TSX Symbol: WJX
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(Dollars in millions, except per share data)
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Three Months Ended September 30
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Nine Months Ended September 30
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2013
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2012
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2013
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2012
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CONSOLIDATED RESULTS
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Revenue
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$338.5
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$356.4
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$1,036.8
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$1,101.1
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Net earnings
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$11.5
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$16.2
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$35.5
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$51.7
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Basic earnings per share
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$0.69
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$0.97
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$2.12
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$3.10
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SEGMENTS
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Revenue
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- Equipment
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$179.5
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$194.2
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$545.5
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$576.9
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- Power Systems
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$69.2
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$75.6
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$218.6
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$253.3
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- Industrial Components
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$91.1
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$87.5
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$275.8
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$274.7
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Earnings
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- Equipment
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$11.8
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$13.3
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$35.6
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$42.1
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% margin
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6.6%
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6.9%
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6.5%
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7.3%
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- Power Systems
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$3.7
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$6.0
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$11.1
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$21.1
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% margin
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5.4%
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7.9%
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5.1%
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8.3%
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- Industrial Components
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$4.3
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$5.5
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$12.8
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$18.5
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% margin
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4.7%
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6.3%
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4.7%
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6.7%
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TORONTO, Nov. 5, 2013 /CNW/ - Wajax Corporation ("Wajax" or the
"Corporation") today announced its 2013 third quarter results.
Third Quarter Highlights
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Consolidated third quarter revenue of $338.5 million decreased $17.9
million, or 5%, compared to last year on reduced sales in the Equipment
and Power Systems segments. Lower mining equipment sales in the
Equipment segment and the negative effect of reduced activity in the
western Canada oil and gas sector on Power Systems segment revenue were
the primary factors contributing to the consolidated revenue decline.
Partially offsetting these factors was a 4% increase in the Industrial
Components segment revenue as a result of the ACE Hydraulic and Kaman
Canada acquisitions completed in the fourth quarter of 2012.
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Net earnings for the quarter were $11.5 million, or $0.69 per share,
compared to $16.2 million, or $0.97 per share recorded in 2012.
Equipment and Power Systems segment earnings decreased $1.5 million and
$2.3 million respectively on lower volumes and increased selling and
administrative expenses. Industrial Components segment earnings
declined by $1.2 million as higher acquisition related revenues were
insufficient to offset reduced margins and an increase in selling and
administrative costs.
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Consolidated backlog of $204.8 million at September 30, 2013 increased
2% compared to June 30, 2013 on gains in the Equipment and Power
Systems segments.
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Funded net debt of $225.3 million at September 30, 2013 increased
slightly compared to $221.2 million at the end of June 2013.
On October 23, 2013 the Corporation issued $125 million of senior
unsecured notes. The notes carry a coupon of 6.125% per annum and will
mature on October 23, 2020. The net proceeds of the notes were used to
repay borrowings under the Corporation's senior secured bank credit
facility, which in turn may be redrawn for general corporate purposes.
Effective upon the closing of the note offering, the Corporation
reduced the total available committed amount of the bank credit
facility from $300 million to $250 million. The issuance of the notes
introduces a longer term fixed rate layer of debt into Wajax's capital
structure at a time when interest rates remain historically low.
The Corporation declared monthly dividends of $0.20 per share ($2.40
annualized) for the months of November and December, 2013 and January
and February, 2014.
Outlook
Commenting on the third quarter results and the outlook for the
remainder of 2013, Mark Foote, President and CEO, stated:
"Third quarter revenue and earnings were largely as expected. When
compared to last year, revenue was negatively affected by continued
weakness in the oil and gas and mining markets. Mining related revenue
declines, including the loss of the LeTourneau product line, were
partially mitigated by increases in mining associated aftermarket sales
driven by improvements in equipment support revenue and continuing
gains from our rotating products growth initiative.
We continue to expect the weakness in the oil and gas market to remain
for the balance of 2013, with demand for new equipment and aftermarket
services for drilling and well stimulation continuing to be soft. In
mining, quoting activity remains at a reasonable level for the
Equipment segment, as well as Power Systems' electrical power
generation business. However, lower commodity prices continue to
result in mining customers reducing their capital and development
spending, limiting their ability to commit to new equipment orders. In
spite of this, we were able to increase our consolidated backlog on
increases in non-mining related orders and electric power generation
orders in the Equipment and Power Systems segments respectively. As
well, the commercial trial of the four Hitachi EH5000 320 ton mining
trucks began in the oil sands in the fourth quarter.
Consistent with our expectation disclosed at the end of the second
quarter, we are maintaining a cautious outlook regarding our end
markets for the rest of 2013 and continue to expect that full year 2013
earnings will be less than 2012."
Wajax Corporation
Wajax is a leading Canadian distributor engaged in the sale, rental and
after-sale parts and service support of equipment, power systems and
industrial components, through a network of 126 branches across
Canada. The Corporation is a multi-line distributor and represents a
number of leading worldwide manufacturers across its core businesses.
Its customer base is diversified, spanning natural resources,
construction, transportation, manufacturing, industrial processing and
utilities.
Wajax will Webcast its Third Quarter Financial Results Conference Call.
You are invited to listen to the live Webcast on Tuesday, November 5,
2013 at 2:00 p.m. ET. To access the Webcast, enter www.wajax.com and click on the link for the Webcast on the Investor Relations page.
Cautionary Statement Regarding Forward Looking Information
This news release contains certain forward-looking statements and
forward-looking information, as defined in applicable securities laws
(collectively, "forward-looking statements"). These forward-looking statements relate to future events or the
Corporation's future performance. All statements other than statements
of historical fact are forward-looking statements. Often, but not
always, forward looking statements can be identified by the use of
words such as "plans", "anticipates", "intends", "predicts", "expects",
"is expected", "scheduled", "believes", "estimates", "projects" or
"forecasts", or variations of, or the negatives of, such words and
phrases or state that certain actions, events or results "may",
"could", "would", "should", "might" or "will" be taken, occur or be
achieved. Forward looking statements involve known and unknown risks,
uncertainties and other factors beyond the Corporation's ability to
predict or control which may cause actual results, performance and
achievements to differ materially from those anticipated or implied in
such forward looking statements. There can be no assurance that any
forward looking statement will materialize. Accordingly, readers
should not place undue reliance on forward looking statements. The
forward looking statements in this news release are made as of the date
of this news release, reflect management's current beliefs and are
based on information currently available to management. Although
management believes that the expectations represented in such
forward-looking statements are reasonable, there is no assurance that
such expectations will prove to be correct. Specifically, this news
release includes forward looking statements regarding, among other
things, our 2013 outlook for certain of our key end markets, including
oil and gas and mining and our outlook with respect to our financial
results for the 2013 financial year, including earnings for full-year
2013. These statements are based on a number of assumptions which may
prove to be incorrect, including, but not limited to, assumptions
regarding general business and economic conditions, the supply and
demand for, and the level and volatility of prices for, commodities,
financial market conditions, including interest rates, the future
financial performance of the Corporation, our costs, market
competition, our ability to attract and retain skilled staff, our
ability to procure quality products and inventory and our ongoing
relations with suppliers, employees and customers. The foregoing list
of assumptions is not exhaustive. Factors that may cause actual
results to vary materially include, but are not limited to, a
deterioration in general business and economic conditions, volatility
in the supply and demand for, and the level of prices for, commodities,
fluctuations in financial market conditions, including interest rates,
the level of demand for, and prices of, the products and services we
offer, market acceptance of the products we offer, termination of
distribution or original equipment manufacturer agreements,
unanticipated operational difficulties (including failure of plant,
equipment or processes to operate in accordance with specifications or
expectations, cost escalation, unavailability of quality products or
inventory, supply disruptions, job action and unanticipated events
related to health, safety and environmental matters), our ability to
attract and retain skilled staff and our ability to maintain our
relationships with suppliers, employees and customers. The foregoing
list of factors is not exhaustive. The forward-looking statements
contained in this news release are expressly qualified in their
entirety by this cautionary statement. The Corporation does not
undertake any obligation to publicly update such forward-looking
statements to reflect new information, subsequent events or otherwise
unless so required by applicable securities laws. Further information
concerning the risks and uncertainties associated with these forward
looking statements and the Corporation's business may be found in our
Annual Information Form for the year ended December 31, 2012, filed on
SEDAR.
Management's Discussion and Analysis - Q3 2013
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 quarter ended
September 30, 2013. This MD&A should be read in conjunction with the
information contained in the unaudited Condensed Consolidated Financial
Statements and accompanying notes for the quarter ended September 30,
2013, the annual audited Consolidated Financial Statements and
accompanying notes for the year ended December 31, 2012 and the
associated MD&A. Information contained in this MD&A is based on
information available to management as of November 5, 2013.
Unless otherwise indicated, all financial information within this MD&A
is in millions of Canadian dollars, except share and per share data.
Additional information, including Wajax's Annual Report and Annual
Information Form, are available on SEDAR at www.sedar.com.
Responsibility of Management and the Board of Directors
Management is responsible for the information disclosed in this MD&A and
the unaudited Condensed Consolidated Financial Statements and
accompanying notes, and has in place appropriate information systems,
procedures and controls to ensure that information used internally by
management and disclosed externally is materially complete and
reliable. Wajax's Board of Directors has approved this MD&A and the
unaudited Condensed Consolidated Financial Statements and accompanying
notes. In addition, Wajax's Audit Committee, on behalf of the Board of
Directors, provides an oversight role with respect to all public
financial disclosures made by Wajax, and has reviewed this MD&A and the
unaudited Condensed Consolidated Financial Statements and accompanying
notes.
Disclosure Controls and Procedures and Internal Control over Financial
Reporting
Wajax's management, under the supervision of its Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), is responsible for
establishing and maintaining disclosure controls and procedures
("DC&P") and internal control over financial reporting ("ICFR").
As at September 30, 2013, 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 September 30, 2013, Wajax's management, under the supervision of
its CEO and CFO, had designed internal control over financial reporting
("ICFR") to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with International Financial Reporting
Standards ("IFRS"). In completing the design, management used the
criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO") in its 1992 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.
There was no change in Wajax's ICFR that occurred during the three
months ended September 30, 2013 that has materially affected, or is
reasonably likely to materially affect, Wajax's ICFR.
