.25
per share for the first quarter of 2019 payable on April 2, 2019 to
shareholders of record on March 29, 2019.
Fourth Quarter Consolidated Results
For the three months
ended December 31
Revenue
Gross profit
Selling and
administrative
expenses
Restructuring and
other related costs
Earnings before
finance costs and
income taxes(1)
Finance costs
Earnings before
income taxes(1)
Income tax expense
Net earnings
– Basic earnings
per share(2)
– Diluted earnings
per share(2)
$
$
$
$
$
$
$
$
$
$
$
2018
2017
(As adjusted)(4)
% change
389.8 $
375.5
67.0 $
66.0
3.8%
1.6%
54.9 $
49.9
10.0%
0.7 $
0.3
—
11.5 $
2.8 $
15.7
7.4
(27.2)%
(62.7)%
8.7 $
2.6 $
6.1 $
8.3
2.2
6.1
0.31 $
0.31
0.30 $
0.30
4.5%
16.2%
0.3%
—%
—%
Adjusted net earnings(1)(3) $
8.3 $
9.1
(8.9)%
– Adjusted basic
earnings per
share(1)(2)(3)
– Adjusted diluted
earnings per
share(1)(2)(3)
Adjusted EBITDA(1)
Key ratios:
Gross profit margin
Selling and
administrative
expenses as a
percentage of
revenue
EBIT margin(1)
Adjusted EBITDA
margin(1)
Effective income
tax rate
$
0.42 $
0.47
(9.7)%
$
$
0.41 $
23.2 $
0.45
20.8
(9.5)%
11.8%
17.2%
17.6%
14.1%
2.9%
13.3%
4.2%
6.0%
5.5%
29.8%
26.8%
(1) These measures do not have a standardized meaning prescribed by GAAP. See the Non-
GAAP and Additional GAAP Measures section.
(2) Weighted average shares outstanding for calculation of basic and diluted earnings
per share for the three months ended December 31, 2018 was 19,947,235 (2017 –
19,504,107) and 20,393,145 (2017 – 20,132,863), respectively.
(3) Net earnings excluding the following:
a. after-tax restructuring and other related costs of $0.5 million (2017 – $0.2 million), or
basic and diluted earnings per share of $0.02 (2017 – $0.01 per share), for the three
months ended December 31, 2018.
b. after-tax non-cash losses on mark to market of derivative instruments of $1.5 million
(2017 – nil), or basic and diluted earnings per share of $0.07 (2017 – nil) for the three
months ended December 31, 2018.
c. after-tax Delom transaction costs of $0.3 million (2017 – nil), or basic and diluted earnings
per share of $0.02 (2017 – nil) for the three months ended December 31, 2018.
d. after-tax gain recorded on sales of properties of $1.2 million, or basic and diluted
earnings per share of ($0.06) for the three months ended December 31, 2017.
e. after-tax senior notes redemption costs of $4.0 million, or basic and diluted earnings per
share of $0.20, for the three months ended December 31, 2017.
(4) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Revenue
For the three months
ended December 31
Equipment sales
Equipment rental
Industrial parts
Product support
ERS/Other
Total revenue
2018
2017
(As adjusted)(1)
139.1 $
9.2 $
90.5 $
114.2 $
36.8 $
157.0
8.9
82.9
108.6
18.1
389.8 $
375.5
$
$
$
$
$
$
(1) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Revenue in the fourth quarter of 2018 increased 3.8%, or
$14.3 million, to $389.8 million from $375.5 million in the fourth
quarter of 2017. The following factors contributed to the increase
in revenue:
Regionally, revenue increased 9% and 7% in central and eastern
Canada respectively and decreased 1% in western Canada.
Equipment sales have decreased due primarily to lower crane
and utility sales in all regions and lower forestry and engines
and transmissions sales in western Canada. These decreases
were partially offset by higher construction sales in western and
central Canada.
Revenue from industrial parts has increased due primarily to higher
bearings and hydraulics sales in central and eastern Canada.
Product support sales have increased due primarily to higher
mining sales in all regions offset partially by lower on-highway and
engines and transmissions sales in all regions.
ERS/Other sales have increased due to higher ERS revenues in
all regions. The increases in central and eastern Canada were due
primarily to the acquisition of Delom on October 16, 2018.
Backlog
Backlog of $206.9 million at December 31, 2018 decreased
$33.3 million compared to September 30, 2018 due primarily to
decreases in forestry, material handling and mining orders.
Gross profit
Gross profit increased $1.1 million, or 1.6%, in the fourth quarter of
2018 compared to the same quarter last year. Gross profit margin
percentage of 17.2% in the fourth quarter of 2018 decreased from
17.6% in the same quarter last year due mainly to lower product
support margin rates offset partially by a higher proportion of product
support volumes.
Selling and administrative expenses
Selling and administrative expenses as a percentage of revenue
increased to 14.1% in the fourth quarter of 2018 from 13.3% in
the fourth quarter of 2017. Selling and administrative expenses
increased $5.0 million in the fourth quarter of 2018 compared to
the same quarter last year due mainly to higher personnel costs
and occupancy expenses resulting from the acquisition of Delom,
non-cash losses on mark to market of derivative instruments and
a $1.4 million gain recorded on sales of properties in the fourth
quarter of 2017.
Wajax 2018 Annual Report 29
Management’s Discussion and Analysis
Restructuring and other related costs
In the first quarter of 2018, the Corporation commenced the Finance
Reorganization Plan and a leadership re-alignment within its ERS
function. The cost of the Finance Reorganization Plan is expected
to be approximately $5.6 million in severance, project management
and interim duplicate labour costs, of which $0.7 million has been
recognized in the three months ended December 31, 2018.
Finance costs
Finance costs of $2.8 million in the fourth quarter of 2018
decreased $4.7 million compared to the same quarter last year due
primarily to lower average interest rates relating to the senior notes
redemption in the fourth quarter of 2017 offset partially by higher
average debt levels. See the Liquidity and Capital Resources section.
Income tax expense
The Corporation’s effective income tax rate of 29.8% for the fourth
quarter of 2018 (2017 – 26.8%) was higher compared to the
statutory rate of 26.9% (2017 – 26.9%) due mainly to the impact of
expenses not deductible for tax purposes. The Corporation’s effective
income tax rate of 26.8% for the fourth quarter of 2017 was slightly
lower compared to the statutory rate of 26.9% due to the impact of
the non-taxable portion of the sale of properties offset by expenses
not deductible for tax purposes.
Net earnings
In the fourth quarter of 2018, the Corporation had net earnings of
$6.1 million, or $0.31 per share, compared to $6.1 million, or $0.31
per share, in the fourth quarter of 2017.
Adjusted net earnings (See the Non-GAAP
and Additional GAAP Measures section)
Adjusted net earnings for the three months ended
December 31, 2018 excludes restructuring and other related costs
of $0.5 million after-tax (2017 – $0.2 million), or $0.02 per share
(2017 – $0.01 per share), non-cash losses on mark to market of
derivative instruments of $1.5 million after-tax (2017 – nil), or $0.07
per share (2017 – nil) and Delom transaction costs of $0.3 million
after-tax (2017 – nil) or $0.02 per share (2017 – nil).
As such, adjusted net earnings decreased $0.8 million to $8.3 million,
or $0.42 per share, in the fourth quarter of 2018 from $9.1 million,
or $0.47 per share, in the same period of 2017. The $0.8 million
decrease in adjusted net earnings resulted primarily from lower gross
profit margins and higher selling and administrative expenses offset
partially by lower finance costs compared to the prior year.
Comprehensive income
Total comprehensive income of $4.3 million in the fourth quarter
of 2018 included net earnings of $6.1 million and an other
comprehensive loss of $1.8 million. In the fourth quarter of 2017,
total comprehensive income of $6.2 million consisted of net earnings
of $6.1 million and other comprehensive income of $0.2 million.
Fourth Quarter Cash Flows
Cash Flow
The following table highlights the major components of cash flow
as reflected in the Consolidated Statements of Cash Flows for the
quarters ended December 31, 2018 and December 31, 2017:
For the quarter
ended December 31
2018
2017
(As adjusted)(1)
Change
$
Net earnings
Items not affecting
cash flow
Net change in
non-cash operating
working capital
Finance costs paid
Income taxes paid
Rental equipment additions
Other non-current liabilities
6.1 $
6.1 $
17.4
15.8
24.2
(2.6)
(1.7)
(16.3)
(0.4)
4.3
(9.4)
(1.4)
(7.0)
(0.7)
0.0
1.6
19.9
6.8
(0.3)
(9.3)
0.3
Cash generated from
operating activities
Cash used in
investing activities
Cash generated
from (used in)
financing activities
$
$
26.6 $
7.8 $
18.8
(54.1) $
(0.3) $
(53.8)
$
34.8 $
(3.9) $
38.7
(1) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Cash Generated From Operating Activities
Cash flows generated from operating activities amounted to
$26.6 million in the fourth quarter of 2018, compared to $7.8
million in the same quarter of the previous year. The increase
of $18.8 million was mainly attributable to an increase in cash
generated from changes in non-cash operating working capital of
$19.9 million and a decrease in finance costs paid of $6.8 million,
offset partially by an increase in rental equipment additions of
$9.3 million resulting from the Corporation’s strategy to increase its
rental fleet.
Rental equipment additions in the fourth quarter of 2018 of
$16.3 million (2017 – $7.0 million) related primarily to lift trucks.
Significant components of non-cash operating working capital, along
with changes for the quarters ended December 31, 2018 and
December 31, 2017 include the following:
Changes in Non-cash
Operating Working Capital(1)
2018
2017
(As adjusted)(2)
$
Trade and other receivables
$
Contract assets
$
Inventory
$
Deposits on inventory
Prepaid expenses
$
Accounts payable and accrued liabilities $
$
Contract liabilities
29.5 $
(0.4) $
13.9 $
0.2 $
1.3 $
(17.0) $
(3.2) $
(32.9)
(1.5)
10.6
0.9
0.9
21.4
5.0
Total Changes in Non-cash
Operating Working Capital
(1) Increase (decrease) in cash flow.
$
24.2 $
4.3
(2) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
30 Wajax 2018 Annual Report
Management’s Discussion and Analysis
Significant components of the changes in non-cash operating working
capital for the quarter ended December 31, 2018 compared to the
quarter ended December 31, 2017 are as follows:
Trade and other receivables decreased $29.5 million in 2018
compared to an increase of $32.9 million in 2017. The decrease
in 2018 resulted primarily from improved collections and the
sale of selected trade accounts receivable in the fourth quarter
compared to the previous quarter. The increase in 2017 resulted
primarily from higher sales activity in the fourth quarter compared
to the previous quarter.
Inventory decreased $13.9 million in 2018 compared to a
decrease of $10.6 million in 2017. The decrease in 2018 was
due mainly to lower construction and mining equipment inventory
offset partially by higher forestry equipment inventory. The
decrease in 2017 was due to lower forestry, crane and utility and
engines and transmissions inventory offset partially by higher
construction inventory.
Accounts payable and accrued liabilities decreased $17.0 million
in 2018 compared to an increase of $21.4 million in 2017. The
decrease in 2018 resulted primarily from lower trade payables,
including lower trade payables related to mining equipment
inventory. The increase in 2017 resulted primarily from higher
trade payables, including higher trade payables related to mining
equipment inventory.
Investing Activities
During the fourth quarter of 2018, Wajax invested $2.5 million in
property, plant and equipment additions, compared to $0.9 million in
the fourth quarter of 2017. Proceeds on disposal of property, plant
and equipment amounted to $0.5 million in the fourth quarter of
2018, compared to $1.9 million in the same quarter of the previous
year. Intangible assets additions of $1.0 million (2017 – nil) in the
fourth quarter of 2018 resulted primarily from software additions
relating to the new ERP system currently being implemented.
During the fourth quarter of 2018, Wajax invested $51.1 million
(2017 – nil) on the acquisition of Delom.
Financing Activities
The Corporation generated $34.8 million of cash from financing
activities in the fourth quarter of 2018 compared to cash used in
financing activities of $3.9 million in the same quarter of 2017.
Financing activities in the quarter included a net bank credit facility
borrowing of $44.0 million (2017 – $2.0 million) offset partially
by the net sale of shares held in trust of $2.0 million (2017 – nil),
dividends paid to shareholders of $5.0 million (2017 – $4.9 million)
and finance lease payments of $1.1 million (2017 – $0.9 million).
The key assumptions concerning the future and other key sources
of estimation uncertainty that have a significant risk of resulting in a
material adjustment to the carrying amount of assets and liabilities
within the next fiscal year are as follows:
Allowance for doubtful accounts
The Corporation is exposed to credit risk with respect to its trade
and other receivables. However, this is partially mitigated by the
Corporation’s diversified customer base of over 32,000 customers,
with no one customer accounting for more than 10% of the
Corporation’s annual consolidated sales, which covers many business
sectors across Canada. In addition, the Corporation’s customer base
spans large public companies, small independent contractors, OEMs
and various levels of government. The Corporation follows a program
of credit evaluations of customers and limits the amount of credit
extended when deemed necessary. The Corporation maintains an
allowance for possible credit losses, and any such losses to date
have been within management’s expectations. The allowance for
doubtful accounts is determined by estimating the lifetime expected
credit losses, taking into account the Corporation’s past experience
of collecting payments as well as observable changes in and
forecasts of future economic conditions that correlate with default
on receivables. At the point when the Corporation is satisfied that no
recovery of the amount owing is possible, the amount is considered
not recoverable and the financial asset is written off. The $1.0 million
provision for doubtful accounts at December 31, 2018 increased
$0.1 million from $0.8 million at December 31, 2017. As economic
conditions change, there is risk that the Corporation could experience
a greater number of defaults compared to 2018 which would result in
an increased charge to earnings.
Inventory obsolescence
The value of the Corporation’s new and used equipment and high
value parts are evaluated by management throughout the year, on a
unit-by-unit basis. When required, provisions are recorded to ensure
that the book value of equipment and parts are valued at the lower of
cost or estimated net realizable value. The Corporation performs an
aging analysis to identify slow moving or obsolete lower value parts
inventory 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 inventory obsolescence charged to earnings for
the three months ended December 31, 2018 was $1.7 million
(2017 – recovery of $1.4 million) and for the twelve months ended
December 31, 2018 was $5.5 million (2017 – $3.5 million). As
economic conditions change, there is risk that the Corporation
could have an increase in inventory obsolescence compared to prior
periods which would result in an increased charge to earnings.
Critical Accounting Estimates
Goodwill and intangible assets
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, revenue
and expenses. Actual results could differ from those judgements,
estimates and assumptions. Note 3 of the annual consolidated
financial statements describes the significant accounting policies
and methods used in preparation of the annual consolidated financial
statements. The Corporation bases its estimates on historical
experience and various other assumptions that are believed to be
reasonable in the circumstances.
The areas where significant judgements and assumptions are used
to determine the amounts recognized in the financial statements
include the allowance for doubtful accounts, inventory obsolescence
and goodwill and intangible assets.
The value in use of goodwill and intangible assets has been
estimated using the forecasts prepared by management for the next
five years. The key assumptions for the estimate are those regarding
revenue growth, gross margin, discount rate 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 and forecasted growth initiatives.
During the year, the Corporation performed an annual impairment
test, based on value in use, of its goodwill and intangible assets with
an indefinite life based on its single cash generating unit group and
concluded that no impairment existed.
Wajax 2018 Annual Report 31
Management’s Discussion and Analysis Changes in Accounting Policies
Accounting standards adopted during the year
IFRS 15 Revenue from Contracts with Customers – On January 1,
2018, the Corporation adopted IFRS 15 Revenue from Contracts
with Customers (“IFRS 15”). The standard contains a single model
that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to
determine whether, how much and when revenue is recognized. New
estimates and judgement thresholds have been introduced which
may affect the timing of revenue recognized.
The Corporation records revenue from contracts with customers in
accordance with the five steps in IFRS 15 as follows:
1.
Identify the contract with a customer;
2.
Identify the performance obligations in the contract;
3.
4.
5.
Determine the transaction price, which is the total consideration
provided by the customer;
Allocate the transaction price among the performance obligations
in the contract based on their relative fair values; and
Recognize revenue when the relevant criteria are met for each
unit (at a point in time or over time).
financial asset in the scope of the standard are not separated, but the
hybrid financial instrument as a whole is assessed for classification.
The adoption of the new classification requirements under IFRS 9
did not result in significant changes to measurement or the carrying
amounts of financial assets and liabilities. The following table
summarizes the classification impacts upon the adoption of IFRS 9:
Asset/Liability
Classification
under IAS 39
Classification
under IFRS 9
Cash
Loans and receivables Amortized cost
Trade and
other receivables
Loans and receivables Amortized cost
Derivative instruments FV if hedging
instrument, or
Held-for-trading
FV if hedging
instrument, or
mandatorily at
FVTPL
Bank indebtedness
Other liabilities
Amortized cost
Accounts payable and Other liabilities
accrued liabilities
Amortized cost
Dividends payable
Other liabilities
Amortized cost
Other liabilities
Other liabilities
Amortized cost
Long-term debt
Other liabilities
Amortized cost
The following change has resulted in an adjustment from the
adoption of IFRS 15:
Impairment
The revenue recognition pattern for Product support service
and Other (ERS) has changed to an over-time pattern to depict
performance in transferring control of the repair service, rather
than the point in time recognition that was previously used. The
key judgement for recognizing revenue on incomplete service
orders is estimating the transaction price and the margin that will
eventually be realized.
The Corporation has elected to use the retrospective application
method and has recorded the cumulative adjustment of the
accounting change to retained earnings as at January 1, 2017 and
has restated its comparative 2017 financial position and earnings.
The effect of adopting IFRS 15 on the consolidated statements
of financial position and consolidated statement of earnings can
be found in Note 5 of the consolidated financial statements and
accompanying notes for the year ended December 31, 2018.
IFRS 9 Financial Instruments – On January 1, 2018, the Corporation
adopted IFRS 9 Financial Instruments (“IFRS 9”) retrospectively
with no restatement of comparative periods. The standard includes
revised guidance on the classification and measurement of financial
assets, including impairment and a new general hedge accounting
model. IFRS 9 largely retains the existing accounting requirements for
financial liabilities with the exception of accounting for certain non-
substantial modifications of financial liabilities and the accounting
treatment of fair value changes attributable to changes in its own
credit risk of financial liabilities that are designated as fair value
through profit or loss.
Classification and measurement
IFRS 9 contains a new classification and measurement approach for
financial assets that reflects the business model in which assets are
managed and their cash flow characteristics. Financial assets are
classified and measured based on the three categories: amortized
cost, fair value through other comprehensive income (“FVOCI”) and
fair value through profit and loss (“FVTPL”). Financial liabilities are
classified and measured in two categories: amortized cost or FVTPL.
Under IFRS 9, derivatives embedded in contracts where the host is a
IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-
looking “expected credit loss” (“ECL”) model. The ECL model requires
judgement, including consideration of how changes in economic
factors affect ECLs, which are determined on a probability-weighted
basis. The new impairment model is applied, at each reporting date,
to the Corporation’s financial assets measured at amortized cost and
contract assets.
The Corporation adopted the simplified approach to determine ECL
on trade and other receivables using a provision matrix based on
historical credit loss experiences adjusted to reflect information
about current economic conditions and forecasts of future economic
conditions to estimate lifetime ECL. The ECL models applied to
other financial assets and contract assets also required judgement,
assumptions and estimations on changes in credit risks, forecasts
of future economic conditions and historical information on the credit
quality of the financial asset. The provision matrix and other ECL
models applied on adoption of IFRS 9 did not have a material impact
on the financial assets of the Corporation.
Impairment losses are recorded in selling and administrative
expenses with the carrying amount of the financial asset or contract
asset reduced through the use of impairment allowance accounts.
