TSX Symbol: WJX
TORONTO, March 1, 2021 /CNW/ - Wajax Corporation ("Wajax" or the "Corporation") today announced its 2020 fourth quarter and annual results.
(Dollars in millions, except per share data) |
Three Months Ended |
Twelve Months Ended |
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2020 |
2019 |
2020 |
2019 |
||||
CONSOLIDATED RESULTS |
|||||||
Revenue |
$381.0 |
$403.9 |
$1,422.6 |
$1,553.0 |
|||
Equipment sales |
$145.0 |
$156.5 |
$471.4 |
$523.9 |
|||
Product support |
$101.9 |
$110.2 |
$411.8 |
$476.1 |
|||
Industrial parts |
$85.5 |
$88.5 |
$342.6 |
$366.6 |
|||
ERS |
$40.5 |
$39.2 |
$164.2 |
$149.6 |
|||
Equipment rental |
$8.1 |
$9.5 |
$32.6 |
$36.9 |
|||
Net earnings |
$10.7 |
$12.2 |
$31.7 |
$39.5 |
|||
Basic earnings per share(1) |
$0.53 |
$0.61 |
$1.58 |
$1.98 |
|||
Adjusted net earnings(2)(3) |
$9.6 |
$10.1 |
$35.1 |
$41.9 |
|||
Adjusted basic earnings per share(1)(2)(3) |
$0.48 |
$0.51 |
$1.75 |
$2.10 |
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Fourth Quarter Highlights
- Revenue in the fourth quarter of 2020 decreased $22.9 million, or 5.7%, to $381.0 million, from $403.9 million in the fourth quarter of 2019. Regionally:
- Revenue in western Canada of $151.6 million decreased 7.6% over the prior year due primarily to lower material handling equipment and mining sales.
- Revenue in central Canada of $81.4 million decreased 1.3% over the prior year mainly due to moderately lower revenue in most categories, offset almost fully by higher crane and utility equipment sales, and Engineered Repair Services ("ERS") strength related to the acquisition of NorthPoint Technical Services ULC ("NorthPoint") earlier in the year.
- Revenue in eastern Canada of $148.0 million decreased 5.9% over the prior year due to moderately lower revenue in most categories, offset partially by strength in construction equipment sales.
- During the quarter, the Corporation qualified for the Canada Emergency Wage Subsidy ("CEWS") and recognized $5.7 million as a reimbursement of compensation expense with $4.4 million and $1.3 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Approximately $4.0 million of the subsidy was allocated to temporary supplemental compensation programs directed primarily at the Corporation's frontline employees who continue to provide excellent and essential support to customers across Canada. The resultant net pre-tax contribution to earnings of the CEWS recovery in the fourth quarter was approximately $1.7 million.
- Gross profit margin of 18.1% in the fourth quarter of 2020 increased 0.5% compared to the same period of 2019. Excluding the $4.4 million CEWS recovery discussed above, gross profit margin was 17.0% in the fourth quarter of 2020, representing a decrease of 0.6% compared to the same period of 2019. The decline in margin was driven primarily by lower equipment margins, offset partially by higher ERS margins.
- Selling and administrative expenses as a percentage of revenue increased 0.9% to 13.2% in the fourth quarter of 2020 from 12.3% in the same period of 2019. Selling and administrative expenses increased by $0.7 million compared to the fourth quarter of 2019, due mainly to Tundra Process Solutions Ltd. ("Tundra") transaction costs of $1.0 million and a lower gain recorded on the sale of properties of $1.0 million, partially offset by the recovery of personnel expenses from the CEWS of $1.3 million discussed above. Excluding the $1.3 million CEWS recovery, selling and administrative expenses as a percentage of revenue increased 1.3% to 13.5% in the fourth quarter of 2020 from 12.3% in the same period of 2019.
