TSX Symbol: WJX
(Dollars in millions, except per share data) | Three Months Ended | Nine Months Ended | |||
2021 | 2020 | 2021 | 2020 | ||
CONSOLIDATED RESULTS | |||||
Revenue | |||||
Equipment sales | |||||
Product support | |||||
Industrial parts | |||||
ERS | |||||
Equipment rental | |||||
Net earnings | |||||
Basic earnings per share(1) | |||||
Adjusted net earnings(2)(3) | |||||
Adjusted basic earnings per share(1)(2)(3) |
Third Quarter Highlights
- Revenue in the third quarter of 2021 increased
$60.7 million , or 17.8%, to$401.3 million , from$340.6 million in the third quarter of 2020. Regionally: - Revenue in western
Canada of$177.4 million increased 36.9% over the prior year due primarily to higher revenue in the industrial parts and ERS categories, as well as higher mining and power systems product support revenue. The increase in industrial parts and ERS revenue was due mainly to the acquisition ofCalgary, Alberta -basedTundra Process Solutions Ltd. ("Tundra") effectiveJanuary 22, 2021 . - Revenue in central
Canada of$74.2 million increased 0.6% over the prior year primarily due to strength in industrial parts sales and ERS revenue, as well as higher power systems and mining product support revenue. These increases were offset partially by lower construction and forestry equipment sales. - Revenue in eastern
Canada of$149.7 million increased 9.0% over the prior year primarily due to higher power systems equipment sales, industrial parts revenue and construction and forestry product support revenue. - During the quarter, the Corporation did not recognize any reimbursement of compensation expense from the
Canada Emergency Wage Subsidy ("CEWS") program. During the same quarter last year, the Corporation qualified for the CEWS and recognized$5.4 million as a reimbursement of compensation expense with$2.6 million and$2.8 million , respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. - Gross profit margin of 21.2% in the third quarter of 2021 increased 2.4% compared to gross profit margin of 18.8% in the same period of 2020. Excluding the CEWS recoveries in the third quarter of last year of
$2.6 million , gross profit margin in the third quarter of 2021 increased 3.2% compared to the gross profit margin of 18.0% in the same period of 2020. The increase in margin was driven primarily by higher equipment and parts margins, and a higher proportion of industrial parts and ERS sales compared to equipment sales. - Selling and administrative expenses as a percentage of revenue increased to 15.1% in the third quarter of 2021 from 12.3% in the third quarter of 2020. Excluding the CEWS recoveries in the third quarter of last year of
$2.8 million , selling and administrative expenses as a percentage of revenue increased from 13.1% in the third quarter last year to 15.1% in the third quarter of 2021. Selling and administrative expenses in the third quarter of 2021 increased$18.5 million compared to the third quarter of 2020 due mainly to additional selling and administrative expenses related to Tundra, higher personnel costs as the volume of business increased over the prior year, amortization expense of$1.8 million relating to intangible assets recognized for the Tundra acquisition, and the prior year$2.8 million recovery of personnel expenses from the CEWS program without a similar recovery in the current year. - EBIT increased
$10.4 million , or 72.4%, to$24.7 million in the third quarter of 2021 versus$14.3 million in the same period of 2020.(2) The year-over-year increase in EBIT is primarily attributable to higher volumes and margins, a higher proportion of industrial parts and ERS sales compared to equipment sales, and restructuring and other related costs in the prior year of$7.7 million .(2) These increases were offset partially by additional selling and administrative expenses related to Tundra, higher personnel costs as the volume of business increased over the prior year, and prior year recovery of personnel expenses from the CEWS program without a similar recovery in the current year. - The Corporation generated net earnings of
$14.7 million , or$0.68 per share, in the third quarter of 2021 versus$6.7 million , or$0.33 per share, in the same period of 2020. The Corporation generated adjusted net earnings of$15.5 million , or$0.72 per share, in the third quarter of 2021 versus$10.1 million , or$0.50 per share, in the same period of 2020.(2) - Adjusted EBITDA margin increased to 10.1% in the third quarter of 2021 from 9.5% in the same period of 2020.(2)
- The Corporation's backlog at
September 30, 2021 of$371.5 million increased$54.7 million , or 17.3%, compared toJune 30, 2021 due to higher orders in most categories, offset partially by lower ERS orders.(2) Compared toSeptember 30, 2020 , backlog increased$166.4 million , or 81.2%, due to higher orders in the construction and forestry, material handling, and power systems categories, and higher orders in the industrial parts and ERS categories with the addition of Tundra's backlog.(2)(4) These increases were offset partially by lower mining orders. - Total owned and net consignment inventory increased
$2.4 million in the third quarter of 2021. Owned inventory of$371.3 million atSeptember 30, 2021 decreased$5.1 million fromJune 30, 2021 . Net consignment inventory, comprised primarily of construction excavators, increased by$7.5 million to$27.0 million during the quarter. - Working capital of
$330.4 million atSeptember 30, 2021 decreased$2.4 million fromJune 30, 2021 , due primarily to lower inventories, higher accounts payable, and lower deposits on inventory, offset partially by higher trade and other receivables and higher contract assets.(2) Trailing four-quarter average working capital as a percentage of the trailing 12-month sales was 21.7%, a decrease of 1.8% fromJune 30, 2021 , due to the combination of the lower four-quarter average working capital and the higher trailing 12-month sales.(2) - Cash flows generated from operating activities amounted to
$40.2 million in the third quarter of 2021, compared to cash flows generated from operating activities of$34.8 million in the same quarter of the previous year. The increase in cash generated from operating activities of$5.4 million was mainly attributable to an increase in net earnings excluding items not affecting cash flow of$15.8 million , offset partially by a decrease in cash generated from changes in non-cash operating working capital of$7.5 million and an increase in income taxes paid of$3.0 million . - The Corporation's leverage ratio decreased to 1.39 times at
September 30, 2021 , compared to 1.73 times atJune 30, 2021 .(2) The decrease in the leverage ratio was due primarily to the lower debt level in the current period.(2) The Corporation's senior secured leverage ratio was 0.95 times atSeptember 30, 2021 , compared to 1.28 times atJune 30, 2021 .(2) - During the third quarter of 2021, the Corporation entered into sale and leaseback transactions for two of its owned properties. The proceeds net of transaction costs on the sale of the properties was
$5.3 million , and the carrying amount was$0.6 million , resulting in a total gain on sale of the properties of$4.7 million , of which$0.1 million was recognized in the quarter and the remaining$4.6 million was deferred as a reduction of the right-of-use assets. - On
August 19, 2021 ,Wajax andHitachi Construction Machinery Loaders America Inc. ("Hitachi") announced that, effectiveMarch 1, 2022 , the companies plan to expand their current Canadian direct distribution relationship to include construction excavators, mining equipment and related aftermarket parts. Since 2001, these products have been supplied toWajax via a third-party joint venture partner to Hitachi Construction Machinery ("HCM"). It was announced by HCM and its partner earlier onAugust 19, 2021 , that such joint venture would be dissolved, with an expected dissolution date ofFebruary 28, 2022 .
This change is expected to provideWajax with enhanced access to product development, increased market responsiveness and improved reliability of equipment supply. It is also expected to increaseWajax and Hitachi market share by providing customers with better access to products which lead the market in terms of value, performance and reliability.Wajax and Hitachi will continue to work closely on transition planning leading up toMarch 1, 2022 , and continue to expect significant long-term benefits from the expanded relationship. For more information, please see the Corporation's press release datedAugust 19, 2021 .
- The consignment program of HCM's joint venture partner, relating to construction-class excavators, ended
October 31, 2021 . EffectiveNovember 1, 2021 , the Corporation began assuming ownership of new stock received. Inventory on hand as atOctober 31, 2021 will remain subject to the prior consignment terms, which include the opportunity for the Corporation to purchase the inventory prior to sale to a customer. Due to certain preferential terms being offered by the supplier, the Corporation plans to purchase all consignment inventory on hand as atOctober 31, 2021 during the fourth quarter of 2021. For inventory received from the supplier during the period fromNovember 1, 2021 toFebruary 28, 2022 , extended payment terms will apply. EffectiveMarch 1, 2022 , new payment terms from the manufacturer are expected to apply. The Corporation's existing credit facilities are expected to continue to be sufficient to support total normal course working capital requirements, including the effect of this change. - On
October 5, 2021 , the Corporation announced thatMark Foote will retire as President and Chief Executive Officer onDecember 31, 2021 .Ignacy (Iggy) Domagalski , the Chief Executive Officer of Tundra, which was acquired byWajax effectiveJanuary 22, 2021 , will be appointed President and Chief Executive Officer ofWajax uponMr. Foote's retirement.
"We are very pleased to welcome
On
President and Chief Executive Officer
Commenting on financial expectations for 2021,
As to
In industrial parts and ERS, we expect strong growth, including the contribution from Tundra. ERS continues to be one of
Regarding other key projects,
Founded in 1858,
The Corporation's goal is to be
Notes:
(1) | Weighted average shares, net of shares held in trust, outstanding for calculation of basic and diluted earnings per share for the three months ended | |
Weighted average shares, net of shares held in trust, outstanding for calculation of basic and diluted earnings per share for the nine months ended | ||
(2) | "Adjusted net earnings", "Adjusted basic earnings per share", "Adjusted EBITDA", "Adjusted EBITDA margin", "pro-forma adjusted EBITDA", "backlog", "leverage ratio" and "senior secured leverage ratio" do not have standardized meanings prescribed by generally accepted accounting principles ("GAAP"). "EBIT" and "Working capital" are additional GAAP measures. See the Non-GAAP and Additional GAAP Measures section of the Q3 2021 Management's Discussion and Analysis. | |
(3) | Net earnings excluding the following: | |
a. | after-tax gain recorded on the sale of properties of | |
b. | after-tax gain recorded on the sale of properties of | |
c. | after-tax non-cash losses on mark to market of derivative instruments of | |
d. | after-tax non-cash gains on mark to market of derivative instruments of | |
e. | after-tax Tundra transaction costs of | |
f. | after-tax restructuring and other related costs of nil (2020 – | |
g. | after-tax restructuring and other related costs of nil (2020 – | |
h. | after-tax | |
(4) | The Corporation's backlog as at |
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. To the extent any forward-looking information in this news release constitutes future-oriented financial information or financial outlook within the meaning of applicable securities law, such information is being provided to demonstrate the potential of the Corporation and readers are cautioned that this information may not be appropriate for any other purpose. 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, the planned expansion of our Canadian direct distribution relationship with Hitachi effective
Readers are cautioned that the risks described in the AIF, and in our annual and quarterly MD&A, are not the only risks that could impact the Corporation. We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations, financial condition or the demand for our products and services due to the uncertainties related to the spread of the virus and its variants. Risks and uncertainties not currently known to the Corporation, or currently deemed to be immaterial, may have a material effect on the Corporation's business, financial condition or results of operations.
Additional information, including
Management's Discussion and Analysis – Q3 2021
The following management's discussion and analysis ("MD&A") discusses the consolidated financial condition and results of operations of
Management is responsible for the information disclosed in this MD&A and the unaudited condensed consolidated interim 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.
Unless otherwise indicated, all financial information within this MD&A is in millions of Canadian dollars, except ratio calculations, share, share rights and per share data. Additional information, including
Wajax Corporation Overview
Founded in 1858,
Strategic Direction and Outlook
The goal of the One Wajax strategy is to provide customers with access to the Corporation's full range of products and services while delivering a consistently excellent level of customer service.
- Investing in the
Wajax team - The safety, well-being and engagement of the Corporation's team of approximately 2,690 employees is the foundation of the Corporation. - Investing in
Wajax customers - The Corporation has the privilege of supporting 32,000 individual customers acrossCanada ranging from small local contractors to the country's largest industrial and resource organizations. - Executing a clear organic growth strategy - The Corporation has organic growth opportunities in each of its Heavy Equipment and Industrial Parts and Services categories. Heavy Equipment categories include construction and forestry, mining, material handling and power systems which collectively serve a broad range of customer capital equipment and related product support needs. Industrial Parts and Services categories include industrial parts and Engineered Repair Services ("ERS") which collectively serve a broad range of customer fixed plant maintenance, repair and reliability needs.
- Accretive acquisitions strategy - Acquisitions are an important aspect of the Corporation's growth strategy. Primarily, the Corporation focuses on acquisitions that add to the breadth and scale of Industrial Parts and Services.
Wajax's national infrastructure and extensive customer relationships position the Corporation as an aggregator in the highly fragmented ERS and related Industrial Parts market. Secondarily, the Corporation considers acquisitions in Heavy Equipment categories where extensions to existing major distribution relationships are enhanced. - Investing in the
Wajax infrastructure - The Corporation invests in its infrastructure to improve the consistency of customer service and lower costs. The Corporation's current programs include the ongoing consolidation of its branch network, investing in new information systems and implementing Customer Support Centres (each a "CSC") that provide 24/7 customer support in all product and service categories.