General hedging
The Corporation has elected to adopt the new general hedge
accounting model in IFRS 9. IFRS 9 requires the Corporation to
ensure that hedge accounting relationships are aligned with the
Corporation’s risk management objectives and strategy and to apply
a more qualitative and forward-looking approach to assessing hedge
effectiveness. All hedging relationships designated under IAS 39
at December 31, 2017 met the criteria for hedge accounting under
IFRS 9 at January 1, 2018 and are therefore treated as continuing
hedging relationships. Under IFRS 9, for cash flow hedges of foreign
currency risk associated with forecast inventory purchases, the
amounts accumulated in the cash flow hedges reserve are included
directly in the initial cost of the inventory item when it is recognized.
Otherwise the adoption of the standard did not have an impact on the
Corporation’s hedging arrangements.
32 Wajax 2018 Annual Report
Management’s Discussion and Analysis
New standards and interpretations not yet adopted
On January 1, 2019, the Corporation will be required to adopt
IFRS 16 Leases. The new standard contains a single lease
accounting model for lessees, whereby all leases with a term longer
than 12 months are recognized on-balance sheet through a right-of-
use asset and lease liability. The model features a front-loaded total
lease expense recognized through a combination of depreciation and
interest. Lessor accounting remains similar to current requirements.
The Corporation has elected to apply the modified retrospective
approach of accounting on transition resulting in no restatement
of prior period comparatives. The Corporation’s long term leases
primarily relate to rental of real estate. The new standard will result in
a material increase in right-of-use assets and lease obligations which
will differ to the operating lease commitments disclosed in Note 25
of the consolidated financial statements and accompanying notes
for the year ended December 31, 2018, primarily as a result of the
discount rates applied and lease term determination.
IFRIC 23 Uncertainty over Income Tax Treatments (effective
January 1, 2019) provides guidance when there is uncertainty over
income tax treatments including, but not limited to, whether uncertain
tax treatments should be considered separately; assumptions made
about the examination of tax treatments by tax authorities; the
determination of taxable profit, tax bases, unused tax losses, unused
tax credits, and tax rates; and, the impact of changes in facts and
circumstances. Management has assessed the interpretation and
expects there to be no impact.
Adjustments to Prior Period Financial Statements
The Corporation has adjusted the prior period financial statements
for the following:
a) Adoption of IFRS 15
As discussed in Note 4 of the consolidated financial statements
and accompanying notes for the year ended December 31, 2018,
the Corporation adopted IFRS 15 effective January 1, 2018 with
retrospective application.
b) Correction of non-material errors in prior periods
(“Other adjustments”)
The Corporation’s prior year consolidated statements of financial
position have been impacted as follows by the adoption of IFRS 15
as discussed in Note 4 of the consolidated financial statements and
accompanying notes for the year ended December 31, 2018, and by
the Other adjustments as discussed in Note 5 of the consolidated
financial statements and accompanying notes for the year ended
December 31, 2018:
As
originally
reported
December 31
2016
IFRS 15
adjustment
Other
adjustments
As
adjusted
January 1
2017
Trade and
other receivables $ 194.6
7.1
Contract assets
283.4
Inventory
58.1
Rental equipment
4.6
Deferred tax assets
Accounts payable
and accrued
liabilities
Income taxes payable
Retained earnings
234.1
2.3
90.8
(2.9)
15.2
(9.5)
—
(0.8)
—
—
2.1
— $ 191.7
22.3
—
274.6
0.6
57.9
(0.2)
4.0
0.1
9.3
(1.2)
(7.6)
243.4
1.1
85.3
As originally
reported
December 31
2017
IFRS 15
adjustment
Other
adjustments
As
adjusted
December 31
2017
Trade and
other receivables $ 207.4
4.1
Contract assets
Inventory
322.8
Income taxes
receivable
Rental equipment
Property, plant
and equipment
Goodwill and
intangible assets
Accounts payable and
accrued liabilities
Income taxes payable
Deferred tax liabilities
Other liabilities
Retained earnings
—
61.3
43.9
41.9
224.4
0.7
1.4
2.6
97.7
(3.4)
15.2
(9.5)
—
—
—
—
—
—
0.6
—
1.7
— $ 203.9
19.3
—
313.0
(0.3)
0.5
(0.8)
0.5
60.4
(0.3)
43.6
(0.2)
41.7
11.8
(0.7)
(1.3)
(0.4)
(10.7)
236.2
—
0.7
2.2
88.6
The Corporation’s consolidated statement of earnings for the year
ended December 31, 2017 has been impacted as follows by the
adoption of IFRS 15 as discussed in Note 4 of the consolidated
financial statements and accompanying notes for the year ended
December 31, 2018, and by the Other adjustments as discussed in
Note 5 of the consolidated financial statements and accompanying
notes for the year ended December 31, 2018:
As originally
reported
IFRS 15
adjustment
Other
adjustments
As
adjusted
$ 1,319.3
1,064.5
(0.6)
—
— $ 1,318.7
1,068.7
4.2
Revenue
Cost of sales
Selling and
administrative
expenses
Restructuring and
other related
costs (recoveries)
Income tax expense
Net earnings
Basic earnings
per share
Diluted earnings
per share
197.1
—
(0.3)
196.8
(0.3)
11.8
30.9
—
(0.2)
(0.4)
0.3
(1.1)
(3.1)
—
10.6
27.4
1.58
(0.02)
(0.16)
1.40
1.53
(0.02)
(0.15)
1.36
The Corporation’s consolidated statement of cash flows for the year
ended December 31, 2017 has been impacted as follows by the
adoption of IFRS 15 as discussed in Note 4 of the consolidated
financial statements and accompanying notes for the year ended
December 31, 2018, and by the Other adjustments as discussed in
Note 5 of the consolidated financial statements and accompanying
notes for the year ended December 31, 2018:
As previously
reported
IFRS 15
adjustment
Other
adjustments
As
adjusted
$
Operating activities:
Net earnings
Rental equipment
depreciation
Intangible assets
amortization
Income tax expense
Changes in non-cash
operating working
capital
Other non-current
liabilities
Cash generated from
operating activities
Investing activities:
Property, plant and
equipment additions
30.9 $
(0.4) $
(3.1) $
27.4
13.4
0.6
11.8
—
0.6
14.0
—
(0.2)
0.2
(1.1)
0.8
10.6
(34.1)
0.6
3.4
(30.1)
(0.9)
7.1
—
—
(0.4)
(1.3)
(0.3)
6.8
(3.4)
—
0.3
(3.1)
Wajax 2018 Annual Report 33
Management’s Discussion and Analysis
Risk Management and Uncertainties
As with most businesses, Wajax is subject to a number of
marketplace and industry related risks and uncertainties which could
have a material impact on operating results and Wajax’s ability to pay
cash dividends to shareholders. Wajax attempts to minimize many
of these risks through diversification of core businesses and through
the geographic diversity of its operations. In addition, Wajax has
adopted an annual enterprise risk management assessment which is
prepared by the Corporation’s senior management and overseen by
the Board of Directors and committees of the Board of Directors. The
enterprise risk management framework sets out principles and tools
for identifying, evaluating, prioritizing and managing risk effectively
and consistently across Wajax.
The following are a number of risks that deserve particular comment:
Manufacturer relationships and product access
Wajax seeks to distribute leading product lines in each of its regional
markets and its success is dependent upon continuing relations with
the manufacturers it represents. Wajax endeavours to align itself in
long-term relationships with manufacturers that are committed to
achieving a competitive advantage and long-term market leadership
in their targeted market segments. In the equipment, engines,
transmissions and power generation categories, and in certain cases
in the hydraulics and process pumps portion of the industrial parts
category, manufacturer relationships are governed through effectively
exclusive distribution agreements. Distribution agreements are for the
most part open-ended, but are cancellable within a relatively short
notification period specified in each agreement. Although Wajax enjoys
good relationships with its major manufacturers and seeks to develop
additional strong long-term partnerships, a loss of a major product
line without a comparable replacement would have a significantly
adverse effect on Wajax’s results of operations or cash flow.
There is a continuing consolidation trend among industrial equipment
and component manufacturers. Consolidation may impact the
products distributed by Wajax, in either a favourable or unfavourable
manner. Consolidation of manufacturers may have a negative impact
on the results of operations or cash flow if product lines Wajax
distributes become unavailable as a result of the consolidation.
Suppliers generally have the ability to unilaterally change distribution
terms and conditions, product lines or limit supply of product in times
of intense market demand. Supplier changes in the area of product
pricing and availability can have a negative or positive effect on Wajax’s
revenue and margins. A change in one of a supplier’s product lines can
result in conflicts with another supplier’s product lines that may have
a negative impact on the results of operations or cash flow if one of
the suppliers cancels its distribution with Wajax due to the conflict. As
well, from time to time suppliers make changes to payment terms for
distributors. This may affect Wajax’s interest-free payment period or
consignment terms, which may have a materially negative or positive
impact on working capital balances such as cash, inventory, deposits
on inventory, trade and other payables and bank debt.
Economic conditions/Business cyclicality
Wajax’s customer base consists of businesses operating in the
natural resources, construction, transportation, manufacturing,
industrial processing and utilities industries. These industries can
be capital intensive and cyclical in nature, and as a result, customer
demand for Wajax’s products and services may be affected by
economic conditions at both a global or local level. Changes in
interest rates, consumer and business confidence, corporate profits,
credit conditions, foreign exchange, commodity prices and the level of
government infrastructure spending may influence Wajax’s customers’
operating, maintenance and capital spending, and therefore Wajax’s
sales and results of operations. Although Wajax has attempted
to address its exposure to business and industry cyclicality by
diversifying its operations by geography, product offerings and
34 Wajax 2018 Annual Report
customer base, there can be no assurance that Wajax’s results of
operations or cash flows will not be adversely affected by changes in
economic conditions.
Commodity prices
Many of Wajax’s customers are directly and indirectly affected by
fluctuations in commodity prices in the forestry, metals and minerals
and petroleum and natural gas industries, and as a result Wajax is also
indirectly affected by fluctuations in these prices. In particular, each of
Wajax’s products and services categories are exposed to fluctuations
in the price of oil and natural gas. A downward change in commodity
prices, and particularly in the price of oil and natural gas, could
therefore adversely affect Wajax’s results of operations or cash flows.
Growth initiatives, integration of acquisitions and project execution
The Corporation’s updated Strategic Plan establishes priorities for
organic growth, acquisitions and operating infrastructure, including
maintaining a target leverage ratio range of 1.5 - 2.0 times unless
a leverage ratio outside this range is either to support key growth
initiatives or fluctuations in working capital levels during changes in
economic cycles. See the Strategic Direction and Outlook section
and the Non-GAAP and Additional GAAP Measures sections. While
end market conditions remain challenging, the Corporation believes
it has a robust strategy and is confident in its growth prospects. The
Corporation’s confidence is strengthened by the enhanced earnings
potential of a reorganized Corporation and by relationships with its
customers and vendors. Wajax’s ability to develop its core capabilities
and successfully grow its business through organic growth will be
dependent on achieving the individual growth initiatives. Wajax’s
ability to successfully grow its business through acquisitions will
be dependent on a number of factors including: identification of
accretive new business or acquisition opportunities; negotiation of
purchase agreements on satisfactory terms and prices; prior approval
of acquisitions by third parties, including any necessary regulatory
approvals; securing attractive financing arrangements; and integration
of newly acquired operations into the existing business. All of these
activities associated with growing the business, realizing enhanced
earnings potential from the new structure and investments made
in systems may be more difficult to implement or may take longer
to execute than management anticipates. Further, any significant
expansion of the business may increase the operating complexity of
Wajax, and divert management away from regular business activities.
Any failure of Wajax to successfully manage its growth strategy,
including acquisitions, 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. There can be no assurance, however, 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 $400 million bank credit facility which expires
September 20, 2023. The bank credit facility contains restrictive
covenants which place restrictions on, among other things, the ability
of Wajax to encumber or dispose of its assets, the amount of finance
costs incurred and dividends declared relative to earnings and
certain reporting obligations. A failure to comply with the obligations
of the facility could result in an event of default which, if not cured or
Management’s Discussion and Analysis waived, could require an accelerated repayment of the facility. There
can be no assurance that Wajax’s assets would be sufficient to repay
the facility in full.
Wajax’s short-term normal course working capital requirements
can swing widely quarter-to-quarter due to timing of large inventory
purchases and/or sales and changes in market activity. In general,
as Wajax experiences growth, there is a need for additional working
capital. Conversely, as Wajax experiences economic slowdowns,
working capital reduces reflecting the lower activity levels. While
management believes the bank credit facility will be adequate to
meet the Corporation’s normal course working capital requirements,
maintenance capital requirements and certain strategic investments,
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 bank
credit facility matures.
Wajax may be required to access the equity or debt markets or
reduce dividends in order to fund significant acquisitions and growth
related working capital and capital expenditures. The amount of debt
service obligations under the bank credit facility will be dependent 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. 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 sustain or improve 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.
Inventory obsolescence
Wajax maintains substantial amounts of inventory in its business
operations. While Wajax believes it has appropriate inventory
management systems in place, variations in market demand for the
products it sells can result in certain items of inventory becoming
obsolete. This could result in a requirement for Wajax to take a
material write down of its inventory balance resulting in Wajax not
being able to realize expected revenue and cash flows from its
inventory, which would negatively affect results from operations or
cash flow.
Government regulation
Wajax’s business is subject to evolving laws and government
regulations, particularly in the areas of taxation, the environment,
and health and safety. Changes to such laws and regulations may
impose additional costs on Wajax and may adversely affect its
business in other ways, including requiring additional compliance
measures by Wajax.
Insurance
Wajax maintains a program of insurance coverage that is comparable
to those maintained by similar businesses, including property
insurance and general liability insurance. Although the limits and self-
insured retentions of such insurance policies have been established
through risk analysis and the recommendations of professional
advisors, there can be no assurance that such insurance will
remain available to Wajax at commercially reasonable rates or that
the amount of such coverage will be adequate to cover all liability
incurred by Wajax. If Wajax is held liable for amounts exceeding
the limits of its insurance coverage or for claims outside the scope
of that coverage, its business, results of operations or financial
condition could be adversely affected.
Information systems and technology
Information systems are an integral part of Wajax’s business
processes, including marketing of equipment and support services,
inventory and logistics, and finance. Some of these systems are
integrated with certain suppliers’ core processes and systems. Any
disruptions to these systems or new systems due, for example, to the
upgrade or conversion thereof, or the failure of these systems or new
systems to operate as expected could, depending on the magnitude of
the problem, adversely affect Wajax’s operating results by limiting the
ability to effectively monitor and control Wajax’s operations.
Credit risk
Wajax extends credit to its customers, generally on an unsecured
basis. Although Wajax is not substantially dependent on any one
customer and it has a system of credit management in place,
the loss of a large receivable would have an adverse effect on
Wajax’s profitability.
Labour relations
Wajax has approximately 2,800 employees. At the outset of 2018,
Wajax was party to twelve collective agreements covering a total of
325 employees. During 2018, eight collective agreements covering
204 employees were ratified. One agreement covering 55 employees
expired at the end of 2018 and negotiations are in progress. The
remaining three agreements covering 66 employees expire in 2019
and 2020. Wajax believes its labour relations to be satisfactory
and does not anticipate it will be unable to renew the collective
agreements. If Wajax is unable to renew or negotiate collective
agreements from time to time, it could result in work stoppages and
other labour disturbances. The failure to renew collective agreements
upon satisfactory terms could have a material adverse impact on
Wajax’s business, results of operations or financial condition.
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 foreign exchange forward
contracts to fix the cost of certain inbound inventory and to hedge
certain foreign-currency denominated sales to customers. In addition,
Wajax will periodically institute price increases to offset the negative
impact of foreign exchange rate increases on imported goods. The
inability of Wajax to mitigate exchange rate risks or increase prices to
offset foreign exchange rate increases, including sudden and volatile
changes in the U.S. dollar exchange rate, may have a material adverse
effect on the results of operations or financial condition of Wajax.
A declining U.S. dollar relative to the Canadian dollar can have a
negative effect on Wajax’s revenue and cash flows as a result of
certain products being imported from the U.S. In some cases market
conditions require Wajax to lower its selling prices as the U.S. dollar
declines. As well, many of Wajax’s customers export products to the
U.S., and a strengthening Canadian dollar can negatively impact their
overall competitiveness and demand for their products, which in turn
may reduce product purchases from Wajax.
A strengthening U.S. dollar relative to the Canadian dollar can have a
positive effect on Wajax’s revenue, as Wajax will periodically institute
price increases on inventory imported from the U.S. to offset the
negative impact of foreign exchange rate increases to ensure margins
are not eroded. However, a sudden strengthening U.S. dollar relative
Wajax 2018 Annual Report 35
Management’s Discussion and Analysis to the Canadian dollar can have a negative impact mainly on parts
margins in the short-term prior to price increases taking effect.
Wajax maintains a hedging policy whereby significant transactional
currency risks are identified and hedged.
Interest rate risk
Wajax has exposure to interest rate fluctuations on its interest-
bearing financial liabilities, in particular from its long-term debt.
Changes in interest rates can have a negative or positive impact on
Wajax’s finance costs and cash flows. Wajax monitors the proportion
of variable rate debt to its total debt portfolio and may enter into
interest rate hedge contracts to mitigate a portion of the interest
rate risk on its variable rate debt. The inability of Wajax to mitigate
interest rate risks to offset interest rate increases may have a
material adverse effect on the results of operations or financial
condition of Wajax.
Equity price risk
The Corporation’s total return swaps are exposed to fluctuations in
its share price. Changes in the Corporation’s share price can have a
positive or negative impact on Wajax’s net earnings and cash flows.
Wajax monitors the proportion of MTIP rights that are cash-settled
and may enter into total return swap contracts to mitigate a portion
of the equity price risk on these MTIP rights. The inability of Wajax
to mitigate equity price risks to offset fluctuations in its share price
may have a material adverse effect on the results of operations or
financial condition of Wajax.
Competition
The categories in which Wajax participates are highly competitive and
include competitors who are national, regional and local. Competitors
can be grouped into three classifications:
Capital Equipment Dealers and Distributors – these competitors
typically represent a major alternative manufacturer and provide
sales, product support, rental, financing and other services in
categories such as construction, forestry, mining and power
generation. Examples include the regional dealer and distributor
networks of Caterpillar, Komatsu, John Deere and Cummins.
Competition is based on product range and quality, aftermarket
support and price.
Industrial Parts Distributors – these competitors typically represent
a broad range of industrial parts manufacturers and offer sales and,
in many cases, product support services including design, assembly
and repair. Competitive product range varies from focused on
specific applications (e.g. hydraulics) to very broad (similar to Wajax).
Competitors can be local, regional and national. Competition is based
on brand access, product quality, customer service levels, price and
ancillary services.
Aftermarket Service Providers – these competitors provide
aftermarket services in areas such as on-highway transportation.
Competitors vary from the dealer and distributor networks of
manufacturers such as Freightliner and Western Star to local service
providers. Competition is based on customer service levels and price.
There can be no assurance that Wajax will be able to continue to
effectively compete. Increased competitive pressures, the growing
influence of online distribution 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
36 Wajax 2018 Annual Report
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.
Guaranteed residual value, recourse and buy-back contracts
In some circumstances Wajax makes certain guarantees to finance
providers on behalf of its customers. These guarantees can take the
form of assuring the resale value of equipment, guaranteeing a portion
of customer lease payments, or agreeing to buy back the equipment
at a specified price. These contracts are subject to certain conditions
being met by the customer, such as maintaining the equipment in
good working condition. Historically, Wajax has not incurred substantial
losses on these types of contracts, however, there can be no
assurance that losses will not be incurred in the future.
Future warranty claims
Wajax provides manufacturers’ and/or dealer warranties for most of
the product it sells. In some cases, the product warranty claim risk
is shared jointly with the manufacturer. In addition, Wajax provides
limited warranties for workmanship on services provided. Accordingly,
Wajax has some liability for warranty claims. There is a risk that
a possible product quality erosion or a lack of a skilled workforce
could increase warranty claims in the future, or may be greater than
management anticipates. If Wajax’s liability in respect of such claims
is greater than anticipated, it may have a material adverse impact on
Wajax’s business, results of operations or financial condition.