Cautionary Statement Regarding Forward-Looking Information
This MD&A contains certain forward-looking statements and
forward-looking information, as defined in applicable securities laws
(collectively, "forward-looking statements"). These forward-looking statements relate to future events or the
Corporation's future performance. All statements other than statements
of historical fact are forward-looking statements. Often, but not
always, forward looking statements can be identified by the use of
words such as "plans", "anticipates", "intends", "predicts", "expects",
"is expected", "scheduled", "believes", "estimates", "projects" or
"forecasts", or variations of, or the negatives of, such words and
phrases or state that certain actions, events or results "may",
"could", "would", "should", "might" or "will" be taken, occur or be
achieved. Forward looking statements involve known and unknown risks,
uncertainties and other factors beyond the Corporation's ability to
predict or control which may cause actual results, performance and
achievements to differ materially from those anticipated or implied in
such forward looking statements. There can be no assurance that any
forward looking statement will materialize. Accordingly, readers
should not place undue reliance on forward looking statements. The
forward looking statements in this MD&A are made as of the date of this
MD&A, reflect management's current beliefs and are based on information
currently available to management. Although management believes that
the expectations represented in such forward-looking statements are
reasonable, there is no assurance that such expectations will prove to
be correct. Specifically, this MD&A includes forward looking
statements regarding, among other things, our plans for revenue and
earnings growth, including planned strategic initiatives and their
intended outcomes, our financing and capital requirements, our outlook
for certain of our key end markets, including oil and gas and mining,
our outlook with respect to our financial results for the 2013
financial year, including earnings for full-year 2013 and our objective
with respect to the future payment of dividends. These statements are
based on a number of assumptions which may prove to be incorrect,
including, but not limited to, assumptions regarding general business
and economic conditions, the supply and demand for, and the level and
volatility of prices for, commodities, financial market conditions,
including interest rates, the future financial performance of the
Corporation, our costs, market competition, our ability to attract and
retain skilled staff, our ability to procure quality products and
inventory and our ongoing relations with suppliers, employees and
customers. The foregoing list of assumptions is not exhaustive.
Factors that may cause actual results to vary materially include, but
are not limited to, a deterioration in general business and economic
conditions, volatility in the supply and demand for, and the level of
prices for, commodities, fluctuations in financial market conditions,
including interest rates, the level of demand for, and prices of, the
products and services we offer, market acceptance of the products we
offer, termination of distribution or original equipment manufacturer
agreements, unanticipated operational difficulties (including failure
of plant, equipment or processes to operate in accordance with
specifications or expectations, cost escalation, unavailability of
quality products or inventory, supply disruptions, job action and
unanticipated events related to health, safety and environmental
matters), our ability to attract and retain skilled staff and our
ability to maintain our relationships with suppliers, employees and
customers. The foregoing list of factors is not exhaustive. Further
information concerning the risks and uncertainties associated with
these forward looking statements and the Corporation's business may be
found in this MD&A under the heading "Risk Management and
Uncertainties" and in our Annual Information Form for the year ended
December 31, 2012, filed on SEDAR. The forward-looking statements
contained in this MD&A are expressly qualified in their entirety by
this cautionary statement. The Corporation does not undertake any
obligation to publicly update such forward-looking statements to
reflect new information, subsequent events or otherwise unless so
required by applicable securities laws. Readers are further cautioned
that the preparation of financial statements in accordance with IFRS
requires management to make certain judgments and estimates that affect
the reported amounts of assets, liabilities, revenues and expenses.
These estimates may change, having either a negative or positive effect
on net earnings as further information becomes available, and as the
economic environment changes.
Wajax Corporation Overview
Wajax's core distribution businesses are engaged in the sale, rental and
after-sale parts and service support of mobile equipment, power systems
and industrial components through a network of 126 branches across
Canada. Wajax is a multi-line distributor and represents a number of
leading worldwide manufacturers in its core businesses. Its customer
base is diversified, spanning natural resources, construction,
transportation, manufacturing, industrial processing and utilities.
Wajax's strategy is to grow earnings in all segments through organic
growth and tuck-under acquisitions while maintaining a dividend payout
ratio of at least 75% of current year net earnings. Planned organic
growth includes "base business" initiatives that are achieved within
the normal scope, resources and markets of each core business, while
"new opportunity" initiatives are organic growth opportunities that are
seen as significant, requiring more effort, planning and resources to
achieve. Wajax expects to ensure sufficient capital is available to
meet its growth requirements within a conservative capital structure.
Consolidated Results
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Three months ended
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Nine months ended
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September 30
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September 30
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2013
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2012
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2013
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2012
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Revenue
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$
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338.5
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$
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356.4
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$
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1,036.8
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$
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1,101.1
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Gross profit
Selling and administrative expenses
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$
$
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69.3
51.4
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$
$
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71.1
48.1
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$
$
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212.2
158.2
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$
$
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228.2
154.7
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Earnings before finance costs and income taxes (1)
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$
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17.9
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$
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23.0
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$
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54.0
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$
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73.5
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Finance costs
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$
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2.1
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$
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1.2
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$
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5.9
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$
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3.1
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Earnings before income taxes (1)
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$
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15.7
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$
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21.8
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$
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48.1
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$
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70.4
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Income tax expense
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$
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4.2
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$
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5.7
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$
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12.7
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$
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18.7
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Net earnings
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$
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11.5
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$
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16.2
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$
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35.5
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$
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51.7
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Basic earnings per share
Diluted earnings per share
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$
$
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0.69
0.68
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$
$
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0.97
0.95
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$
$
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2.12
2.09
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$
$
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3.10
3.05
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(1)
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See the Non-GAAP and Additional GAAP Measures section.
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Weakness in oil and gas sector activity in western Canada, which started
in the third quarter of 2012, continued into the third quarter of 2013
as lower new equipment and service requirements resulted in a decline
in customer spending. This decline primarily affected the Power
Systems segment in the third quarter of 2013.
Mining activity, including the oil sands market, was softer than last
year as lower commodity prices combined with a lack of financing for
new mines continued to influence customers to take a more cautious
approach in making commitments to buy equipment. This factor, coupled
with the loss of the LeTourneau mining equipment line resulted in lower
quarterly mining equipment revenue in the Equipment segment. In
addition, mining sector related revenue was lower in the Power Systems
and Industrial Components segments. Partially mitigating this was
meaningful mining parts and service growth in the Equipment segment,
driven by its installed base of Hitachi mining shovels and growth from
its rotating products initiative in the oil sands market.
The Corporation's consolidated backlog increased on non-mining related
orders and electric power generation orders in the Equipment and Power
Systems segments, respectively. In addition, the commercial trial of
the four Hitachi EH5000 320 ton mining trucks began in the oil sands in
the fourth quarter.
Earnings before finance costs and income taxes in the third quarter of
2013 declined $5.1 million compared to last year. The decrease was
mainly as a result of an approximately $2.6 million reduction related
to the oil and gas and mining markets and a $3.4 million increase in
selling and administrative expenses. See the Non-GAAP and Additional
GAAP Measures section.
Revenue
Revenue in the third quarter of 2013 decreased 5% to $338.5 million
compared to the third quarter of 2012 and included $5.2 million of
revenue from two businesses acquired by the Industrial Components
segment (ACE Hydraulic and Kaman Canada) in the fourth quarter of
2012. Compared to the same quarter last year, segment revenue
decreased 8% in each of the Equipment and Power Systems segments due to
lower equipment volumes and increased 4% in the Industrial Components
segment.
For the nine months ended September 30, 2013, revenue decreased 6%, or
$64.3 million, over the same period last year. Revenue in 2013 includes
$16.5 million from the two Industrial Components acquisitions noted
above.
Gross profit
Gross profit in the third quarter of 2013 decreased $1.8 million
compared to the third quarter of last year as an increase in the gross
profit margin percentage was more than offset by lower volumes. The
gross profit margin percentage for the quarter of 20.5% increased from
19.9% in 2012 as the positive sales mix impact from a lower proportion
of equipment revenues compared to last year was partially offset by the
negative impact of lower parts and service margins.
For the nine months ended September 30, 2013, gross profit decreased
$16.0 million due to lower volumes compared to the same period last
year. The gross profit margin percentage decreased slightly to 20.5%
in 2013 from 20.7% in 2012.
Selling and administrative expenses
Selling and administrative expenses increased $3.4 million in the third
quarter of 2013 compared to the same quarter last year. Increases
included higher costs in the Equipment segment's western Canada
operations and increases in the Industrial Components segment due
mainly to the acquisitions of ACE Hydraulic and Kaman Canada in the
fourth quarter of 2012. Selling and administrative expenses as a
percentage of revenue increased to 15.2% in the third quarter of 2013
from 13.5% in the third quarter of 2012.
For the nine months ended September 30, 2013, selling and administrative
expenses increased $3.5 million compared to the same period last year.
The impact of higher costs in the Equipment segment's western Canada
operations and increases in the Industrial Components segment, due
mainly to the two acquisitions in the fourth quarter of 2012, was
offset by lower annual and mid-term incentive accruals and other cost
reductions compared to last year. Selling and administrative expenses
as a percentage of revenue increased to 15.3% in 2013 from 14.0% in
2012.
Finance costs
Quarterly finance costs of $2.1 million increased $1.0 million compared
to the same quarter last year due to the cost of higher funded debt
levels outstanding during the quarter stemming from increased working
capital levels and the two Industrial Components segment acquisitions
in the fourth quarter of 2012. The Corporation's higher cost of
borrowing also contributed to the increase. Funded net debt includes
bank debt, bank indebtedness and obligations under finance leases, net
of cash. See the Liquidity and Capital Resources and the Non-GAAP and
Additional GAAP Measures sections below.
For the nine months ended September 30, 2013, finance costs of $5.9
million increased $2.8 million compared to the same period in 2012 due
mainly to the cost of higher funded debt levels outstanding during the
period driven by an increase in working capital and the two Industrial
Components segment acquisitions completed in the fourth quarter of
2012. The Corporation's higher cost of borrowing also contributed to
the increase.
Income tax expense
The Corporation's effective income tax rate of 26.5% for the third
quarter of 2013 increased from 26.0% the previous year due in part to
the impact of expenses not deductible for income tax purposes.
For the nine months ended September 30, 2013, the effective income tax
rate of 26.3% decreased slightly from 26.5% in the previous year.
Net earnings
Quarterly net earnings decreased $4.6 million to $11.5 million, or $0.69
per share, from $16.2 million, or $0.97 per share, in the same quarter
of 2012. The decrease in net earnings resulted primarily from lower
volumes and higher selling and administrative expenses and finance
costs compared to the same quarter last year.
For the nine months ended September 30, 2013, net earnings decreased
$16.3 million to $35.5 million, or $2.12 per share, from $51.7 million,
or $3.10 per share, in the same period in 2012. The decrease in net
earnings resulted primarily from lower volumes. Higher selling and
administrative expenses and finance costs also contributed to the
decline in net earnings compared to the same period last year.
Comprehensive income
Total comprehensive income of $11.4 million in the third quarter of 2013
included net earnings of $11.5 million and an other comprehensive loss
of $0.2 million.
For the nine months ended September 30, 2013, total comprehensive income
of $35.6 million included net earnings of $35.5 million and an other
comprehensive gain of $0.1 million.
Funded net debt
Funded net debt of $225.3 million at September 30, 2013 increased $4.1
million compared to June 30, 2013. Cash generated from operating
activities for the quarter of $9.7 million was less than dividends paid
of $10.0 million, investing activities of $1.6 million and finance
lease payments of $0.6 million. Wajax's leverage ratio of 2.4 times at
September 30, 2013 increased from the June 30, 2013 ratio of 2.2 times.
See the Consolidated Financial Condition and the Non-GAAP and
Additional GAAP Measures sections below.