In addition to the above and to meet the Corporation's long-term sustainability goals, the Corporation has introduced a more comprehensive sustainability program as outlined below and further discussed in the Corporation's 2020 Annual Report:
Sustainability Roadmap
Areas | Goals |
Provide every employee with a healthy and safe working environment that supports their entire well-being: physical, psychological and financial. | |
Training and Development | Attract, engage, train, develop and retain the best people across all levels of the organization from entry level positions to senior leadership. |
Diversity and Equal Opportunity | Attract, retain and develop a diverse and skilled workforce that best reflects Canadian society, and provide a work environment that values and utilizes the contributions of employees' diverse backgrounds, experiences and perspectives. |
Sustainable Products and Services | Commit to a continuous process of understanding customer needs and leveraging technology, |
Environmental Responsibility | Ensure operations are managed to minimize their impact on the environment, focusing on initiatives that lower energy intensity and reduce waste. |
Governance | Maintain a reputation for fair dealing and integrity and demonstrate ongoing commitment to upholding high ethical standards in the conduct of the Corporation's business. |
Community | Invest in and contribute to the communities that the Corporation operates in across the country through a combination of volunteer hours, fundraising, and in-kind donations. |
Outlook
In 2021,
The Corporation expects revenue associated with the acquisition of
Notwithstanding temporary supply chain issues in the Corporation's heavy equipment categories,
In industrial parts and ERS,
The Corporation's infrastructure programs have continued in 2021, including branch network consolidation and technology investments. Following a COVID-19 related delay in 2020, the phased implementation of the Corporation's new ERP system began in the second quarter of 2021. Full implementation is expected to occur over an approximate 24-month period to reduce associated risks.
See the Cautionary Statement Regarding Forward-Looking Information section.
Highlights for the Quarter
- Revenue in the third quarter of 2021 increased
$60.7 million , or 17.8%, to$401.3 million , from$340.6 million in the third quarter of 2020. Regionally: - Revenue in western
Canada of$177.4 million increased 36.9% over the prior year due primarily to higher revenue in the industrial parts and ERS categories, as well as higher mining and power systems product support revenue. The increase in industrial parts and ERS revenue was due mainly to the acquisition ofCalgary, Alberta -based Tundra effectiveJanuary 22, 2021 . - Revenue in central
Canada of$74.2 million increased 0.6% over the prior year primarily due to strength in industrial parts sales and ERS revenue, as well as higher power systems and mining product support revenue. These increases were offset partially by lower construction and forestry equipment sales. - Revenue in eastern
Canada of$149.7 million increased 9.0% over the prior year primarily due to higher power systems equipment sales, industrial parts revenue and construction and forestry product support revenue. - During the quarter, the Corporation did not recognize any reimbursement of compensation expense from the
Canada Emergency Wage Subsidy ("CEWS") program. During the same quarter last year, the Corporation qualified for the CEWS and recognized$5.4 million as a reimbursement of compensation expense with$2.6 million and$2.8 million , respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. - Gross profit margin of 21.2% in the third quarter of 2021 increased 2.4% compared to gross profit margin of 18.8% in the same period of 2020. Excluding the CEWS recoveries in the third quarter of last year of
$2.6 million , gross profit margin in the third quarter of 2021 increased 3.2% compared to the gross profit margin of 18.0% in the same period of 2020. The increase in margin was driven primarily by higher equipment and parts margins, and a higher proportion of industrial parts and ERS sales compared to equipment sales. - Selling and administrative expenses as a percentage of revenue increased to 15.1% in the third quarter of 2021 from 12.3% in the third quarter of 2020. Excluding the CEWS recoveries in the third quarter of last year of
$2.8 million , selling and administrative expenses as a percentage of revenue increased from 13.1% in the third quarter last year to 15.1% in the third quarter of 2021. Selling and administrative expenses in the third quarter of 2021 increased$18.5 million compared to the third quarter of 2020 due mainly to additional selling and administrative expenses related to Tundra, higher personnel costs as the volume of business increased over the prior year, amortization expense of$1.8 million relating to intangible assets recognized for the Tundra acquisition, and the prior year$2.8 million recovery of personnel expenses from the CEWS program without a similar recovery in the current year. - EBIT increased
$10.4 million , or 72.4%, to$24.7 million in the third quarter of 2021 versus$14.3 million in the same period of 2020.(1) The year-over-year increase in EBIT is primarily attributable to higher volumes and margins, a higher proportion of industrial parts and ERS sales compared to equipment sales, and restructuring and other related costs in the prior year of$7.7 million . These increases were offset partially by additional selling and administrative expenses related to Tundra, higher personnel costs as the volume of business increased over the prior year, and prior year recovery of personnel expenses from the CEWS program without a similar recovery in the current year. - The Corporation generated net earnings of
$14.7 million , or$0.68 per share, in the third quarter of 2021 versus$6.7 million , or$0.33 per share, in the same period of 2020. The Corporation generated adjusted net earnings of$15.5 million , or$0.72 per share, in the third quarter of 2021 versus$10.1 million , or$0.50 per share, in the same period of 2020.(1) - Adjusted EBITDA margin increased to 10.1% in the third quarter of 2021 from 9.5% in the same period of 2020.(1)
- The Corporation's backlog at
September 30, 2021 of$371.5 million increased$54.7 million , or 17.3%, compared toJune 30, 2021 due to higher orders in most categories, offset partially by lower ERS orders.(1) Compared toSeptember 30, 2020 , backlog increased$166.4 million , or 81.2%, due to higher orders in the construction and forestry, material handling, and power systems categories, and higher orders in the industrial parts and ERS categories with the addition of Tundra's backlog.(1)(2) These increases were offset partially by lower mining orders. - Total owned and net consignment inventory increased
$2.4 million in the third quarter of 2021. Owned inventory of$371.3 million atSeptember 30, 2021 decreased$5.1 million fromJune 30, 2021 . Net consignment inventory, comprised primarily of construction excavators, increased by$7.5 million to$27.0 million during the quarter. - Working capital of
$330.4 million atSeptember 30, 2021 decreased$2.4 million fromJune 30, 2021 , due primarily to lower inventories, higher accounts payable, and lower deposits on inventory, offset partially by higher trade and other receivables and higher contract assets.(1) Trailing four-quarter average working capital as a percentage of the trailing 12-month sales was 21.7%, a decrease of 1.8% fromJune 30, 2021 , due to the combination of the lower four-quarter average working capital and the higher trailing 12-month sales.(1) - Cash flows generated from operating activities amounted to
$40.2 million in the third quarter of 2021, compared to cash flows generated from operating activities of$34.8 million in the same quarter of the previous year. The increase in cash generated from operating activities of$5.4 million was mainly attributable to an increase in net earnings excluding items not affecting cash flow of$15.8 million , offset partially by a decrease in cash generated from changes in non-cash operating working capital of$7.5 million and an increase in income taxes paid of$3.0 million . - The Corporation's leverage ratio decreased to 1.39 times at
September 30, 2021 , compared to 1.73 times atJune 30, 2021 .(1) The decrease in the leverage ratio was due primarily to the lower debt level in the current period.(1) The Corporation's senior secured leverage ratio was 0.95 times atSeptember 30, 2021 , compared to 1.28 times atJune 30, 2021 .(1) - During the third quarter of 2021, the Corporation entered into sale and leaseback transactions for two of its owned properties. The proceeds net of transaction costs on the sale of the properties was
$5.3 million , and the carrying amount was$0.6 million , resulting in a total gain on sale of the properties of$4.7 million , of which$0.1 million was recognized in the quarter and the remaining$4.6 million was deferred as a reduction of the right-of-use assets. - On
August 19, 2021 ,Wajax andHitachi Construction Machinery Loaders America Inc. ("Hitachi") announced that, effectiveMarch 1, 2022 , the companies plan to expand their current Canadian direct distribution relationship to include construction excavators, mining equipment and related aftermarket parts. Since 2001, these products have been supplied toWajax via a third-party joint venture partner to Hitachi Construction Machinery ("HCM"). It was announced by HCM and its partner earlier onAugust 19, 2021 , that such joint venture would be dissolved, with an expected dissolution date ofFebruary 28, 2022 .
This change is expected to provideWajax with enhanced access to product development, increased market responsiveness and improved reliability of equipment supply. It is also expected to increaseWajax and Hitachi market share by providing customers with better access to products which lead the market in terms of value, performance and reliability.Wajax and Hitachi will continue to work closely on transition planning leading up toMarch 1, 2022 , and continue to expect significant long-term benefits from the expanded relationship. For more information, please see the Corporation's press release datedAugust 19, 2021 . - The consignment program of HCM's joint venture partner, relating to construction-class excavators, ended
October 31, 2021 . EffectiveNovember 1, 2021 , the Corporation began assuming ownership of new stock received. Inventory on hand as atOctober 31, 2021 will remain subject to the prior consignment terms, which include the opportunity for the Corporation to purchase the inventory prior to sale to a customer. Due to certain preferential terms being offered by the supplier, the Corporation plans to purchase all consignment inventory on hand as atOctober 31, 2021 during the fourth quarter of 2021. For inventory received from the supplier during the period fromNovember 1, 2021 toFebruary 28, 2022 , extended payment terms will apply. EffectiveMarch 1, 2022 , new payment terms from the manufacturer are expected to apply. The Corporation's existing credit facilities are expected to continue to be sufficient to support total normal course working capital requirements, including the effect of this change. - On
October 5, 2021 , the Corporation announced thatMark Foote will retire as President and Chief Executive Officer onDecember 31, 2021 .Ignacy (Iggy) Domagalski , the Chief Executive Officer of Tundra, which was acquired byWajax effectiveJanuary 22, 2021 , will be appointed President and Chief Executive Officer ofWajax uponMr. Foote's retirement. Wajax announced the appointment ofJane Craighead to its Board of Directors, effectiveNovember 1, 2021 .Ms. Craighead is a corporate director currently serving on the boards ofJarislowsky Fraser Limited ,Intertape Polymer Group Inc. and Crombie REIT. She also serves on the board of theMcGill University Health Centre Foundation and is a Member of theBoard of Regents ofMount Allison University .Ms. Craighead has many years of strategic human resources experience and was previously Senior Vice President, Global Human Resources at the Bank of Nova Scotia. Prior to that, she was the Global Practice Leader, Rewards at Rio Tinto Plc, and the Eastern Canada Human Capital Advisory Services Business Leader atMercer Human Resources Consulting .Ms. Craighead holds a Ph.D. in Management and a Graduate Diploma in Accounting fromMcGill University , a Bachelor of Commerce degree (with distinction) fromMount Allison University and is a Chartered Professional Accountant.
In addition to her appointment as a director,Ms. Craighead was also appointed a member of the Audit Committee and theHuman Resources and Compensation Committee of the Board of Directors.