Maintenance and repair contracts
Wajax frequently enters into long-term maintenance and repair
contracts with its customers, whereby Wajax is obligated to maintain
certain fleets of equipment at various negotiated performance levels.
The length of these contracts varies significantly, often ranging up to
five or more years. The contracts are generally fixed price, although
many contracts have additional provisions for inflationary adjustments.
Due to the long-term nature of these contracts, there is a risk that
significant cost overruns may be incurred. If Wajax has miscalculated
the extent of maintenance work required, or if actual parts and service
costs increase beyond the contracted inflationary adjustments, the
contract profitability will be adversely affected. In order to mitigate
this risk, Wajax closely monitors the contracts for early warning
signs of cost overruns. In addition, the manufacturer may, in certain
circumstances, share in the cost overruns if profitability falls below a
certain threshold. Any failure by Wajax to effectively price and manage
these contracts could have a material adverse impact on Wajax’s
business, results of operations or financial condition.
Environmental factors
From time to time, Wajax experiences environmental incidents,
emissions or spills in the course of its normal business activities.
Wajax has established environmental compliance and monitoring
programs, including an internal compliance audit function, which
management believes are appropriate for its operations. In addition,
Wajax retains environmental engineering consultants to conduct the
following activities: environmental site assessments prior to the
acquisition or occupation by Wajax; ongoing monitoring of soil and
groundwater contamination; and remediation of contaminated sites.
To date, these environmental incidents, emissions and spills have
not resulted in any material liabilities to the Corporation, however,
there can be no assurance that any future incidents, emissions or
spills will not result in a material adverse effect on Wajax’s results of
operations or cash flows. Management is not aware of any material
environmental concerns for which a provision has not been recorded.
Management’s Discussion and Analysis Cyber security
Wajax’s business relies on information technology including third
party service providers, to process, transmit and store electronic
information including that related to customers, vendors and
employees. A breach in the security of the Corporation’s information
technology, or that of its third party service providers, could expose
the business to a risk of loss, misuse of confidential information
and/or business interruption.
The Corporation has general security controls in place, including
security tools, and reviews security internally and with the assistance
of a third party. In addition, the Corporation has policies in place
regarding security over confidential customer, vendor and employee
information, performs employee security training, and has recovery
plans in place in the event of a cyber-attack.
Despite such security controls, there is no assurance that cyber
security threats can be fully detected, prevented or mitigated. Should
such threats materialize and depending on the magnitude of the
problem, they could have a material impact on Wajax’s business,
results of operations or financial condition.
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”).
During the implementation of the Corporation’s Finance Reorganization
Plan in 2018, the Corporation identified a control deficiency in the
design and operating effectiveness of internal control over financial
reporting as it related to how the legacy Wajax Equipment and Wajax
Power businesses were managing the accounts payable processes.
The Corporation believes that the deficiencies noted, have been
rectified and the control environment has been strengthened
as at December 31, 2018. See Note 5 of the consolidated
financial statements and accompanying notes for the year ended
December 31, 2018 for further discussion and information.
As at December 31, 2018, 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 applicable securities legislation is recorded,
processed, summarized and reported within the time periods
specified in such securities legislation. DC&P are designed to ensure
that information required to be disclosed by Wajax in annual filings,
interim filings or other reports filed or submitted under applicable
securities legislation is accumulated and communicated to Wajax’s
management, including its CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure.
As at December 31, 2018, Wajax’s management, under the
supervision of its CEO and CFO, had designed ICFR to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with IFRS. In completing the design, management used
the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) in its 2013 version of Internal
Control – Integrated Framework. With regard to general controls
over information technology, management also used the set of
practices of Control Objectives for Information and related Technology
(“COBIT”) created by the IT Governance Institute.
During the year, Wajax’s management, under the supervision of
its CEO and CFO, 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. The CEO and CFO have concluded that Wajax’s DC&P and
ICFR were effective as at December 31, 2018. The Corporation has
excluded from its evaluation the ICFR of Delom, which was acquired
on October 16, 2018, as discussed in Note 6 of the consolidated
financial statements and accompanying notes for the year ended
December 31, 2018. The total revenue subject to Delom’s ICFR
represented 1% of the Corporation’s consolidated total revenue for
the year ended December 31, 2018. The total assets subject to
Delom’s ICFR represented 6% of the Corporation’s consolidated total
assets as at December 31, 2018.
There was no change in Wajax’s ICFR that occurred during the three
months ended December 31, 2018 that has materially affected, or is
reasonably likely to materially affect, Wajax’s ICFR.
Non-GAAP and Additional GAAP Measures
The MD&A contains certain non-GAAP and additional GAAP measures
that do not have a standardized meaning prescribed by GAAP. Therefore,
these financial measures may not be comparable to similar measures
presented by other issuers. Investors are cautioned that these
measures should not be construed as an alternative to net earnings
or to cash flow from operating, investing, and financing activities
determined in accordance with GAAP as indicators of the Corporation’s
performance. The Corporation’s management believes that:
(i)
(ii)
these measures are commonly reported and widely used by
investors and management;
the non-GAAP measures are commonly used as an indicator of a
company’s cash operating performance, profitability and ability to
raise and service debt;
(iii) the additional GAAP measures are commonly used to assess a
company’s earnings performance excluding its capital and tax
structures; and
(iv)
(v)
“Adjusted net earnings” and “Adjusted basic and diluted
earnings per share” provide indications of the results by the
Corporation’s principal business activities prior to recognizing
non-recurring costs (recoveries) and losses (gains) from non-
hedged derivative instruments and the MTIP share-based
compensation plans. These adjustments to net earnings and
basic and diluted earnings per share allow the Corporation’s
management to consistently compare periods by removing
infrequent charges incurred outside of the Corporation’s
principal business activities and the impact of fluctuations in
interest rates and the Corporation’s share price.
“Adjusted EBITDA” provides an indication of the results by the
Corporation’s principal business activities prior to recognizing
non-recurring costs (recoveries) and losses (gains) from non-
hedged derivative instruments and the MTIP share-based
compensation plans. These adjustments to EBITDA allow the
Corporation’s management to consistently compare periods
by removing infrequent charges incurred outside of the
Corporation’s principal business activities and the impact of
fluctuations in finance costs related to the Corporation’s capital
structure, tax rates, long-term assets and the Corporation’s
share price.
(vi)
“Pro-forma adjusted EBITDA” used in calculating the Leverage
Ratio provides an indication of the results by the Corporation’s
principal business activities adjusted for the EBITDA of business
acquisitions made during the period as if they were made at the
beginning of the trailing 12-month period pursuant to the terms
of the bank credit facility and prior to recognizing non-recurring
costs (recoveries), losses (gains) from derivative instruments
and share-based compensation plans.
Wajax 2018 Annual Report 37
Management’s Discussion and Analysis Non-GAAP financial measures are identified and defined below:
Additional GAAP measures are identified and defined below:
Funded net debt includes bank indebtedness,
total long-term debt and total obligations under
finance leases, net of cash. Funded net debt is
relevant in calculating the Corporation’s Funded
Net Debt to Total Capital, which is a non-GAAP
measure commonly used as an indicator of a
company’s ability to raise and service debt.
Earnings (loss)
before finance
costs and income
taxes (EBIT)
EBIT margin
Debt is funded net debt plus letters of credit.
Debt is relevant in calculating the Corporation’s
Leverage Ratio, which is a non-GAAP measure
commonly used as an indicator of a company’s
ability to raise and service debt.
Earnings (loss)
before income
taxes (EBT)
Working capital
Other working
capital amounts
Earnings (loss) before finance costs
and income taxes, as presented on the
Consolidated Statements of Earnings.
Defined as EBIT divided by revenue, as
presented on the Consolidated Statements
of Earnings.
Earnings (loss) before income taxes, as
presented on the Consolidated Statements
of Earnings.
Defined as current assets less current
liabilities, as presented on the Consolidated
Statements of Financial Position.
Defined as working capital less trade
and other receivables and inventory plus
accounts payable and accrued liabilities, as
presented on the Consolidated Statements of
Financial Position.
Funded net debt
Debt
EBITDA
EBITDA margin
Adjusted net
earnings (loss)
Adjusted basic and
diluted earnings
(loss) per share
Adjusted EBITDA
Net earnings (loss) before finance costs, income
tax expense, depreciation and amortization.
Defined as EBITDA divided by revenue, as
presented on the Consolidated Statements
of Earnings.
Net earnings (loss) before after-tax
restructuring and other related costs
(recoveries), (gain) loss recorded on sales of
properties, non-cash losses on mark to market
of derivative instruments, Delom transaction
costs and senior notes redemption costs.
Basic and diluted earnings (loss) per share
before after-tax restructuring and other related
costs (recoveries), (gain) loss recorded on
sales of properties, non-cash losses on
mark to market of derivative instruments,
Delom transaction costs and senior notes
redemption costs.
EBITDA before restructuring and other related
costs (recoveries), (gain) loss recorded on
sales of properties, non-cash losses on
mark to market of derivative instruments,
Delom transaction costs and senior notes
redemption costs.
Adjusted EBITDA
margin
Defined as Adjusted EBITDA divided by
revenue, as presented on the Consolidated
Statements of Earnings.
Pro-forma adjusted
EBITDA
Leverage ratio
Defined as Adjusted EBITDA adjusted for
the EBITDA of business acquisitions made
during the period as if they were made at
the beginning of the trailing 12-month period
pursuant to the terms of the bank credit facility.
The leverage ratio is defined as debt at the
end of a particular quarter divided by trailing
12-month Pro-forma adjusted EBITDA. The
Corporation’s objective is to maintain this ratio
between 1.5 times and 2.0 times.
Funded net debt to
total capital
Defined as funded net debt divided by total
capital. Total capital is the funded net debt
plus shareholder’s equity.
Backlog
Backlog is a management measure which
includes the total sales value of customer
purchase commitments for future delivery or
commissioning of equipment, parts and related
services. This differs from the remaining
performance obligations as defined by IFRS 15.
38 Wajax 2018 Annual Report
Reconciliation of the Corporation’s net earnings to adjusted net
earnings and adjusted basic and diluted earnings per share is
as follows:
Three months ended
December 31
2018
2017
(As adjusted)(3)
Twelve months ended
December 31
2018
2017
(As adjusted)(3)
6.1 $
6.1 $
35.9 $
27.4
0.5
0.2
3.0
0.0
—
(1.2)
(0.9)
(1.2)
$
Net earnings
Restructuring and
other related
costs (recoveries),
after-tax
(Gain) recorded
on sales of
properties,
after-tax
Non-cash losses
on mark to
market of
derivative
instruments,
after-tax
Delom transaction
costs, after-tax
Senior notes
redemption,
after-tax
Adjusted net
earnings
Adjusted basic
earnings per
share(1)(2)
Adjusted diluted
earnings per
share(1)(2)
1.5
0.3
—
—
1.6
0.3
—
—
—
4.0
—
3.9
$
8.3 $
9.1 $
39.9 $
30.1
$
0.42 $
0.47 $
2.02 $
1.54
$
0.41 $
0.45 $
1.98 $
1.50
(1) At December 31, 2018 the numbers of basic and diluted shares outstanding were
19,947,235 and 20,393,145, respectively for the three months ended and 19,686,075
and 20,147,902, respectively for the twelve months ended.
(2) At December 31, 2017 the numbers of basic and diluted shares outstanding were
19,504,107 and 20,132,863, respectively for the three months ended and 19,605,884
and 20,204,738, respectively for the twelve months ended.
(3) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Management’s Discussion and Analysis
Reconciliation of the Corporation’s net earnings to EBT, EBIT, EBITDA
and Adjusted EBITDA is as follows:
Calculation of the Corporation’s funded net debt, debt and leverage
ratio is as follows:
Three months ended
December 31
2018
2017
(As adjusted)(7)
Twelve months ended
December 31
2018
2017
(As adjusted)(7)
Net earnings
Income tax expense
$
6.1 $
2.6
6.1 $
2.2
35.9 $
14.0
8.3
2.0
5.5
15.7
6.2
21.9
49.8
8.8
—
58.6
27.0
85.6
27.4
10.6
37.9
9.8
5.5
53.2
23.2
76.4
—
4.1
—
(1.4)
(1.2)
(1.5)
—
—
2.2
0.5
—
—
8.7
2.8
—
11.5
8.6
20.1
0.7
—
2.1
0.5
EBT
Finance costs
Senior notes
redemption(1)
EBIT
Depreciation and
amortization
EBITDA
Restructuring and
other related
costs (recoveries)(2)
(Gain) recorded on
sales of properties(3)
Non-cash losses on
mark to market
of derivative
instruments(4)
Delom transaction
costs(5)
$
Adjusted EBITDA
Delom acquisition
pro-forma
adjusted EBITDA(6)
23.2 $
20.8 $
91.2 $
74.9
—
—
6.3
—
Pro-forma adjusted
EBITDA
$
23.2 $
20.8 $
97.5 $
74.9
(1) For the three and twelve months ended December 31, 2017 – Includes the $5.5 million
senior notes redemption costs recorded in the fourth quarter of 2017.
(2) For the three months ended December 31, 2018 – Includes the $0.7 million restructuring
and other related costs recorded in the fourth quarter of 2018.
For the twelve months ended December 31, 2018 – Includes the $0.7 million restructuring
and other related costs recorded in the fourth quarter of 2018, the $0.6 million
restructuring and other related costs recorded in the third quarter of 2018, the $1.2 million
restructuring and other related costs recorded in the second quarter of 2018 and the
$1.7 million restructuring and other related costs recorded in the first quarter of 2018.
(3) For the three months ended December 31, 2017 – Includes the $1.4 million gain recorded
on sales of properties recorded in the fourth quarter of 2017.
For the twelve months ended December 31, 2018 – Includes the $1.2 million gain recorded
on sales of properties recorded in the first quarter of 2018.
For the twelve months ended December 31, 2017 – Includes the $1.5 million gain recorded
on sales of properties recorded in 2017.
(4) For the three months ended December 31, 2018 – Includes the $2.1 million non-cash
losses on mark to market of derivative instruments recorded in the fourth quarter of 2018.
For the twelve months ended December 31, 2018 – Includes the $2.2 million non-cash
losses on mark to market of derivative instruments recorded in the fourth quarter of 2018.
(5) For the three and twelve months ended December 31, 2018 – Includes the $0.5 million
Delom transaction costs recorded in the fourth quarter of 2018.
(6) For the twelve months ended December 31, 2018 – Includes the $6.3 million Delom
acquisition pro-forma adjusted EBITDA.
(7) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Bank indebtedness
Obligations under finance leases
Long-term debt
Funded net debt
Letters of credit
Debt
Leverage ratio(1)(2)
December 31
2018
3.9
13.7
218.1
235.8
6.1
241.9
2.48
2017
1.7
9.5
143.7
154.9
7.3
162.2
2.17
(1) Calculation uses trailing four-quarter Pro-forma adjusted EBITDA.
This leverage ratio is calculated for purposes of monitoring the Corporation’s objective
target leverage ratio of between 1.5 times and 2.0 times. The calculation contains some
differences from the leverage ratio calculated under the Corporation’s bank credit facility
agreement. The resulting under the bank credit facility agreement is not significantly
different. See the Liquidity and Capital Resources section.
(2) The Corporation has adjusted its comparative 2017 earnings and financial position as
a result of the adoption on January 1, 2018 of IFRS 15 Revenue from Contracts with
Customers and its comparative 2017 earnings and financial position as a result of
the adjustments to prior period financial statements identified as part of the Finance
Reorganization Plan. See the Adjustments to Prior Period Financial Statements section.
Cautionary Statement Regarding
Forward-Looking Information
This MD&A and Annual Report contains certain forward-looking
statements and forward-looking information, as defined in applicable
securities laws (collectively, “forward-looking statements”). These
forward-looking statements relate to future events or the
Corporation’s future performance. All statements other than
statements of historical fact are forward-looking statements. Often,
but not always, forward looking statements can be identified by the
use of words such as “plans”, “anticipates”, “intends”, “predicts”,
“expects”, “is expected”, “scheduled”, “believes”, “estimates”,
“projects” or “forecasts”, or variations of, or the negatives of, such
words and phrases or state that certain actions, events or results
“may”, “could”, “would”, “should”, “might” or “will” be taken, occur
or be achieved. Forward looking statements involve known and
unknown risks, uncertainties and other factors beyond the
Corporation’s ability to predict or control which may cause actual
results, performance and achievements to differ materially from
those anticipated or implied in such forward looking statements.
There can be no assurance that any forward looking statement will
materialize. Accordingly, readers should not place undue reliance on
forward looking statements. The forward looking statements in this
MD&A and Annual Report are made as of the date of this MD&A,
reflect management’s current beliefs and are based on information
currently available to management. Although management believes
that the expectations represented in such forward-looking statements
are reasonable, there is no assurance that such expectations will
prove to be correct. Specifically, this MD&A and Annual Report
includes forward looking statements regarding, among other things,
our goal of becoming Canada’s leading industrial products and
services provider, distinguished through our core capabilities; our
belief that achieving excellence in our areas of core capability will
position Wajax to create value for its customers, employees, vendors
Wajax 2018 Annual Report 39
Management’s Discussion and Analysis
and shareholders; the main elements of our updated Strategic Plan,
including our focus on executing clear plans in six important areas:
investments in our team, investments in our customers, our organic
growth strategy, our acquisition strategy, investments in our
infrastructure and refinements to the One Wajax organizational
model; our expectations and outlook for 2019, including our outlook
on regional market conditions in Canada and our expectation that full
year adjusted net earnings will increase over 2018; our belief that
current market conditions in western Canada are more favourable
than those which prevailed in 2015 and 2016 when energy prices
were weak; our intention to commence implementation of our new
ERP system and Customer Support Centres in the first half of 2019;
our view that expected earnings improvements in 2019 will be
weighted to the second half of the year; our expectation that our
leverage will remain within acceptable boundaries and that the
Corporation maintains sufficient financial flexibility to execute its
2019 business plan; our belief that the control deficiencies identified
as part of the Finance Reorganization Plan have been rectified and
that the Corporation's control environment has been strengthened;
the expected cost of the redesign of our finance function and our
expectation that the majority of such project work will be completed
during the first half of 2019; the expected cost of our ERS leadership
re-alignment; our expectation that we will not incur any future costs
related to our 2016 strategic reorganization; our expectation that the
acquisition of Delom will provide meaningful growth in our ERS
business; our target leverage ratio range of 1.5 – 2.0 times; our
financing, working and maintenance capital requirements, as well as
our capital structure and leverage ratio; our estimate of the number
of shares required to settle our obligations under certain share-based
compensation plans; our expectation that the impact of changes in
interest rates (in particular, related to unhedged variable rate debt),
foreign currency exchange rates relative to the Canadian dollar (in
particular, on transactions with customers that include unhedged
foreign currency exposure), and our share price (in particular, on MTIP
units that are cash settled) will not have a material impact on our
results of operations or financial condition over the longer term; our
belief there is not a significant risk of non-performance by
counterparties to our foreign exchange forward contracts, long-term
interest rate hedge contracts and total return swap contracts; the
adequacy of our debt capacity and sufficiency of our debt facilities;
our intention and ability to access debt and equity markets or reduce
dividends should additional capital be required, including the
potential that we may access equity or debt markets to fund
significant acquisitions, growth related capital and capital
expenditures; our belief that that we have a robust strategy and our
confidence in our growth prospects; our growth and performance
expectations for our Targeted Growth, Core Strength and Cyclical and
Major Projects product and service categories; and the adequacy of
our credit facilities. These statements are based on a number of
assumptions which may prove to be incorrect, including, but not
limited to, assumptions regarding the nature and extent of the
non-cash accounting errors identified during the transition to our new
finance group operating model and subsequent financial review;
general business and economic conditions; the supply and demand
for, and the level and volatility of prices for, oil, natural gas and other
commodities; financial market conditions, including interest rates; our
ability to execute our updated Strategic Plan, including our ability to
develop our core capabilities, execute our organic growth priorities,
complete and effectively integrate acquisitions, such as Delom, and
to successfully implement new information technology platforms,
systems and software; our ability to realize the full benefits from our
2016 strategic reorganization, including cost savings and productivity
gains; 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, the ongoing
implementation of our Finance Reorganization Plan, including the
ongoing standardization of financial policies, procedures and controls;
a deterioration in general business and economic conditions; volatility
in the supply and demand for, and the level of prices for, oil, natural
gas and other commodities; a continued or prolonged decrease in the
price of oil or natural gas; fluctuations in financial market conditions,
including interest rates; the level of demand for, and prices of, the
products and services we offer; levels of customer confidence and
spending; market acceptance of the products we offer; termination of
distribution or original equipment manufacturer agreements;
unanticipated operational difficulties (including failure of plant,
equipment or processes to operate in accordance with specifications
or expectations, cost escalation, our inability to reduce costs in
response to slow-downs in market activity, unavailability of quality
products or inventory, supply disruptions, job action and unanticipated
events related to health, safety and environmental matters); our
ability to attract and retain skilled staff and our ability to maintain our
relationships with suppliers, employees and customers. The foregoing
list of factors is not exhaustive. Further information concerning the
risks and uncertainties associated with these forward looking
statements and the Corporation’s business may be found in this
MD&A under the heading “Risk Management and Uncertainties” and
in our Annual Information Form for the year ended
December 31, 2018, filed on SEDAR. The forward-looking statements
contained in this MD&A and Annual Report are expressly qualified in
their entirety by this cautionary statement. The Corporation does not
undertake any obligation to publicly update such forward-looking
statements to reflect new information, subsequent events or
otherwise unless so required by applicable securities laws.