Funded net debt of $225.3 million at September 30, 2013 increased $51.6
million compared to December 31, 2012. Cash used in operating
activities during the period of $8.5 million resulted mainly from the
impact of income taxes paid of $57.6 million, $44.6 million of which
related to taxable income for 2011 and 2012. Other uses of cash
included dividends paid of $36.0 million, investing activities of $3.8
million and finance lease payments of $1.9 million.
On October 23, 2013 the Corporation issued $125 million of senior
unsecured notes. The notes carry a coupon of 6.125% per annum and will
mature on October 23, 2020. The net proceeds of the notes were used to
repay borrowings under the Corporation's senior secured bank credit
facility, which in turn may be redrawn for general corporate purposes.
Effective upon the closing of the note offering, the Corporation
reduced the total available committed amount of the bank credit
facility from $300 million to $250 million. The issuance of the notes
introduces a longer term fixed rate layer of debt into Wajax's capital
structure at a time when interest rates remain historically low. See
the Liquidity and Capital Resources section.
Dividends
For the third quarter ended September 30, 2013 monthly dividends
declared totaled $0.60 per share. For the third quarter ended
September 30, 2012 monthly dividends declared totaled $0.81 per share.
For the nine months ended September 30, 2013 monthly dividends declared
totaled $2.08 per share. For the nine months ended September 30, 2012
monthly dividends declared totaled $2.29 per share.
On November 5, 2013, Wajax announced monthly dividends of $0.20 per
share ($2.40 annualized) for each of the months of November, December,
January and February payable on December 20, 2013, January 20, 2014,
February 20, 2014 and March 20, 2014 to shareholders of record on
November 29, 2013, December 31, 2013, January 31, 2014 and February 28,
2014 respectively.
Backlog
Consolidated backlog at September 30, 2013 of $204.8 million increased
$4.9 million, or 2%, compared to June 30, 2013 with increases in the
Equipment and Power Systems segments partially offset by a decrease in
the Industrial Components segment. Consolidated backlog increased $2.4
million compared to September 30, 2012, or 1%, with increases in the
Equipment segment partially offset by decreases in the Power Systems
and Industrial Components segments.
Backlog includes the total sales value of customer purchase commitments
for future delivery or commissioning. See the Results of Operations
section below for further backlog detail by segment.
Results of Operations
Equipment
|
Three months ended
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Nine months ended
|
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September 30
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September 30
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|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Equipment(1)
|
$
|
106.1
|
$
|
132.5
|
$
|
326.7
|
$
|
383.2
|
Parts and service
|
$
|
73.4
|
$
|
61.7
|
$
|
218.8
|
$
|
193.7
|
Segment revenue
|
$
|
179.5
|
$
|
194.2
|
$
|
545.5
|
$
|
576.9
|
Segment earnings
|
$
|
11.8
|
$
|
13.3
|
$
|
35.6
|
$
|
42.1
|
Segment earnings margin
|
|
6.6%
|
|
6.9%
|
|
6.5%
|
|
7.3%
|
(1)
|
Includes rental and other revenue.
|
Revenue in the third quarter of 2013 decreased $14.7 million, or 8%, to
$179.5 million, from $194.2 million in the third quarter of 2012.
Segment earnings for the quarter decreased $1.5 million, to $11.8
million, compared to the third quarter of 2012. The following factors
contributed to the Equipment segment's third quarter results compared
to the third quarter of 2012:
-
Equipment revenue for the third quarter decreased $26.4 million with
specific year-over-year variances as follows:
-
Construction equipment revenue increased $3.6 million mainly as a result
of an increase in JCB equipment volumes in eastern Canada and higher
Hitachi excavator volumes in western Canada. These increases were
partially offset by decreases in Hitachi excavator and Wirtgen road
building equipment sales in central Canada.
-
Material handling equipment revenue increased $3.1 million. The sale of
higher dollar value reach stacker units in eastern Canada was somewhat
offset by lower lift truck revenues in western Canada compared to last
year.
-
Forestry equipment revenue increased $1.3 million.
-
Mining equipment sales decreased $32.1 million. Excluding the impact of
the LeTourneau product line, for which distribution rights were
discontinued in the third quarter of 2012, mining sales decreased $18.4
million on fewer Hitachi equipment deliveries.
-
Crane and utility equipment revenue decreased $2.3 million due to
declines in central and eastern Canada.
-
Parts and service volumes increased $11.7 million or 19.0%. The
increase was led by higher mining sector volumes in western Canada,
driven by the segment's installed base of Hitachi mining equipment and
growth in rotating products.
-
Segment earnings for the third quarter decreased $1.5 million to $11.8
million. This was due mainly to the negative impact of lower equipment
volumes, including the discontinued LeTourneau product line, and an
increase in selling and administrative expenses. These declines were
partially offset by the positive impact on earnings of increased parts
and service volumes. For the three months ended September 30, 2012,
the LeTourneau product line contributed approximately $1.5 million to
the segment's earnings. Selling and administrative expenses increased
$1.2 million compared to last year due mainly to increased expenses in
western Canada, which included costs related to strategic initiatives,
the impact of prior year accrual and cost allocation adjustments, and
other personnel related expenses.
Backlog of $102.6 million at September 30, 2013 increased $3.7 million
compared to June 30, 2013. Backlog increased $7.2 million compared to
September 30, 2012, due mainly to an increase in non-mining related
orders.
Power Systems
|
Three months ended
|
Nine months ended
|
|
September 30
|
September 30
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Equipment(1)
|
$
|
21.6
|
$
|
28.6
|
$
|
69.3
|
$
|
97.5
|
Parts and service
|
$
|
47.6
|
$
|
47.0
|
$
|
149.3
|
$
|
155.8
|
Segment revenue
|
$
|
69.2
|
$
|
75.6
|
$
|
218.6
|
$
|
253.3
|
Segment earnings
|
$
|
3.7
|
$
|
6.0
|
$
|
11.1
|
$
|
21.1
|
Segment earnings margin
|
|
5.4%
|
|
7.9%
|
|
5.1%
|
|
8.3%
|
(1)
|
Includes rental and other revenue.
|
Revenue in the third quarter of 2013 decreased $6.4 million, or 8%, to
$69.2 million, compared to $75.6 million in the third quarter of 2012.
For the same comparative periods, segment earnings decreased $2.3
million to $3.7 million. The following factors impacted quarterly
revenue and earnings compared to last year:
-
Equipment revenue decreased $7.0 million, due mainly to lower
off-highway sales to oil and gas customers as a result of reduced
industry activity in western Canada. In eastern and central Canada,
lower power generation volumes and reduced off-highway sales to mining
customers and the military also contributed to the revenue decline.
The decrease in revenue was somewhat offset by higher rental volumes.
-
Parts and service volumes increased $0.6 million compared to last year
as a result of higher sales to on-highway customers on increased
activity in western and central Canada. These increases were partially
offset by decreased sales to off-highway customers, primarily in
western and central Canada.
-
Segment earnings in the third quarter of 2013 decreased $2.3 million
compared to the same quarter last year, as the impact of reduced sales
activity and higher selling and administrative expenses was mitigated
somewhat by higher gross profit margins. Selling and administrative
expenses increased $1.3 million principally due to a 2012 reversal of
annual and mid-term incentive accruals and occupancy costs.
Backlog of $62.9 million as of September 30, 2013 increased $6.8 million
compared to June 30, 2013 due primarily to an increase in power
generation related orders. Backlog decreased $2.6 million compared to
September 30, 2012.
Industrial Components
|
Three months ended
|
Nine months ended
|
|
September 30
|
September 30
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Segment revenue
|
$
|
91.1
|
$
|
87.5
|
$
|
275.8
|
$
|
274.7
|
Segment earnings
|
$
|
4.3
|
$
|
5.5
|
$
|
12.8
|
$
|
18.5
|
Segment earnings margin
|
|
4.7%
|
|
6.3%
|
|
4.7%
|
|
6.7%
|
Revenue of $91.1 million in the third quarter of 2013 increased $3.6
million, or 4%, from $87.5 million in the third quarter of 2012 and
included $5.2 million of revenue from the ACE Hydraulic and Kaman
Canada businesses acquired in the fourth quarter of 2012. Segment
earnings decreased $1.2 million, to $4.3 million, for the same
comparative periods. The following factors contributed to the segment's
third quarter year-over-year results:
-
Bearings and power transmission parts sales increased $2.4 million which
was more than accounted for by the Kaman Canada acquisition in western
Canada. This increase was offset by reduced sales to mining customers
in central and eastern Canada and lower oil and gas and construction
sector sales.
-
Fluid power and process equipment products and service revenue in the
third quarter of 2013 increased $1.2 million, or 3%. The increase was
due mainly to higher transportation sector sales in eastern Canada and
construction sector sales in western Canada.
-
Segment earnings in 2013 decreased $1.2 million as the positive impact
of higher volumes was offset by lower gross profit margins and a $0.7
million increase in selling and administrative expenses. The decline
in gross profit margin resulted mainly from product sales mix,
competitive pressures in western Canada and a higher inventory
obsolescence provision. The increase in selling and administrative
expenses resulted primarily from costs related to the two acquisitions
and higher bad debt expenses offset partially by lower annual incentive
accruals and other cost reductions.
Backlog of $39.3 million as of September 30, 2013 decreased $5.6 million
compared to June 30, 2013 due mainly to lower orders received during
the quarter. Backlog decreased $2.2 million compared to September 30,
2012.
Selected Quarterly Information
The following table summarizes unaudited quarterly consolidated
financial data for the eight most recently completed quarters. This
quarterly information is unaudited but has been prepared on the same
basis as the 2012 annual audited Consolidated Financial Statements.
|
|
2013
|
2012
|
2011
|
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
Revenue
|
$
|
338.5
|
$
|
362.1
|
$
|
336.3
|
$
|
364.9
|
$
|
356.4
|
$
|
386.6
|
$
|
358.1
|
$
|
377.2
|
Net earnings
|
$
|
11.5
|
$
|
13.5
|
$
|
10.4
|
$
|
14.2
|
$
|
16.2
|
$
|
18.5
|
$
|
17.1
|
$
|
16.6
|
Net earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
$
|
0.69
|
$
|
0.81
|
$
|
0.62
|
$
|
0.85
|
$
|
0.97
|
$
|
1.11
|
$
|
1.03
|
$
|
1.00
|
|
- Diluted
|
$
|
0.68
|
$
|
0.80
|
$
|
0.61
|
$
|
0.84
|
$
|
0.95
|
$
|
1.09
|
$
|
1.01
|
$
|
0.98
|
Significant seasonal trends in quarterly revenue and earnings have not
been evident over the last two years.
A discussion of Wajax's previous quarterly results can be found in
Wajax's quarterly MD&A available on SEDAR at www.sedar.com.