Notes: | |
(1) | "Backlog", "Leverage ratio", "Senior secured leverage ratio", "Adjusted net earnings", "Adjusted EBITDA", "Adjusted EBITDA margin" and "Pro-forma adjusted EBITDA" do not have standardized meanings prescribed by generally accepted accounting principles ("GAAP"). "EBIT" and "Working capital" are additional GAAP measures. See the Non-GAAP and Additional GAAP Measures section. |
(2) | The Corporation's backlog as at |
Summary of Operating Results
Three months ended | Nine months ended | |||||||
Statement of earnings highlights | 2021 | 2020 | 2021 | 2020 | ||||
Revenue | $ | 401.3 | $ | 340.6 | $ | 1,234.5 | $ | 1,041.6 |
Gross profit | $ | 85.1 | $ | 63.9 | $ | 250.0 | $ | 192.8 |
Selling and administrative expenses | 60.4 | 41.9 | 173.0 | 139.3 | ||||
Restructuring and other related costs | — | 7.7 | — | 7.8 | ||||
Earnings before finance costs and income taxes(1) | $ | 24.7 | $ | 14.3 | $ | 77.0 | $ | 45.7 |
Finance costs | 4.5 | 5.1 | 14.6 | 16.9 | ||||
Earnings before income taxes(1) | $ | 20.2 | $ | 9.2 | $ | 62.3 | $ | 28.8 |
Income tax expense | 5.5 | 2.5 | 17.1 | 7.9 | ||||
Net earnings | $ | 14.7 | $ | 6.7 | $ | 45.3 | $ | 20.9 |
– Basic earnings per share(2) | $ | 0.68 | $ | 0.33 | $ | 2.13 | $ | 1.05 |
– Diluted earnings per share(2) | 0.66 | 0.33 | 2.06 | 1.02 | ||||
Adjusted net earnings(1)(3) | $ | 15.5 | $ | 10.1 | $ | 44.5 | $ | 25.5 |
– Adjusted basic earnings per share(1)(2)(3) | $ | 0.72 | $ | 0.50 | $ | 2.09 | $ | 1.27 |
– Adjusted diluted earnings per share(1)(2)(3) | 0.70 | 0.49 | 2.03 | 1.24 | ||||
Adjusted EBITDA(1) | $ | 40.7 | $ | 32.4 | $ | 117.2 | $ | 91.0 |
Key ratios: | ||||||||
Gross profit margin | 21.2% | 18.8% | 20.3% | 18.5% | ||||
Selling and administrative expenses as a percentage of revenue | 15.1% | 12.3% | 14.0% | 13.4% | ||||
EBIT margin(1) | 6.2% | 4.2% | 6.2% | 4.4% | ||||
Adjusted EBITDA margin(1) | 10.1% | 9.5% | 9.5% | 8.7% | ||||
Effective income tax rate | 27.3% | 27.4% | 27.4% | 27.4% |
Statement of financial position highlights As at |
|
|
| |||
Trade and other receivables | $ | 221.7 | $ | 209.7 | $ | 214.5 |
Inventory | 371.3 | 376.4 | 357.4 | |||
Accounts payable and accrued liabilities | (289.1) | (271.2) | (231.7) | |||
Other working capital amounts(1) | 26.6 | 18.0 | 36.0 | |||
Working capital(1) | $ | 330.4 | $ | 332.8 | $ | 376.2 |
Rental equipment | $ | 48.4 | $ | 50.4 | $ | 56.9 |
Property, plant and equipment | $ | 40.5 | $ | 41.3 | $ | 41.4 |
Funded net debt(1) | $ | 166.9 | $ | 197.4 | $ | 219.6 |
Key ratios: | ||||||
Leverage ratio(1) | 1.39 | 1.73 | 2.28 | |||
Senior secured leverage ratio(1) | 0.95 | 1.28 | 1.73 |
(1) | These measures do not have a standardized meaning prescribed by GAAP. See the Non-GAAP and Additional GAAP Measures section. | |
(2) | Weighted average shares, net of shares held in trust outstanding for calculation of basic and diluted earnings per share for the three months ended | |
(3) | Net earnings excluding the following: | |
a. | after-tax gain recorded on the sale of properties of | |
b. | after-tax gain recorded on the sale of properties of | |
c. | after-tax non-cash losses on mark to market of derivative instruments of | |
d. | after-tax non-cash gains on mark to market of derivative instruments of | |
e. | after-tax Tundra transaction costs of | |
f. | after-tax restructuring and other related costs of nil (2020 – | |
g. | after-tax restructuring and other related costs of nil (2020 – | |
h. | after-tax NorthPoint transaction costs of nil (2020 - |
Results of Operations
Revenue Sources
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Equipment sales | $ | 104.7 | $ | 106.2 | $ | 364.5 | $ | 326.4 |
Product support | 114.3 | 100.9 | 334.8 | 309.8 | ||||
Industrial parts | 111.1 | 83.8 | 329.4 | 257.1 | ||||
ERS | 62.1 | 41.7 | 179.8 | 123.8 | ||||
Equipment rental | 9.2 | 8.1 | 26.0 | 24.5 | ||||
Total revenue | $ | 401.3 | $ | 340.6 | $ | 1,234.5 | $ | 1,041.6 |
Revenue in the third quarter of 2021 increased 17.8%, or
- Product support revenue has increased due primarily to higher mining and power systems revenue in western
Canada , and higher construction and forestry revenue in western and easternCanada . - Industrial parts revenue has increased due primarily to the acquisition of Tundra in western
Canada effectiveJanuary 22, 2021 , and organic strength in bearings sales in all regions. - ERS revenue has increased due primarily to the acquisition of Tundra in western
Canada , and higher Delom sales in easternCanada .
For the nine months ended
- Equipment sales have increased due mainly to strength in construction and forestry sales across all regions and higher mining sales in western
Canada . These increases were offset partially by lower mining sales in easternCanada and lower material handling sales in centralCanada . - Product support sales have increased primarily on higher construction and forestry revenue in western and eastern
Canada , higher power systems revenue in eastern and centralCanada and higher material handling sales in eastern and westernCanada . - Industrial parts sales have increased due mainly to the acquisition of Tundra effective
January 22, 2021 and organic strength in bearings and hydraulics sales in all regions, but primarily in western and easternCanada . - ERS sales have increased due to strength in all regions, but primarily in western
Canada . The higher ERS revenue in westernCanada was driven primarily by the acquisition of Tundra.
Backlog
Backlog of
During the third quarter, the Corporation did not recognize any reimbursement of compensation expense from the CEWS program. During the same quarter last year, the Corporation qualified for the CEWS and recognized
For the nine months ended
Gross profit
Gross profit increased
Gross profit margin of 21.2% in the third quarter of 2021 increased 2.4% compared to gross profit margin of 18.8% in the same period of 2020. Excluding the CEWS recoveries in the third quarter of last year of
For the nine months ended
For the nine months ended
Selling and administrative expenses
Selling and administrative expenses in the third quarter of 2021 increased
For the nine months ended
Finance costs
Finance costs of
For the nine months ended
Income tax expense
The Corporation's effective income tax rate of 27.3% for the third quarter of 2021 was higher compared to the statutory rate of 26.2% due mainly to the impact of expenses not deductible for tax purposes. The Corporation's effective income tax rate of 27.4% for the third quarter of 2020 was higher compared to the statutory rate of 26.5% due mainly to the impact of expenses not deductible for tax purposes.
The Corporation's effective income tax rate of 27.4% for the nine months ended
Net earnings
In the third quarter of 2021, the Corporation had net earnings of
For the nine months ended
Adjusted net earnings (See the Non-GAAP and Additional GAAP Measures section)
Adjusted net earnings for the three months ended
As such, adjusted net earnings increased
Adjusted net earnings for the nine months ended
As such, adjusted net earnings increased
Comprehensive income
Total comprehensive income of
For the nine months ended
Acquisition of Tundra
On
Notes: | |
(1) | The Corporation's backlog as at |
Selected Quarterly Information
The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters.
2021 | 2020 | 2019 | ||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||
Revenue | $ | 401.3 | $ | 446.1 | $ | 387.1 | $ | 381.0 | $ | 340.6 | $ | 356.9 | $ | 344.1 | $ | 403.9 |
Net earnings | $ | 14.7 | $ | 18.1 | $ | 12.5 | $ | 10.7 | $ | 6.7 | $ | 10.2 | $ | 4.1 | $ | 12.2 |
Earnings per share | ||||||||||||||||
- Basic | $ | 0.68 | $ | 0.85 | $ | 0.59 | $ | 0.53 | $ | 0.33 | $ | 0.51 | $ | 0.20 | $ | 0.61 |
- Diluted | $ | 0.66 | $ | 0.82 | $ | 0.58 | $ | 0.52 | $ | 0.33 | $ | 0.50 | $ | 0.20 | $ | 0.60 |
Adjusted net earnings(1) | $ | 15.5 | $ | 16.6 | $ | 12.4 | $ | 9.6 | $ | 10.1 | $ | 9.6 | $ | 5.8 | $ | 10.1 |
Adjusted earnings per share(1) | ||||||||||||||||
- Basic | $ | 0.72 | $ | 0.77 | $ | 0.59 | $ | 0.48 | $ | 0.50 | $ | 0.48 | $ | 0.29 | $ | 0.51 |
- Diluted | $ | 0.70 | $ | 0.75 | $ | 0.57 | $ | 0.47 | $ | 0.49 | $ | 0.47 | $ | 0.28 | $ | 0.50 |
Dividends declared per share | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.25 |
Weighted average common shares | 21,409 | 21,409 | 21,080 | 20,034 | 20,034 | 20,034 | 20,016 | 20,009 |
(1) These measures do not have a standardized meaning prescribed by GAAP. See the Non-GAAP and Additional GAAP Measures section. |
Although quarterly fluctuations in revenue and net earnings are difficult to predict, during times of weak resource sector activity, the first quarter will tend to have seasonally lower revenues. However, the project timing of large mining trucks and shovels and power generation packages can shift the revenue and net earnings throughout the year. In addition, the sale of large construction units can also impact revenue due to the seasonality in that industry. Starting in 2020, revenues and net earnings have also been impacted by COVID-19, with the impact being felt more significantly in 2020 as compared to year-to-date 2021.
Effective
A discussion of
Consolidated Financial Condition
Capital Structure and Key Financial Condition Measures
|
|
| |||||||
Shareholders' equity | $ | 386.1 | $ | 374.6 | $ | 325.6 | |||
Funded net debt(1) | 166.9 | 197.4 | 219.6 | ||||||
Total capital | $ | 553.0 | $ | 572.1 | $ | 545.2 | |||
Funded net debt to total capital(1) | 30.2 % | 34.5 % | 40.3 % | ||||||
Leverage ratio(1) | 1.39 | 1.73 | 2.28 | ||||||
Senior secured leverage ratio(1) | 0.95 | 1.28 | 1.73 |
(1) See the Non-GAAP and Additional GAAP Measures section. |
The Corporation's objective is to manage its working capital and normal-course capital investment programs within a leverage range of 1.5 to 2.0 times and to fund those programs through operating cash flow and its bank credit facilities as required. There may be instances whereby the Corporation is willing to maintain a leverage ratio outside of this range during changes in economic cycles. The Corporation may also maintain a leverage ratio above the stated range as a result of investments in acquisitions and may fund those acquisitions using its bank credit facilities and other debt instruments in accordance with the Corporation's expectations of total future cash flows, financing costs and other factors. The Corporation's leverage ratio is currently below the target range, due to strength in the trailing 12-month pro-forma adjusted EBITDA, combined with a reduction in debt levels on account of significant cash generated from operating activities. See the Funded Net Debt section.
Shareholders' Equity
The Corporation's shareholders' equity at
The Corporation's share capital included in shareholders' equity on the condensed consolidated interim statements of financial position, consists of:
Number of | Amount | ||
Issued and outstanding, | 20,167,703 | $ | 182.5 |
Common shares issued for acquisition of business | 1,357,142 | 25.3 | |
Common shares issued to settle share-based compensation plans | 6,583 | 0.1 | |
Issued and outstanding, | 21,531,428 | $ | 207.8 |
Shares held in trust, | (134,084) | (1.2) | |
Released for settlement of certain share-based compensation plans | 11,979 | 0.1 | |
Shares held in trust, | (122,105) | $ | (1.1) |
Issued and outstanding, net of shares held in trust, | 21,409,323 | $ | 206.7 |
At the date of this MD&A, the Corporation had 21,409,323 common shares issued and outstanding, net of shares held in trust. |
At
As of
Funded Net Debt (See the Non-GAAP and Additional GAAP Measures section)
|
|
| ||||
Cash | $ | (6.9) | $ | (6.2) | $ | (6.6) |
Debentures | 55.1 | 54.9 | 54.6 | |||
Long-term debt | 118.7 | 148.7 | 171.6 | |||
Funded net debt | $ | 166.9 | $ | 197.4 | $ | 219.6 |
Funded net debt of
Funded net debt of
The Corporation's ratio of funded net debt to total capital decreased to 30.2% at
The Corporation's leverage ratio of 1.39 times at
See the Liquidity and Capital Resources section.
Financial Instruments
$150.0 million , expiring inNovember 2024 , with a weighted average interest rate of 2.12% (December 31, 2020 -$150.0 million , expiring inNovember 2024 , with a weighted average interest rate of 2.12%)
- to buy
U.S. $98.4 million (December 31, 2020 – to buyU.S. $45.9 million ), - to buy Euro €0.5 million (
December 31, 2020 - to buy Euro €0.1 million), - to sell
U.S. $34.1 million (December 31, 2020 – to sellU.S. $32.2 million ), and - to sell Euro €1.0 million (
December 31, 2020 – to sell €0.9 million).
The
The Euro contracts expire between
- contracts totaling 390,000 shares at an initial share value of
$6.6 million (December 31, 2020 - contracts totaling 387,000 shares at an initial share value of$7.2 million )
The total return swap contracts expire between
Contractual Obligations
There have been no material changes to the Corporation's contractual obligations since
Employee Pension Plan Wind-Up Settlement
The Corporation sponsored three pension plans: the Wajax Limited Pension Plan (the "Employees' Plan") which, except for a small group of employees in a defined benefit plan, is a defined contribution plan, and two defined benefit plans: the Pension Plan for Executive Employees of
During the second quarter of 2021, the Corporation settled benefit obligations and plan assets as part of the wind-up of the Employees' Plan effective
See the Liquidity and Capital Resources section.
Off Balance Sheet Financing
It is likely but not reasonably certain that existing leases will be renewed or replaced, resulting in lease commitments being sustained at current levels. In the alternative,
The Corporation had
Although management currently believes
Liquidity and Capital Resources
The Corporation's liquidity is maintained through various sources, including bank and non-bank credit facilities, debentures and cash generated from operations.
Bank and Non-bank Credit Facilities and Debentures
At
The bank credit facility contains customary restrictive covenants, including limitations on the payment of cash dividends and an interest coverage maintenance ratio, all of which were met as at
Borrowings under the bank credit facility bear floating rates of interest at margins over Canadian dollar bankers' acceptance yields,
In addition,
The Corporation will have the option to satisfy its obligation to repay the principal amount of the debentures due at redemption or maturity by issuing and delivering that number of freely tradable common shares determined in accordance with the terms of the Indenture. The debentures will not be convertible into common shares at the option of the holders at any time.