40 Wajax 2018 Annual Report
Management’s Discussion and Analysis Management’s Responsibility
for Financial Reporting
The consolidated financial statements of Wajax Corporation are
the responsibility of management and have been prepared in
accordance with International Financial Reporting Standards. Where
appropriate, the information reflects management’s judgement and
estimates based on the available information. Management is also
responsible for 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
and the discharge of their responsibilities.
Both the external and internal auditors have free and independent
access to the Audit Committee to discuss the scope of their
audits, the adequacy of the system of internal control and the
adequacy of financial reporting. The Audit Committee reports its
findings to the Board, which reviews and approves the consolidated
financial statements.
Wajax’s external auditors, KPMG LLP, are responsible for auditing the
consolidated financial statements and expressing an opinion thereon.
Mark Foote
President and
Chief Executive Officer
Darren Yaworsky
Senior Vice President and
Chief Financial Officer
Mississauga, Canada, March 21, 2019
Independent
Auditors’ Report
To the Shareholders of Wajax Corporation
Basis for Opinion
Opinion
We have audited the consolidated financial statements of Wajax
Corporation (the “Entity”), which comprise:
the consolidated statements of financial position as at
December 31, 2018 and December 31, 2017
the consolidated statements of earnings for the years then ended
the consolidated statements of comprehensive income for the
years then ended
the consolidated statements of changes in shareholders’ equity for
the years then ended
the consolidated statements of cash flows for the years
then ended
and notes to the consolidated financial statements, including a
summary of significant accounting policies
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the “Auditors’ Responsibilities for
the Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in Canada and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Emphasis of Matter – Comparative Information
We draw attention to Note 4 and Note 5(a) to the financial
statements as it relates to the adoption of IFRS 15, Revenue from
Contracts with Customers, which explains that certain comparative
information presented:
(Hereinafter referred to as the “financial statements”).
for the year ended December 31, 2017 has been restated.
In our opinion, the accompanying financial statements present fairly,
in all material respects, the consolidated financial position of the
Entity as at December 31, 2018 and December 31, 2017, and its
consolidated financial performance and its consolidated cash flows
for the years then ended in accordance with International Financial
Reporting Standards (IFRS).
as at January 1, 2017 has been derived from the financial
statements for the year ended December 31, 2016 which have
been restated (not presented herein).
Note 4 and Note 5(a) explain the reason for the restatement and
also explains the adjustments that were applied to restate certain
comparative information.
Our opinion is not modified in respect of this matter.
Wajax 2018 Annual Report 41
Independent Auditors’ Report
Other Information
Management is responsible for the other information. Other
information comprises:
the information included in Management’s Discussion and Analysis
filed with the relevant Canadian Securities Commissions.
the information, other than the financial statements and the
auditors’ report thereon, included in a document likely to be
entitled “2018 Annual Report”.
Our opinion on the financial statements does not cover the other
information and we do not and will not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained
in the audit and remain alert for indications that the other information
appears to be materially misstated.
We obtained the information included in Management’s Discussion
and Analysis filed with the relevant Canadian Securities Commissions
as at the date of this auditors’ report. If, based on the work we
have performed on this other information, we conclude that there is
a material misstatement of this other information, we are required to
report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the
auditors’ report thereon, included in a document likely to be entitled
“2018 Annual Report” is expected to be made available to us after
the date of this auditors’ report. If, based on the work we will perform
on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that
fact to those charged with governance.
Responsibilities of Management and Those Charged with
Governance for the Financial Statements
Management is responsible for the preparation and fair presentation
of the financial statements in accordance with International
Financial Reporting Standards (IFRS), and for such internal control
as management determines is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is responsible
for assessing the Entity’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using
the going concern basis of accounting unless management either
intends to liquidate the Entity or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that
includes our opinion.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements.
42 Wajax 2018 Annual Report
As part of an audit in accordance with Canadian generally accepted
auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis
for our opinion.
The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Entity’s internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by management.
Conclude on the appropriateness of management’s use of the
going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
Entity’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention
in our auditors’ report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditors’ report. However, future events
or conditions may cause the Entity to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
Provide those charged with governance with a statement that
we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group
Entity to express an opinion on the financial statements. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report
is Laura Price.
Vaughan, Canada, March 21, 2019
Total assets
$ 831,249 $ 694,361 $ 667,863
Consolidated Statements
of Financial Position
As at (in thousands of Canadian dollars)
Assets
Current
Cash
Trade and other receivables
Contract assets
Inventory
Deposits on inventory
Income taxes receivable
Prepaid expenses
Derivative financial assets
Non-Current
Rental equipment
Property, plant and equipment
Goodwill and intangible assets
Derivative financial assets
Deferred tax assets
Liabilities And Shareholders’ Equity
Current
Bank indebtedness
Accounts payable and accrued liabilities
Contract liabilities
Dividends payable
Income taxes payable
Obligations under finance leases
Derivative financial liabilities
Non-Current
Deferred tax liabilities
Employee benefits
Derivative financial liabilities
Other liabilities
Obligations under finance leases
Long-term debt
Total liabilities
Shareholders’ Equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive (loss) income
Total shareholders’ equity
Total liabilities and shareholders’ equity
On behalf of the Board:
7
8
9
9
16
10
10
11
16
23
12
8
17
13
16
23
14
16
13
15
December 31
Note
2018
2017
As adjusted
(Note 5)
$
— $
— $
206,257
30,307
365,997
13,445
—
7,190
1,635
203,949
19,329
312,974
6,874
484
4,329
550
January 1
2017
As adjusted
(Note 5)
4,854
191,744
22,319
274,566
19,407
—
5,463
784
624,831
548,489
519,137
73,716
59,017
73,685
—
—
60,418
43,598
41,705
151
—
57,908
45,658
41,205
5
3,950
206,418
145,872
148,726
$
3,932 $
1,724 $
252,958
8,291
4,989
12,173
4,622
3,167
236,179
11,129
4,876
—
3,790
1,097
—
243,398
4,486
4,956
1,136
3,701
234
290,132
258,795
257,911
1,209
8,445
5,036
2,214
9,127
218,116
731
8,545
—
2,235
5,721
143,667
—
8,106
2
3,423
5,154
121,952
244,147
160,899
138,637
534,279
419,694
396,548
17 $ 180,369 $ 175,863 $ 178,764
7,137
18
85,312
102
7,360
110,842
10,455
88,643
(1,601)
(294)
296,970
274,667
271,315
$ 831,249 $ 694,361 $ 667,863
Robert P. Dexter, Q.C.
Chairman
Douglas A. Carty
Director
Wajax 2018 Annual Report 43
Consolidated Statements
of Earnings
For the years ended December 31 (in thousands of Canadian dollars, except per share data)
Note
2018
2017
As adjusted
(Note 5)
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Restructuring and other related costs
Earnings before finance costs and income taxes
Finance costs
Earnings before income taxes
Income tax expense
Net earnings
Basic earnings per share
Diluted earnings per share
Consolidated Statements
of Comprehensive Income
For the years ended December 31 (in thousands of Canadian dollars)
Net earnings
Items that will not be reclassified to income
8, 19 $ 1,481,597 $ 1,318,731
1,068,713
1,209,330
9
272,267
209,522
4,143
58,602
8,775
49,827
13,975
250,018
196,816
21
53,181
15,249
37,932
10,551
21
22
23
$
35,852 $
27,381
17 $
17
1.82 $
1.78
1.40
1.36
Note
2018
2017
As adjusted
(Note 5)
$
35,852 $
27,381
Actuarial gains (losses) on pension plans, net of tax expense of $26 (2017 – expense of $49)
14
72
132
Items that may be subsequently reclassified to income
(Gains) losses on derivative instruments designated as cash flow hedges in prior periods
reclassified to net earnings during the period, net of tax expense of $229 (2017 – recovery of $253)
(622)
686
(Losses) gains on derivative instruments outstanding at the end of the period
designated as cash flow hedges, net of tax recovery of $252 (2017 – recovery of $399)
Other comprehensive (loss) income, net of tax
Total comprehensive income
(685)
(1,082)
(1,235)
(264)
$
34,617 $
27,117
44 Wajax 2018 Annual Report
Consolidated Statements
of Changes in Shareholders’ Equity
Accumulated
other
comprehensive
income (loss)
For the year ended December 31, 2018 (in thousands of Canadian dollars)
Note
Share Contributed
surplus
capital
Retained
earnings
Cash flow
hedges
Total
December 31, 2017 (as adjusted)
4, 5 $ 175,863 $
10,455 $
88,643 $
(294) $ 274,667
Net earnings
Other comprehensive income
Total comprehensive income for the year
Shares issued to settle share-based compensation plans
Net sale (purchase) of shares held in trust (net of tax)
Change from equity to cash settled RSUs
Share-based compensation expense
Dividends declared
18
17
18
18
17
—
—
—
1,380
3,126
—
—
—
—
—
—
(1,380)
—
(4,578)
2,863
—
35,852
72
35,924
—
6,022
—
—
(19,747)
—
(1,307)
(1,307)
—
—
—
—
—
35,852
(1,235)
34,617
—
9,148
(4,578)
2,863
(19,747)
December 31, 2018
$ 180,369 $
7,360 $ 110,842 $
(1,601) $ 296,970
For the year ended December 31, 2017 (in thousands of Canadian dollars)
December 31, 2016 (as previously reported)
Impact of prior period adjustment (Note 5 b)
Impact of adopting IFRS 15 (Note 5 a)
January 1, 2017 (as adjusted)
Net earnings (as adjusted)
Other comprehensive loss
Total comprehensive income (loss) for the year
Shares purchased and held in trust
Share-based compensation expense
Dividends declared
Note
Share Contributed
surplus
capital
Retained
earnings
As adjusted
(Note 5)
Accumulated
other
comprehensive
income (loss)
Cash flow
hedges
Total
As adjusted
(Note 5)
$ 178,764 $
5
4
—
—
7,137 $
—
—
90,812 $
(7,596)
2,096
4, 5
178,764
7,137
—
—
—
(2,901)
—
—
—
—
—
—
3,318
—
17
18
17
85,312
27,381
132
27,513
(4,598)
—
(19,584)
102 $ 276,815
(7,596)
2,096
—
—
102
271,315
—
(396)
(396)
—
—
—
27,381
(264)
27,117
(7,499)
3,318
(19,584)
December 31, 2017 (as adjusted)
$ 175,863 $
10,455 $
88,643 $
(294) $ 274,667
Wajax 2018 Annual Report 45
Consolidated Statements
of Cash Flows
For the years ended December 31 (in thousands of Canadian dollars)
Operating Activities
Net earnings
Items not affecting cash flow:
Depreciation and amortization:
Rental equipment
Property, plant and equipment
Intangible assets
Gain on disposal of property, plant and equipment
Share-based compensation expense
Non-cash rental (recovery) expense
Employee benefits expense, net of payments
Change in fair value of non-hedge derivative instruments
Finance costs
Income tax expense
Changes in non-cash operating working capital
Rental equipment additions
Other non-current liabilities
Finance costs paid
Income taxes paid
Cash (used in) generated from operating activities
Investing Activities
Property, plant and equipment additions
Proceeds on disposal of property, plant and equipment
Intangible assets additions
Acquisition of business (net of cash acquired)
Cash used in investing activities
Financing Activities
Net increase in bank debt
Net sale (purchase) of shares held in trust
Deferred financing costs
Finance lease payments
Settlement of non-hedge derivative instruments
Dividends paid
Cash generated from (used in) financing activities
Change in cash and bank indebtedness
(Bank indebtedness) cash – beginning of period
Bank indebtedness – end of period
46 Wajax 2018 Annual Report
Note
2018
2017
As adjusted
(Note 5)
$
35,852 $
27,381
10
10
11
18
16
22
23
24
10
10
11
6
15
17
15
13
17,018
8,757
1,190
(1,197)
1,786
(110)
242
4,299
8,775
13,975
14,043
8,403
770
(1,493)
3,773
187
443
306
15,249
10,551
90,587
79,613
(33,530)
(43,638)
(1,444)
(8,422)
(6,481)
(30,067)
(19,310)
(1,252)
(14,784)
(7,393)
(2,928)
6,807
(5,527)
2,522
(4,837)
(51,061)
(3,055)
2,816
(1,270)
—
(58,903)
(1,509)
75,000
9,475
(918)
(4,214)
(86)
(19,634)
20,000
(7,499)
(567)
(3,955)
(191)
(19,664)
59,623
(11,876)
(2,208)
(6,578)
(1,724)
4,854
$
(3,932) $
(1,724)
Notes to Consolidated
Financial Statements
December 31, 2018 (amounts in thousands of Canadian dollars, except share and per share data)
1. Company Profile
Allowance for doubtful accounts
Wajax Corporation (the “Corporation”) is incorporated in Canada.
The address of the Corporation’s registered office is 2250 Argentia
Road, Mississauga, Ontario, Canada. The Corporation operates an
integrated distribution system, providing sales, parts and services
to a broad range of customers in diversified sectors of the Canadian
economy, including: construction, forestry, mining, industrial and
commercial, oil sands, transportation, metal processing, government
and utilities and oil and gas.
2. Basis of Preparation
Statement of compliance
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (“IFRS”)
as published by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by
the Board of Directors on March 21, 2019.
Basis of measurement
These consolidated financial statements have been prepared under
the historical cost basis except for derivative financial instruments
and share-based payment arrangements that have been measured at
fair value. The defined benefit liability is recognized as the net total of
the fair value of the plan assets and the present value of the defined
benefit obligation.
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 these 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 and disclosures made in these
consolidated financial statements. Actual results could differ from
those judgements, estimates and assumptions. The Corporation
bases its estimates on historical experience and various other
assumptions that are believed to be reasonable in the circumstances.
The key assumptions concerning the future and other key sources
of estimation uncertainty that have a significant risk of resulting in a
material adjustment to the carrying amount of assets and liabilities
within the next fiscal year are as follows:
The Corporation is exposed to credit risk with respect to its trade
and other receivables. However, this is partially mitigated by the
Corporation’s large customer base which covers many business
sectors across Canada. The Corporation follows a program of credit
evaluations of customers and limits the amount of credit extended
when deemed necessary. The Corporation maintains an allowance for
possible credit losses, and any such losses to date have been within
management’s expectations. The allowance for doubtful accounts is
determined by estimating the lifetime expected credit losses, taking
into account the Corporation’s past experience of collecting payments
as well as observable changes in and forecasts of future economic
conditions that correlate with default on receivables. At the point
when the Corporation is satisfied that no recovery of the amount
owing is possible, the amount is considered not recoverable and the
financial asset is written off.
Inventory obsolescence
The value of the Corporation’s new and used equipment and high
value parts is evaluated by management throughout the year, on
a unit-by-unit basis. When required, provisions are recorded to
ensure that equipment and parts are valued at the lower of cost
and estimated net realizable value. The Corporation performs an
aging analysis to identify slow moving or obsolete lower value parts
inventory 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.
Goodwill and intangible assets
The value in use of goodwill and intangible assets has been
estimated using the forecasts prepared by management for the next
five years. The key assumptions for the estimate are those regarding
revenue growth, EBITDA margin, discount rate 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 and forecasted growth initiatives.
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.
Revenue recognition
Revenue from contracts with customers is recognized for each
performance obligation as control is transferred to the customer.
The following is a description of principal activities from which the
Corporation generates its revenue, and the associated timing of
revenue recognition.
Wajax 2018 Annual Report 47
Revenue type
Nature and timing of satisfaction of
performance obligations
Equipment sales
Retail sales
Construction
contracts
Industrial parts
Product support
Service
Parts
ERS/Other
Retail sales include the sale of new and
used equipment. The Corporation recognizes
revenue when control of the equipment passes
to the customer based on shipment terms.
Construction contracts are equipment sales
that involve the design, installation, and
assembly of power generation systems. As a
result of control transferring over time, revenue
is recognized based on the extent of progress
towards completion of the performance
obligation. The Corporation generally uses
the cost-to-cost measure of progress for its
contracts because it best reflects the transfer
of control of the work-in-progress to the
customer as the asset is being constructed.
The Corporation recognizes revenue when
control of the parts passes to the customer
based on shipment terms.
As a result of control transferring over time,
revenue is recognized based on the extent
of progress towards completion of the
performance obligation. The Corporation
generally uses the cost-to-cost measure
of progress for its service work because
the customer controls the asset as it is
being serviced.
The Corporation recognizes revenue
when control of the parts passes to the
customer based on shipment terms or upon
customer pickup.
This revenue consists primarily of engineered
repair services (“ERS”). As a result of control
transferring over time, revenue is recognized
based on the extent of progress towards
completion of the performance obligation. The
Corporation generally uses the cost-to-cost
measure of progress for ERS because it best
reflects the transfer of control of the work-in-
progress to the customer as the asset is being
constructed or modified.
The transaction price is generally the amount stated in the contract.
Certain contracts are subject to discounts which are estimated and
included in the transaction price. Provisions are made for expected
returns and warranty costs based on historical data.
Revenue from the rental of equipment is recognized on a straight-line
basis over the term of the lease.
Trade and other receivables
Trade accounts receivable are amounts due from customers for
merchandise sold or services performed in the ordinary course of
business. Other accounts receivable are generally from suppliers for
warranty and rebates. If collection is expected in one year or less
(or in the normal operating cycle of the business, if longer), they are
classified as current assets. If not, they are presented as non-current
assets. Trade accounts receivable are recognized initially at amounts
due, net of impairment for estimated expected credit loss. The
expense relating to expected credit loss is included within selling and
administrative expenses in the consolidated statements of earnings.
48 Wajax 2018 Annual Report
Contract assets
Contract assets primarily relate to the Corporation’s rights to
consideration for work completed but not billed at the reporting
date on product support and ERS revenue. The contract assets are
transferred to receivables when billed.
Inventory
Inventory is 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 the cost incurred
in bringing inventory to its present location and condition. Cost of
work-in- process and cost of conversion includes cost of direct labour,
direct materials and a portion of direct and indirect overheads,
allocated based on normal capacity. Net realizable value is the
estimated selling price in the ordinary course of business, less the
estimated costs to sell.