- EBIT decreased $2.6 million, or 12.0%, to $18.8 million in the fourth quarter of 2020 versus $21.4 million in the same period of 2019.(2) The year-over-year decrease in EBIT is primarily attributable to lower revenue, lower equipment margins, the Tundra transaction costs of $1.0 million and a lower gain recorded on the sale of properties of $1.0 million, partially offset by higher ERS sales and margins and the net effect of the CEWS.(2)
- The Corporation generated net earnings of $10.7 million, or $0.53 per share, in the fourth quarter of 2020 versus $12.2 million, or $0.61 per share, in the same period of 2019. The Corporation generated adjusted net earnings of $9.6 million, or $0.48 per share, in the fourth quarter of 2020 versus $10.1 million, or $0.51 per share, in the same period of 2019.(2)
- Adjusted EBITDA margin increased to 8.1% in the fourth quarter of 2020 from 7.9% in the same period of 2019.(2)
- Cash flows generated from operating activities amounted to $48.1 million in the fourth quarter of 2020, compared to cash flows generated from operating activities of $16.3 million in the same quarter of the previous year. The increase in cash generated of $31.7 million was mainly attributable to an increase in cash generated from changes in non-cash operating working capital of $24.4 million and a decrease in rental equipment additions of $12.5 million, partially offset by higher income taxes paid of $5.1 million.
- The Corporation's backlog at December 31, 2020 of $181.7 million decreased $23.4 million, or 11.4%, compared to September 30, 2020, due primarily to lower mining, forestry, power generation and construction orders, partially offset by higher material handling and industrial parts orders.(2)(5)
- Total owned and consignment inventory declined $51.2 million in the fourth quarter of 2020. Owned inventory of $357.4 million at December 31, 2020 decreased $32.5 million from September 30, 2020 due to lower equipment, parts and work-in-process inventory in most categories, partially offset by higher mining equipment inventory. Consignment inventory, comprised primarily of construction excavators, declined by $18.7 million in the fourth quarter of 2020.
- Working capital of $374.9 million at December 31, 2020 decreased $17.1 million from September 30, 2020, due primarily to lower inventory, offset partially by higher cash and higher trade and other receivables.(2) Trailing four-quarter average working capital as a percentage of the trailing 12-month sales was 27.9%, a decrease of 0.1% from September 30, 2020, due to the moderately lower trailing four-quarter average working capital.(2)
- The Corporation's leverage ratio decreased to 2.28 times at December 31, 2020, compared to 2.59 times at September 30, 2020.(2) The decrease in the leverage ratio was due to the lower debt level, partially offset by the lower trailing 12-month pro-forma adjusted EBITDA.(2) The Corporation's senior secured leverage ratio was 1.73 times at December 31, 2020, compared to 2.05 times at September 30, 2020.(2)
- In the fourth quarter of 2020, the Corporation entered into a sale and leaseback transaction for one of its owned properties. The proceeds net of transaction costs on the sale of the property were $1.1 million and the carrying amount was $0.6 million, resulting in a total gain on the sale of the property of $0.5 million, of which a negligible amount has been recognized in the quarter.
- On December 30, 2020, the Corporation amended its senior secured credit facility. The amendment increased the facility limit from $400 million to $450 million by adding a new non-revolving acquisition term facility of $50 million, which was used to finance the acquisition of Tundra in the first quarter of 2021. Repayment of the acquisition facility is due in full on December 30, 2022.
- Subsequent to year-end, on January 22, 2021, the Corporation announced the completion of the acquisition of all of the issued and outstanding shares of Calgary, Alberta-based Tundra for total consideration of approximately $99.1 million. The purchase price for the Tundra shares was satisfied by the payment in cash of $74.6 million and the issuance of 1,357,142 common shares of Wajax.
On March 1, 2021, the Corporation declared a dividend of $0.25 per share for the first quarter of 2021 payable on April 6, 2021 to shareholders of record on March 15, 2021.
Update Regarding COVID-19 Pandemic Response
The coronavirus pandemic and the measures implemented to stop the spread of COVID-19 have continued to have a significant effect on Wajax. The table below summarizes the Corporation's four main objectives in managing through this difficult period, and provides an update regarding key actions taken to date in furtherance of these objectives.
Objective |
Actions Include: |
Protecting the |
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Providing |
|
Protecting the |
Cost Reduction
Liquidity and Working Capital Management
|
Continuing to |
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Commenting on the Corporation's results, President and Chief Executive Officer Mark Foote stated, "While the challenges of 2020 were clear, the Wajax team seized on opportunities to improve in areas important to our long-term success. We continued to work toward our zero-injury goal and achieved another record year in workplace safety with a consolidated TRIF rate of 1.08, an impressive 22% improvement versus 2019. As the pandemic unfolded, we were in constant contact with our customers to ensure we were there when they needed us, and as a result our service levels and Net Promoter Score improved to 67 in 2020, an increase of five points from 2019. We developed new ways of working with our team, using technology to increase communication, and the team did excellent work to protect the financial health of the corporation."