Consolidated Financial Condition
Capital Structure and Key Financial Condition Measures
($millions, except ratio calculations)
|
September 30
2013
|
June 30
2013
|
December 31
2012
|
Shareholders' equity
|
$
|
243.2
|
$
|
241.7
|
$
|
241.9
|
Funded net debt(1)
|
225.3
|
221.2
|
173.7
|
Total capital
|
$
|
468.5
|
$
|
462.9
|
$
|
415.6
|
Funded net debt to total capital(1)
|
48.1%
|
47.8%
|
41.8%
|
Leverage ratio(1)(2)
|
2.4
|
2.2
|
1.6
|
Interest coverage ratio(1)(2)(3)
|
13.2
|
15.9
|
25.2
|
(1) See Non-GAAP and Additional GAAP Measures section.
|
(2) Calculation uses trailing four-quarter EBITDA.
|
(3) Calculation uses trailing four-quarter EBITDA and finance costs.
|
The Corporation's capital structure is managed such that it maintains a
relatively low leverage ratio as the Corporation pays dividends to
shareholders equal to a significant portion of its earnings. 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.
In addition, the Corporation's tolerance to interest rate risk
decreases/increases as the Corporation's leverage ratio
increases/decreases. At September 30, 2013, the rate of interest on
the Corporation's funded debt was all floating, which is within the
Corporation's interest rate risk policy. On October 23, 2013, the
amount of the Corporation's floating rate funded debt was reduced
through the issuance of $125 million fixed rate notes. See the
Liquidity and Capital Resources section.
Shareholders' Equity
The Corporation's shareholders' equity at September 30, 2013 of $243.2
million increased $1.5 million from June 30, 2013 as earnings exceeded
dividends declared during the quarter. For the nine months ending
September 30, 2013 the Corporation's shareholder's equity increased by
$1.3 million as earnings exceeded dividends declared for the period.
The Corporation's share capital, included in shareholders' equity on the
balance sheet, consists of:
Issued and fully paid Shares as at September 30, 2013
|
|
Number
|
Amount
|
Balance at the beginning and end of the quarter
|
|
16,736,447
|
$
|
106.7
|
At the date of this MD&A, the Corporation had 16,736,447 common shares
outstanding.
Wajax has five share-based compensation plans; the Wajax Share Ownership
Plan ("SOP"), the Deferred Share Program ("DSP"), the Directors'
Deferred Share Unit Plan ("DDSUP"), the Mid-Term Incentive Plan for
Senior Executives ("MTIP") and the Deferred Share Unit Plan ("DSUP").
SOP, DSP and DDSUP rights are issued to the participants and are
settled by issuing Wajax Corporation shares on a one-for-one basis. As
of September 30, 2013, there were 280,967 (2012 - 246,271) SOP, DSP and
DDSUP rights outstanding. The cash-settled MTIP and DSUP consist of
annual grants that vest over three years and are subject to time and
performance vesting criteria. A portion of the MTIP and the full
amount of the DSUP grants are determined by the price of the
Corporation's shares. Compensation expense for the SOP, DSP and DDSUP
is determined based upon the fair value of the rights at the date of
grant and charged to earnings on a straight line basis over the vesting
period, with an offsetting adjustment to contributed surplus.
Compensation expense for the DSUP and the share-based portion of the
MTIP varies with the price of the Corporation's shares and is
recognized over the vesting period. Wajax recorded compensation cost
of $0.3 million for the quarter (2012 - $0.6 million) and $0.7 million
for the nine months ended (2012 - $3.7 million) in respect of these
plans.
Funded Net Debt
($millions)
|
|
September 30
2013
|
|
June 30
2013
|
|
December 31
2012
|
Bank indebtedness
|
$
|
0.6
|
$
|
1.9
|
$
|
10.2
|
Obligations under finance lease
|
|
13.0
|
|
11.5
|
|
11.8
|
Bank debt
|
|
211.7
|
|
207.9
|
|
151.7
|
Funded net debt
|
$
|
225.3
|
$
|
221.2
|
$
|
173.7
|
Funded net debt of $225.3 million at September 30, 2013 increased $4.1
million compared to June 30, 2013. The increase during the quarter was
due to $9.7 million of cash generated from operating activities being
less than dividends paid of $10.0 million, finance lease payments of
$0.6 million and cash used in investing activities of $1.6 million.
Funded net debt of $225.3 million at September 30, 2013 increased $51.6
million compared to December 31, 2012. Cash used in operating
activities during the period of $8.5 million resulted mainly from the
impact of income taxes paid of $57.6 million. Other uses of cash
included dividends paid of $36.0 million, investing activities of $3.8
million and finance lease payments of $1.9 million.
The Corporation's ratio of funded net debt to capital increased to 48.1%
at September 30, 2013 from 47.8% at June 30, 2013 driven by the higher
funded net debt level.
The Corporation's leverage ratio of 2.4 times at September 30, 2013
increased from the June 30, 2013 ratio of 2.2 times due mainly to the
combined impact of increased funded net debt outstanding and lower
EBITDA for the trailing four quarters.
The Corporation's interest coverage ratio declined to 13.2 times at
September 30, 2013 from 15.9 times at June 30, 2013 due to the combined
impact of the higher cost of increased funded net debt outstanding and
lower EBITDA for the trailing four quarters.
See the Liquidity and Capital Resources and the Non-GAAP and Additional
GAAP Measures sections.
Financial Instruments
Wajax uses derivative financial instruments in the management of its
foreign currency and interest rate exposures. Wajax's policy is not to
utilize derivative financial instruments for trading or speculative
purposes. Significant derivative financial instruments outstanding at
the end of the period were as follows:
-
Wajax enters into short-term currency forward contracts 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. As at
September 30, 2013, Wajax had contracts outstanding to buy U.S. $26.8
million (December 31, 2012 - to buy U.S. $26.5 million and to sell U.S.
$11.1 million, September 30, 2012 - to buy U.S. $25.8 million and to
sell U.S. $4.1 million). The U.S. dollar contracts expire between
October 2013 and July 2014, with a weighted average U.S./Canadian
dollar rate of 1.0376.
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. The fair value of derivative instruments is
estimated based upon market conditions using appropriate valuation
models. The carrying values reported in the balance sheet for
financial instruments are not significantly different from their fair
values. The impact of a change in foreign currency relative to the
Canadian dollar on the Corporation's financial statements of unhedged
foreign currency-denominated sales to customers along with the
associated receivables and purchases from vendors along with associated
payables would be insignificant.
Wajax is exposed to the risk of non-performance by counterparties to
short-term currency forward contracts. These counterparties are large
financial institutions with a "Stable" outlook and high short-term and
long-term credit ratings from Standard and Poor's. To date, no such
counterparty has failed to meet its financial obligations to Wajax.
Management does not believe there is a significant risk of
non-performance by these counterparties and will continue to monitor
the credit risk of these counterparties.
Contractual Obligations
There have been no material changes to the Corporation's contractual
obligations since December 31, 2012 except for the issuance on October
23, 2013 of $125 million of senior unsecured notes due October 23,
2020. See Liquidity and Capital Resources section.
Off Balance Sheet Financing
Off balance sheet financing arrangements include operating lease
contracts entered into for facilities with various landlords, office
equipment with various non-bank lenders and a portion of the long-term
lift truck rental fleet in the Equipment segment with a non-bank
lender. There have been no material changes to the Corporation's total
obligations for all operating leases since December 31, 2012. See the
Contractual Obligations section above.
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 Equipment segment had $104.2 million (2012 - $91.2 million) of
consigned inventory on-hand from a major manufacturer at September 30,
2013. In the normal course of business, Wajax receives inventory on
consignment from this manufacturer which is generally sold to customers
or purchased by Wajax. This consigned inventory is not included in
Wajax's inventory as the manufacturer retains title to the goods. In
the event the inventory consignment program was terminated, Wajax would
utilize interest free financing, if any, made available by the
manufacturer and/or utilize capacity under its credit facilities.
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 and Notes
At September 30, 2013, Wajax had borrowed $213.0 million and issued $6.3
million of letters of credit for a total utilization of $219.3 million
of its $300 million bank credit facility. Borrowing capacity under the
bank credit facility is dependent on the level of inventories on-hand
and outstanding trade accounts receivables. At September 30, 2013,
borrowing capacity under the bank credit facility was equal to $300
million.
On October 23, 2013 the Corporation issued $125 million of senior
unsecured notes. The notes carry a coupon of 6.125% per annum and will
mature on October 23, 2020. The notes contain customary incurrence
based covenants that, although different from those under the bank
credit facility, are not expected to be any more restrictive than under
the bank credit facility. The issuance of the notes introduces a longer
term fixed rate layer of debt into Wajax's capital structure at a time
when interest rates remain historically low. The net proceeds of the
notes were used to repay borrowings under the Corporation's bank credit
facility, which in turn may be redrawn for general corporate purposes.
The cost of issuing the notes, approximately $3.5 million, will be
amortized over the seven year term of the notes. Effective upon the
note issuance, the Corporation reduced the total available committed
amount of the bank credit facility from $300 million to $250 million.
The fully secured bank credit facility is now comprised of a $60
million non-revolving term portion and a $190 million revolving term
portion.
Under the terms of the bank credit facility, Wajax is permitted to have
additional interest bearing debt of $15 million. As such, Wajax has up
to $15 million of demand inventory equipment financing capacity with
three non-bank lenders. At September 30, 2013 Wajax had no utilization
of these interest bearing equipment financing facilities.
As of November 5, 2013, Wajax's $250 million bank credit facility, along
with the additional $15 million of capacity permitted under the bank
credit facility and the $125 million of notes, should be sufficient to
meet Wajax's short-term normal course working capital and maintenance
capital requirements. However, Wajax may be required to access the
equity or debt markets in order to fund significant acquisitions and
growth related working capital and capital expenditures.
Cash Flow
The following table highlights the major components of cash flow as
reflected in the Consolidated Statements of Cash Flows for the three
and nine months ended September 30, 2013.
|
Three months ended
|
Nine months ended
|
|
September 30
|
September 30
|
($millions)
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net earnings
|
$
|
11.5
|
$
|
16.2
|
$
|
35.5
|
$
|
51.7
|
Items not affecting cash flow
|
|
12.8
|
|
11.6
|
|
34.8
|
|
34.9
|
Net change in non-cash operating working capital
|
|
(3.4)
|
|
(23.2)
|
|
0.9
|
|
(89.0)
|
Income taxes paid
|
|
(4.2)
|
|
0.0
|
|
(57.6)
|
|
(0.5)
|
Other cash items(1)
|
|
(7.0)
|
|
(8.7)
|
|
(22.1)
|
|
(27.5)
|
Cash generated from (used in) operating activities
|
$
|
9.7
|
$
|
(4.2)
|
$
|
(8.5)
|
$
|
(30.3)
|
Cash used in investing activities
|
$
|
(1.6)
|
$
|
(1.5)
|
$
|
(3.8)
|
$
|
(5.4)
|
Cash (used in) generated from financing activities
|
$
|
(6.9)
|
$
|
15.1
|
$
|
21.9
|
$
|
24.0
|
(1)
|
Other cash items includes rental equipment additions, changes in other
non-current liabilities
and finance costs paid
|
Cash Generated From (Used In) Operating Activities
Cash flows generated from operating activities amounted to $9.7 million
in the third quarter of 2013, compared to $4.2 million of cash used in
operating activities in the same quarter of the previous year. The
$13.9 million increase was mainly attributable to a reduction in cash
used for non-cash working capital of $19.8 million, offset mostly by
reduced earnings of $4.7 million and higher income taxes paid of $4.2
million.