Deposits on inventory
In the normal course of business, the Corporation receives
inventory on consignment from a major manufacturer which is either
rented, sold to customers, or purchased. Under the terms of the
consignment program, the Corporation is required to make periodic
deposits to the manufacturer on the consigned inventory that is
rented to customers or on-hand for greater than nine months. This
consigned inventory is not included in the Corporation’s inventory
as the manufacturer retains title to the goods, however the deposits
paid to the manufacturer are recorded as deposits on inventory. Other
inventory prepayments are also included in deposits on inventory.
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% – 30% per year for material handling equipment and a
straight-line 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:
Asset
Method
Rate
Buildings
Equipment and vehicles
Computer hardware
Furniture and fixtures
Leasehold improvements
declining balance
declining balance
straight-line
declining balance
straight-line
5% – 10%
20% – 30%
3 – 5 years
10% – 20%
over the
remaining
terms of
the leases
Assets under finance leases are depreciated over the shorter of the
lease term and their useful life.
Leases
As lessor:
The Corporation’s equipment rentals and leases are classified as
operating leases with amounts received included in revenue on a
straight-line basis over the term of the lease.
Notes to Consolidated Financial Statements
As lessee:
Cash and bank indebtedness
Leases are classified as finance leases when the terms of the lease
transfer substantially all the risks and rewards of ownership to
the Corporation. A leased asset is recorded at the lower of its fair
value and the present value of the minimum lease payments at the
inception of the lease. A lease obligation is recorded and is classified
as current and non-current liabilities. The interest component of the
lease is charged to earnings over the period of the lease using the
effective interest rate 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.
Goodwill and intangible assets
Goodwill arising in a business combination is recognized as an
asset at the date that control is acquired. Goodwill and indefinite
life intangible assets are subsequently measured at cost less
accumulated impairment losses. Goodwill and indefinite life
intangible assets are not amortized but are tested for impairment
at least annually, or more frequently if certain indicators arise that
indicate the assets might be impaired. Goodwill and indefinite life
intangible assets are allocated to cash-generating units (“CGUs”) that
are expected to benefit from the synergies of the acquisition.
Product distribution rights represent the fair value attributed to these
rights at the time of acquisition and are classified as indefinite life
intangible assets because the Corporation is generally able to renew
these rights with minimal cost of renewal.
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.
Impairment
Property, plant and equipment, rental equipment and definite life
intangible assets are reviewed at the end of each period to determine
if any indicators of impairment exist. If an indicator of impairment
is identified, an impairment test is performed comparing its
recoverable amounts to its carrying value. An impairment loss would
be recognized as the amount by which the asset’s carrying amount
exceeds its recoverable amount. Where the asset does not generate
cash flows that are independent of other assets, impairment is
considered for the CGU or group of CGUs to which the asset belongs.
Goodwill and indefinite life intangible assets are tested for
impairment at least annually or whenever events or changes in
circumstances indicate that their carrying amount may not be
recoverable. To test for impairment, the Corporation compares the
carrying values of its goodwill and indefinite life intangibles to their
recoverable amounts. Recoverable amount is the higher of value
in use or fair value less costs of disposal, if the fair value can be
readily determined. The value in use is the present value of future
cash flows using a pre-tax discount rate that reflects the time value
of money and the risk specific to the assets. The fair value less costs
of disposal is determined either by an adjusted net asset-based
approach or by the present value of future cash flows from a market
participant perspective. Any impairment of goodwill or indefinite life
intangible assets would be recorded as a charge against earnings.
A CGU is the smallest identifiable group of assets that generates
cash inflows that are largely independent of the cash inflows from
other assets or groups of assets. For the purpose of impairment
testing the CGUs are grouped at the level at which it is monitored,
which is at the consolidated Corporation level. As a result, goodwill
and intangible assets impairment has been tested for impairment
using the cash flows generated by the consolidated operations of
the Corporation.
Cash and bank indebtedness includes cash on hand, demand
deposits, bank overdrafts and outstanding cheques. The Corporation
considers bank indebtedness to be an integral part of the
Corporation’s cash management. Cash and bank indebtedness are
offset and the net amount presented in the consolidated statements
of financial position to the extent that there is a right to set off and a
practice of net settlement.
Financing costs
Transaction costs directly attributable to the acquisition or
amendment of bank debt are deferred and amortized to finance costs
over the term of the long-term debt using the effective interest rate
method. Deferred financing costs reduce the carrying amount of the
related long-term debt.
Derivative financial instruments and hedge accounting
The Corporation uses derivative financial instruments in the
management of: a) its foreign currency exposures related to certain
inventory purchases and customer sales commitments, b) its
interest rate risk related to its variable rate debt, and c) its equity
price risk related to certain share-based compensation plans. The
Corporation’s policy is to not utilize derivative financial instruments
for trading or speculative purposes. Where the Corporation intends
to apply hedge accounting it formally documents the relationship
between the derivative and the risk being hedged, as well as the
risk management objective and strategy for undertaking the hedge
transaction. The documentation links the derivative to a specific
asset or liability or to specific firm commitments or forecasted
transactions. The Corporation also assesses, at the hedge’s
inception and at least quarterly whether the hedge is effective in
offsetting changes in fair values or cash flows of the risk being
hedged. Should a hedge become ineffective, hedge accounting
will be discontinued prospectively. All derivative instruments are
recorded in the consolidated statements of financial position at
fair value. All changes in fair value are recorded in earnings unless
hedge accounting is applied, in which case the effective portion of
changes in fair value of the hedged instrument are recorded in other
comprehensive income. If the cash flow 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.
Share-based compensation plans
The fair value of share-based compensation plan rights is based
on the trading price of a Wajax Corporation common share on
the Toronto Stock Exchange (“TSX”) or a Monte Carlo simulation.
Compensation expense for share-settled plans is based upon the
fair 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.
Compensation expense for cash-settled plans varies with the price of
the Corporation’s shares and is charged to selling and administrative
expenses, recognized over the vesting period with an offset to
accounts payable and accrued liabilities.
Employee benefits
The Corporation has defined contribution pension plans for most
of its employees. The cost of the defined contribution plans is
recognized in earnings based on the contributions required to be
made each year.
Wajax 2018 Annual Report 49
Notes to Consolidated Financial Statements The Corporation also has defined benefit plans covering certain of
its employees. The benefits are based on years of service and the
employees’ earnings. Defined benefit plan obligations are accrued
as the employees render the services necessary to earn the pension
benefits. The Corporation has adopted the following policies:
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 salary
escalation, and retirement ages of employees.
For purposes of calculating expected return on plan assets, those
assets are valued at fair value.
The charge to earnings for the defined benefit plans is split
between an operating cost and a finance charge. The finance
charge represents the net interest cost on the defined benefit
obligation net of the expected return on plan assets and is
included in selling and administrative expenses.
Actuarial gains and losses are recognized in full in other
comprehensive income in the year in which they occur.
Income taxes
Income tax expense comprises current and deferred taxes. Current
and deferred taxes are recognized in earnings except to the extent
that they relate to a business combination or to items recognized
directly in equity or in other comprehensive income.
Current tax is the expected taxes payable or receivable on the taxable
income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to income taxes
payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted by the
reporting date.
A deferred tax asset is recognized for unused tax losses and
deductible temporary differences to the extent that it is probable
that future taxable profits will be available against which they can be
utilized. Deferred tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.
4. Change In Accounting Policies
Accounting standards adopted during the year
IFRS 15 Revenue from Contracts with Customers – On January 1,
2018, the Corporation adopted IFRS 15 Revenue from Contracts
with Customers (“IFRS 15”). The standard contains a single model
that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to
determine whether, how much and when revenue is recognized. New
estimates and judgement thresholds have been introduced which
may affect the timing of revenue recognized.
The Corporation records revenue from contracts with customers in
accordance with the five steps in IFRS 15 as follows:
1.
2.
3.
4.
5.
Identify the contract with a customer;
Identify the performance obligations in the contract;
Determine the transaction price, which is the total consideration
provided by the customer;
Allocate the transaction price among the performance obligations
in the contract based on their relative fair values; and
Recognize revenue when the relevant criteria are met for each
unit (at a point in time or over time).
50 Wajax 2018 Annual Report
The following change has resulted in an adjustment from the
adoption of IFRS 15:
The revenue recognition pattern for product support service and
ERS has changed to an over-time pattern to depict performance in
transferring control of the repair service, rather than the point in
time recognition that was previously used. The key judgement for
recognizing revenue on incomplete service orders is estimating the
transaction price and the margin that will eventually be realized.
The Corporation has elected to use the retrospective application
method and has recorded the cumulative adjustment of the
accounting change to retained earnings as at January 1, 2017 and
has restated its comparative 2017 financial position and earnings.
The effect of adopting IFRS 15 on the consolidated statements of
financial position and consolidated statement of earnings can be
found in Note 5.
IFRS 9 Financial Instruments – On January 1, 2018, the Corporation
adopted IFRS 9 Financial Instruments (“IFRS 9”) retrospectively
with no restatement of comparative periods. The standard includes
revised guidance on the classification and measurement of financial
assets, including impairment and a new general hedge accounting
model. IFRS 9 largely retains the existing accounting requirements for
financial liabilities with the exception of accounting for certain non-
substantial modifications of financial liabilities and the accounting
treatment of fair value changes attributable to changes in its own
credit risk of financial liabilities that are designated as fair value
through profit or loss.
Classification and measurement
IFRS 9 contains a new classification and measurement approach for
financial assets that reflects the business model in which assets are
managed and their cash flow characteristics. Financial assets are
classified and measured based on the three categories: amortized
cost, fair value through other comprehensive income (“FVOCI”) and
fair value through profit and loss (“FVTPL”). Financial liabilities are
classified and measured in two categories: amortized cost or FVTPL.
Under IFRS 9, derivatives embedded in contracts where the host is
a financial asset in the scope of the standard are not separated,
but the hybrid financial instrument as a whole is assessed for
classification. The adoption of the new classification requirements
under IFRS 9 did not result in significant changes to measurement or
the carrying amounts of financial assets and liabilities.
The following table summarizes the classification impacts upon the
adoption of IFRS 9:
Asset/Liability
Classification
under IAS 39
Classification
under IFRS 9
Cash
Loans and receivables Amortized cost
Trade and
other receivables
Loans and receivables Amortized cost
Derivative instruments FV if hedging
instrument, or
Held-for-trading
FV if hedging
instrument, or
mandatorily at
FVTPL
Bank indebtedness
Other liabilities
Amortized cost
Accounts payable and Other liabilities
accrued liabilities
Amortized cost
Dividends payable
Other liabilities
Amortized cost
Other liabilities
Other liabilities
Amortized cost
Long-term debt
Other liabilities
Amortized cost
Notes to Consolidated Financial Statements
Impairment
IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-
looking “expected credit loss” (“ECL”) model. The ECL model requires
judgement, including consideration of how changes in economic
factors affect ECLs, which are determined on a probability-weighted
basis. The new impairment model is applied, at each reporting date,
to the Corporation’s financial assets measured at amortized cost and
contract assets.
The Corporation adopted the simplified approach to determine ECL
on trade and other receivables, using a provision matrix based on
historical credit loss experiences adjusted to reflect information
about current economic conditions and forecasts of future economic
conditions to estimate lifetime ECL. The ECL models applied to
other financial assets and contract assets also required judgement,
assumptions and estimations on changes in credit risks, forecasts
of future economic conditions and historical information on the credit
quality of the financial asset. The provision matrix and other ECL
models applied on adoption of IFRS 9 did not have a material impact
on the financial assets of the Corporation.
Impairment losses are recorded in selling and administrative
expenses with the carrying amount of the financial asset or contract
asset reduced through the use of impairment allowance accounts.
General hedging
The Corporation has elected to adopt the new general hedge
accounting model in IFRS 9. IFRS 9 requires the Corporation to
ensure that hedge accounting relationships are aligned with the
Corporation’s risk management objectives and strategy and to apply
a more qualitative and forward-looking approach to assessing hedge
effectiveness. All hedging relationships designated under IAS 39
at December 31, 2017 met the criteria for hedge accounting under
IFRS 9 at January 1, 2018 and are therefore treated as continuing
hedging relationships. Under IFRS 9, for cash flow hedges of foreign
currency risk associated with forecast inventory purchases, the
amounts accumulated in the cash flow hedges reserve are included
directly in the initial cost of the inventory item when it is recognized.
Otherwise the adoption of the standard did not have an impact on the
Corporation’s hedging arrangements.
New standards and interpretations not yet adopted
On January 1, 2019, the Corporation will be required to adopt
IFRS 16 Leases. The new standard contains a single lease
accounting model for lessees, whereby all leases with a term longer
than 12 months are recognized on-balance sheet through a right-of-
use asset and lease liability. The model features a front- loaded total
lease expense recognized through a combination of depreciation and
interest. Lessor accounting remains similar to current requirements.
The Corporation has elected to apply the modified retrospective
approach of accounting on transition resulting in no restatement
of prior period comparatives. The Corporation’s long term leases
primarily relate to rental of real estate. The new standard will result
in a material increase in right-of-use assets and lease obligations
Trade and other receivables
Contract assets
Inventory
Rental equipment
Deferred tax assets
Accounts payable and accrued liabilities
Contract liabilities
Income taxes payable
Retained earnings
which will differ to the operating lease commitments disclosed in
Note 25, primarily as a result of the discount rates applied and lease
term determination.
IFRIC 23 Uncertainty over Income Tax Treatments (effective
January 1, 2019) provides guidance when there is uncertainty over
income tax treatments including, but not limited to, whether uncertain
tax treatments should be considered separately; assumptions made
about the examination of tax treatments by tax authorities; the
determination of taxable profit, tax bases, unused tax losses, unused
tax credits, and tax rates; and, the impact of changes in facts and
circumstances. Management has assessed the interpretation and
expects there to be no impact.
5. Adjustments to Prior Period Financial Statements
The Corporation has adjusted the prior period financial statements
for the following:
a) Adoption of IFRS 15
As discussed in Note 4, the Corporation adopted IFRS 15 effective
January 1, 2018 with retrospective application.
b) Correction of non-material errors in
prior periods (“Other adjustments”)
During 2016, as part of its transition to the “One Wajax” operating
model, the Corporation consolidated its three former operating
divisions - Wajax Equipment, Wajax Power Systems and Wajax
Industrial Components – into one business. As a result, in 2017,
the Corporation began to report on its operations as one operating
segment, versus the prior three operating segments. In 2018, the
Corporation communicated plans to redesign its finance function
(“Finance Reorganization Plan”), with the following objectives: (1) to
better align the operation of the finance group with the operation of
the business, (2) to standardize financial policies, procedures and
controls of the three former operating divisions, and (3) apply the
standardized financial policies, procedures and controls across the
organization to support the implementation of the Corporation’s new
ERP system which is expected to begin in 2019. The finance function
redesign is being completed with the support of external advisors to
ensure adherence to industry best practices.
Management has applied the now standardized financial policies,
procedures and controls to the three former operating divisions and
noted non-cash accounting errors in the current and prior periods,
primarily relating to accounts payable. Although not material to any
one year, management has corrected the errors in the financial
statements for the current period ending December 31, 2018 and
adjusted prior period comparative information. The after-tax error
for fiscal 2018 and 2017 totals $1,755 and $3,073, respectively.
The cumulative after-tax error for fiscal 2016 and prior periods
totals $7,596.
The Corporation’s prior year consolidated statements of financial
position have been impacted as follows by the adoption of IFRS 15
as discussed in Note 4, and by the Other adjustments:
As previously
reported
December 31
2016
$ 194,613 $
7,095
283,421
58,106
4,573
238,554
—
2,287
90,812
IFRS 15
adjustment
(Note 4)
Other
adjustments
(Note 5)
As adjusted
January 1
2017
(2,869) $
15,224
(9,488)
—
(771)
(4,486)
4,486
—
2,096
— $ 191,744
22,319
—
274,566
633
57,908
(198)
3,950
148
243,398
9,330
4,486
—
1,136
(1,151)
85,312
(7,596)
Wajax 2018 Annual Report 51
Notes to Consolidated Financial Statements
Trade and other receivables
Contract assets
Inventory
Income taxes receivable
Rental equipment
Property, plant and equipment
Goodwill and intangible assets
Accounts payable and accrued liabilities
Contract liabilities
Income taxes payable
Deferred tax liabilities
Other liabilities
Retained earnings
As previously
reported
December 31
2017
$ 207,353 $
4,128
322,778
—
61,257
43,934
41,905
235,501
—
667
1,401
2,585
97,661
IFRS 15
adjustment
(Note 4)
Other
adjustments
(Note 5)
As adjusted
December 31
2017
(3,404) $
15,201
(9,538)
—
—
—
—
(11,129)
11,129
—
608
—
1,651
— $ 203,949
19,329
—
312,974
(266)
484
484
60,418
(839)
43,598
(336)
41,705
(200)
236,179
11,129
—
731
2,235
88,643
11,807
—
(667)
(1,278)
(350)
(10,669)
The Corporation's consolidated statement of earnings for the year ended December 31, 2017 has been impacted as follows by the adoption of
IFRS 15 as discussed in Note 4, and by the Other adjustments:
As previously
reported
IFRS 15
adjustment
(Note 4)
Other
adjustments
(Note 5)
As adjusted
Revenue
Cost of sales
Selling and administrative expenses
Restructuring and other related costs (recoveries)
Income tax expense
Net earnings
Basic earnings per share
Diluted earnings per share
$ 1,319,290 $
1,064,468
197,145
(315)
11,844
30,899
1.58
1.53
(559) $
49
—
—
(163)
(445)
(0.02)
(0.02)
4,196
— $ 1,318,731
1,068,713
196,816
21
10,551
27,381
1.40
1.36
(329)
336
(1,130)
(3,073)
(0.16)
(0.15)
The Corporation's consolidated statement of cash flows for the year ended December 31, 2017 has been impacted as follows by the adoption
of IFRS 15 as discussed in Note 4, and by the Other adjustments:
Operating activities:
Net earnings
Rental equipment depreciation
Intangible assets amortization
Income tax expense
Changes in non-cash operating working capital
Other non-current liabilities
Cash generated from operating activities
Investing activities:
Property, plant and equipment additions
As previously
reported
IFRS 15
adjustment
(Note 4)
Other
adjustments
(Note 5)
As adjusted
$
30,899 $
13,402
570
11,844
(34,051)
(902)
7,143
(445) $
—
—
(163)
608
—
—
(3,073) $
641
200
(1,130)
3,376
(350)
(336)
27,381
14,043
770
10,551
(30,067)
(1,252)
6,807
(3,391)
—
336
(3,055)
6. Acquisition of Business
Groupe Delom Inc. (“Delom”)
On October 16, 2018, the Corporation acquired 100% of the issued
and outstanding shares of Montreal, Quebec-based Delom. The
aggregate purchase price for the shares was $52,141 cash (subject
to final working capital adjustments), including $2,000 which is
subject to the achievement of certain performance targets post-
closing. Founded in 1963, Delom specializes in the maintenance
and repair of critical electromechanical and rotating equipment for
continuous process industries. Serving customers in diverse end
markets, including hydroelectric, wind and nuclear power generation,
mining, pulp and paper, petrochemical, aluminum smelting, and rail
and marine transportation, Delom has six branches across Eastern
Canada and employs more than 350 people. Revenues of $18,046
and net income of $1,335 were included in the consolidated
statements of earnings and statements of comprehensive income
from the date of acquisition.
Final valuations of certain items are not yet complete due to the
inherent complexity associated with valuations and the timing of the
acquisition. Therefore, the purchase price allocation is preliminary
and subject to adjustment on completion of the valuation process.
The Corporation determined the preliminary fair values based on
discounted cash flows, market information, independent valuations
and management's estimates.