Under the terms of the bank credit facility,
In addition, the Corporation has an agreement with a financial institution to sell 100% of selected accounts receivable on a recurring, non-recourse basis. Under this facility, up to
As at
The Corporation's tolerance to interest rate risk decreases/increases as the Corporation's leverage ratio increases/decreases. At
Cash Flow
The following table highlights the major components of cash flow as reflected in the Condensed Consolidated Interim Statements of Cash Flows:
Three months ended | Nine months ended | |||||||||||
2021 | 2020 | $ Change | 2021 | 2020 | $ Change | |||||||
Net earnings | $ | 14.7 | $ | 6.7 | $ | 8.0 | $ | 45.3 | $ | 20.9 | $ | 24.3 |
Items not affecting cash flow | 27.0 | 19.2 | 7.8 | 73.6 | 65.3 | 8.3 | ||||||
Net change in non-cash operating working capital | 9.5 | 17.0 | (7.5) | 69.4 | 5.6 | 63.8 | ||||||
Finance costs paid on debts | (3.3) | (4.3) | 1.1 | (9.2) | (9.4) | 0.2 | ||||||
Finance costs paid on lease liabilities | (1.9) | (1.9) | — | (5.9) | (6.2) | 0.4 | ||||||
Interest collected on lease receivables | 0.1 | 0.1 | — | 0.2 | 0.1 | 0.1 | ||||||
Income taxes paid | (4.0) | (0.9) | (3.0) | (13.8) | (4.6) | (9.2) | ||||||
Rental equipment additions | (3.1) | (3.6) | 0.4 | (7.9) | (14.8) | 7.0 | ||||||
Rental equipment disposals | 1.2 | 2.7 | (1.5) | 4.7 | 15.5 | (10.8) | ||||||
Other non-current liabilities | — | — | — | (1.8) | (0.2) | (1.6) | ||||||
Cash paid on settlement of total return swaps | — | — | — | (0.6) | (1.4) | 0.8 | ||||||
Cash generated from operating activities | $ | 40.2 | $ | 34.8 | $ | 5.4 | $ | 154.1 | $ | 70.7 | $ | 83.4 |
Cash generated from (used in) investing activities | $ | 3.0 | $ | 4.7 | $ | (1.7) | $ | (63.5) | $ | (16.2) | $ | (47.3) |
Cash used in financing activities | $ | (42.5) | $ | (29.7) | $ | (12.8) | $ | (90.4) | $ | (59.4) | $ | (31.0) |
Operating Activities
Cash flows generated from operating activities amounted to
Rental equipment additions in the third quarter of 2021 of
For the nine months ended
For the nine months ended
Changes in significant components of non-cash operating working capital include the following:
Changes in | Three months ended | Nine months ended | ||||||
2021 | 2020 | 2021 | 2020 | |||||
Trade and other receivables | $ | (11.1) | $ | (0.1) | $ | 10.4 | $ | 36.2 |
Contract assets | (5.6) | (3.0) | (15.2) | 2.5 | ||||
Inventory | 5.6 | 29.6 | 4.3 | 26.2 | ||||
Deposits on inventory | 2.6 | (2.0) | 32.8 | (8.5) | ||||
Prepaid expenses | (1.1) | (0.4) | (2.7) | (0.7) | ||||
Accounts payable and accrued liabilities | 18.0 | (13.6) | 36.7 | (53.8) | ||||
Provisions | (0.7) | 6.3 | (1.9) | 5.7 | ||||
Contract liabilities | 1.7 | 0.1 | 5.2 | (2.0) | ||||
Total Changes in | $ | 9.5 | $ | 17.0 | $ | 69.4 | $ | 5.6 |
(1) Increase (decrease) in cash flow. |
Significant components of the changes in non-cash operating working capital for the quarter ended
- Trade and other receivables increased
$11.1 million in the third quarter of 2021, compared to an increase of$0.1 million in the same period of 2020. The increase in the third quarter of 2021 resulted primarily from higher sales activity in the quarter compared to the previous quarter. - Inventory decreased
$5.6 million in the third quarter of 2021 compared to a decrease of$29.6 million in the same period of 2020. The decrease in 2020 was due primarily to lower equipment inventory in the construction, power generation and mining categories. - Accounts payable and accrued liabilities increased
$18.0 million in the third quarter of 2021 compared to a decrease of$13.6 million in the same period of 2020. The increase in the third quarter of 2021 resulted primarily from higher trade payables and higher payroll, bonuses and incentives accruals, offset partially by lower accrued liabilities. The decrease in 2020 resulted primarily from reduced inventory purchasing activity as the Corporation managed its working capital.
Significant components of the changes in non-cash operating working capital for the nine months ended
- Trade and other receivables decreased
$10.4 million in 2021 when excluding the trade and other receivables acquired through business acquisitions of$17.5 million , compared to a decrease of$36.2 million in 2020. The decrease in 2021 resulted primarily from strong overall collections, including the collection of a prior year receivable balance for a large mining shovel. The decrease in 2020 resulted primarily from lower sales activity. - Contract assets increased
$15.2 million in 2021 when excluding the contract assets acquired through business acquisitions of$8.0 million , compared to a decrease of$2.5 million in 2020. The increase in 2021 resulted from more work completed but not yet billed on customer contracts. - Inventory decreased
$4.3 million in 2021 when excluding the inventory acquired through business combinations of$18.1 million , compared to a decrease of$26.2 million in the same period of 2020. The decrease in 2020 was due primarily to lower equipment and parts inventory as the Corporation managed its inventory levels. - Deposits on inventory decreased
$32.8 million in 2021 compared to an increase of$8.5 million in 2020. The decrease in 2021 resulted from the sale of older consignment inventory for which the Corporation had made deposits. - Accounts payable and accrued liabilities increased
$36.7 million in 2021 when excluding the accounts payable and accrued liabilities acquired through business acquisitions of$20.2 million , compared to a decrease of$53.8 million in 2020. The increase in 2021 resulted primarily from higher trade payables on increased inventory purchasing, and higher payroll, bonuses and incentives accruals. The decrease in 2020 resulted primarily from reduced inventory purchasing activity as the Corporation managed its working capital.
Investing Activities
The Corporation generated
For the nine months ended
Financing Activities
The Corporation used
For the nine months ended
Dividends
Dividends to shareholders were declared and payable to shareholders of record as follows:
Record Date | Payment Date | Per Share | Amount | ||
$ | 0.25 | $ | 5.4 | ||
$ | 0.25 | $ | 5.4 | ||
$ | 0.25 | $ | 5.4 | ||
Nine months ended | $ | 0.75 | $ | 16.1 |
On
Critical Accounting Estimates
The preparation of the unaudited condensed consolidated interim 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. Critical accounting estimates are those that require management to make assumptions about matters that are highly uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially have a material impact on the Corporation's financial results were a different estimate or assumption used.
Estimates and underlying assumptions are reviewed on an ongoing basis. These estimates and assumptions are subject to change at any time based on experience and new information. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
On
The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next fiscal year are as follows:
Allowance for credit losses
The Corporation is exposed to credit risk with respect to its trade and other receivables, and COVID-19 has increased the measurement uncertainty with respect to the determination of the allowance for expected credit losses. However, this is partially mitigated by the Corporation's diversified customer base of over 32,000 customers, with no one customer accounting for more than 10% of the Corporation's annual consolidated sales, which covers many business sectors across
Inventory obsolescence
The value of the Corporation's new and used equipment and high value parts are evaluated by management throughout the year, on a unit-by-unit basis considering projected customer demand, future market conditions, and other considerations evaluated by management. When required, provisions are recorded to ensure that the book value of equipment and parts are valued at the lower of cost or estimated net realizable value. The Corporation performs an aging analysis to identify slow moving or obsolete lower value parts inventory and estimates appropriate obsolescence provisions related thereto. The Corporation takes advantage of supplier programs that allow for the return of eligible parts for credit within specified time periods. The inventory obsolescence impact on earnings for the three months ended
The value in use of goodwill and intangible assets has been estimated using the forecasts prepared by management for the next five years. The key assumptions for the estimate are those regarding revenue growth, EBITDA margin, discount rate and the level of working capital required to support the business. These estimates are based on past experience and management's expectations of future changes in the market and forecasted growth initiatives.
Unanticipated changes in management's assumptions or estimates could materially affect the determination of the fair value of the Corporation and therefore, could reduce or eliminate the excess of fair value over the carrying value of a Corporation and could potentially result in an impairment charge in the future.
The Corporation performs an annual impairment test of its goodwill and intangible assets unless there is an early indication that the assets may be impaired in which case the impairment tests would occur earlier. There was no early indication of impairment in the quarter ended September 30, 2021.
Lease term of contracts with renewal options
The lease term is defined as the non-cancellable term of the lease, including any periods covered by a renewal option to extend the lease if it is reasonably certain that the renewal option will be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain that the termination option will not be exercised.
Judgement is used when evaluating whether the Corporation is reasonably certain that the lease renewal option will be exercised, including examining any factors that may provide an economic incentive for renewal. In the event of a significant event within the Corporation's control that could affect its ability to exercise the renewal option, the lease term will be reassessed.
Changes in Accounting Policies
During the period, the Corporation did not adopt any new accounting standards or amendments that had an impact on the Corporation's unaudited condensed consolidated interim financial statements.
Risk Management and Uncertainties
As with most businesses, the Corporation is subject to a number of marketplace and industry related risks and uncertainties which could have a material impact on operating results and the Corporation's ability to pay cash dividends to shareholders. The Corporation attempts to minimize many of these risks through diversification of core businesses and through the geographic diversity of its operations. In addition, the Corporation has adopted an annual enterprise risk management assessment which is prepared by senior management and overseen by the Board of Directors and committees of the Board of Directors. The enterprise risk management framework sets out principles and tools for identifying, evaluating, prioritizing and managing risk effectively and consistently across the Corporation. There are however, a number of risks that deserve particular comment which are discussed in detail in the MD&A for the year ended
Disclosure Controls and Procedures and Internal Control over Financial Reporting
As at
As at
There was no change in
Non-GAAP and Additional GAAP Measures
The MD&A contains certain non-GAAP and additional GAAP measures that do not have a standardized meaning prescribed by GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that these measures should not be construed as an alternative to net earnings or to cash flow from operating, investing, and financing activities determined in accordance with GAAP as indicators of the Corporation's performance. The Corporation's management believes that:
(i) | these measures are commonly reported and widely used by investors and management; |
(ii) | the non-GAAP measures are commonly used as an indicator of a company's cash operating performance, profitability and ability to raise and service debt; |
(iii) | the additional GAAP measures are commonly used to assess a company's earnings performance excluding its capital and tax structures; |
(iv) | "Adjusted net earnings" and "Adjusted basic and diluted earnings per share" provide indications of the results by the Corporation's principal business activities prior to recognizing non-recurring costs (recoveries) and non-cash losses (gains) on mark to market of derivative instruments. These adjustments to net earnings and basic and diluted earnings per share allow the Corporation's management to consistently compare periods by removing infrequent charges incurred outside of the Corporation's principal business activities and the impact of fluctuations in interest rates and the Corporation's share price; |
(v) | "Adjusted EBITDA" provides an indication of the results by the Corporation's principal business activities prior to recognizing non-recurring costs (recoveries) and non-cash losses (gains) on mark to market of derivative instruments. These adjustments to EBITDA allow the Corporation's management to consistently compare periods by removing infrequent charges incurred outside of the Corporation's principal business activities and the impact of fluctuations in finance costs related to the Corporation's capital structure, tax rates, long-term assets and the Corporation's share price; and |
(vi) | "Pro-forma adjusted EBITDA" used in calculating the Leverage ratio and Senior secured leverage ratio provides an indication of the results by the Corporation's principal business activities adjusted for the EBITDA of business acquisitions made during the period as if they were made at the beginning of the trailing 12-month period pursuant to the terms of the bank credit facility and the deduction of payments of lease liabilities, and prior to recognizing non-recurring costs (recoveries) and non-cash losses (gains) on mark to market of derivative instruments. |
Non-GAAP financial measures are identified and defined below:
Funded net debt | Funded net debt includes bank indebtedness, debentures and total long-term debt, net of cash. Funded net debt is relevant in calculating the Corporation's funded net debt to total capital, which is a non-GAAP measure commonly used as an indicator of a company's ability to raise and service debt. |
Debt | Debt is funded net debt plus letters of credit. Debt is relevant in calculating the Corporation's leverage ratio, which is a non-GAAP measure commonly used as an indicator of a company's ability to raise and service debt. |
Total capital | Total capital is shareholders' equity plus funded net debt. |
EBITDA | Net earnings (loss) before finance costs, income tax expense, depreciation and amortization.
|
EBITDA margin | Defined as EBITDA divided by revenue, as presented in the condensed consolidated interim statements of earnings.