For the nine months ended September 30, 2013, cash flows used in
operating activities amounted to $8.5 million, compared to $30.3
million of cash used in operating activities for the same period in the
previous year. The $21.8 million decrease in cash flows used in
operating activities was mainly attributable to cash generated from the
change in non-cash working capital of $0.9 million during the current
period compared to a use of $89.0 million for the same period last
year, offset mostly by higher income taxes paid of $57.1 million and
reduced earnings of $16.2 million. Income taxes paid of $57.6 million
during the current period were comprised of a $44.6 million payment
relating to 2011 and 2012 taxable income and 2013 income tax
installments of $13.0 million.
Significant components of non-cash operating working capital, along with
changes for the three and nine months ending September 30, 2013 include
the following:
Changes in Non-cash Operating
Working Capital(1)
|
Three months ended
|
Nine months ended
|
|
September
30 2013
|
|
September
30 2012
|
|
September
30 2013
|
|
September
30 2012
|
Trade and other receivables
|
$
|
(1.3)
|
$
|
11.4
|
$
|
9.2
|
$
|
(10.2)
|
Inventories
|
|
(12.7)
|
|
(5.3)
|
|
(16.5)
|
|
(47.9)
|
Prepaid expenses
|
|
0.9
|
|
2.5
|
|
1.0
|
|
1.7
|
Accounts payable and accrued liabilities
|
|
9.9
|
|
(31.6)
|
|
8.6
|
|
(31.4)
|
Provisions
|
|
(0.2)
|
|
(0.1)
|
|
(1.4)
|
|
(1.1)
|
Total Changes in Non-cash
Operating Working Capital
|
$
|
(3.4)
|
$
|
(23.2)
|
$
|
0.9
|
$
|
(89.0)
|
(1) Increase (decrease) in cash flow
|
Significant components of the changes in non-cash operating working
capital for the quarter ended September 30, 2013 compared to the same
quarter in 2012 are as follows:
-
Trade and other receivables increased $1.3 million in 2013 compared to a
decrease of $11.4 million in 2012. The decrease in 2012 was
attributable to lower sales activity in the Power Systems segment's
western Canada operation and in the Industrial Components segment.
-
Inventories increased $12.7 million in the current year, due mainly to
higher mining and forestry equipment inventory in the Equipment
segment. This compared to an increase of $5.3 million in 2012 due
mainly to higher mining equipment inventory in the Equipment segment.
-
Accounts payable and accrued liabilities increased $9.9 million in 2013
compared to a decrease of $31.6 million in 2012. The increase in 2013
resulted primarily from higher inventory trade payables in the
Equipment and Power Systems segments during the quarter. The decrease
last year was attributable to reductions in the Equipment segment's
trade payables and customer deposits related to mining equipment sales.
Significant components of the changes in non-cash operating working
capital for the nine months ended September 30, 2013 compared to the
same period in 2012 are as follows:
-
Trade and other receivables decreased $9.2 million in 2013 compared to
an increase of $10.2 million in 2012. The decrease in 2013 resulted
primarily from lower sales activity in all segments and the collection
of a large mining equipment receivable in the Equipment segment. The
increase last year was driven by a significant increase in the
Equipment segment related to mining equipment deliveries offset
partially by reductions in the Power Systems segment on lower sales
activity.
-
Inventories were $16.5 million higher in the current year compared to an
increase of $47.9 million in 2012. The increase in 2013 resulted
primarily from higher mining and construction equipment inventory in
the Equipment segment. The increase in 2012 was primarily attributable
to a $26.8 million increase in mining equipment in the Equipment
segment. Also contributing to the 2012 increase were higher levels of
construction equipment in the Equipment segment, project related
engines in Power Systems segment's eastern Canada operation and
increased stock levels in the Industrial Components segment's western
Canada operation.
-
Accounts payable and accrued liabilities increased $8.6 million in 2013
compared to a decrease of $31.4 million in 2012. The increase in 2013
resulted primarily from higher inventory trade payables in the
Equipment and Power Systems segments. The decrease in 2012 was
primarily attributable to decreased customer deposits related to mining
equipment sales and lower inventory trade payables in the Equipment
segment.
Investing Activities
During the third quarter of 2013, Wajax invested $1.6 million in
property, plant and equipment additions, net of disposals, compared to
$1.4 million in the third quarter of 2012.
For the nine months ended September 30, 2013, Wajax invested $3.8
million in property, plant and equipment additions, net of disposals,
compared to $5.2 million in the same period of 2012.
Financing Activities
The Corporation used $6.9 million of cash from financing activities in
the third quarter of 2013 compared to $15.1 million generated in the
same quarter of 2012. Financing activities in the quarter included bank
debt borrowings of $4.0 million, for general corporate purposes, that
were more than offset by dividends paid to shareholders totaling $10.0
million, or $0.60 per share, and finance lease payments of $0.6
million.
For the nine months ended September 30, 2013, the Corporation generated
$21.9 million of cash from financing activities compared to $24.0
million in the same period of 2012. Financing activities for the nine
months ended included bank debt borrowings of $60.0 million, offset by
dividends paid to shareholders totaling $36.0 million, or $2.15 per
share, and finance lease payments of $1.9 million. The bank debt
borrowings of $60.0 million during the period funded the income taxes
paid and other cash items, as noted in the table above highlighting the
major components of cash flow.
Dividends
Dividends to shareholders were declared as follows:
Record Date
|
Payment Date
|
|
Per Share
|
|
Amount
|
July 31, 2013
|
August 20, 2013
|
|
$
|
0.20
|
|
$
|
3.3
|
August 30, 2013
|
September 20, 2013
|
|
0.20
|
|
3.3
|
September 30, 2013
|
October 21, 2013
|
|
0.20
|
|
3.3
|
Three months ended September 30, 2013
|
|
|
$
|
0.60
|
|
$
|
9.9
|
On August 9, 2013, Wajax announced a monthly dividend of $0.20 per share
($2.40 annualized) for the month of October payable on November 20,
2013 to shareholders of record on October 31, 2013.
On November 5, 2013, Wajax announced monthly dividends of $0.20 per
share ($2.40 annualized) for each of the months of November, December,
January and February payable on December 20, 2013, January 20, 2014,
February 20, 2014 and March 20, 2014 to shareholders of record on
November 29, 2013, December 31, 2013, January 31, 2014 and February 28,
2014 respectively. See the Strategic Direction and Outlook section.
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 profit 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)
|
these measures are commonly reported and widely used by investors,
|
|
|
|
(ii)
|
the non-GAAP measures are commonly used as an indicator of a company's
cash operating
performance and ability to raise and service debt, and
|
|
|
|
(iii)
|
the additional GAAP measures are commonly used to assess a company's
earnings
performance excluding its capital and tax structures.
|
Non-GAAP financial measures are identified and defined below:
Leverage ratio
|
At the end of a particular quarter, the leverage ratio is defined as
funded net
debt at the end of a particular quarter divided by trailing 12-month
EBITDA.
The Corporation's objective is to maintain this ratio between 1.5 times
and 2.0 times.
|
|
|
Interest coverage ratio
|
At the end of a particular quarter, the interest coverage ratio is
defined as
trailing 12-month EBITDA divided by trailing 12-month finance costs.
|
|
|
Funded net debt
|
Funded net debt includes bank debt, bank indebtedness and obligations
under finance leases, net of cash.
|
|
|
EBITDA
|
Earnings before finance costs, income tax expense, depreciation and
amortization.
|
|
|
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.
|
Additional GAAP measures are identified and defined below:
Earnings before
finance costs and
income taxes (EBIT)
|
Defined as gross profit less selling and administrative expenses.
|
Earnings before
income taxes
|
Defined as gross profit less selling and administrative expenses less
finance
costs.
|
Reconciliation of the Corporation's net earnings to EBITDA is as
follows:
|
For the twelve
months ended
September 30
|
For the twelve
months ended
June 30
|
For the twelve
months ended
December 31
|
|
2013
|
2013
|
2012
|
Net earnings
|
$
|
49.7
|
$
|
54.3
|
$
|
65.9
|
Depreciation and amortization
|
20.5
|
19.5
|
17.8
|
Finance costs
|
7.2
|
6.2
|
4.4
|
Income tax expense
|
17.7
|
19.3
|
23.8
|
EBITDA
|
$
|
95.1
|
$
|
99.3
|
$
|
112.0
|
Calculation of the Corporations funded net debt, leverage ratio and
interest coverage ratio is as follows:
|
September 30
|
June 30
|
December 31
|
|
2013
|
2013
|
2012
|
Bank indebtedness
|
$
|
0.6
|
$
|
1.9
|
$
|
10.2
|
Obligations under finance leases
|
13.0
|
11.5
|
11.8
|
Bank debt
|
211.7
|
207.9
|
151.7
|
Funded net debt
|
$
|
225.3
|
$
|
221.2
|
$
|
173.7
|
Leverage ratio
|
2.4
|
2.2
|
1.6
|
Interest coverage ratio
|
13.2
|
15.9
|
25.2
|
Critical Accounting Estimates
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. 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, goodwill
and intangible assets, and warranty provision. In preparing the
financial statements for the quarter ended September 30, 2013, the
significant judgments made by management in applying the Corporation's
accounting policies and the key sources of estimation uncertainty are
the same as those applied in the recently reported audited consolidated
financial statements for the year ended December 31, 2012 which can be
found on SEDAR at www.sedar.com.
Changes in Accounting Policies
The following new standards have been adopted in the current year:
On January 1, 2013, the Corporation adopted the amendments to IFRS 7 Offsetting Financial Assets and Liabilities, which contains new disclosure requirements for financial assets and
liabilities that are offset in the statement of financial position or
are subject to master netting arrangements or similar arrangements. The
impact on the disclosures in the condensed consolidated financial
statements from adopting IFRS 7 was not material.
On January 1, 2013, the Corporation adopted IFRS 10 Consolidated Financial Statements, which establishes principles for the preparation and presentation of
consolidated financial statements when an entity controls one or more
other entities. There was no impact on the condensed consolidated
financial statements from adopting IFRS 10.
On January 1, 2013, the Corporation adopted IFRS 13 Fair Value Measurement, which defines fair value and sets out a framework for measuring fair
value when fair value measurements are required or permitted by other
standards. It also requires disclosure of the valuation techniques and
inputs for financial instruments measured at fair value. The impact on
the disclosures in the condensed consolidated financial statements from
adopting IFRS 13 was not material.