52 Wajax 2018 Annual Report
Notes to Consolidated Financial Statements
Recognized amounts of identifiable assets acquired and liabilities
assumed for the acquisition are as follows:
2018
2017
As adjusted
(Note 5)
Cash
Trade and other receivables
Contract assets
Inventory
Prepaid expenses
Property, plant and equipment
Deferred tax liabilities
Accounts payable and accrued liabilities
Contract liabilities
Income taxes payable
Derivative financial liabilities
Other liabilities
Tangible net assets acquired
Intangible assets
Goodwill
Total Purchase Price
$
1,080
14,532
8,010
6,481
899
11,521
(5,140)
(10,880)
(1,792)
(629)
(70)
(204)
$ 23,808
17,065
11,268
$ 52,141
Trade accounts receivable
Less: allowance for credit losses
$ 182,587 $ 187,031
(832)
(953)
Net trade accounts receivable
Other receivables
181,634
24,623
186,199
17,750
Total trade and other receivables
$ 206,257 $ 203,949
The Corporation has an agreement with a financial institution to sell
100% of selected trade accounts receivable on a recurring, non-
recourse basis. Under the agreement, up to $20,000 of accounts
receivable may be sold to the financial institution and can remain
outstanding at any point in time. After the sale, the Corporation does
not retain any interests in the accounts receivable and removes them
from its consolidated statement of financial position, but continues
to service and collect the outstanding accounts receivable on behalf
of the financial institution. Net proceeds from this program are
classified in operating activities in the consolidated statements of
cash flows. This program reduced the Corporation's trade and other
receivables by $9,877 as at December 31, 2018 (2017 – $nil).
Net cash outflow for the acquisition was $51,061, as $1,080 of cash
was acquired as part of Delom's net assets.
The Corporation’s exposure to credit and currency risks related to
trade and other receivables is disclosed in Note 16.
Trade and other receivables represents gross contractual amounts
receivable of $14,582 less management's best estimate of the
allowance for doubtful accounts of $50.
Goodwill arises principally from the ability to leverage customer
relationships, the established trade names, assembled workforce
and industry knowledge, future growth and the potential to realize
synergies in the form of cost savings. The goodwill recorded on the
acquisition of Delom is not deductible for income tax purposes.
Delom transaction costs, primarily for advisory services, were
approximately $456 and were included in selling and administrative
expenses for the year ended December 31, 2018.
Pro-forma disclosures
The following pro-forma supplemental information presents certain
results of operations as if the acquisition had been completed on
January 1, 2018.
Revenue
Net earnings
As reported
Pro-forma
(unaudited)
$ 1,481,597 $ 1,533,784
$ 35,852 $ 39,116
The pro-forma supplemental information is based on estimates
and assumptions which are believed to be reasonable. The pro-
forma supplemental information is not necessarily indicative of the
Corporation's consolidated financial results in future periods or the
results that would have been realized had the business acquisition
been completed at the beginning of the period presented. The pro-
forma supplemental information excludes business integration costs
and opportunities.
7. Trade and Other Receivables
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. Trade and other
receivables as at December 31, 2018 and December 31, 2017 are
comprised of the following:
8. Contract Assets and Liabilities
The following table provides information about contract assets and
contract liabilities from contracts with customers:
December 31 December 31
2017
As adjusted As adjusted
January 1
2017
2018
Contract assets
Contract liabilities
$ 30,307 $ 19,329 $ 22,319
4,486
11,129
8,291
The contract assets primarily relate to the Corporation's rights to
consideration for work completed but not billed at the reporting
date on product support and ERS revenue. The contract assets are
transferred to receivables when billed upon completion of significant
milestones. The contract liabilities primarily relate to the advance
consideration received from customers on equipment sales, industrial
parts, and ERS revenue, for which revenue is recognized when control
transfers to the customer.
Revenue recognized in 2018 that was included in the contract liability
balance at the beginning of the year was $9,415 (2017 – $3,324).
During the year, contract assets increased by $8,010 and contract
liabilities increased by $1,792 due to the business acquisition
further discussed in Note 6.
9. Inventory
The Corporation’s inventory balances as at December 31, 2018 and
December 31, 2017 consisted of the following:
Equipment
Parts
Work-in-process
Total inventory
2018
2017
As adjusted
(Note 5)
$ 221,081 $ 194,311
104,170
14,493
127,026
17,890
$ 365,997 $ 312,974
All amounts shown are net of obsolescence reserves of $26,014
(2017 – $22,644). For the year ended December 31, 2018, $5,474
(2017 – $3,452) was recorded in cost of sales for the write-down of
inventory to estimated net realizable value.
Wajax 2018 Annual Report 53
Notes to Consolidated Financial Statements
The Corporation recognized $988,513 (2017 – $870,671) of
inventory as an expense which is included in cost of sales.
As at December 31, 2018 the Corporation has included $47,266,
(December 31, 2017 – $37,159) in Equipment inventory related to
short term rental contracts that are expected to convert to Equipment
sales within a six to twelve month period.
Substantially all of the Corporation’s inventory is pledged as security
for the bank credit facility (Note 15).
10. Property, Plant and Equipment and Rental Equipment
Deposits on inventory in the statements of financial position,
amounting to $13,445 as at December 31, 2018 (2017 – $6,874),
represents deposits and other required periodic payments on
equipment held on consignment. These payments reduce the
collateral value of the equipment and therefore the ultimate amount
owing to the supplier upon eventual purchase. Upon sale of the
equipment to a customer, the Corporation is required to purchase the
equipment in full from the supplier.
Land and
buildings
Equipment
and vehicles
Computer
hardware
Furniture
and fixtures
Leasehold
improvements
Property,
plant and
equipment
Rental
equipment
Cost
December 31, 2017 (as adjusted)
Additions
Net transfers to inventory
Disposals
Acquisition of business (Note 6)
$
38,125 $
720
—
(1,353)
—
74,546 $
10,499
—
(8,141)
8,947
4,249 $
1,581
—
(222)
104
11,700 $
633
—
(1,439)
241
9,763 $ 138,383 $ 118,682
43,638
13,996
(34,152)
—
—
—
563
—
(756)
(11,911)
11,521
2,229
December 31, 2018
$
37,492 $
85,851 $
5,712 $
11,135 $
11,799 $ 151,989 $ 128,168
Accumulated depreciation
December 31, 2017 (as adjusted)
Charge for the year
Net transfers to inventory
Disposals
$
18,004 $
696
—
(608)
56,209 $
6,223
—
(7,775)
3,303 $
505
—
(13)
9,121 $
611
—
(1,420)
8,148 $
722
—
(754)
94,785 $
8,757
—
(10,570)
58,264
17,018
(20,830)
—
December 31, 2018
$
18,092 $
54,657 $
3,795 $
8,312 $
8,116 $
92,972 $
54,452
Carrying amount
December 31, 2018
$
19,400 $
31,194 $
1,917 $
2,823 $
3,683 $
59,017 $
73,716
Cost
December 31, 2016
Additions
Net transfers to inventory
Disposals
$
39,620 $
112
—
(1,607)
74,361 $
6,380
—
(6,195)
6,366 $
422
—
(2,539)
12,003 $
282
—
(585)
9,588 $ 141,938 $ 106,543
19,310
7,710
(7,171)
—
—
514
—
(339)
(11,265)
December 31, 2017 (as adjusted)
$
38,125 $
74,546 $
4,249 $
11,700 $
9,763 $ 138,383 $ 118,682
Accumulated depreciation
December 31, 2016 (as adjusted)
Charge for the year
Net transfers to inventory
Disposals
$
17,996 $
798
—
(790)
56,120 $
5,801
—
(5,712)
5,246 $
541
—
(2,484)
9,025 $
640
—
(544)
7,893 $
623
—
(368)
96,280 $
8,403
—
(9,898)
48,635
14,043
(4,414)
—
December 31, 2017 (as adjusted)
$
18,004 $
56,209 $
3,303 $
9,121 $
8,148 $
94,785 $
58,264
Carrying amount
December 31, 2017 (as adjusted)
$
20,121 $
18,337 $
946 $
2,579 $
1,615 $
43,598 $
60,418
Included in property, plant and equipment are vehicles held under
finance leases as follows:
2018
2017
Cost, beginning of year
Additions
Disposals
Purchased at end of lease
$ 21,067 $ 20,234
4,655
(230)
(3,592)
(240)
(4,491)
8,469
Cost, end of year
$ 24,805 $ 21,067
Accumulated depreciation,
beginning of year
Charge for the year
Disposals
Purchased at end of lease
$ 12,400 $ 12,935
2,628
(186)
(2,977)
(223)
(3,865)
3,305
Accumulated depreciation, end of year $ 11,617 $ 12,400
Carrying amount
$ 13,188 $
8,667
54 Wajax 2018 Annual Report
All property, plant and equipment except land and buildings and
vehicles held under finance leases have been pledged as security for
bank debt (Note 15).
11. Goodwill and Intangible Assets
The Corporation performed its annual impairment test of its goodwill
and indefinite life intangibles as at December 31, 2018. The
recoverable amount of the CGU group was estimated based on the
present value of the future cash flows expected to be derived from
the CGU group (value in use). This approach requires assumptions
about revenue growth rates, operating margins, tax rates and
discount rates. The maintainable discretionary after-tax cash flows
from operations are based on historical results, the Corporation's
projected 2019 operating budget and its long term strategic plan.
To prepare these calculations, the forecasts were extrapolated
beyond the five year period at the estimated long-term inflation
rate of 2% (2017 – 2%). The Corporation assumed a discount
Notes to Consolidated Financial Statements
rate of approximately 9.7% (2017 – 9.2%) which is based on the
Corporation’s after-tax weighted average cost of capital.
The tax rates applied to the cash flow projections were based on
the effective tax rate of the Corporation of approximately 28.0%.
Tax assumptions are sensitive to changes in tax laws as well as
assumptions about the jurisdictions in which profits are earned. It is
possible that actual tax rates could differ from those assumed.
The Corporation concluded as at December 31, 2018 that no
impairment existed in either the goodwill or the intangible assets
with an indefinite life, as the recoverable amount of the CGU group
exceeded its carrying value.
The Company did not reverse any impairment losses for definite
life intangible assets for the years ended December 31, 2018 and
December 31, 2017.
Cost
December 31, 2017
Additions
Disposals
Acquisition of business (Note 6)
December 31, 2018
Accumulated amortization
December 31, 2017 (as adjusted)
Charge for the year
Disposals
December 31, 2018
Carrying amount
December 31, 2018
Cost
December 31, 2016
Additions
Disposals
December 31, 2017
Accumulated amortization
December 31, 2016
Charge for the year
Disposals
December 31, 2017 (as adjusted)
Carrying amount
Product
distribution
rights
Customer
lists/Non-
competition
agreements
3,200
—
—
176
3,376
—
—
—
—
7,402
—
—
16,729
24,131
6,601
927
—
7,528
$
Goodwill
36,395
—
—
11,268
$
47,663
$
$
—
—
—
—
Software
Total
5,554 $
4,837
(3)
160
52,551
4,837
(3)
28,333
10,548 $
85,718
4,245 $
263
(3)
10,846
1,190
(3)
4,505 $
12,033
$
47,663
3,376
16,603
6,043 $
73,685
$
36,395
—
—
$
36,395
$
$
—
—
—
—
3,200
—
—
3,200
—
—
—
—
7,402
—
—
7,402
6,001
600
—
6,601
5,187 $
1,270
(903)
52,184
1,270
(903)
5,554 $
52,551
4,978 $
170
(903)
10,979
770
(903)
4,245 $
10,846
December 31, 2017 (as adjusted)
$
36,395
3,200
801
1,309 $
41,705
Amortization of intangible assets is charged to selling and administrative expenses.
12. Accounts Payable and Accrued Liabilities
Trade payables and other amounts at December 31, 2018 and
December 31, 2017 are comprised of the following:
Supplier payables with extended terms relate to equipment
purchases from suppliers with payment terms ranging anywhere from
approximately 60 days to 8 months.
Trade payables
Deferred income – other
Supplier payables
with extended terms
Payroll, bonuses and incentives
Restructuring accrual
Accrued liabilities
Provisions
Accounts payable and
accrued liabilities
Note
2018
2017
As adjusted
(Note 5)
$ 142,818 $ 126,556
893
1,053
21
34,672
32,223
817
39,193
2,182
36,119
29,751
468
36,349
6,043
$ 252,958 $ 236,179
13. Finance Leases
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 Corporation has an option to purchase the vehicles
at their residual value, or the difference between the lessor’s
proceeds of disposal and the residual value is charged or refunded
to the Corporation as a rental adjustment. Obligations under finance
leases are as follows:
Wajax 2018 Annual Report 55
Notes to Consolidated Financial Statements
Current
Non-current (between one and five years)
Total minimum lease payments
$
Payment
5,270
10,132
$
15,402
Finance
costs
648
1,005
1,653
2018
Present
value of
minimum
lease
payments
Payment
4,622 $
9,127
4,236
6,294
Finance
costs
446
573
13,749 $
10,530
1,019
2017
Present
value of
minimum
lease
payments
3,790
5,721
9,511
The change in obligations under finance leases is as follows:
Balance at beginning of year
Changes from financing cash flows
Finance lease payments
Other changes
New finance leases, net of disposals
$
2018
2017
9,511 $
8,855
(4,214)
(3,955)
8,452
4,611
Balance at end of year
$ 13,749 $
9,511
14. Employee Benefits
The Corporation sponsors three pension plans: the Wajax Limited
Pension Plan (the “Employees’ Plan”) which, except for a small group
of employees, is 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
Supplemental Executive Retirement Plan (the “SERP”).
The Corporation also contributes to several union sponsored multi-
employer pension plans for a small number of employees. Two of
these are target benefit plans but they are accounted for as DC plans
since 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.
The Corporation uses actuarial reports prepared by independent
actuaries for funding and accounting purposes and measures
its defined 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, compensation
increases, mortality rates, inflation and service life. While
management believes that the actuarial assumptions are appropriate,
any significant changes to those used would affect the statements of
financial position and statements of earnings.
The schedule for actuarial valuations of the pension plans for funding
purposes is as follows:
Plan
Previous valuation
Next valuation
Employees Plan
Executive Plan
January 1, 2018
January 1, 2018
January 1, 2021
January 1, 2021
Assumptions regarding future mortality were based on the following
mortality tables: 2014 Private Sector Canadian Pensioner's Mortality
Table for the Employees’ Plan, and 2014 Public Sector Canadian
Pensioner's Mortality Table for the Executive Plan and SERP.
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
2018
3.9%
37.4%
28.2%
30.5%
2017
3.7%
36.5%
28.2%
31.6%
100.0%
100.0%
The history of adjustments on the defined benefit plans for the
current and prior year are as follows:
Actuarial (gain) loss on defined
benefit obligation arising from:
Experience adjustment
Demographic assumption changes
Economic assumption changes
$
Actuarial loss (gain) on asset return
Total remeasurement
gain recognized in OCI
Total cash payments
2018
2017
(307) $
260
(665)
(712)
614
(478)
—
949
471
(652)
$
(98) $
(181)
Total cash payments for employee future benefits for 2018, 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 $8,694 (2017 – $7,758).
The Corporation expects to contribute $515 to the defined benefit
pension plans in the year ended December 31, 2019.
The plan expenses recognized in earnings are as follows:
The following significant actuarial assumptions were used to
determine the net defined benefit plan cost and the defined benefit
plan obligations:
December 31
2018
2017
Discount rate – at beginning of year
(to determine plan expenses)
Discount rate – at end of year
(to determine defined benefit obligation)
Rate of compensation increase
Rate of inflation
3.3%
3.5%
3.0%
2.0%
3.5%
3.3%
3.0%
2.0%
Defined contribution plans
Current service cost
Defined benefit plans
Current service cost
Administration expenses
SERP line of credit fees
Interest cost on defined
benefit obligation
Interest income on assets
2018
2017
$
7,853 $
6,974
451
354
227
708
(430)
434
317
183
770
(470)
1,310
1,234
Total plan expense
recognized in earnings
$
9,163 $
8,208
56 Wajax 2018 Annual Report
Notes to Consolidated Financial Statements
Of the amounts recognized in earnings, $3,350 (2017 – $2,493) is
included in cost of sales and $5,813 (2017 – $5,715) is included in
selling and administrative expenses.
The amounts recognized in other comprehensive income are as follows:
Net actuarial gains
Deferred tax expense
Amount recognized in other
comprehensive income
$
2018
(98) $
26
2017
(181)
49
$
(72) $
(132)
Cumulative actuarial losses, net of tax $
3,171 $
3,243
Information about the Corporation’s defined benefit pension plans, in
aggregate, is as follows:
Present value of benefit obligation
2018
2017
Present value of benefit
obligation, beginning of year
Current service cost
Participant contributions
Interest cost on defined
benefit obligation
Actuarial (gain) loss
Benefits paid
Present value of benefit
obligation, end of year
Plan assets
Fair value of plan assets,
beginning of year
Actual (loss) return
Participant contributions
Employer contributions
Benefits paid
Administration expenses
$ 22,344 $ 22,025
434
32
451
24
708
(712)
(1,425)
770
471
(1,388)
$ 21,390 $ 22,344
2018
2017
$ 13,423 $ 13,295
1,129
(184)
32
24
672
841
(1,388)
(1,425)
(317)
(354)
Fair value of plan assets, end of year $ 12,325 $ 13,423
Funded Status
2018
2017
Fair value of plan assets, end of year $ 12,325 $ 13,423
Present value of benefit
obligation, end of year
(21,390)
(22,344)
Plan deficit
$
(9,065) $
(8,921)
The accrued benefit liability is included in the Corporation’s statement
of financial position as follows:
Accounts payable and accrued liabilities $
Employee benefits
(620) $
(8,445)
(376)
(8,545)
Plan deficit
$
(9,065) $
(8,921)
2018
2017
Present value of benefit obligation includes a benefit obligation of
$5,919 (2017 – $6,504) related to the SERP that is not funded. This
obligation is secured by a letter of credit of $5,810 (2017 – $6,970).
15. Long-Term Debt
On October 16, 2018, the Corporation amended its bank credit facility,
increasing the limit from $300,000 to $400,000 and extending the
maturity date from September 20, 2021 to September 20, 2023.
There were no changes to the existing financial covenants under the
credit facility restricting distributions, acquisitions and investments.
The $918 cost of amending the facility has been capitalized and will
be amortized over the remaining term of the facility.
Borrowings under the bank credit facility 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 the
Corporation’s leverage ratio at the time of borrowing and range between
1.5% and 3.0% for Canadian dollar bankers’ acceptances and U.S.
dollar LIBOR borrowings, and 0.5% and 2.0% for prime rate borrowings.
Borrowing capacity under the bank credit facility is dependent upon
the level of the Corporation’s inventory on hand and the outstanding
trade accounts receivable. In addition, the bank credit facility
contains customary restrictive covenants including limitations on the
declaration of cash dividends and an interest coverage maintenance
ratio, all of which were met as at December 31, 2018.
As at December 31, 2018 and December 31, 2017 the following
balances were outstanding:
Bank credit facility
Non-revolving term portion
Revolving term portion
Deferred financing costs, net
of accumulated amortization
2018
2017
$ 50,000 $ 50,000
95,000
170,000
220,000
145,000
(1,884)
(1,333)
Total long-term debt
$ 218,116 $ 143,667
The Corporation had $6,101 (2017 – $7,258) letters of credit
outstanding at the end of the year.
Interest on long-term debt amounted to $8,281 (2017 – $9,366).
Movements in the long-term debt balance throughout the year are
shown as follows:
2018
2017
Balance at beginning of year
Changes from financing cash flows
Net proceeds of borrowings
Transaction costs related to borrowings
Other changes
Amortization of capitalized
$ 143,667 $ 121,952
75,000
(918)
20,000
(567)
transaction costs
Write-off of capitalized transaction costs
367
—
657
1,625
Balance at end of year
$ 218,116 $ 143,667
16. Financial Instruments and
Financial Risk Management
At December 31, 2018, the Corporation's financial instruments
consisted of cash and cash equivalents and bank indebtedness,
trade and other receivables, interest rate swaps, foreign exchange
forwards, total return swaps, trade and other payables, finance lease
liabilities and long term debt.
Wajax 2018 Annual Report 57
Notes to Consolidated Financial Statements
The Corporation uses the following fair value hierarchy for
determining and disclosing the fair value of financial instruments:
Level 1 – unadjusted quoted prices in active markets for identical
assets or liabilities.