|
Adjusted net earnings (loss) | Net earnings (loss) before after-tax restructuring and other related costs (recoveries), (gain) loss recorded on the sale of properties, non-cash losses (gains) on mark to market of derivative instruments, Tundra transaction costs and NorthPoint transaction costs. |
Adjusted basic and diluted earnings (loss) per share | Basic and diluted earnings (loss) per share before after-tax restructuring and other related costs (recoveries), (gain) loss recorded on the sale of properties, non-cash losses (gains) on mark to market of derivative instruments, Tundra transaction costs and NorthPoint transaction costs. |
Adjusted EBITDA | EBITDA before restructuring and other related costs (recoveries), (gain) loss recorded on the sale of properties, non-cash losses (gains) on mark to market of derivative instruments, Tundra transaction costs and NorthPoint transaction costs. |
Adjusted EBITDA margin | Defined as adjusted EBITDA divided by revenue, as presented in the condensed consolidated interim statements of earnings. |
Pro-forma adjusted EBITDA | Defined as adjusted EBITDA adjusted for the EBITDA of business acquisitions made during the period as if they were made at the beginning of the trailing 12-month period pursuant to the terms of the bank credit facility and the deduction of payments of lease liabilities. |
Leverage ratio | The leverage ratio is defined as debt at the end of a particular quarter divided by trailing 12-month pro-forma adjusted EBITDA. The Corporation's objective is to maintain this ratio between 1.5 times and 2.0 times. |
Senior secured leverage ratio | The senior secured leverage ratio is defined as debt excluding debentures at the end of a particular quarter divided by trailing 12-month pro-forma adjusted EBITDA. |
Funded net debt to total capital | Defined as funded net debt divided by total capital. Total capital is the funded net debt plus shareholder's equity. |
Backlog | Backlog is a management measure which includes the total sales value of customer purchase commitments for future delivery or commissioning of equipment, parts and related services, including ERS projects. This differs from the remaining performance obligations as defined by IFRS 15 Revenue from Contracts with Customers. |
Additional GAAP measures are identified and defined below: | |
Earnings (loss) before finance costs and income taxes (EBIT) | Earnings (loss) before finance costs and income taxes, as presented in the condensed consolidated interim statements of earnings. |
EBIT margin | Defined as EBIT divided by revenue, as presented in the condensed consolidated interim statements of earnings. |
Earnings (loss) before income taxes (EBT) | Earnings (loss) before income taxes, as presented in the condensed consolidated interim statements of earnings. |
Working capital | Defined as current assets less current liabilities, as presented in the condensed consolidated interim statements of financial position. |
Other working capital amounts | Defined as working capital less trade and other receivables and inventory plus accounts payable and accrued liabilities, as presented in the condensed consolidated interim statements of financial position. |
Reconciliation of the Corporation's net earnings to adjusted net earnings and adjusted basic and diluted earnings per share is as follows:
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Net earnings | $ | 14.7 | $ | 6.7 | $ | 45.3 | $ | 20.9 |
Restructuring and other related costs, after-tax | — | 5.6 | — | 5.7 | ||||
Gain recorded on the sale of properties, after-tax | (0.1) | (1.2) | (0.8) | (1.2) | ||||
Non-cash losses (gains) on mark to market of derivative instruments, after-tax | 0.9 | (1.0) | (0.2) | (0.2) | ||||
NorthPoint transaction costs, after-tax | — | — | — | 0.2 | ||||
Tundra transaction costs, after-tax | — | — | 0.3 | — | ||||
Adjusted net earnings | $ | 15.5 | $ | 10.1 | $ | 44.5 | $ | 25.5 |
Adjusted basic earnings per share(1)(2) | $ | 0.72 | $ | 0.50 | $ | 2.09 | $ | 1.27 |
Adjusted diluted earnings per share(1)(2) | $ | 0.70 | $ | 0.49 | $ | 2.03 | $ | 1.24 |
(1) | For the three months ended |
(2) | For the nine months ended |
Reconciliation of the Corporation's net earnings to EBT, EBIT, EBITDA, Adjusted EBITDA and Pro-forma adjusted EBITDA is as follows:
Three months ended | Nine months ended | Twelve months ended | ||||||||||||
|
|
|
|
|
|
| ||||||||
Net earnings | $ | 14.7 | $ | 6.7 | $ | 45.3 | $ | 20.9 | $ | 56.0 | $ | 48.0 | $ | 31.7 |
Income tax expense | 5.5 | 2.5 | 17.1 | 7.9 | 21.1 | 18.1 | 11.9 | |||||||
EBT | $ | 20.2 | $ | 9.2 | $ | 62.3 | $ | 28.8 | $ | 77.1 | $ | 66.1 | $ | 43.6 |
Finance costs | 4.5 | 5.1 | 14.6 | 16.9 | 18.7 | 19.3 | 21.0 | |||||||
EBIT | $ | 24.7 | $ | 14.3 | $ | 77.0 | $ | 45.7 | $ | 95.8 | $ | 85.4 | $ | 64.6 |
Depreciation and amortization | 14.8 | 13.2 | 41.1 | 38.9 | 54.6 | 53.0 | 52.4 | |||||||
EBITDA | $ | 39.5 | $ | 27.5 | $ | 118.0 | $ | 84.6 | $ | 150.4 | $ | 138.4 | $ | 117.0 |
Restructuring and other related costs(1) | — | 7.7 | — | 7.8 | — | 7.7 | 7.8 | |||||||
Gain recorded on the sale of properties | (0.1) | (1.4) | (1.0) | (1.4) | (2.2) | (3.6) | (2.7) | |||||||
Non-cash losses (gains) on mark to market of derivative instruments(2) | 1.3 | (1.4) | (0.3) | (0.2) | (1.5) | (4.2) | (1.4) | |||||||
NorthPoint transaction costs(3) | — | — | — | 0.2 | — | — | 0.2 | |||||||
Tundra transaction costs(4) | — | — | 0.4 | — | 1.4 | 1.4 | 1.0 | |||||||
Adjusted EBITDA | $ | 40.7 | $ | 32.4 | $ | 117.2 | $ | 91.0 | $ | 148.1 | $ | 139.8 | $ | 122.0 |
Tundra acquisition pro-forma EBITDA(5) | — | — | — | — | 4.0 | 8.1 | — | |||||||
Payment of lease liabilities(6) | (7.0) | (6.1) | (21.1) | (16.7) | (27.3) | (26.3) | (22.9) | |||||||
Pro-forma adjusted EBITDA | $ | 33.7 | $ | 26.3 | $ | 96.1 | $ | 74.3 | $ | 124.9 | $ | 121.6 | $ | 99.0 |
(1) | For 2020, restructuring and other related costs consists primarily of costs relating to workforce reductions in response to the economic conditions created by COVID-19 and related sales volume impacts. |
(2) | Non-cash (gains) losses on mark to market of non-hedged derivative instruments. |
(3) | In 2020, the Corporation incurred transaction costs in order to acquire NorthPoint. These costs were primarily for advisory services. |
(4) | In both 2021 and 2020, the Corporation incurred transaction costs relating to the Tundra acquisition. These costs were primarily for advisory services. |
(5) | Pro-forma adjusted EBITDA for Tundra for pre-acquisition periods, to adjust for the EBITDA of business acquisitions made during the period as if they were made at the beginning of the trailing 12-month period pursuant to the terms of the bank credit facility. |
(6) | Effective with the reporting period beginning on |
Calculation of the Corporation's funded net debt, debt, leverage ratio and senior secured leverage ratio is as follows:
|
|
| ||||
Cash | $ | (6.9) | $ | (6.2) | $ | (6.6) |
Debentures | 55.1 | 54.9 | 54.6 | |||
Long-term debt | 118.7 | 148.7 | 171.6 | |||
Funded net debt | $ | 166.9 | $ | 197.4 | $ | 219.6 |
Letters of credit | 7.3 | 12.8 | 6.4 | |||
Debt | $ | 174.2 | $ | 210.2 | $ | 226.0 |
Pro-forma adjusted EBITDA(1) | $ | 124.9 | $ | 121.6 | $ | 99.0 |
Leverage ratio(2) | 1.39 | 1.73 | 2.28 | |||
Senior secured leverage ratio(3) | 0.95 | 1.28 | 1.73 |
(1) | For the twelve months ended |
(2) | Calculation uses debt divided by the trailing four-quarter Pro-forma adjusted EBITDA. This leverage ratio is calculated for purposes of monitoring the Corporation's objective target leverage ratio of between 1.5 times and 2.0 times, and is different from the leverage ratio calculated under the Corporation's bank credit facility agreement. |
(3) | Calculation uses debt excluding debentures divided by the trailing four-quarter Pro-forma adjusted EBITDA. While the calculation contains some differences from the leverage ratio calculated under the Corporation's bank credit facility agreement, the resulting leverage ratio under the bank credit facility agreement is not significantly different. See the Liquidity and Capital Resources section. |
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. To the extent any forward-looking information in this MD&A constitutes future-oriented financial information or financial outlook within the meaning of applicable securities law, such information is being provided to demonstrate the potential of the Corporation and readers are cautioned that this information may not be appropriate for any other purpose. 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, the main elements of our One Wajax strategy, including our focus on executing clear plans in five important areas: investments in our team, investments in our customers, executing our organic growth strategy, our accretive acquisition strategy and investments in our infrastructure; our introduction of a more comprehensive sustainability program and the achievement of targets and goals related to employee health, safety and wellness, training and development, diversity and equal opportunity, sustainable products and services, environmental responsibility, governance and community; our expectation that revenue associated with the acquisition of Tundra will be a significant contributor to our total revenue growth in 2021; our continued intention to work closely with our major suppliers in relation to inventory availability and supply chain service levels; our expectation that current challenges with the availability of construction and forestry, material handling and power systems equipment inventory will persist into the fourth quarter; our plans to continue our focus on success in construction and forestry, mining, material handling and power systems, including improvements in product support volumes; our belief that we have excellent growth opportunities in the aforementioned heavy equipment categories and our intention to continue to work closely with our supplier partners to prudently grow market share and capture aftermarket sales; our expectation that our industrial parts and ERS categories will yield strong growth, including the contribution of Tundra, and that ERS continues to be one of
Readers are cautioned that the risks described in the AIF, and in our annual MD&A, are not the only risks that could impact the Corporation. We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations, financial condition or the demand for our products and services due to the uncertainties related to the spread of the virus and its variants. Risks and uncertainties not currently known to the Corporation, or currently deemed to be immaterial, may have a material effect on the Corporation's business, financial condition or results of operations.