On January 1, 2013, the Corporation retrospectively adopted IAS 19R Employee Benefits, which requires recognition of actuarial gains and losses immediately
in other comprehensive income, the full recognition of past service
costs immediately in profit or loss, recognition of the expected return
on plan assets in profit or loss to be calculated based on the rate
used to discount the defined benefit obligation, and certain additional
disclosures. No adjustment to prior years' financial statements was
necessary. The impact on the current year condensed consolidated
financial statements from adopting IAS 19R was not material.
New standards and interpretations not yet adopted
The new standards or amendments to existing standards that may be
significant to the Corporation set out below are not yet effective for
the year ended December 31, 2013 and have not been applied in preparing
these consolidated financial statements.
It is currently anticipated that as of January 1, 2015, the Corporation
will be required to adopt IFRS 9 Financial Instruments, which is the result of the first phase of the IASB's project to
replace IAS 39 Financial Instruments: Recognition and Measurement. The new standard replaces the current multiple classification and
measurement models for financial assets and liabilities with a single
model that has only two classification categories: amortized cost and
fair value. The Corporation is currently assessing the impact of this
standard on its consolidated financial statements.
Risk Management and Uncertainties
As with most businesses, Wajax is subject to a number of marketplace and
industry related risks and uncertainties which could have a material
impact on operating results and Wajax's ability to pay cash dividends
to shareholders.
Wajax attempts to minimize many of these risks through diversification
of core businesses and through the geographic diversity of its
operations. In addition, Wajax has adopted an annual enterprise risk
management assessment which is prepared by the Corporation's senior
management and overseen by the Board of Directors and Committees of the
Board. The enterprise risk management framework sets out principles and
tools for identifying, evaluating, prioritizing and managing risk
effectively and consistently across Wajax. There are however, a number
of risks that deserve particular comment which are discussed in detail
in the MD&A for the year ended December 31, 2012 which can be found on
SEDAR at www.sedar.com. There have been no material changes to the business of Wajax that
require an update to the discussion of the applicable risks discussed
in the MD&A for the year ended December 31, 2012.
Strategic Direction and Outlook
Third quarter revenue and earnings were largely as expected. When
compared to last year, revenue was negatively affected by continued
weakness in the oil and gas and mining markets. Mining related revenue
declines, including the loss of the LeTourneau product line, were
partially mitigated by increases in mining associated aftermarket sales
driven by improvements in equipment support revenue and continuing
gains from the Equipment segment's rotating products growth initiative.
Management expects the weakness in the oil and gas market to remain for
the balance of 2013, with demand for new equipment and aftermarket
services for drilling and well stimulation continuing to be soft. In
mining, quoting activity remains at a reasonable level for the
Equipment segment, as well as Power Systems' electrical power
generation business. However, lower commodity prices continue to
result in mining customers reducing their capital and development
spending, limiting their ability to commit to new equipment orders. In
spite of this, the Corporation was able to increase its consolidated
backlog on increases in non-mining related orders and electric power
generation orders in the Equipment and Power Systems segments
respectively. As well, the commercial trial of the four Hitachi EH5000
320 ton mining trucks began in the oil sands in the fourth quarter.
Consistent with the Corporation's expectation disclosed at the end of
the second quarter, management is maintaining a cautious outlook
regarding its end markets for the rest of 2013 and continues to expect
that full year 2013 earnings will be less than 2012.
Additional information, including Wajax's Annual Report and Annual
Information Form, are available on SEDAR at www.sedar.com.
WAJAX CORPORATION
Unaudited Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2013
Notice required under National Instrument 51-102, "Continuous Disclosure
Obligations" Part 4.3(3) (a):
The attached condensed consolidated financial statements have been
prepared by Management of Wajax Corporation and have not been reviewed
by the Corporation's auditors.
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
As at
(unaudited, in thousands of Canadian dollars)
|
|
Note
|
|
|
September
30, 2013
|
|
December
31, 2012
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
|
$
|
185,332
|
$
|
194,567
|
Inventories
|
|
|
|
|
303,273
|
|
285,185
|
Income taxes receivable
|
|
|
|
|
1,571
|
|
-
|
Prepaid expenses
|
|
|
|
|
6,073
|
|
7,089
|
|
|
|
|
|
496,249
|
|
486,841
|
|
|
|
|
|
|
|
|
NON-CURRENT
|
|
|
|
|
|
|
|
Rental equipment
|
|
4
|
|
|
49,386
|
|
43,731
|
Property, plant and equipment
|
|
5
|
|
|
50,705
|
|
50,700
|
Intangible assets
|
|
|
|
|
86,309
|
|
87,668
|
Deferred taxes
|
|
8
|
|
|
1,941
|
|
2,922
|
|
|
|
|
|
188,341
|
|
185,021
|
|
|
|
|
$
|
684,590
|
$
|
671,862
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
CURRENT
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
|
|
$
|
631
|
$
|
10,195
|
Accounts payable and accrued liabilities
|
|
|
|
|
195,219
|
|
186,897
|
Provisions
|
|
|
|
|
5,595
|
|
7,033
|
Dividends payable
|
|
6
|
|
|
3,347
|
|
4,519
|
Income taxes payable
|
|
|
|
|
-
|
|
44,349
|
Obligations under finance leases
|
|
|
|
|
3,823
|
|
3,611
|
Derivative instruments
|
|
|
|
|
30
|
|
149
|
|
|
|
|
|
208,645
|
|
256,753
|
|
|
|
|
|
|
|
|
NON-CURRENT
|
|
|
|
|
|
|
|
Provisions
|
|
|
|
|
3,358
|
|
4,088
|
Employee benefits
|
|
|
|
|
7,619
|
|
7,160
|
Other liabilities
|
|
|
|
|
913
|
|
2,083
|
Obligations under finance leases
|
|
|
|
|
9,163
|
|
8,192
|
Bank debt
|
|
|
|
|
211,702
|
|
151,701
|
|
|
|
|
|
232,755
|
|
173,224
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
106,651
|
|
106,651
|
Contributed surplus
|
|
|
|
|
4,906
|
|
4,346
|
Retained earnings
|
|
|
|
|
131,603
|
|
130,944
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
30
|
|
(56)
|
Total shareholders' equity
|
|
|
|
|
243,190
|
|
241,885
|
|
|
|
|
$
|
684,590
|
$
|
671,862
|
These condensed consolidated financial statements were approved by the
Board of Directors on November 5, 2013.
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS
|
|
(unaudited, in thousands of Canadian dollars,
except per share data)
|
Note
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
338,460
|
$
|
356,396
|
|
$
|
1,036,783
|
$
|
1,101,085
|
Cost of sales
|
|
|
269,167
|
|
285,304
|
|
|
824,590
|
|
872,880
|
Gross profit
|
|
|
69,293
|
|
71,092
|
|
|
212,193
|
|
228,205
|
Selling and administrative expenses
|
|
|
51,442
|
|
48,087
|
|
|
158,160
|
|
154,662
|
Earnings before finance costs and income taxes
|
|
|
17,851
|
|
23,005
|
|
|
54,033
|
|
73,543
|
Finance costs
|
|
|
2,146
|
|
1,161
|
|
|
5,891
|
|
3,105
|
Earnings before income taxes
|
|
|
15,705
|
|
21,844
|
|
|
48,142
|
|
70,438
|
Income tax expense
|
8
|
|
4,160
|
|
5,669
|
|
|
12,671
|
|
18,693
|
Net earnings
|
|
$
|
11,545
|
$
|
16,175
|
|
$
|
35,471
|
$
|
51,745
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
9
|
$
|
0.69
|
$
|
0.97
|
|
$
|
2.12
|
$
|
3.10
|
Diluted earnings per share
|
9
|
$
|
0.68
|
$
|
0.95
|
|
$
|
2.09
|
$
|
3.05
|
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
|
|
(unaudited, in thousands of Canadian dollars)
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
11,545
|
$
|
16,175
|
|
$
|
35,471
|
$
|
51,745
|
|
|
|
|
|
|
|
|
|
|
Items that will be subsequently reclassified to
income
(Gains) losses on derivative instruments designated
as cash flow hedges in prior periods reclassified to
cost of inventory or finance costs during the period,
net of tax expense of $51 (2012 - recovery of $12) and
year to date, net of tax expense of $73 (2012 -
recovery of $121)
|
|
(145)
|
|
34
|
|
|
(206)
|
|
331
|
|
|
|
|
|
|
|
|
|
|
(Losses) gains on derivative instruments outstanding
at the end of the period designated as cash flow
hedges, net of tax recovery of $16 (2012 - $79) and
year to date, net of tax expense of $104 (2012 -
recovery of $134)
|
|
(46)
|
|
(223)
|
|
|
292
|
|
(381)
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
(191)
|
|
(189)
|
|
|
86
|
|
(50)
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
$
|
11,354
|
$
|
15,986
|
|
$
|
35,557
|
$
|
51,695
|
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Accumulated
other
comprehensive
income
(loss)
("AOCL")
|
|
For the nine months ended September 30, 2013
(unaudited, in thousands of Canadian dollars)
|
Note
|
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Cash flow
hedges
|
|
Total
|
|
|
|
|
|
|
|
|
|
January 1, 2013
|
|
$
|
106,651
|
4,346
|
130,944
|
(56)
|
$
|
241,885
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
-
|
-
|
35,471
|
-
|
|
35,471
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
-
|
-
|
-
|
86
|
|
86
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period
|
|
|
-
|
-
|
35,471
|
86
|
|
35,557
|
Dividends
|
6
|
|
-
|
-
|
(34,812)
|
-
|
|
(34,812)
|
Share-based compensation expense
|
7
|
|
-
|
560
|
-
|
-
|
|
560
|
September 30, 2013
|
|
$
|
106,651
|
4,906
|
131,603
|
30
|
$
|
243,190
|
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
AOCL
|
|
For the nine months ended September 30, 2012
(unaudited, in thousands of Canadian dollars)
|
Note
|
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Cash flow
hedges
|
|
Total
|
|
|
|
|
|
|
|
|
|
January 1, 2012
|
|
$
|
105,371
|
4,888
|
117,477
|
(150)
|
$
|
227,586
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
-
|
-
|
51,745
|
-
|
|
51,745
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
-
|
-
|
-
|
(50)
|
|
(50)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period
|
|
|
-
|
-
|
51,745
|
(50)
|
|
51,695
|
Shares issued to settle share-based compensation plans
|
|
|
1,280
|
(1,280)
|
-
|
-
|
|
-
|
Dividends
|
6
|
|
-
|
-
|
(38,232)
|
-
|
|
(38,232)
|
Share-based compensation expense
|
7
|
|
-
|
519
|
-
|
-
|
|
519
|
September 30, 2012
|
|
$
|
106,651
|
4,127
|
130,990
|
(200)
|
$
|
241,568
|
WAJAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
|
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
(unaudited, in thousands of Canadian dollars)
|
Note
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
11,545
|
$
|
16,175
|
$
|
35,471
|
$
|
51,745
|
|
Items not affecting cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental equipment
|
|
|
2,613
|
|
2,079
|
|
7,194
|
|