Level 2 – other techniques for which all inputs that have a significant
effect on the recorded fair value are observable, either
directly or indirectly.
Level 3 – techniques that use inputs that have a significant effect on
the recorded fair value that are not based on observable
market data.
The Corporation categorizes its financial assets and financial
liabilities as follows:
2018
2017
As adjusted
(Note 5)
Credit risk
The Corporation is exposed to credit risk with respect to its trade and
other receivables. This risk is mitigated by the Corporation’s large
customer base which covers many business sectors 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:
Current
Less than 60 days overdue
More than 60 days overdue
2018
2017
$ 88,065 $ 101,931
74,251
10,849
75,577
18,945
Total trade accounts receivable
$ 182,587 $ 187,031
Financial assets measured
at amortized cost:
(Bank indebtedness) cash
Trade and other receivables
Contract assets
Financial liabilities measured
at amortized cost:
Accounts payable and
accrued liabilities
Contract liabilities
Dividends payable
Other liabilities
Obligations under finance leases
Long-term debt
Net derivative financial assets
(liabilities) measured at fair value:
Foreign exchange forwards
Total return swaps
Interest rate swaps
$
(3,932) $
206,257
30,307
(1,724)
203,949
19,329
(252,958)
(8,291)
(4,989)
(2,214)
(13,749)
(218,116)
(236,179)
(11,129)
(4,876)
(2,235)
(9,511)
(143,667)
(67)
(4,265)
(2,236)
(547)
—
151
The Corporation measures non-derivative financial assets and
financial liabilities at amortized cost. Derivative financial assets/
liabilities are recorded on the consolidated statements of financial
position at fair value. Changes in fair value are recognized in the
consolidated statements of earnings except for changes in fair value
related to derivative financial assets/liabilities which are effectively
designated as hedging instruments which are recognized in other
comprehensive income. The Corporation's derivative financial
assets/liabilities are held with major Canadian chartered banks and
are deemed to be Level 2 financial instruments. The fair values of
financial assets/liabilities measured at amortized cost, excluding
long-term debt and cash-settled share-based compensation liabilities,
approximate their recorded values due to the short-term maturities
of these instruments. The cash-settled share-based compensation
liability is recorded at fair value based on the Corporation's share
price and deemed to be a Level 1 financial instrument. The fair
value of long-term debt approximates its recorded value due to its
floating interest rate.
The Corporation, through its financial assets and liabilities,
has exposure to the following risks from its use of financial
instruments: credit risk, liquidity risk, and market risk (consisting
of currency risk, interest rate risk and equity price risk). The
following analysis provides a measurement of these risks as at
December 31, 2018 and 2017.
58 Wajax 2018 Annual Report
The carrying amounts of accounts receivable represent the maximum
credit exposure.
The Corporation maintains an allowance for expected credit losses
taking into account past experience of collecting payments as well as
observable changes in and forecasts of future economic conditions
that correlate with default on receivables. Any such losses to date
have been within management’s expectations. Movement of the
allowance for credit losses is as follows:
Opening balance
Additions
Utilization
Closing balance
2018
$
832 $
1,042
(921)
2017
1,079
615
(862)
$
953 $
832
The Corporation is also exposed to the risk of non-performance by
counterparties to foreign exchange forwards, interest rate swaps
and total return swaps. These counterparties are large financial
institutions that maintain high short-term and long-term credit
ratings. To date, no such counterparty has failed to meet its financial
obligations to the Corporation. Management does not believe there is
a significant risk of non- performance by these counterparties and will
continue to monitor the credit risk of these counterparties.
Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty
in meeting obligations associated with its financial liabilities as
they become due. The contractual maturity of the bank credit facility
is September 20, 2023. At December 31, 2018, the Corporation
had borrowed $220,000 (2017 – $145,000) from the bank credit
facility. The Corporation issued $6,101 (2017 – $7,258) of letters
of credit for a total utilization of $226,101 (2017 – $152,258) of its
$400,000 (2017 – $300,000) bank credit facility and had not utilized
any (2017 – nil) of its $25,000 (2017 – $25,000) interest bearing
equipment financing facilities.
Wajax’s $400,000 bank credit facility, of which $173,899 was
unutilized at the end of the year, along with the additional $25,000
of capacity permitted under the bank credit facility, is deemed to
be sufficient to meet Wajax’s short-term normal course working
capital and maintenance capital requirements and certain strategic
investments. However, Wajax may be required to access the equity or
debt markets to fund significant acquisitions.
Notes to Consolidated Financial Statements
Market risk
Market risk is the risk from changes in market prices, such
as changes in foreign exchange rates, interest rates, and the
Corporation's share price which will affect the Corporation's earnings
as well as the value of the financial instruments held and cash-
settled share-based liabilities outstanding. The exposure to these
risks is managed through the use of various derivative instruments.
a) Currency risk
Certain of the Corporation's sales to customers and purchases
from vendors are exposed to fluctuations in the U.S. dollar
("USD") and the Euro ("EUR"). When considered appropriate, the
Corporation purchases foreign exchange forwards for USD and EUR
as a means of mitigating this risk. A change in foreign currency
relative to the Canadian dollar would not have a material impact
on the Corporation’s unhedged foreign currency-denominated sales
to customers along with the associated receivables, or on the
Corporation’s unhedged foreign currency-denominated purchases
from vendors along with the associated payables. The Corporation
will periodically institute price increases to offset the negative impact
of foreign exchange rate increases and volatility on imported goods
to ensure margins are not eroded. However, a sudden strengthening
of the U.S. dollar relative to the Canadian dollar can have a negative
impact mainly on parts margins in the short term prior to price
increases taking effect.
The Corporation maintains a hedging policy whereby significant
transactional currency risks are usually identified and hedged.
b) Interest rate risk
The Corporation's borrowing costs are impacted by changes in
interest rates. The Corporation’s tolerance to interest rate risk
decreases as the Corporation’s leverage ratio increases and
interest coverage ratio decreases. To manage this risk prudently,
guideline percentages of floating interest rate debt decrease as
the Corporation’s leverage ratio increases. Wajax has entered into
interest rate swap contracts primarily to minimize exposure to
interest rate fluctuations on its variable rate debt.
A 1.00 percentage point change in interest rates on the average
amount outstanding under the bank credit facility for 2018 would
result in a change to earnings before income taxes of approximately
$1,846 for the year.
c) Equity price risk
The Corporation's total return swaps are exposed to fluctuations in
its share price. A $1.00 per share decrease in the share price would
result in a decrease in earnings before income taxes of approximately
$440 relating to the total return swaps. An increase of $1.00 per
share would result in an equal and opposite effect on earnings before
income taxes.
Derivative financial instruments and hedges
The interest rate swaps are designated as effective hedges and
are measured at fair value with subsequent changes in fair value
recorded in other comprehensive income. Amounts in accumulated
other comprehensive income are reclassified to net earnings in the
periods when the hedged item affects profit or loss. For the year
ended December 31, 2018, the Corporation recognized a loss of
$1,746 (2017 – gain of $110), net of tax in other comprehensive
income associated with its interest rate swaps. The Corporation’s
interest rate swaps outstanding are summarized as follows:
December 31, 2018
Notional
Amount
Average
Interest
Rate
Maturity
Interest rate swaps
$ 104,000
2.70%
November 2023
December 31, 2017
Notional
Amount
Average
Interest
Rate
Maturity
Interest rate swaps
$ 40,000
2.01% November 2019 to
November 2022
The Corporation enters into short-term foreign exchange forwards
to hedge the exchange risk associated with the cost of certain
inbound inventory and certain foreign currency-denominated sales
to customers along with the associated receivables as part of its
normal course of business. Foreign exchange forwards are initially
recognized on the date the derivative contract is entered into and
are subsequently re-measured at their fair values. The method
of recognizing the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument. In a cash flow
hedging relationship, the effective portion of the change in the
fair value of the hedging derivative, net of taxes, is recognized
in other comprehensive income while the ineffective portion is
recognized within net earnings. Amounts in accumulated other
comprehensive income are reclassified to net earnings in the periods
when the hedged item affects profit or loss. For the year ended
December 31, 2018, the Corporation recognized a gain of $52
(2017– loss of $115) associated with its foreign exchange forwards
in the consolidated statements of earnings and a gain of $365
(2017 – loss of $719), net of tax in other comprehensive income.
The Corporation’s contracts to buy and sell foreign currencies are
summarized as follows:
December 31, 2018
Average
Notional Exchange
Rate
Amount
Purchase contracts US$ 34,313
1.3146
€ 200
1.5575
Sales contracts
US$ 20,934
1.2856
€ 2,772
1.5288
December 31, 2017
Average
Notional Exchange
Rate
Amount
Purchase contracts US$ 48,507
1.2736
Sales contracts
US$ 13,816
1.2787
Maturity
January 2019 to
December 2019
January 2019 to
March 2019
January 2019 to
August 2020
January 2019 to
November 2019
Maturity
January 2018 to
December 2018
January 2018 to
June 2018
The Corporation has certain total return swaps to hedge the exposure
associated with increases in its share price on its outstanding
restricted share units ("RSUs"). The Corporation does not apply hedge
accounting to these relationships and as such, gains and losses
arising from marking these derivatives to market are recognized
in earnings in the period in which they arise. As at December 31,
2018, the Corporation's total return swaps cover 440,000 of the
Corporation's underlying common shares (2017 – nil). For the year
ended December 31, 2018, the Corporation recognized a loss of
$4,265 (2017 – loss of $nil) associated with its total return swaps.
Wajax 2018 Annual Report 59
Notes to Consolidated Financial Statements
Issued and outstanding,
December 31, 2017
Common shares issued
to settle share-based
compensation plans
Issued and outstanding,
December 31, 2018
Shares held in trust,
December 31, 2017
Net sale of (purchase of)
shares held in trust
Shares held in trust,
December 31, 2018
Issued and outstanding,
net of shares held in trust,
December 31, 2018
Issued and outstanding,
December 31, 2016 and
December 31, 2017
Shares held in trust,
December 31, 2016
Purchased for future
settlement of
certain share-based
compensation plans
Shares held in trust,
December 31, 2017
Issued and outstanding,
net of shares held in trust,
December 31, 2017
Number of
Common
Shares
Note
Amount
20,026,819 $ 180,572
18
105,375
1,380
20,132,194
181,952
(522,712)
(4,709)
347,032
3,126
(175,680)
(1,583)
19,956,514 $ 180,369
Number of
Common
Shares
Note
Amount
20,026,819 $ 180,572
(200,968)
(1,808)
(321,744)
(2,901)
(522,712)
(4,709)
19,504,107 $ 175,863
During 2018, the Corporation amended its Mid-Term Incentive Plan
for Senior Executives ("MTIP"), which is comprised of both restricted
share units ("RSUs") and performance share units ("PSUs"), such
that the RSU portion of the plan which was previously settled in
market-purchased common shares shall be settled in cash at the
end of the vested term. As a result of the modification to the MTIP
program, 440,000 shares previously held in trust for the purpose of
the future settlement of the MTIP were sold and subsequently hedged
through the use of derivative instruments. The cash consideration
received from the sale was $11,475, resulting in an increase to
share capital and retained earnings of $3,964 and $7,184 (net of tax
in the amount of $327) respectively.
During 2018, the Corporation purchased 92,968 (2017 – 321,744)
common shares on the open market through Employee Benefit Plan
Trusts for the future settlement of certain share-based compensation
plans. The cash consideration paid for the purchase was $2,000
(2017 – $7,499), the reduction in share capital was $838 (2017 –
$2,901) and the premium charged to retained earnings was $1,162
(2017 – $4,598).
Derivative financial assets consist of:
December 31
2018
2017
Interest rate swaps
Foreign exchange forwards
$
— $
1,635
Total derivative financial assets
$
1,635 $
Current portion
Long-term portion
$
$
1,635 $
— $
151
550
701
550
151
Derivative financial liabilities consist of:
Interest rate swaps
Foreign exchange forwards
Total return swaps
$
December 31
2018
2,236 $
1,702
4,265
2017
—
1,097
—
Total derivative financial liabilities
$
8,203 $
1,097
Current portion
Long-term portion
$
$
3,167 $
5,036 $
1,097
—
(Gains) losses on derivative financial assets/liabilities are as follows:
2018
2017
396 $
4,213
(553)
115
$
Opening net derivative
financial liability (asset)
Loss recognized in net earnings
Loss recognized in other
comprehensive income – net of tax
Tax on loss recognized in
other comprehensive income
Acquisition of business
1,381
508
70
Ending net derivative financial liability $
6,568 $
609
225
—
396
The balance in accumulated other comprehensive income relates to
changes in the value of the Corporation's various interest rate swaps
and foreign exchange forwards. These accumulated amounts will be
continuously released to the consolidated statements of earnings
within finance costs and gross profit, respectively.
During the years presented and cumulatively to date, changes in
counterparty credit risk have not significantly contributed to the
overall changes in the fair value of these derivative instruments.
17. Share Capital and Earnings Per Share
The Corporation is authorized to issue an unlimited number of no
par value common shares and an unlimited number of no par value
preferred shares. Each common share entitles the holder of record to
one vote at all meetings of shareholders. All issued common shares
are fully paid. There were no preferred shares outstanding as at
December 31, 2018 (2017 – nil). Each common share represents an
equal beneficial interest in any distributions of the Corporation and
in the net assets of the Corporation in the event of its termination
or winding-up.
60 Wajax 2018 Annual Report
Notes to Consolidated Financial Statements
Dividends declared
a) Treasury share rights plans
During 2018, the Corporation declared cash dividends of $1.00
per share or $19,747 (2017 – dividends of $1.00 per share
or $19,584). As at December 31, 2018, the Corporation had
$4,989 (2017 – $4,876) dividends outstanding to be paid on
January 3, 2019.
On March 21, 2019, the Corporation declared a first quarter 2019
dividend of $0.25 per share or $4,989.
Earnings per share
The following table sets forth the computation of basic and diluted
earnings per share:
Under the SOP and the DDSUP, rights are issued to the participants
which, upon satisfaction of time 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. Whenever dividends are paid on the Corporation’s shares,
additional rights (dividend equivalents) with a value equal to the
dividends are credited to the participants’ accounts.
The following rights under these plans are outstanding:
Number
of rights
388,983 $
26,111
15,452
(105,375)
Fair value
at time
of grant
6,524
571
—
(1,380)
2018
2017
As adjusted
(Note 5)
Outstanding at December 31, 2017
Granted in the year – new grants
– dividend equivalents
$ 35,852 $ 27,381
Settled in the year
Outstanding at December 31, 2018
325,171 $
5,715
19,686,075
19,605,884
At December 31, 2018 and December 31, 2017, all share rights
were vested.
The outstanding aggregate number of shares issuable to satisfy
entitlements under these plans is as follows:
19,686,075
461,827
19,605,884
598,854
20,147,902
20,204,738
$
$
1.82 $
1.78 $
1.40
1.36
Approved by shareholders
Exercised to date
Rights outstanding
Available for future grants
Number
of Shares
1,050,000
(352,664)
(325,171)
372,165
Numerator for basic and
diluted earnings per share:
– net earnings
Denominator for basic
earnings per share:
– weighted average shares,
net of shares held in trust
Denominator for diluted
earnings per share:
– weighted average shares,
net of shares held in trust
– effect of dilutive share rights
Denominator for diluted
earnings per share
Basic earnings per share
Diluted earnings per share
15,865 anti-dilutive share rights were excluded from the above
calculation (2017 – 15,204).
18. Share-Based Compensation Plans
The Corporation has four share-based compensation plans: the Wajax
Share Ownership Plan (“SOP”), the Directors’ Deferred Share Unit
Plan (“DDSUP”), the Mid-Term Incentive Plan for Senior Executives
(“MTIP”) and the Deferred Share Unit Plan (“DSUP”). The following
table provides the share-based compensation expense for awards
under all plans:
Treasury share rights plans
SOP equity-settled
DDSUP equity-settled
Total treasury share
rights plans expense
2018
2017
$
— $
570
19
589
$
570 $
608
Market-purchased share rights plans
MTIP equity-settled
DSUP equity-settled
$
960 $
194
2,593
117
Total market-purchased
share rights plans expense
Cash-settled rights plans
MTIP cash-settled
DSUP cash-settled
$
1,154 $
2,710
$
119 $
(57)
391
64
455
Total cash-settled rights plans expense $
62 $
Total share-based
compensation expense
$
1,786 $
3,773
b) Market-purchased share rights plans
The MTIP plan consists of restricted share units ("RSUs") and
performance share units ("PSUs"), and the equity-settled DSUP
plan consists of deferred share units ("DSUs"). During 2018, the
Corporation changed the settlement terms of the RSUs from share-
settled to cash-settled. On the date of modification, a liability for the
now cash settled RSUs was recognized at fair value of $4,578 as a
reduction from equity.
Market-purchased share rights plans now consist only of PSUs and
DSUs, which vest over three years and are settled in common shares
of the Corporation on a one-for-one basis. DSUs are only subject
to time- vesting, whereas PSUs are also subject to performance
vesting. PSUs can be split into two components: return on net assets
("RONA") PSUs and total shareholder return (“TSR”) PSUs.
RONA PSUs, introduced in 2016, vest dependent upon the
attainment of a target level of return on net assets. Such
performance vesting criteria results in a performance vesting
factor that ranges from 0% to 150% depending on the level of
RONA attained.
TSR PSUs, introduced in 2016, vest dependent upon the
attainment of a TSR market condition. Such performance vesting
criteria result in a performance vesting factor that ranges from
0% to 200% depending on the Corporation's TSR relative to a pre-
selected group of peers.
These plans are settled through shares purchased on the open
market by the employee benefit plan trust, subject to the attainment
of their vesting conditions. PSUs are settled at the end of the vesting
period, and the number of shares remitted to the participant upon
settlement is equal to the number of PSUs awarded multiplied by
the performance vesting factor less shares withheld to satisfy the
Wajax 2018 Annual Report 61
Notes to Consolidated Financial Statements
participant's withholding tax requirement. DSUs are settled when
the participant is no longer employed by the Corporation or one of its
subsidiary entities. Whenever dividends are paid on the Corporation’s
shares, additional rights with a value equal to the dividends are
credited to the participants’ accounts with the same vesting
conditions as the original PSU and DSU rights. The following rights
under these plans are outstanding:
As at December 31, 2018, the Corporation has included $30,144
(December 31, 2017 – $19,674) in Equipment sales related to short
term rental contracts that are expected to convert to Equipment sales
within a six to twelve month period.
b) Transaction price allocated to the
remaining performance obligations
Outstanding at December 31, 2017
Granted in the year – new grants
– dividend equivalents
Forfeitures
Number
of rights
203,096 $
84,933
10,659
(13,093)
Fair value
at time
of grant
4,658
2,462
—
(320)
The following table includes revenue expected to be recognized in
the future related to performance obligations that are unsatisfied (or
partially unsatisfied) at the reporting date:
2019
2020
Equipment sales
Product support
ERS/Other
$
2,847 $
2,874
174
889 $
1,363
3,160
Total
3,736
4,237
3,334
Outstanding at December 31, 2018
285,595 $
6,800
Total
$
5,895 $
5,412 $ 11,307
The Corporation has applied the practical expedient which permits
the Corporation to not disclose information about remaining
performance obligations that have original expected durations of one
year or less.
The Corporation has applied the practical expedient which permits
the Corporation to not disclose the amount of the transaction
price allocated to the remaining performance obligations and an
explanation of when the Corporation expects to recognize that
amount as revenue for the year ended December 31, 2017.