Additional information, including
W A J A X C O R P O R A T IO N
C O N D E N S E D C O N S O L I D A T E D I N T E R I M S T A T E M E N T S O F
F I N A N C I A L P O S I T I O N
As at (unaudited, in thousands of Canadian dollars) | Note | |||||||
ASSETS | ||||||||
CURRENT | ||||||||
Cash | $ | 6,880 | $ | 6,625 | ||||
Trade and other receivables | 5 | 221,654 | 214,507 | |||||
Contract assets | 6 | 46,129 | 23,003 | |||||
Inventory | 7 | 371,253 | 357,421 | |||||
Deposits on inventory | 7 | 11,440 | 44,197 | |||||
Lease receivables - current | 3,098 | 2,039 | ||||||
Prepaid expenses | 8,593 | 5,639 | ||||||
Derivative financial assets - current | 16 | 2,964 | 1,597 | |||||
672,011 | 655,028 | |||||||
NON-CURRENT | ||||||||
Rental equipment | 8 | 48,390 | 56,901 | |||||
Property, plant and equipment | 8 | 40,535 | 41,371 | |||||
Right-of-use assets | 9 | 133,408 | 131,733 | |||||
Lease receivables | 6,611 | 5,120 | ||||||
170,665 | 90,726 | |||||||
Derivative financial assets | 16 | 1,775 | 511 | |||||
401,384 | 326,362 | |||||||
Total assets | $ | 1,073,395 | $ | 981,390 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT | ||||||||
Accounts payable and accrued liabilities | 10 | $ | 289,063 | $ | 231,726 | |||
Provisions - current | 11 | 4,807 | 6,744 | |||||
Contract liabilities | 6 | 12,515 | 7,064 | |||||
Dividends payable | 17 | 5,352 | 5,008 | |||||
Income taxes payable | 1,488 | 1,085 | ||||||
Lease liabilities - current | 12 | 27,645 | 23,852 | |||||
Derivative financial liabilities - current | 16 | 740 | 3,387 | |||||
341,610 | 278,866 | |||||||
NON-CURRENT | ||||||||
Provisions | 11 | 216 | 216 | |||||
Deferred tax liabilities | 15,727 | 1,388 | ||||||
Employee benefits | 13 | 8,887 | 9,223 | |||||
Derivative financial liabilities | 16 | 4,467 | 8,285 | |||||
Other liabilities | 2,893 | 2,365 | ||||||
Lease liabilities | 12 | 139,765 | 129,181 | |||||
Debentures | 14 | 55,072 | 54,638 | |||||
Long-term debt | 15 | 118,684 | 171,580 | |||||
345,711 | 376,876 | |||||||
Total liabilities | 687,321 | 655,742 | ||||||
SHAREHOLDERS' EQUITY | ||||||||
Share capital | 17 | 206,705 | 181,274 | |||||
Contributed surplus | 8,344 | 7,698 | ||||||
Retained earnings | 172,969 | 143,271 | ||||||
Accumulated other comprehensive loss | (1,944) | (6,595) | ||||||
Total shareholders' equity | 386,074 | 325,648 | ||||||
Total liabilities and shareholders' equity | $ | 1,073,395 | $ | 981,390 |
Subsequent events (Note 25) |
See accompanying notes to unaudited condensed consolidated interim financial statements. |
W A J A X C O R P O R A T I O N
C O N D E N S E D C O N S O L I D A T E D I N T E R I M S T A T E M E N T S O F
E A R N I N G S
Three months ended | Nine months ended | ||||||||
(unaudited, in thousands of Canadian dollars, except | Note | 2021 | 2020 | 2021 | 2020 | ||||
Revenue | 19 | $ | 401,305 | $ | 340,620 | $ | 1,234,504 | $ | 1,041,629 |
Cost of sales | 316,189 | 276,676 | 984,490 | 848,794 | |||||
Gross profit | 85,116 | 63,944 | 250,014 | 192,835 | |||||
Selling and administrative expenses | 60,427 | 41,934 | 173,044 | 139,290 | |||||
Restructuring and other related costs | — | 7,687 | — | 7,799 | |||||
Earnings before finance costs and income taxes | 24,689 | 14,323 | 76,970 | 45,746 | |||||
Finance costs | 20 | 4,524 | 5,138 | 14,627 | 16,907 | ||||
Earnings before income taxes | 20,165 | 9,185 | 62,343 | 28,839 | |||||
Income tax expense | 21 | 5,508 | 2,514 | 17,065 | 7,902 | ||||
Net earnings | $ | 14,657 | $ | 6,671 | $ | 45,278 | $ | 20,937 | |
Basic earnings per share | 17 | $ | 0.68 | $ | 0.33 | $ | 2.13 | $ | 1.05 |
Diluted earnings per share | 17 | 0.66 | 0.33 | 2.06 | 1.02 |
W A J A X C O R P O R A T I O N
C O N D E N S E D C O N S O L I D A T E D I N T E R I M S T A T E M E N T S O F
C O M P R E H E N S I V E I N C O M E
Three months ended | Nine months ended | ||||||||
(unaudited, in thousands of Canadian dollars) | Note | 2021 | 2020 | 2021 | 2020 | ||||
Net earnings | $ | 14,657 | $ | 6,671 | $ | 45,278 | $ | 20,937 | |
Items that will not be reclassified to income | |||||||||
Actuarial losses on pension plans, net of tax recovery of | 13 | — | — | (142) | — | ||||
Items that may be subsequently reclassified to earnings | |||||||||
Losses (gains) on derivative instruments designated as | 271 | (194) | 755 | (813) | |||||
Gains (losses) on derivative instruments outstanding | 1,255 | (110) | 3,896 | (4,200) | |||||
Other comprehensive income (loss), net of tax | 1,526 | (304) | 4,509 | (5,013) | |||||
Total comprehensive income | $ | 16,183 | $ | 6,367 | $ | 49,787 | $ | 15,924 |
See accompanying notes to unaudited condensed consolidated interim financial statements. |
W A J A X C O R P O R A T I O N
C O N D E N S E D C O N S O L I D A T E D I N T E R I M S T A T E M E N T S O F
C H A N G E S I N S H A R E H O L D E R S ' E Q U I T Y
Accumulated | |||||||||||
For the nine months ended (unaudited, in thousands of Canadian dollars) |
Note | Share capital | Contributed | Retained | Cash flow | Total | |||||
$ | 181,274 | $ | 7,698 | $ | 143,271 | $ | (6,595) | $ | 325,648 | ||
Net earnings | — | — | 45,278 | — | 45,278 | ||||||
Other comprehensive (loss) income | — | — | (142) | 4,651 | 4,509 | ||||||
Total comprehensive income | — | — | 45,136 | 4,651 | 49,787 | ||||||
Shares issued to settle share-based compensation plans | 17 | 67 | (67) | — | — | — | |||||
Shares released from trust to settle share-based compensation plans | 17 | 108 | (1,007) | 618 | — | (281) | |||||
Share-based compensation expense | 18 | — | 1,720 | — | — | 1,720 | |||||
Shares issued for acquisition of business | 4 | 25,256 | — | — | — | 25,256 | |||||
Dividends declared | 17 | — | — | (16,056) | — | (16,056) | |||||
$ | 206,705 | $ | 8,344 | $ | 172,969 | $ | (1,944) | $ | 386,074 |
See accompanying notes to unaudited condensed consolidated interim financial statements. |
W A J A X C O R P O R A T I O N
C O N D E N S E D C O N S O L I D A T E D I N T E R I M S T A T E M E N T S O F
C H A N G E S I N S H A R E H O L D E R S ' E Q U I T Y
Accumulated | |||||||||||
For the nine months ended (unaudited, in thousands of Canadian dollars) |
Note | Share capital | Contributed | Retained | Cash flow | Total | |||||
$ | 181,075 | $ | 7,165 | $ | 130,961 | $ | (2,386) | $ | 316,815 | ||
Net earnings | — | — | 20,937 | — | 20,937 | ||||||
Other comprehensive loss | — | — | — | (5,013) | (5,013) | ||||||
Total comprehensive income (loss) | — | — | 20,937 | (5,013) | 15,924 | ||||||
Shares released from trust to settle share-based compensation plans | 17 | 199 | (1,264) | 721 | — | (344) | |||||
Share-based compensation expense | 18 | — | 1,719 | — | — | 1,719 | |||||
Dividends declared | 17 | — | — | (15,024) | — | (15,024) | |||||
$ | 181,274 | $ | 7,620 | $ | 137,595 | $ | (7,399) | $ | 319,090 |
See accompanying notes to unaudited condensed consolidated interim financial statements. |
W A J A X C O R P O R A T I O N
C O N D E N S E D C O N S O L I D A T E D I N T E R I M S T A T E M E N T S O F
C A S H F L O W S
Three months ended | Nine months ended | ||||||||
(unaudited, in thousands of Canadian dollars) | Note | 2021 | 2020 | 2021 | 2020 | ||||
OPERATING ACTIVITIES | |||||||||
Net earnings | $ | 14,657 | $ | 6,671 | $ | 45,278 | $ | 20,937 | |
Items not affecting cash flow: | |||||||||
Depreciation and amortization: | |||||||||
Rental equipment | 8 | 3,794 | 4,415 | 11,509 | 14,357 | ||||
Property, plant and equipment | 8 | 1,875 | 1,879 | 5,510 | 5,650 | ||||
Right-of-use assets | 9 | 6,451 | 6,483 | 20,087 | 17,559 | ||||
Intangible assets | 2,663 | 431 | 3,967 | 1,334 | |||||
Gain on disposal of property, plant and equipment | 8 | (233) | (1,650) | (1,515) | (1,865) | ||||
Share-based compensation expense | 18 | 1,576 | 1,527 | 5,575 | 2,702 | ||||
Non-cash income from finance leases | (212) | 156 | (437) | (320) | |||||
Employee benefits expense, net of employer contributions | 55 | (106) | (756) | 134 | |||||
Loss (gain) on derivative financial instruments | 16 | 1,025 | (1,586) | (2,035) | 899 | ||||
Finance costs | 20 | 4,524 | 5,138 | 14,627 | 16,907 | ||||
Income tax expense | 21 | 5,508 | 2,514 | 17,065 | 7,902 | ||||
41,683 | 25,872 | 118,875 | 86,196 | ||||||
Changes in non-cash operating working capital | 22 | 9,505 | 16,968 | 69,448 | 5,646 | ||||
Rental equipment additions | 8 | (3,149) | (3,585) | (7,881) | (14,846) | ||||
Rental equipment disposals | 8 | 1,232 | 2,729 | 4,736 | 15,502 | ||||
Other non-current liabilities | (20) | (36) | (1,791) | (227) | |||||
Cash paid on settlement of total return swaps | 16 | — | — | (613) | (1,396) | ||||
Finance costs paid on debts | (3,274) | (4,333) | (9,217) | (9,423) | |||||
Finance costs paid on lease liabilities | 12, 20 | (1,857) | (1,906) | (5,863) | (6,213) | ||||
Interest collected on lease receivables | 56 | 51 | 167 | 109 | |||||
Income taxes paid | (3,966) | (927) | (13,760) | (4,599) | |||||
Cash generated from operating activities | 40,210 | 34,833 | 154,101 | 70,749 | |||||
INVESTING ACTIVITIES | |||||||||
Property, plant and equipment additions | 8 | (1,998) | (1,577) | (4,343) | (4,070) | ||||
Proceeds on disposal of property, plant and equipment | 6,245 | 6,273 | 15,442 | 6,709 | |||||
Intangible assets additions | (223) | (244) | (1,127) | (1,646) | |||||
Collection of lease receivables | 703 | 293 | 1,816 | 727 | |||||
Acquisition of business (net of cash acquired) | 4 | (1,716) | — | (75,256) | (17,931) | ||||
Cash generated from (used in) investing activities | 3,011 | 4,745 | (63,468) | (16,211) | |||||
FINANCING ACTIVITIES | |||||||||
Net decrease in bank debt | 15 | (30,129) | (18,596) | (52,924) | (27,232) | ||||
Transaction costs on debts | 15 | — | — | (393) | (37) | ||||
Payment of lease liabilities | 12 | (7,012) | (6,070) | (21,068) | (16,727) | ||||
Payment of tax withholding for share-based compensation | — | — | (281) | (345) | |||||
Dividends paid | (5,352) | (5,008) | (15,712) | (15,019) | |||||
Cash used in financing activities | (42,493) | (29,674) | (90,378) | (59,360) | |||||
Change in cash and bank indebtedness | 728 | 9,904 | 255 | (4,822) | |||||
Cash (bank indebtedness) - beginning of period | 6,152 | (11,546) | 6,625 | 3,180 | |||||
Cash (bank indebtedness) - end of period | $ | 6,880 | $ | (1,642) | $ | 6,880 | $ | (1,642) |
See accompanying notes to unaudited condensed consolidated interim financial statements. |
WAJAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
(unaudited, amounts in thousands of Canadian dollars, except share and per share data)
1. COMPANY PROFILE
2. BASIS OF PREPARATION
Statement of compliance
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting and do not include all of the disclosures required for annual consolidated financial statements. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of the Corporation for the year ended
These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on
3. CHANGE IN ACCOUNTING POLICIES
During the period, the Corporation did not adopt any new accounting standards or amendments that had an impact on the Corporation's unaudited condensed consolidated interim financial statements.
4. ACQUISITION OF BUSINESS
On
The acquisition was accounted for as a business combination using the acquisition method whereby the net assets acquired were recorded at fair value. Final valuations of certain items are not yet complete, due to the timing of the acquisition and the inherent complexity associated with valuations. Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process. During the quarter, amounts allocated to assets acquired and liabilities assumed were revised. The main revisions, resulting from changes in estimates, were to increase intangible assets by
The following table summarizes the acquisition-date fair value of each major class of consideration transferred, the recognized amounts of the identifiable assets acquired and liabilities assumed, and the resulting value of goodwill:
Consideration transferred: | ||
Cash consideration | $ | 74,137 |
Fair value of common share consideration | 25,256 | |
$ | 99,393 | |
Fair value of assets and liabilities recognized: | ||
Cash | $ | 597 |
Trade and other receivables | 16,632 | |
Contract assets | 7,951 | |
Inventory | 17,738 | |
Prepaid expenses | 241 | |
Property, plant and equipment | 4,329 | |
Right-of-use assets | 6,138 | |
Accounts payable and accrued liabilities | (20,196) | |
Contract liabilities | (220) | |
Lease liabilities | (6,076) | |
Deferred tax liabilities | (9,777) | |
Tangible net assets acquired | $ | 17,357 |
Intangible assets | 42,000 | |
40,036 | ||
$ | 99,393 |
Net cash outflow for the acquisition was
Trade and other receivables represents gross contractual amounts receivable of
The fair value of common shares transferred as consideration is based on the Corporation's quoted share price on the date of acquisition, which was
For the quarter, Tundra revenues of
Tundra transaction costs, primarily for advisory services, were nil for the quarter and
On
5. TRADE AND OTHER RECEIVABLES
The Corporation's trade and other receivables consist of trade accounts receivable from customers and other accounts receivable, generally from suppliers for warranty and rebates. Trade and other receivables are comprised of the following:
Trade accounts receivable | $ | 196,236 | $ | 191,482 |
Less: allowance for credit losses | (1,420) | (3,626) | ||
Net trade accounts receivable | $ | 194,816 | $ | 187,856 |
Other receivables | 26,838 | 26,651 | ||
Total trade and other receivables | $ | 221,654 | $ | 214,507 |
6. CONTRACT ASSETS AND LIABILITIES
The following table provides information about contract assets and contract liabilities from contracts with customers:
Contract assets | $ | 46,129 | $ | 23,003 |
Contract liabilities | 12,515 | 7,064 |
The contract assets primarily relate to the Corporation's rights to consideration for work completed but not billed at the reporting date on product support and engineered repair services ("ERS") revenue. The contract assets are transferred to receivables when billed upon completion of significant milestones. The contract liabilities primarily relate to the advance billing or advance consideration received from customers on equipment sales, industrial parts, and ERS revenue, for which revenue is recognized when control transfers to the customer.