5,479
|
|
|
|
Property, plant and equipment
|
|
|
2,449
|
|
2,153
|
|
6,851
|
|
6,202
|
|
|
|
Intangible assets
|
|
|
458
|
|
360
|
|
1,387
|
|
1,090
|
|
|
(Gain) loss on disposal of property, plant and equipment
|
5
|
|
(22)
|
|
(17)
|
|
(29)
|
|
129
|
|
|
Share-based compensation expense
|
7
|
|
185
|
|
222
|
|
560
|
|
519
|
|
|
Non-cash rental expense
|
|
|
18
|
|
(374)
|
|
(162)
|
|
(663)
|
|
|
Employee benefits expense, net of payments
|
|
|
154
|
|
21
|
|
459
|
|
15
|
|
|
Unrealized loss (gain) on derivative instruments
|
|
|
643
|
|
295
|
|
(2)
|
|
313
|
|
|
Finance costs
|
|
|
2,146
|
|
1,161
|
|
5,891
|
|
3,105
|
|
|
Income tax expense
|
8
|
|
4,160
|
|
5,669
|
|
12,671
|
|
18,693
|
|
|
|
24,349
|
|
27,744
|
|
70,291
|
|
86,627
|
|
Changes in non-cash operating working capital
|
10
|
|
(3,415)
|
|
(23,191)
|
|
871
|
|
(88,985)
|
|
Rental equipment additions
|
4
|
|
(4,846)
|
|
(7,926)
|
|
(14,425)
|
|
(21,493)
|
|
Other non-current liabilities
|
|
|
(164)
|
|
279
|
|
(1,900)
|
|
(3,222)
|
|
Finance costs paid
|
|
|
(2,011)
|
|
(1,072)
|
|
(5,735)
|
|
(2,741)
|
|
Income taxes paid
|
|
|
(4,174)
|
|
(25)
|
|
(57,608)
|
|
(500)
|
|
Cash generated from (used in) operating activities
|
|
|
9,739
|
|
(4,191)
|
|
(8,506)
|
|
(30,314)
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment additions
|
5
|
|
(1,684)
|
|
(1,469)
|
|
(3,974)
|
|
(5,648)
|
|
Proceeds on disposal of property, plant and equipment
|
5
|
|
58
|
|
108
|
|
214
|
|
495
|
|
Intangible assets additions
|
|
|
-
|
|
(168)
|
|
(30)
|
|
(205)
|
|
Cash used in investing activities
|
|
|
(1,626)
|
|
(1,529)
|
|
(3,790)
|
|
(5,358)
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net increase in bank debt
|
|
|
4,000
|
|
29,000
|
|
60,000
|
|
62,998
|
|
Deferred financing costs
|
|
|
(275)
|
|
7
|
|
(275)
|
|
(225)
|
|
Finance lease payments
|
|
|
(553)
|
|
(339)
|
|
(1,881)
|
|
(1,734)
|
|
Dividends paid
|
|
|
(10,042)
|
|
(13,557)
|
|
(35,984)
|
|
(37,039)
|
|
Cash (used in) generated from financing activities
|
|
|
(6,870)
|
|
15,111
|
|
21,860
|
|
24,000
|
Change in bank indebtedness
|
|
|
1,243
|
|
9,391
|
|
9,564
|
|
(11,672)
|
(Bank indebtedness) cash - beginning of period
|
|
|
(1,874)
|
|
(15,404)
|
|
(10,195)
|
|
5,659
|
Bank indebtedness - end of period
|
|
$
|
(631)
|
$
|
(6,013)
|
$
|
(631)
|
$
|
(6,013)
|
WAJAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited, amounts in thousands of Canadian dollars, except share and
per share data)
1. COMPANY PROFILE
Wajax Corporation (the "Corporation") is incorporated in Canada. The
address of the Corporation's registered office is 3280 Wharton Way,
Mississauga, Ontario, Canada. The Corporation's core distribution
businesses are engaged in the sale, rental and after-sale parts and
service support of mobile equipment, power systems and industrial
components, through a network of 126 branches across Canada. The
Corporation is a multi-line distributor and represents a number of
leading worldwide manufacturers across its core businesses. Its
customer base is diversified, spanning natural resources, construction,
transportation, manufacturing, industrial processing and utilities.
2. BASIS OF PREPARATION
Statement of compliance
These condensed consolidated financial statements have been prepared in
accordance with International Accounting Standard 34 Interim Financial Reporting and do not include all of the disclosures required for full
consolidated financial statements. Accordingly, these condensed
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements of Wajax Corporation for
the year ended December 31, 2012. The significant accounting policies
follow those disclosed in the most recently reported audited
consolidated financial statements except as disclosed in Note 3.
Basis of measurement
The condensed consolidated financial statements have been prepared under
the historical cost basis except for derivative financial instruments
and liabilities for cash-settled share-based payment arrangements that
have been measured at fair value. The defined benefit liability is
recognized as the net of the fair value of the plan assets less the
present value of the defined benefit obligation.
Functional and presentation currency
These condensed consolidated financial statements are presented in
Canadian dollars, which is the Corporation's functional currency. All
financial information presented in Canadian dollars has been rounded to
the nearest thousand, unless otherwise stated and except share and per
share data.
3. CHANGE IN ACCOUNTING POLICIES
The following new standards have been adopted in the current year:
On January 1, 2013, the Corporation adopted the amendments to IFRS 7 Offsetting Financial Assets and Liabilities, which contains new disclosure requirements for financial assets and
liabilities that are offset in the statement of financial position or
are subject to master netting arrangements or similar arrangements. The
impact on the disclosures in the condensed consolidated financial
statements from adopting IFRS 7 was not material.
On January 1, 2013, the Corporation adopted IFRS 10 Consolidated Financial Statements, which establishes principles for the preparation and presentation of
consolidated financial statements when an entity controls one or more
other entities. There was no impact on the condensed consolidated
financial statements from adopting IFRS 10.
On January 1, 2013, the Corporation adopted IFRS 13 Fair Value Measurement, which defines fair value and sets out a framework for measuring fair
value when fair value measurements are required or permitted by other
standards. It also requires disclosure of the valuation techniques and
inputs for financial instruments measured at fair value. The impact on
the disclosures in the condensed consolidated financial statements from
adopting IFRS 13 was not material.
On January 1, 2013, the Corporation retrospectively adopted IAS 19R Employee Benefits, which requires recognition of actuarial gains and losses immediately
in other comprehensive income, the full recognition of past service
costs immediately in profit or loss, recognition of the expected return
on plan assets in profit or loss to be calculated based on the rate
used to discount the defined benefit obligation, and certain additional
disclosures. No adjustment to prior years' financial statements was
necessary. The impact on the current year condensed consolidated
financial statements from adopting IAS 19R was not material.
4. RENTAL EQUIPMENT
The Corporation acquired rental equipment with a cost of $4,846 during
the quarter (2012 - $7,926) and $14,425 year to date (2012 - $21,493).
Rental equipment with a carrying amount of $596 during the quarter
(2012 - $596) and $1,576 year to date (2012 - $1,246) ceased to be
rented and was classified as held for sale in the normal course of
business and transferred to inventories.
5. PROPERTY, PLANT AND EQUIPMENT
The Corporation acquired property, plant and equipment with a cost of
$1,684 during the quarter (2012 - $1,469) and $3,974 year to date (2012
- $5,648). Assets with a carrying amount of $36 during the quarter
(2012 - $91) and $185 year to date (2012 - $624) were disposed of,
resulting in a gain on disposal of $22 during the quarter (2012 - $17)
and $29 year to date (2012 - loss of $129).
6. DIVIDENDS DECLARED
During the three months ended September 30, 2013, the Corporation
declared cash dividends of $0.60 per share or $10,042 (2012 - dividends
of $0.81 per share or $13,557).
Year to date, the Corporation declared cash dividends of $2.08 per share
or $34,812 (2012 - dividends of $2.29 per share or $38,232).
The Corporation has declared dividends of $0.20 per share or $3,347 for
the month of October 2013.
7. SHARE-BASED COMPENSATION PLANS
The Corporation has five share-based compensation plans: the Wajax Share
Ownership Plan ("SOP"), the Deferred Share Program ("DSP"), the
Directors' Deferred Share Unit Plan ("DDSUP"), the Mid-Term Incentive
Plan for Senior Executives ("MTIP") and the Deferred Share Unit Plan
("DSUP").
a) Share Rights Plans
The Corporation recorded compensation cost of $185 for the quarter (2012
- $222) and $560 for the year to date (2012 - $519) in respect of these
plans.
Share Rights Plans
|
September 30, 2013
|
September 30, 2012
|
|
Number of
Rights
|
|
Fair value at
time of grant
|
Number of
Rights
|
|
Fair value at
time of grant
|
Outstanding at beginning of year
|
254,952
|
$
|
4,932
|
316,595
|
$
|
4,908
|
Granted in the period
|
- new grants
|
10,759
|
|
253
|
23,417
|
|
1,148
|
|
- dividend equivalents
|
15,256
|
|
-
|
13,262
|
|
-
|
Settled in the period
|
-
|
|
-
|
(107,003)
|
|
(1,280)
|
Outstanding at end of period
|
280,967
|
$
|
5,185
|
246,271
|
$
|
4,776
|
At September 30, 2013, 265,239 share rights were vested (2012 -
226,910).
b) Cash-settled rights plans
The Corporation recorded compensation cost of $159 for the quarter (2012
- $397) and $155 for the year to date (2012 - $3,166) in respect of the
share-based portion of the MTIP and DSUP. At September 30, 2013, the
carrying amount of the share-based portion of these liabilities was
$1,140 (September 30, 2012 - $6,633).
8. INCOME TAXES
Income tax expense comprises current and deferred tax as follows:
For the nine months ended September 30
|
|
2013
|
|
2012
|
Current
|
$
|
11,720
|
$
|
40,430
|
Deferred
|
- Origination and reversal of temporary difference
|
|
951
|
|
(21,692)
|
|
- Change in tax law and rates
|
|
-
|
|
(45)
|
Income tax expense
|
$
|
12,671
|
$
|
18,693
|
The calculation of current tax is based on a combined federal and
provincial statutory income tax rate of 26.1% (2012 - 26.2%). 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 26.1% based
on the tax rates in years when the temporary differences are expected
to reverse.
The reconciliation of effective income tax rate is as follows:
|
|
2013
|
|
2012
|
Combined statutory income tax rate
|
|
26.1%
|
|
26.2%
|
Expected income tax expense at statutory rates
|
$
|
12,565
|
$
|
18,455
|
Non-deductible expenses
|
|
422
|
|
383
|
Deferred tax related to changes in tax law and rates
|
|
-
|
|
(45)
|
Other
|
|
(316)
|
|
(100)
|
Income tax expense
|
$
|
12,671
|
$
|
18,693
|
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
- net earnings
|
$
|
11,545
|
$
|
16,175
|
$
|
35,471
|
$
|
51,745
|
Denominator for basic earnings per share:
- weighted average shares
|
|
16,736,447
|
|
16,736,447
|
|
16,736,447
|
|
16,687,593
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
- weighted average shares
|
|
16,736,447
|
|
16,736,447
|
|
16,736,447
|
|
16,687,593
|
- effect of dilutive share rights
|
|
263,682
|
|
227,247
|
|
255,118
|
|
259,443
|
Denominator for diluted earnings per share
|
|
17,000,129
|
|
16,963,694
|
|
16,991,565
|
|
16,947,036
|
Basic earnings per share
|
$
|
0.69
|
$
|
0.97
|
$
|
2.12
|
$
|
3.10
|
Diluted earnings per share
|
$
|
0.68
|
$
|
0.95
|
$
|
2.09
|
$
|
3.05
|
No share rights were excluded from the above calculations as none were
anti-dilutive.