20. Employee Costs
Employee costs recorded in Cost of sales and in Selling and
administrative expenses for the Corporation during the year
amounted to:
2018
2017
Wages and salaries, including bonuses $ 220,925 $ 201,826
Other benefits
29,852
Pension costs
– defined contribution plans
Pension costs
– defined benefit plans
Share-based compensation expense
1,310
1,786
1,234
3,773
29,647
7,853
6,974
$ 261,521 $ 243,659
21. Restructuring Costs
In 2018, the Corporation commenced the Finance Reorganization
Plan and a leadership re-alignment within its ERS function. The cost
of the Finance Reorganization Plan is expected to be approximately
$5,600 in severance, project management and interim duplicate
labour costs, of which $3,485 has been recognized in 2018 and
$336 recognized in 2017. The remaining $1,779 in anticipated
costs, primarily relating to project management and interim duplicate
labour costs, will be expensed as incurred over the remaining
project period. The cost of the ERS re-alignment of $354 has been
recognized in 2018.
In 2018, the Corporation incurred $304 (net of a $452 recovery)
of additional severance related costs associated with the 2016
strategic reorganization; the Corporation does not anticipate any
future costs to be incurred.
At December 31, 2018 and December 31, 2017, no PSUs or DSUs
were vested.
c) Cash-settled rights plans
In the first quarter of 2018, the Corporation paid out $938 to settle
the MTIP awards granted in 2015, representing the last payout under
the old MTIP plan. Cash-settled rights plans now consist of MTIP
RSUs and vested DSUs. Compensation expense varies with the price
of the Corporation's shares and is recognized over the three year
vesting period. RSUs are settled at the end of the vesting period,
whereas DSUs are settled when the participant is no longer employed
by the Corporation or one of its subsidiary entities. Whenever
dividends are paid on the Corporation’s shares, additional rights
with a value equal to the dividends are credited to the participants’
accounts with the same vesting conditions as the original rights. The
value of the payout is equal to the number of rights awarded including
earned dividend equivalents, multiplied by the five previous day
volume weighted average share price, from the date of settlement. At
December 31, 2018, the carrying amount of the liabilities for these
plans was $3,738 (December 31, 2017 – $1,373). The following
rights under these plans are outstanding:
Outstanding at December 31, 2017
Granted in the year – new grants
– dividend equivalents
Forfeitures
Settled in the year
Outstanding at December 31, 2018
Number
of rights
355,540
122,642
16,163
(49,498)
(50,518)
394,329
At December 31, 2018, 8,577 DSU rights were vested, representing
all DSU rights outstanding (December 31, 2017 – 10,452 DSU rights).
19. Revenue
a) Disaggregation of revenue
In the following table, revenue is disaggregated by revenue type:
Equipment sales
Industrial parts
Product support
ERS/Other
2018
2017
As adjusted
(Note 5a)
$ 542,814 $ 461,482
339,965
424,854
60,081
361,668
457,576
84,618
Revenue from contracts with customers 1,446,676
34,921
Equipment rental
1,286,382
32,349
Total
$ 1,481,597 $ 1,318,731
62 Wajax 2018 Annual Report
Notes to Consolidated Financial Statements
Movements in the restructuring accrual are outlined in the
following table:
23. Income Taxes
Income tax expense comprises current and deferred tax as follows:
2018
$
468 $
4,595
(3,794)
(452)
2017
As adjusted
(Note 5)
4,687
336
(4,240)
(315)
$
817 $
468
Opening accrual
Charge for the year
Utilized in the year
Recovery in the year
Ending accrual
22. Finance Costs
Finance costs for the years ended December 31, 2018 and 2017 is
comprised of the following:
Interest on long-term debt
Senior notes redemption
Interest on finance leases
$
2018
8,281 $
—
494
2017
9,366
5,454
429
Finance costs
$
8,775 $ 15,249
Current
Deferred
2018
$ 18,509 $
(4,534)
2017
As adjusted
(Note 5)
5,773
4,778
Income tax expense
$ 13,975 $ 10,551
The calculation of current tax is based on a combined federal and
provincial statutory income tax rate of 26.9% (2017 – 26.9%).
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 26.9% based on the tax rates in years when the temporary
differences are expected to reverse.
The reconciliation of the effective income tax rate is as follows:
Combined statutory income tax rate
Expected income tax
expense at statutory rates
Non-deductible expenses
Other
2018
2017
As adjusted
(Note 5)
26.9%
26.9%
$ 13,403 $ 10,204
467
(120)
601
(29)
Income tax expense
$ 13,975 $ 10,551
Recognized deferred tax assets and liabilities and the movement in temporary differences during the year are as follows:
December 31
2017
As adjusted
(Note 5)
Recognized
Recognized
in other
in profit comprehensive
income
or loss
Recognized
in retained
earnings
Recognized
on
acquisition
of business
December 31
2018
Property, plant and equipment
Finance leases
Intangible assets
Accrued liabilities
Provisions
Derivative instruments
Employee benefits
Deferred financing costs
Partnership income not currently taxable
$
(3,979)
229
329
3,670
2,192
121
2,298
1,219
(6,810)
Net deferred tax assets (liabilities)
$
(731)
85
(76)
(87)
969
(1,277)
1,175
(26)
(563)
4,334
4,534
—
—
—
(26)
—
481
—
—
—
455
—
—
—
—
—
—
—
—
(327)
— $
—
(5,140)
—
—
—
—
—
—
(3,894)
153
(4,898)
4,613
915
1,777
2,272
656
(2,803)
(327)
(5,140) $
(1,209)
December 31
2016
As adjusted
(Note 5)
Recognized
Recognized
in other
in profit comprehensive
income
or loss
Recognized
in retained
earnings
Recognized
on
acquisition
of business
December 31
2017
As adjusted
(Note 5)
Property, plant and equipment
Finance leases
Intangible assets
Accrued liabilities
Provisions
Derivative instruments
Employee benefits
Deferred financing costs
Partnership income not currently taxable
$
(3,786)
421
474
3,542
2,116
(25)
2,180
120
(1,092)
(193)
(192)
(145)
193
76
—
102
1,099
(5,718)
—
—
—
(65)
—
146
16
—
—
Net deferred tax assets (liabilities)
$
3,950
(4,778)
97
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
— $
(3,979)
229
329
3,670
2,192
121
2,298
1,219
(6,810)
(731)
Wajax 2018 Annual Report 63
Notes to Consolidated Financial Statements
24. Changes in Non-Cash Operating Working Capital
Management of capital
The net change in non-cash working capital comprises the following:
2018
$ 12,555 $
Trade and other receivables
Contract assets
Inventory
Deposits on inventory
Prepaid expenses
Accounts payable and accrued liabilities
Contract liabilities
(2,968)
(33,220)
(6,571)
(1,962)
3,266
(4,630)
2017
As adjusted
(Note 5)
(12,536)
2,990
(35,651)
12,533
1,063
(5,109)
6,643
Total
$ (33,530) $
(30,067)
25. Commitments and Contingencies
Operating leases – as lessee
The Corporation leases certain land and buildings, rental equipment
and office equipment. Some of the lease terms can be extended at
the option of the Corporation.
The future minimum non-cancellable payments due under the
agreements are as follows:
Less than one year
Between one and five years
More than five years
2018
2017
$ 20,189 $ 18,289
41,370
14,864
52,347
27,124
$ 99,660 $ 74,523
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. The rentals may be cancelled subject
to a cancellation fee. The future minimum lease payments receivable
under the agreements are as follows:
Less than one year
Between one and five years
More than five years
2018
2017
$ 10,709 $ 10,594
15,513
—
15,269
30
$ 26,008 $ 26,107
As part of the Corporation’s renewed long-term strategy, its capital
structure will continue to be managed such that it maintains a
prudent leverage ratio, defined below, in order to provide funds
available to invest in strategic growth initiatives, provide liquidity
in times of economic uncertainty and to allow for the payment of
dividends. In addition, the Corporation’s tolerance to interest rate risk
decreases/increases as the Corporation’s leverage ratio increases/
decreases. The Corporation’s objective is to maintain a leverage ratio
between 1.5 times and 2.0 times. However, there may be instances
where the Corporation is willing to maintain a leverage ratio outside
the range to either support key growth initiatives or fluctuations in
working capital levels during changes in economic cycles.
The leverage ratio at the end of a particular quarter is defined as
debt divided by trailing 12-month pro-forma adjusted EBITDA. Debt
includes bank indebtedness, long-term debt, obligations under
finance leases, and letters of credit, net of cash. Pro-forma adjusted
EBITDA used in calculating the leverage ratio under the bank credit
agreement is calculated as earnings before restructuring and other
related costs (recoveries), gain recorded on sales of properties,
non-cash losses on mark to market of derivative instruments,
Delom transaction costs, finance costs, income tax expense and
depreciation and amortization, adjusted for the EBITDA of business
acquisitions made during the period as if they were made at the
beginning of the trailing 12-month period pursuant to the terms of the
bank credit facility.
Although management currently believes the Corporation has
adequate debt capacity, the Corporation may have to access
the equity or debt markets, or temporarily reduce dividends to
accommodate any shortfalls in the Corporation’s credit facilities or
significant growth capital requirements.
There were no significant changes in the Corporation’s approach to
capital management during the year.
Restrictions on capital
The interest bearing debt includes a $400,000 bank credit facility
which expires September 20, 2023. The bank credit facility contains
the following key covenants:
Borrowing capacity is dependent upon the level of the Corporation’s
inventory on hand and the outstanding trade accounts receivable
(“borrowing base”). At December 31, 2018, borrowing capacity
under the bank credit facility was equal to $379,055.
The Corporation will be restricted from the declaration of cash
dividends in the event the Corporation’s leverage ratio, as defined
under the bank credit facility, exceeds 4.0 times.
Contingencies
An interest coverage maintenance ratio.
In the ordinary course of business, the Corporation is contingently
liable for various amounts that could arise from litigation,
environmental matters or other sources. The Corporation does not
expect the resolution of these matters to have a materially adverse
effect on its financial position or results of operations. Provisions
have been made in these consolidated financial statements when the
liability is expected to result in an outflow of economic resources, and
where the obligation can be reliably measured.
26. Capital Management
Objective
The Corporation defines its capital as the total of its shareholders’
equity and long-term 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.
64 Wajax 2018 Annual Report
At December 31, 2018, the Corporation was in compliance with
all covenants and there were no restrictions on the declaration of
quarterly cash dividends.
Under the terms of the $400,000 bank credit facility, the Corporation
is permitted to have additional interest bearing debt of $25,000. As
a result, the Corporation has up to $25,000 of demand inventory
equipment financing capacity with two lenders. The equipment
notes payable under the facilities bear floating rates of interest at
margins over Canadian dollar bankers’ acceptance yields and U.S.
LIBOR rates. Principal repayments are generally due the earlier of
12 months from the date of financing and the date the equipment is
sold. At December 31, 2018, the Corporation had not utilized any of
its interest bearing equipment financing facilities.
Notes to Consolidated Financial Statements
Additional Financial Information
27. Related Party Transactions
28. Operating Segments
The Corporation’s related party transactions consist of the
compensation of the Board of Directors and key management
personnel which is set out in the following table:
Salaries, bonus and other
short-term employee benefits
Pension costs
– defined contribution plans
Pension costs
– defined benefit plans
Share-based compensation expense
2018
2017
$
5,683 $
7,135
182
162
408
1,621
1,019
2,320
Total compensation
$
7,894 $ 10,636
The Corporation’s Chief Executive Officer, who is also the Chief
Operating Decision Maker, regularly assesses the performance of,
and makes resource allocation decisions based on, the Corporation
as a whole. As a result, the Corporation has determined that it
comprises a single operating segment and therefore a single
reportable segment.
29. Comparative Information
Certain comparative information has been reclassified to conform to
the current year’s presentation.
Summary of Quarterly Data – Unaudited
(in millions of dollars, except per share data)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2018
2017
Revenue
Net earnings
Earnings per share – Basic
Earnings per share – Diluted
Eleven Year Summary – Unaudited
$ 342.4 $ 382.3 $ 367.1 $ 389.8 $ 319.4 $ 325.9 $ 297.9 $ 375.5
6.1
6.1
0.31
0.31 $
0.30
0.30
9.1
0.46 $
0.45
9.3
0.48 $
0.46
7.5
0.38 $
0.37
5.7
0.29 $
0.28
8.1
0.41 $
0.40
11.4
0.58 $
0.56
$
2018(1)
2017(1)
2016(1)
2015
2014
2013
2012
2011
2010
2009
2008
$ 1,481.6 $ 1,318.7 $ 1,221.9 $ 1,273.3 $ 1,451.3 $ 1,428.5 $ 1,466.0 $ 1,377.1 $ 1,110.9 $ 1,007.2 $ 1,213.5
75.8
4.7
(11.0)
12.2
11.0
11.2
47.7
9.0
63.8
4.6
56.4
5.2
34.2
4.5
35.9
8.8
27.4
15.2
65.9
4.4
41.2
13.0
Operating Results
Revenue
Net earnings (loss)
Interest expense
Property, plant
and equipment
expenditures – net
Rental equipment
expenditures – net
Depreciation and
amortization
Financial Position
Working capital
Rental equipment
Property, plant and
equipment – net
Long-term debt
excluding current
portion
Shareholders’ equity
Total assets
4.2
1.7
6.5
4.1
5.4
3.9
5.6
5.3
1.7
7.0
43.6
19.3
13.5
23.0
23.1
20.0
25.1
20.2
5.8
0.4
27.0
23.2
24.7
24.5
22.5
21.6
17.8
13.5
11.2
9.7
7.4
7.0
9.7
Per Share
Net (loss)
earnings – Basic $
Dividends declared
Distributions declared
Equity
1.82 $
1.00
—
14.88
1.40 $
1.00
—
14.08
0.55 $
1.00
—
13.68
(0.59) $
1.23
—
14.44
2.46 $
2.40
—
14.82
2.85 $
2.68
—
14.77
3.95 $
3.10
—
14.45
3.84 $
2.14
—
13.69
3.39 $
—
3.40
12.00
2.06 $
—
2.47
12.07
4.57
—
4.13
12.40
$ 334.7 $ 289.7 $ 261.2 $ 302.7 $ 258.2 $ 272.7 $ 230.1 $ 167.0 $
73.7
60.4
57.9
64.1
59.4
52.3
43.7
28.1
77.9 $ 160.1 $ 198.8
21.8
15.8
16.4
59.0
43.6
45.7
46.2
48.7
49.7
50.7
47.9
43.3
36.2
33.6
218.1
297.0
831.2
143.7
274.7
694.4
122.0
271.3
667.9
151.6
288.5
677.5
180.9
248.5
718.2
195.9
247.2
682.1
151.7
241.9
671.9
59.0
227.6
589.9
—
199.3
522.5
79.5
200.4
448.2
116.2
205.7
529.6
2,800
Other Information
Number of employees
Shares
outstanding (000s) 19,957 19,504 19,826 19,986 16,779 16,744 16,736 16,629 16,629 16,603 16,585
Price range of shares
High
Low
$ 28.17 $ 25.74 $ 25.76 $ 30.93 $ 39.56 $ 46.24 $ 53.43 $ 44.94 $ 38.50 $ 23.40 $ 35.75
14.00
15.43
13.34
2,318
2,766
14.81
21.65
10.95
27.80
2,291
2,609
2,382
29.38
2,738
2,418
18.49
2,833
2,725
28.75
38.59
2,662
(1) The Corporation has disclosed errors affecting net income for 2018 and 2017 of $1.755 million and $3.073 million after-tax respectively. Those values are included in the table above.
The cumulative after-tax error in net income for fiscal 2016 and prior years totals $7.596 million and, at the time of this report, had not been reflected in the table above. See the 2018
Management’s Discussion and Analysis for further information.
Wajax 2018 Annual Report 65
Corporate
Information
Directors
Officers
Robert P. Dexter
Chairman, Wajax Corporation
Chairman and Chief Executive Officer,
Maritime Travel Inc.
Thomas M. Alford 2, 3
President, Well Services,
Precision Drilling Corporation
Edward M. Barrett 1, 2
Chairman and Co-Chief Executive Officer,
Barrett Corporation
Anne E. Bélec 1, 2
Co-Founder and Chief Executive Officer,
Mosaic Group, LLC
Douglas A. Carty 1, 3
Corporate Director
Sylvia D. Chrominska 1, 2
Corporate Director
John C. Eby 1, 3
Corporate Director
A. Mark Foote
President and Chief Executive Officer
Darren Yaworsky
Senior Vice President, Finance and
Chief Financial Officer
Steven C. Deck
Senior Vice President,
Business Development
Thomas Plain
Senior Vice President,
Service Operations
Stuart H. Auld
Senior Vice President,
Human Resources and Information Systems
Donna Baratto
Vice President, Supply Chain
Cristian Rodriguez
Vice President, Environment,
Health and Safety
A. Mark Foote
President and Chief Executive Officer,
Wajax Corporation
Trevor Carson
Vice President, Financial Planning
and Risk Management
Alexander S. Taylor 2, 3
President, Nuclear, SNC-Lavalin Group Inc.
Tania Casadinho
Vice President, Finance and Controller
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
Home Office
2250 Argentia Road
Mississauga, ON L5N 6A5
Telephone: (905) 212-3300
Fax: (905) 212-3350
Andrew W. H. Tam
General Counsel and Corporate Secretary
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 Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, ON M5J 2Y1
Telephone: 1-800-564-6253
Fax: 1-888-453-0330
Web: www.investorcentre.com/service
Auditors
KPMG LLP
Exchange Listing
Toronto Stock Exchange
Symbol
WJX
Wajax Corporation
Share Trading Information
(January 1 – December 31, 2018)
Open
High
Volume
of Shares
Traded
Low Close
$24.69 $28.17 $15.43 $16.58 7,592,249
Quarterly Earnings Reports
Quarterly earnings for 2019 are anticipated to
be announced after market close on May 6,
August 8 and November 4, 2019
and March 2, 2020.
2019 Dividend Dates
Quarterly dividends are payable to
shareholders of record on or about the 15th
day of the last month in each quarter and
will generally be paid in the first week of the
following month.
Investor Information
Darren Yaworsky
Senior Vice President, Finance
and Chief Financial Officer, or
Trevor Carson
Treasurer and Vice President,
Financial Planning and Risk Management
Telephone: (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, Toronto
International Airport, Toronto, Ontario, on
Tuesday, May 7, 2019, at 11:00 a.m. EDT.
Vous pouvez obtenir la version française de
ce rapport en écrivant à la Secrétaire,
Corporation Wajax,
2250 Argentia Road,
Mississauga, (ON) L5N 6A5
66 Wajax 2018 Annual Report
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Branch
Locations
Western Canada
Ontario
Eastern Canada
Belleville, ON
Cornwall, ON
Espanola, ON
Guelph, ON
Kapuskasing, ON
Kitchener, ON
London, ON
Mississauga, ON
Niagara Falls, ON
Ottawa, ON
Pembroke, ON
Sault Ste. Marie, ON
Stoney Creek, ON
Sudbury, ON
Thunder Bay, ON
Timmins, ON
Toronto, ON
Vaughan, ON
Windsor, ON
Bathurst, NB
Edmundston, NB
Moncton, NB
Charlottetown, PEI
Dartmouth, NS
Port Hawkesbury, NS
Stellarton, NS
Corner Brook, NL
Mount Pearl, NL
Pasadena, NL
Wabush, NL
Baie-Comeau, QC
Chambly, QC
Chicoutimi, QC
Dorval, 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
St-Félicien, QC
St-Germain-de-Grantham, QC
Temiscaming, QC
Tracy, QC
Trois-Rivières, QC
Val d’Or, QC
Valleyfield, QC
Ville d’Anjou, QC
Fort St. John, BC
Kamloops, BC
Langley, BC
Nanaimo, BC
Prince George, BC
Sparwood, BC
Tumbler Ridge, BC
Acheson, AB
Blackfalds, AB
Calgary, AB
Clairmont, AB
Edmonton, AB
Fort McMurray, AB
Grande Prairie, AB
Nisku, AB
Red Deer, AB
Redcliff, AB
Regina, SK
Saskatoon, SK
Flin Flon, MB
Thompson, MB
Winnipeg, MB
Yellowknife, NT
Photo Credit
Cover Page: Norn Leduc
2250 Argentia Road
Mississauga, ON L5N 6A5
Telephone: (905) 212-3300
Fax: (905) 212-3350