Mr. Foote continued, "Recognizing that the challenges we faced in 2020 have persisted into 2021, the Corporation nonetheless enters 2021 with confidence expecting that it is positioned to succeed over the longer term. In 2021, Wajax remains focused on the same priorities that guided it in 2020: protecting the health, safety and well-being of its team, providing excellent customer service, protecting the Corporation's financial health and driving its long-term growth strategy."
Commenting on financial expectations for 2021, Mr. Foote stated, "We expect revenue associated with the acquisition of Tundra to be the significant contributor to total revenue growth in 2021. Organic revenue growth is expected to be modest due primarily to heavy equipment markets that are not expected to fully recover to 2019 levels in 2021. Wajax's inventory and working capital investments will remain conservative pending a clear indication of a sustained recovery. Considering the acquisition debt related to Tundra to be incurred in the first quarter, leverage is expected to decline by year-end due to positive cash flow from operations, real estate monetization and other cash management initiatives."
As to Wajax's key product and service categories, Mr. Foote commented, "In our heavy equipment categories, representing pro-forma sales of 58%, we will continue to focus on success in construction, material handling, forestry and mining, including improvements in product support volumes.(4) While equipment markets are not expected to fully recover in 2021, Wajax has excellent opportunities in these categories and will continue to work closely with its supplier partners to prudently grow market share and capture aftermarket sales.
In industrial parts and ERS, representing pro-forma sales of 42%, we expect higher organic growth and a strong contribution from Tundra.(4) ERS continues to be one of Wajax's most significant opportunities, capable of growth at each point in the economic cycle."
Regarding other key projects, Mr. Foote advised, "Wajax's infrastructure programs are expected to continue in 2021 including investments in branch network consolidation and technology. Following the COVID-19 related delay in 2020, the phased implementation of our new ERP system is expected to begin in the second quarter of 2021 and continue over an approximate 24-month timeframe in order to reduce the associated implementation risks."
Mr. Foote concluded, "On behalf of the leadership team, I would like to again thank our employees for their resilience, dedication and hard work which allowed us to continue to operate safely and serve our customers during 2020. The team turned a challenging year into one where we capitalized on significant opportunities. On behalf of all Wajax employees, let me also welcome our new colleagues from Tundra. There are great opportunities ahead and we are glad you'll be on the ride with us – Together We Get More Done."
Wajax Corporation
Founded in 1858, Wajax (TSX: WJX) is one of Canada's longest-standing and most diversified industrial products and services providers. The Corporation operates an integrated distribution system providing sales, parts and services to a broad range of customers in diverse sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.
The Corporation's goal is to be Canada's leading industrial products and services provider, distinguished through its three core capabilities: sales force excellence, the breadth and efficiency of repair and maintenance operations, and the ability to work closely with existing and new vendor partners to constantly expand its product offering to customers. The Corporation believes that achieving excellence in these three areas will position it to create value for its customers, employees, vendors and shareholders.
Wajax will webcast its Fourth Quarter Financial Results Conference Call. You are invited to listen to the live webcast on Tuesday, March 2, 2021 at 2:00 p.m. ET. To access the webcast, please visit our website wajax.com, under "Investor Relations", "Events and Presentations", "Q4 and Full Year 2020 Financial Results" and click on the "Webcast" link.