7. INVENTORY
The Corporation's inventory balance consists of the following:
Equipment | $ | 193,835 | $ | 218,740 | ||
Parts | 145,082 | 125,252 | ||||
Work-in-process | 32,336 | 13,429 | ||||
Total inventory | $ | 371,253 | $ | 357,421 |
All amounts shown are net of obsolescence provisions of
As at
Substantially all of the Corporation's inventory is pledged as security for the bank credit facility.
Deposits on inventory in the condensed consolidated interim statements of financial position, amounting to
8. PROPERTY, PLANT AND EQUIPMENT & RENTAL EQUIPMENT
The Corporation's property, plant and equipment balance at
The Corporation's rental equipment balance at
9. RIGHT-OF-USE ASSETS
The Corporation's right-of-use assets balance at
The Corporation recognized depreciation of right-of-use assets during the quarter of
The Corporation entered into sale and leaseback transactions for two of its owned properties during the quarter (2020 - one of its owned properties) and three of its owned properties year to date (2020 - one of its owned properties). The proceeds net of transaction costs on the sale of the properties were
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are comprised of the following:
Trade payables | $ | 184,448 | $ | 137,016 |
Deferred rental income | 1,317 | 854 | ||
Supplier payables with extended terms | 18,721 | 23,493 | ||
Payroll, bonuses and incentives | 39,362 | 26,204 | ||
Accrued liabilities | 45,215 | 44,159 | ||
Accounts payable and accrued liabilities | $ | 289,063 | $ | 231,726 |
Supplier payables with extended terms relate to equipment purchases from suppliers with payment terms ranging anywhere from approximately 60 days to 8 months.
11. PROVISIONS AND CONTINGENCIES
Restructuring | Warranties | Other | Total | |||||
Provisions, | $ | 3,752 | $ | 1,074 | $ | 2,134 | $ | 6,960 |
Charge for the period | — | 7,694 | 1,590 | 9,284 | ||||
Utilized in the period | (2,435) | (7,419) | (1,367) | (11,221) | ||||
Provisions, | $ | 1,317 | $ | 1,349 | $ | 2,357 | $ | 5,023 |
Current portion | $ | 1,317 | $ | 1,349 | $ | 2,141 | $ | 4,807 |
Non-current portion | — | — | 216 | 216 | ||||
Total | $ | 1,317 | $ | 1,349 | $ | 2,357 | $ | 5,023 |
Contingencies
In the ordinary course of business, the Corporation is contingently liable for various amounts that could arise from litigation, environmental matters or other sources. The Corporation does not expect the resolution of these matters to have a materially adverse effect on its financial position or results of operations. Provisions have been made in these unaudited condensed consolidated interim financial statements when the liability is expected to result in an outflow of economic resources, and where the obligation can be reliably measured.
12. LEASE LIABILITIES AND LEASE RECEIVABLES
As lessee
The Corporation leases properties for its branch network, certain vehicles, machinery and IT equipment.
The change in lease liabilities is as follows:
Three months ended | Nine months ended | ||||||||
Note | 2021 | 2020 | 2021 | 2020 | |||||
Balance at beginning of period | $ | 163,421 | $ | 140,143 | $ | 153,033 | $ | 127,130 | |
Changes from operating cash flows | |||||||||
Finance costs paid on lease liabilities | (1,857) | (1,906) | (5,863) | (6,213) | |||||
Changes from financing cash flows | |||||||||
Payment of lease liabilities | (7,012) | (6,070) | (21,068) | (16,727) | |||||
Other changes | |||||||||
Acquisition of business | 4 | 348 | — | 6,076 | 13,250 | ||||
Interest expense | 20 | 1,857 | 1,906 | 5,863 | 6,213 | ||||
New leases, net of disposals | 10,653 | 16,987 | 29,369 | 27,407 | |||||
Balance at end of period | $ | 167,410 | $ | 151,060 | $ | 167,410 | $ | 151,060 | |
Current portion | $ | 27,645 | $ | 23,586 | $ | 27,645 | $ | 23,586 | |
Non-current portion | $ | 139,765 | $ | 127,474 | $ | 139,765 | $ | 127,474 |
Not included in the balance of lease liabilities are short-term leases, leases of low-value assets and variable lease payments not linked to an index. Variable lease payments, lease payments associated with short-term leases and leases of low-value assets are expensed as incurred in the condensed consolidated interim statements of earnings.
As lessor
Operating leases
The Corporation rents equipment to customers under rental agreements with terms of up to 5 years. The rentals have been assessed and classified as operating leases. Revenue is presented as equipment rental revenue and recognized evenly over the term of the rental agreement.
Finance leases
The Corporation subleases certain equipment to customers. The Corporation assesses and classifies its subleases as finances leases, and therefore derecognizes the right-of-use assets relating to the respective head leases, recognizes lease receivables equal to the net investment in the subleases, and retains the previously recognized lease liabilities in its capacity as lessee.
13. EMPLOYEE BENEFITS
The Corporation sponsored three pension plans: the Wajax Limited Pension Plan (the "Employees' Plan") which, except for a small group of employees in a defined benefit plan, is a defined contribution plan, and two defined benefit plans: the Pension Plan for Executive Employees of
During the second quarter of 2021, the Corporation settled benefit obligations and plan assets as part of the wind-up of the Employees' Plan effective
In addition, the settlement triggered a
14. DEBENTURES
Senior Unsecured Debentures - 6%, due
In
The debentures will not be redeemable before
On redemption or at maturity on
The debentures are classified as a financial liability and are initially recorded at fair value net of transaction costs. The debentures are measured subsequently at amortized cost using the effective interest method over the life of the debentures.
The following balances were outstanding:
Debentures issued | $ | 57,000 | $ | 57,000 |
Deferred financing costs, net of accumulated amortization | (1,928) | (2,362) | ||
Total debentures | $ | 55,072 | $ | 54,638 |
Movements in the debentures balance are as follows:
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Balance at beginning of period | $ | 54,925 | $ | 54,356 | $ | 54,638 | $ | 54,115 |
Changes from financing cash flows | ||||||||
Transaction costs related to issuance | — | — | — | (37) | ||||
Other changes | ||||||||
Amortization of deferred financing costs | 147 | 138 | 434 | 416 | ||||
Balance at end of period | $ | 55,072 | $ | 54,494 | $ | 55,072 | $ | 54,494 |
Finance costs on the debentures were
15. LONG-TERM DEBT
On
Borrowings under the bank credit facility bear floating rates of interest at margins over Canadian dollar bankers' acceptance yields,
Borrowing capacity under the bank credit facility is dependent upon the level of the Corporation's inventory on hand and the outstanding trade accounts receivable. As at
The following balances were outstanding:
Bank credit facility | ||||
Non-revolving term portion | $ | 50,000 | $ | 50,000 |
Non-revolving acquisition term portion | 50,000 | — | ||
Revolving term portion | 20,067 | 122,991 | ||
$ | 120,067 | $ | 172,991 | |
Deferred financing costs, net of accumulated amortization | (1,383) | (1,411) | ||
Total long-term debt | $ | 118,684 | $ | 171,580 |
The Corporation had
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Balance at beginning of period | $ | 148,667 | $ |
217,125 | $ | 171,580 | $ | 225,573 |
Changes from financing cash flows | ||||||||
Net repayments of borrowings | (30,129) | (18,596) | (52,924) | (27,232) | ||||
Transaction costs related to borrowings | — | — | (393) | — | ||||
Other changes | ||||||||
Amortization of deferred financing costs | 146 | 95 | 421 | 283 | ||||
Balance at end of period | $ | 118,684 | $ | 198,624 | $ | 118,684 | $ | 198,624 |
16. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Corporation uses the following fair value hierarchy for determining and disclosing the fair value of financial instruments:
- Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities.
- Level 2 - other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly.
- Level 3 - techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
The Corporation categorizes its financial instruments as follows:
Financial assets measured at amortized cost: | ||||
Cash | $ | 6,880 | $ | 6,625 |
Trade and other receivables | 221,654 | 214,507 | ||
Contract assets | 46,129 | 23,003 | ||
Lease receivables | 9,709 | 7,159 | ||
Financial liabilities measured at amortized cost: | ||||
Accounts payable and accrued liabilities | 289,063 | 231,726 | ||
Provisions | 5,023 | 6,960 | ||
Contract liabilities | 12,515 | 7,064 | ||
Dividends payable | 5,352 | 5,008 | ||
Other liabilities | 2,893 | 2,365 | ||
Lease liabilities | 167,410 | 153,033 | ||
Debentures | 55,072 | 54,638 | ||
Long-term debt | 118,684 | 171,580 | ||
Net derivative financial assets (liabilities) measured at fair value: | ||||
Foreign exchange forwards | 1,385 | (710) | ||
Total return swaps | 2,322 | (578) | ||
Interest rate swaps | (4,175) | (8,276) |
The Corporation measures non-derivative financial assets and financial liabilities at amortized cost. Derivative financial assets/liabilities are recorded on the condensed consolidated interim statements of financial position at fair value. Changes in fair value are recognized in the condensed consolidated interim statements of earnings except for changes in fair value related to derivative financial assets/liabilities which are effectively designated as hedging instruments which are recognized in other comprehensive income. The Corporation's derivative financial assets/liabilities are held with major Canadian chartered banks and are deemed to be Level 2 financial instruments. The fair value of long-term debt approximates its recorded value due to its floating interest rate. The fair value of lease receivables approximates its carrying value. The fair value of the debentures can be estimated based on the trading price of the debentures, which takes into account the Corporation's own credit risk. At
Derivative financial instruments and hedges
The interest rate swaps are designated as effective hedges and are measured at fair value with subsequent changes in fair value recorded in other comprehensive income. Amounts in accumulated other comprehensive income are reclassified to net earnings in the periods when the hedged item affects profit or loss. The Corporation recognized a gain of
The Corporation's interest rate swaps outstanding are summarized as follows:
Notional | Weighted | Maturity | |||
As at | $ | 150,000 | 2.12% | ||
As at | $ | 150,000 | 2.12% | ||
As at | $ | 150,000 | 2.12% |
The Corporation enters into short-term foreign exchange forwards to hedge the exchange risk associated with the cost of certain inbound inventory and certain foreign currency-denominated sales to customers along with the associated receivables as part of its normal course of business. Foreign exchange forwards are initially recognized on the date the derivative contract is entered into and are subsequently re-measured at their fair values. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument. In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative, net of taxes, is recognized in other comprehensive income while the ineffective portion is recognized within net earnings. Amounts in accumulated other comprehensive income are reclassified to net earnings in the periods when the hedged item affects profit or loss. The Corporation recognized a loss of
The Corporation's contracts to buy and sell foreign currencies are summarized as follows:
Notional | Average | Maturity | ||
Purchase contracts | US$ | 98,391 | 1.2477 | |
€ | 498 | 1.4994 | ||
Sales contracts | US$ | 34,119 | 1.2515 | |
€ | 1,023 | 1.5101 |
Notional | Average |
Maturity | ||
Purchase contracts | US$ | 45,912 | 1.3236 | |
€ | 102 | 1.5790 | ||
Sales contracts | US$ | 32,187 | 1.3233 | |
€ | 939 | 1.5591 |
Notional | Average |
Maturity | ||
Purchase contracts | US$ | 41,295 | 1.3617 | |
€ | 29 | 1.5685 | ||
Sales contracts | US$ | 28,978 | 1.3449 | |
€ | 981 | 1.5565 |
The Corporation has certain total return swaps to hedge the exposure associated with increases in its share price on its outstanding restricted share units ("RSUs"). The Corporation does not apply hedge accounting to these relationships and as such, gains and losses arising from marking these derivatives to market are recognized in earnings in the period in which they arise. As at
Derivative financial assets consist of:
Interest rate swaps | $ | 127 | $ | — |
Foreign exchange forwards | 2,290 | 1,652 | ||
Total return swaps | 2,322 | 456 | ||
Total derivative financial assets | $ | 4,739 | $ | 2,108 |
Current portion | $ | 2,964 | $ | 1,597 |
Non-current portion | $ | 1,775 | $ | 511 |
Derivative financial liabilities consist of:
Interest rate swaps | $ | 4,302 | $ | 8,276 |
Foreign exchange forwards | 905 | 2,362 | ||
Total return swaps | — | 1,034 | ||
Total derivative financial liabilities | $ | 5,207 | $ | 11,672 |
Current portion | $ | 740 | $ | 3,387 |
Non-current portion | $ | 4,467 | $ | 8,285 |
Movements in the net derivative financial liabilities balance are as follows:
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Opening net derivative financial liabilities | $ | 1,566 | $ | 13,778 | $ | 9,564 | $ | 6,507 |
Loss (gain) recognized in net earnings | 1,025 | (1,586) | (2,035) | 899 | ||||
(Gain) loss recognized in other comprehensive income - before tax | (2,123) | 161 | (6,448) | 6,343 | ||||
Cash paid on settlement of total return swaps | — | — | (613) | (1,396) | ||||
Ending net derivative financial liabilities | $ | 468 | $ | 12,353 | $ | 468 | $ | 12,353 |
The balance in accumulated other comprehensive loss relates to changes in the value of the Corporation's various interest rate swaps and foreign exchange forwards where hedge accounting is applied. These accumulated amounts will be continuously released to the condensed consolidated interim statements of earnings within finance costs and gross profit, respectively.