10. CHANGES IN NON-CASH OPERATING WORKING CAPITAL
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
Trade and other receivables
|
$
|
(1,335)
|
$
|
11,386
|
$
|
9,235
|
$
|
(10,239)
|
|
|
Inventories
|
|
(12,718)
|
|
(5,281)
|
|
(16,512)
|
|
(47,889)
|
|
|
Prepaid expenses
|
|
877
|
|
2,447
|
|
1,016
|
|
1,679
|
|
|
Accounts payable and accrued liabilities
|
|
9,919
|
|
(31,631)
|
|
8,570
|
|
(31,434)
|
|
|
Provisions
|
|
(158)
|
|
(112)
|
|
(1,438)
|
|
(1,102)
|
Total
|
$
|
(3,415)
|
$
|
(23,191)
|
$
|
871
|
$
|
(88,985)
|
11. OPERATING SEGMENTS
The Corporation operates through a network of 126 branches in Canada in
three core businesses which reflect the internal organization and
management structure according to the nature of the products and
services provided. The Corporation's three core businesses are: i) the
distribution, modification and servicing of equipment; ii) the
distribution, servicing and assembly of power systems; and iii) the
distribution, servicing and assembly of industrial components.
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30, 2013
|
|
|
Equipment
|
|
Power
Systems
|
|
Industrial
Components
|
|
Segment
Eliminations
and
Unallocated
Amounts
|
|
Total
|
Equipment
|
|
$
|
94,788
|
$
|
19,548
|
$
|
-
|
$
|
-
|
$
|
114,336
|
Parts
|
|
|
47,503
|
|
31,962
|
|
85,862
|
|
-
|
|
165,327
|
Service
|
|
|
25,944
|
|
15,615
|
|
5,201
|
|
-
|
|
46,760
|
Rental and other
|
|
|
11,262
|
|
2,077
|
|
-
|
|
(1,302)
|
|
12,037
|
Revenue
|
|
$
|
179,497
|
$
|
69,202
|
$
|
91,063
|
$
|
(1,302)
|
$
|
338,460
|
Segment earnings before finance costs and income taxes
|
|
$
|
11,789
|
$
|
3,740
|
$
|
4,288
|
$
|
-
|
$
|
19,817
|
Corporate costs and eliminations
|
|
|
-
|
|
-
|
|
-
|
|
(1,966)
|
|
(1,966)
|
Earnings before finance costs and income taxes
|
|
|
11,789
|
|
3,740
|
|
4,288
|
|
(1,966)
|
|
17,851
|
Finance costs
|
|
|
-
|
|
-
|
|
-
|
|
2,146
|
|
2,146
|
Income tax expense
|
|
|
-
|
|
-
|
|
-
|
|
4,160
|
|
4,160
|
Net earnings
|
|
$
|
11,789
|
$
|
3,740
|
$
|
4,288
|
$
|
(8,272)
|
$
|
11,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
September 30, 2013
|
|
|
Equipment
|
|
Power
Systems
|
|
Industrial
Components
|
|
Segment
Eliminations
and
Unallocated
Amounts
|
|
Total
|
Equipment
|
|
$
|
292,214
|
$
|
63,369
|
$
|
-
|
$
|
-
|
$
|
355,583
|
Parts
|
|
|
136,919
|
|
100,307
|
|
262,103
|
|
-
|
|
499,329
|
Service
|
|
|
81,884
|
|
49,008
|
|
13,725
|
|
-
|
|
144,617
|
Rental and other
|
|
|
34,476
|
|
5,883
|
|
-
|
|
(3,105)
|
|
37,254
|
Revenue
|
|
$
|
545,493
|
$
|
218,567
|
$
|
275,828
|
$
|
(3,105)
|
$
|
1,036,783
|
Segment earnings before finance costs and income taxes
|
|
$
|
35,596
|
$
|
11,098
|
$
|
12,841
|
$
|
|
$
|
59,535
|
Corporate costs and eliminations
|
|
|
-
|
|
-
|
|
-
|
|
(5,502)
|
|
(5,502)
|
Earnings before finance costs and income taxes
|
|
|
35,596
|
|
11,098
|
|
12,841
|
|
(5,502)
|
|
54,033
|
Finance costs
|
|
|
-
|
|
-
|
|
-
|
|
5,891
|
|
5,891
|
Income tax expense
|
|
|
-
|
|
-
|
|
-
|
|
12,671
|
|
12,671
|
Net earnings
|
|
$
|
35,596
|
$
|
11,098
|
$
|
12,841
|
$
|
(24,064)
|
$
|
35,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets excluding intangible assets
|
|
$
|
328,894
|
$
|
144,752
|
$
|
120,184
|
$
|
-
|
$
|
593,830
|
Intangible assets
|
|
|
21,712
|
|
14,287
|
|
50,310
|
|
-
|
|
86,309
|
Corporate and other assets
|
|
|
-
|
|
-
|
|
-
|
|
4,451
|
|
4,451
|
Total assets
|
|
$
|
350,606
|
$
|
159,039
|
$
|
170,494
|
$
|
4,451
|
$
|
684,590
|
Segment liabilities
|
|
$
|
125,414
|
$
|
43,392
|
$
|
47,298
|
$
|
-
|
$
|
216,104
|
Corporate and other liabilities
|
|
|
-
|
|
-
|
|
-
|
|
225,296
|
|
225,296
|
Total liabilities
|
|
$
|
125,414
|
$
|
43,392
|
$
|
47,298
|
$
|
225,296
|
$
|
441,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30, 2012
|
|
|
Equipment
|
|
Power
Systems
|
|
Industrial
Components
|
|
Segment
Eliminations
and
Unallocated
Amounts
|
|
Total
|
Equipment
|
|
$
|
122,300
|
$
|
27,383
|
$
|
-
|
$
|
-
|
$
|
149,683
|
Parts
|
|
|
38,526
|
|
31,114
|
|
82,909
|
|
-
|
|
152,549
|
Service
|
|
|
23,177
|
|
15,863
|
|
4,575
|
|
-
|
|
43,615
|
Rental and other
|
|
|
10,190
|
|
1,234
|
|
-
|
|
(875)
|
|
10,549
|
Revenue
|
|
$
|
194,193
|
$
|
75,594
|
$
|
87,484
|
$
|
(875)
|
$
|
356,396
|
Segment earnings before finance costs and income taxes
|
|
$
|
13,306
|
$
|
6,004
|
$
|
5,511
|
$
|
-
|
$
|
24,821
|
Corporate costs and eliminations
|
|
|
-
|
|
-
|
|
-
|
|
(1,816)
|
|
(1,816)
|
Earnings before finance costs and income taxes
|
|
|
13,306
|
|
6,004
|
|
5,511
|
|
(1,816)
|
|
23,005
|
Finance costs
|
|
|
-
|
|
-
|
|
-
|
|
1,161
|
|
1,161
|
Income tax expense
|
|
|
-
|
|
-
|
|
-
|
|
5,669
|
|
5,669
|
Net earnings
|
|
$
|
13,306
|
$
|
6,004
|
$
|
5,511
|
$
|
(8,646)
|
$
|
16,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
September 30, 2012
|
|
|
Equipment
|
|
Power
Systems
|
|
Industrial
Components
|
|
Segment
Eliminations
and
Unallocated
Amounts
|
|
Total
|
Equipment
|
|
$
|
356,832
|
$
|
93,518
|
$
|
-
|
$
|
-
|
$
|
450,350
|
Parts
|
|
|
123,203
|
|
103,738
|
|
260,485
|
|
-
|
|
487,426
|
Service
|
|
|
70,493
|
|
52,087
|
|
14,239
|
|
-
|
|
136,819
|
Rental and other
|
|
|
26,337
|
|
3,924
|
|
-
|
|
(3,771)
|
|
26,490
|
Revenue
|
|
$
|
576,865
|
$
|
253,267
|
$
|
274,724
|
$
|
(3,771)
|
$
|
1,101,085
|
Segment earnings before finance costs and income taxes
|
|
$
|
42,135
|
$
|
21,115
|
$
|
18,523
|
$
|
-
|
$
|
81,773
|
Corporate costs and eliminations
|
|
|
-
|
|
-
|
|
-
|
|
(8,230)
|
|
(8,230)
|
Earnings before finance costs and income taxes
|
|
|
42,135
|
|
21,115
|
|
18,523
|
|
(8,230)
|
|
73,543
|
Finance costs
|
|
|
-
|
|
-
|
|
-
|
|
3,105
|
|
3,105
|
Income tax expense
|
|
|
-
|
|
-
|
|
-
|
|
18,693
|
|
18,693
|
Net earnings
|
|
$
|
42,135
|
$
|
21,115
|
$
|
18,523
|
$
|
(30,028)
|
$
|
51,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets excluding intangible assets
|
|
$
|
307,928
|
$
|
144,692
|
$
|
121,398
|
$
|
-
|
$
|
574,018
|
Intangible assets
|
|
|
21,906
|
|
14,558
|
|
47,139
|
|
5
|
|
83,608
|
Corporate and other assets
|
|
|
-
|
|
-
|
|
-
|
|
3,792
|
|
3,792
|
Total assets
|
|
$
|
329,834
|
$
|
159,250
|
$
|
168,537
|
$
|
3,797
|
$
|
661,418
|
Segment liabilities
|
|
$
|
136,698
|
$
|
49,927
|
$
|
43,918
|
$
|
-
|
$
|
230,543
|
Corporate and other liabilities
|
|
|
-
|
|
-
|
|
-
|
|
189,307
|
|
189,307
|
Total liabilities
|
|
$
|
136,698
|
$
|
49,927
|
$
|
43,918
|
$
|
189,307
|
$
|
419,850
|
Segment assets and liabilities do not include assets and liabilities
associated with the corporate office including deferred financing
costs, income taxes, bank indebtedness, bank debt, employee benefits,
and dividends payable.
12. SUBSEQUENT EVENT
On October 23, 2013 the Corporation issued $125,000 of senior unsecured
notes. The notes carry a coupon of 6.125% per annum and will mature on
October 23, 2020. The net proceeds of the notes were used to repay
borrowings under the Corporation's senior secured bank credit facility,
which in turn may be redrawn for general corporate purposes. Effective
upon the closing of the note offering, the Corporation reduced the
total available committed amount of the bank credit facility from
$300,000 to $250,000.
SOURCE Wajax Corporation