During the periods presented and cumulatively to date, changes in counterparty credit risk have not significantly contributed to the overall changes in the fair value of these derivative instruments.
17. SHARE CAPITAL AND EARNINGS PER SHARE
The Corporation is authorized to issue an unlimited number of no par value common shares and an unlimited number of no par value preferred shares. Each common share entitles the holder of record to one vote at all meetings of shareholders. All issued common shares are fully paid. There were no preferred shares outstanding as at
Number of | Amount | ||
Issued and outstanding, | 20,167,703 | $ | 182,482 |
Common shares issued for acquisition of business | 1,357,142 | 25,256 | |
Common shares issued to settle share-based compensation plans | 6,583 | 67 | |
Issued and outstanding, | 21,531,428 | $ | 207,805 |
Shares held in trust, | (134,084) | (1,208) | |
Released for settlement of certain share-based compensation plans | 11,979 | 108 | |
Shares held in trust, | (122,105) | $ | (1,100) |
Issued and outstanding, net of shares held in trust, | 21,409,323 | $ | 206,705 |
Number of | Amount | ||
Issued and outstanding, | 20,167,703 | $ | 182,482 |
Shares held in trust, | (156,113) | (1,407) | |
Released for settlement of certain share-based compensation plans | 22,029 | 199 | |
Shares held in trust, | (134,084) | $ | (1,208) |
Issued and outstanding, net of shares held in trust, | 20,033,619 | $ | 181,274 |
Dividends declared
During the three months ended
Earnings per share
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Numerator for basic and diluted earnings per share: | ||||||||
– net earnings | $ | 14,657 | $ | 6,671 | $ | 45,278 | $ | 20,937 |
Denominator for basic earnings per share: | ||||||||
– weighted average shares, net of shares held in trust | 21,409,323 | 20,033,619 | 21,300,718 | 20,027,910 | ||||
Denominator for diluted earnings per share: | ||||||||
– weighted average shares, net of shares held in trust | 21,409,323 | 20,033,619 | 21,300,718 | 20,027,910 | ||||
– effect of dilutive share rights | 665,847 | 479,712 | 636,355 | 431,951 | ||||
Denominator for diluted earnings per share | 22,075,170 | 20,513,331 | 21,937,073 | 20,459,861 | ||||
Basic earnings per share | $ | 0.68 | $ | 0.33 | $ | 2.13 | $ | 1.05 |
Diluted earnings per share | $ | 0.66 | $ | 0.33 | $ | 2.06 | $ | 1.02 |
For the quarter, the calculation above excludes nil (2020 - 74,374) anti-dilutive share rights. For the year to date, the calculation above excludes 6,594 anti-dilutive share rights (2020 – 126,366).
18. SHARE-BASED COMPENSATION PLANS
The Corporation has four share-based compensation plans: the Wajax Share Ownership Plan (the "SOP"), the Directors' Deferred Share Unit Plan (the "DDSUP"), the Mid-Term Incentive Plan for Senior Executives (the "MTIP") and the Deferred Share Unit Plan (the "DSUP"). The following table provides the share-based compensation expense for awards under all plans:
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
SOP equity-settled | $ | 24 | $ | 24 | $ | 71 | $ | 65 |
DDSUP equity-settled | 185 | 123 | 496 | 397 | ||||
Total treasury share rights plans expense | $ | 209 | $ | 147 | $ | 567 | $ | 462 |
Market-purchased share rights plans | ||||||||
MTIP equity-settled | $ | 403 | $ | 425 | $ | 1,131 | $ | 1,218 |
DSUP equity-settled | 6 | 12 | 22 | 39 | ||||
Total market-purchased share rights plans expense | $ | 409 | $ | 437 | $ | 1,153 | $ | 1,257 |
Cash-settled rights plans | ||||||||
MTIP cash-settled | $ | 955 | $ | 909 | $ | 3,783 | $ | 999 |
DSUP cash-settled | 3 | 34 | 72 | (16) | ||||
Total cash-settled rights plans expense | $ | 958 | $ | 943 | $ | 3,855 | $ | 983 |
Total share-based compensation expense | $ | 1,576 | $ | 1,527 | $ | 5,575 | $ | 2,702 |
a)
Under the SOP and the DDSUP, rights are issued to the participants which are settled by issuing
The following rights under these plans are outstanding:
Number of rights | Fair value at time of grant | ||
Outstanding at December 31, 2020 | 482,224 | $ | 6,626 |
Grants – new grants | 22,777 | 496 | |
– dividend equivalents | 18,381 | — | |
Settlements | (6,583) | (67) | |
Outstanding at September 30, 2021 | 516,799 | $ | 7,055 |
At September 30, 2021, 486,931 share rights were vested (December 31, 2020 - 453,466 share rights were vested).
The outstanding aggregate number of shares issuable to satisfy entitlements under these plans is as follows:
Number of Shares | |
Approved by shareholders | 1,300,000 |
Exercised to date | (359,394) |
Rights outstanding | (516,799) |
Available for future grants at September 30, 2021 | 423,807 |
b) Market-purchased share rights plans
The MTIP plan consists of cash-settled restricted share units ("RSUs") and equity-settled performance share units ("PSUs"), and the equity-settled DSUP plan consists of deferred share units ("DSUs").
Market-purchased share rights plans consist of PSUs under the MTIP plan and DSUs, which vest over three years and are settled in common shares of the Corporation on a one-for-one basis. DSUs are only subject to time-vesting, whereas PSUs are also subject to performance vesting. PSUs are comprised of two components: return on net assets ("RONA") PSUs and total shareholder return ("TSR") PSUs as described below:
- RONA PSUs vest dependent upon the attainment of a target level of return on net assets. Such performance vesting criteria results in a performance vesting factor that ranges from 0% to 150% depending on the level of RONA attained.
- TSR PSUs vest dependent upon the attainment of a TSR market condition. Such performance vesting criteria result in a performance vesting factor that ranges from 0% to 200% depending on the Corporation's TSR relative to a pre-selected group of peers.
These plans are settled through shares purchased on the open market by the employee benefit plan trust, subject to the attainment of their vesting conditions. PSUs are settled at the end of the vesting period, and the number of shares remitted to the participant upon settlement is equal to the number of PSUs awarded multiplied by the performance vesting factor less shares withheld to satisfy the participant's withholding tax requirement. DSUs are settled when the participant is no longer employed by the Corporation or one of its subsidiary entities. Whenever dividends are paid on the Corporation's shares, additional rights with a value equal to the dividends are credited to the participants' accounts with the same vesting conditions as the original PSUs and DSUs.
The following rights under these plans are outstanding:
Number of rights | Fair value at time of grant | ||
Outstanding at December 31, 2020 | 289,570 | $ | 5,434 |
Grants – new grants | 74,959 | 1,874 | |
– dividend equivalents | 11,264 | — | |
Forfeitures | (52,497) | (1,043) | |
Settlements | (25,539) | (771) | |
Outstanding at September 30, 2021 | 297,757 | $ | 5,494 |
At September 30, 2021, 25,811 outstanding rights were vested (December 31, 2020 - 21,004 rights were vested). All vested rights are DSUs.
c) Cash-settled rights plans
Cash-settled rights plans consist of MTIP RSUs and cash-settled DSUs. Compensation expense varies with the price of the Corporation's shares and is recognized over the three year vesting period. RSUs are settled at the end of the vesting period, whereas DSUs are settled when the participant is no longer employed by the Corporation or one of its subsidiary entities. Whenever dividends are paid on the Corporation's shares, additional rights with a value equal to the dividends are credited to the participants' accounts with the same vesting conditions as the original rights. The value of the payout is equal to the number of rights awarded including earned dividend equivalents, multiplied by the volume weighted average share price at the time of vesting. At September 30, 2021, the carrying amount of the liabilities for these plans was $5,391 (December 31, 2020 – $3,863).
The following rights under these plans are outstanding:
Number of rights | |
Outstanding at December 31, 2020 | 465,452 |
Grants – new grants | 174,652 |
– dividend equivalents | 18,895 |
Forfeitures | (38,654) |
Settlements | (112,096) |
Outstanding at September 30, 2021 | 508,249 |
At September 30, 2021, 10,574 outstanding rights were vested (December 31, 2020 - 10,182 rights were vested).
19. REVENUE
Disaggregation of revenue
In the following table, revenue is disaggregated by revenue type:
Three months ended September 30 | Nine months ended September 30 | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Equipment sales | $ | 104,710 | $ | 106,180 | $ | 364,451 | $ | 326,418 |
Product support | 114,267 | 100,938 | 334,831 | 309,840 | ||||
Industrial parts | 111,061 | 83,772 | 329,406 | 257,059 | ||||
ERS | 62,101 | 41,676 | 179,821 | 123,774 | ||||
Revenue from contracts with customers | $ | 392,139 | $ | 332,566 | $ | 1,208,509 | $ | 1,017,091 |
Equipment rental | 9,166 | 8,054 | 25,995 | 24,538 | ||||
Total | $ | 401,305 | $ | 340,620 | $ | 1,234,504 | $ | 1,041,629 |
The Corporation has included $5,052 during the quarter (2020 - $4,730) and $12,652 year to date (2020 - $12,363) in equipment sales related to short-term rental contracts that are expected to convert to equipment sales within a six to twelve month period.
20. FINANCE COSTS
Finance costs are comprised of the following:
Three months ended | Nine months ended | ||||||||
Note | 2021 | 2020 | 2021 | 2020 | |||||
Finance costs on long-term debt | 15 | $ | 1,709 | $ | 2,268 | $ | 5,944 | $ | 7,809 |
Finance costs on debentures | 14 | 1,014 | 1,015 | 2,987 | 2,994 | ||||
Interest expense on lease liabilities | 12 | 1,857 | 1,906 | 5,863 | 6,213 | ||||
Interest income on lease receivables | (56) | (51) | (167) | (109) | |||||
Finance costs | $ | 4,524 | $ | 5,138 | $ | 14,627 | $ | 16,907 |
The Corporation capitalized nil during the quarter (2020 - nil) and $153 year to date (2020 - nil) of borrowing costs directly attributable to the construction of qualifying assets.
21. INCOME TAX EXPENSE
Income tax expense comprises current and deferred tax as follows:
For the nine months ended September 30 | 2021 | 2020 | ||
Current income tax expense | $ | 14,163 | $ | 8,505 |
Deferred income tax expense (recovery) | 2,902 | (603) | ||
Income tax expense | $ | 17,065 | $ | 7,902 |
The calculation of current tax is based on a combined federal and provincial statutory income tax rate of 26.2% (2020 – 26.5%). 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 26.2% based on the tax rates in years when the temporary differences are expected to reverse.
The reconciliation of income taxes at Canadian statutory rates to the reported income tax expense is as follows:
For the nine months ended September 30 | 2021 | 2020 | ||||
Combined statutory income tax rate | 26.2 | % | 26.5 | % | ||
Expected income tax expense at statutory rates | $ | 16,334 | $ | 7,642 | ||
Non-deductible expenses | 395 | 399 | ||||
Non-taxable portion of gain on real estate disposal | (1,205) | (212) | ||||
Other | 1,541 | 73 | ||||
Income tax expense | $ | 17,065 | $ | 7,902 |
22. CHANGES IN NON-CASH OPERATING WORKING CAPITAL
The net change in non-cash operating working capital comprises the following:
Three months ended | Nine months ended | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Trade and other receivables | $ | (11,149) | $ | (82) | $ | 10,360 | $ | 36,219 |
Contract assets | (5,561) | (2,984) | (15,175) | 2,530 | ||||
Inventory | 5,577 | 29,626 | 4,264 | 26,181 | ||||
Deposits on inventory | 2,589 | (2,040) | 32,757 | (8,470) | ||||
Prepaid expenses | (1,062) | (416) | (2,713) | (679) | ||||
Accounts payable and accrued liabilities | 18,049 | (13,590) | 36,661 | (53,774) | ||||
Provisions | (680) | 6,327 | (1,937) | 5,664 | ||||
Contract liabilities | 1,742 | 127 | 5,231 | (2,025) | ||||
Total | $ | 9,505 | $ | 16,968 | $ | 69,448 | $ | 5,646 |
23. GOVERNMENT ASSISTANCE
On April 11, 2020, the
The
24. COMPARATIVE INFORMATION
Certain comparative information has been reclassified to conform to the current year's presentation.
25. SUBSEQUENT EVENTS
On November 1, 2021, the Corporation declared a fourth quarter 2021 dividend of $0.25 per share or $5,352.
SOURCE
© Canada Newswire, source