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 December 31, 2020 was 20,033,619 (2019 – 20,009,494) and 20,574,840 (2019 – 20,421,685), respectively. |
|
Weighted average shares, net of shares held in trust, outstanding for calculation of basic and diluted earnings |
||
(2) |
"Adjusted net earnings", "Adjusted basic earnings per share", "Adjusted EBITDA", "Adjusted EBITDA margin", |
|
(3) |
Net earnings excluding the following: |
|
a. |
after-tax restructuring and other related costs of nil (2019 - $0.1 million), or basic and diluted |
|
b. |
after-tax restructuring and other related costs of $5.7 million (2019 – $4.1 million), or basic and diluted |
|
c. |
after-tax non-cash gains on mark to market of derivative instruments of $0.9 million (2019 – nil), or basic |
|
d. |
after-tax non-cash gains on mark to market of derivative instruments of $1.0 million (2019 – gains of |
|
e. |
after-tax gain recorded on the sale of properties of $1.0 million (2019 - $2.3 million), or basic and diluted |
|
f. |
after-tax gain recorded on the sale of properties of $2.1 million (2019 - $2.3 million), or basic and diluted |
|
g. |
after-tax Tundra transaction costs of $0.8 million (2019 - nil), or basic and diluted earnings per share of |
|
h. |
after-tax NorthPoint transaction costs of $0.2 million (2019 - nil), or basic and diluted earnings per share |
|
i. |
after-tax CSC project costs of nil (2019 - $0.9 million), or basic and diluted earnings per share of nil |
|
(4) |
Pro-forma sales are based on Wajax revenue for 2020 plus Tundra's December 31, 2020 trailing 12-month |
|
(5) |
The backlog as at December 31, 2020 now includes customer purchase commitments for its ERS business, |
|
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, our focus and main objectives in managing our business through the COVID-19 pandemic; our intention to manage owned and consignment equipment inventory levels in accordance with market conditions in 2021; our expectation that the proceeds of our real estate monetization program will be used for debt reduction; our plans to begin implementing our new ERP system in the second quarter of 2021 and to minimize the associated implementation risks; our expectation that, despite the challenges of 2020 carrying over into 2021, we are positioned to succeed over the long term; our expectation that Tundra will be the significant contributor to our total revenue growth in 2021, and that organic revenue growth will be modest during the year; our intention to make conservative inventory and working capital investment pending clear indication of a sustained recovery; our expectation that, considering the debt related to the acquisition of Tundra to be incurred during the first quarter, our leverage will decline by year-end due to positive cash flow from operations, our real estate monetization program and other cash management initiatives; regarding our key product categories, our plans to continue our focus on success in construction, material handling, forestry and mining, and our believe that we have excellent opportunities in these areas; our expectation that our industrial parts and ERS categories will yield higher organic growth and a strong contribution will come from Tundra, and that ERS continues to be one of Wajax's most significant opportunities; our expectation that our key infrastructure programs will continue in 2021, including investments in branch consolidation and technology; our goal of becoming Canada's leading industrial products and services provider, distinguished through our core capabilities; and our belief that achieving excellence in our areas of core capability will position Wajax to create value for its customers, employees, vendors and shareholders. These statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, our ability to successfully manage our business through the COVID-19 pandemic and actions taken by governments, public authorities, suppliers and customers in response to the novel coronavirus and its variants; general business and economic conditions; the supply and demand for, and the level and volatility of prices for, oil, natural gas and other commodities; financial market conditions, including interest rates; our ability to execute our updated Strategic Plan, including our ability to develop our core capabilities, execute on our organic growth priorities, complete and effectively integrate acquisitions, such as NorthPoint and Tundra, and to successfully implement new information technology platforms, systems and software; the future financial performance of the Corporation; our costs; market competition; our ability to attract and retain skilled staff; our ability to procure quality products and inventory; and our ongoing relations with suppliers, employees and customers. The foregoing list of assumptions is not exhaustive. Factors that may cause actual results to vary materially include, but are not limited to, the geographic spread and ultimate impact of the COVID-19 virus and its variants, and the duration of the coronavirus pandemic; the duration of travel, business and other restrictions imposed by governments and public authorities in response to COVID-19, as well as other measures that may be taken by such authorities; actions taken by our suppliers and customers in relation to the COVID-19 pandemic, including slowing, reducing or halting operations; a continued or prolonged deterioration in general business and economic conditions (including as a result of the COVID-19 pandemic); volatility in the supply and demand for, and the level of prices for, oil, natural gas and other commodities; a continued or prolonged decrease in the price of oil or natural gas; fluctuations in financial market conditions, including interest rates; the level of demand for, and prices of, the products and services we offer; levels of customer confidence and spending; market acceptance of the products we offer; termination of distribution or original equipment manufacturer agreements; unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, our inability to reduce costs in response to slow-downs in market activity, unavailability of quality products or inventory, supply disruptions (including disruptions caused by the COVID-19 pandemic), job action and unanticipated events related to health, safety and environmental matters); our ability to attract and retain skilled staff and our ability to maintain our relationships with suppliers, employees and customers. The foregoing list of factors is not exhaustive. Further information concerning the risks and uncertainties associated with these forward-looking statements and the Corporation's business may be found in our Annual Information Form for the year ended December 31, 2020 (the "AIF"), in our annual MD&A for financial risks, and in our most recent quarterly MD&A, all of which have been filed on SEDAR. The forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement. The Corporation does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.
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 Wajax's Annual Report, is available on SEDAR at www.sedar.com.
Wajax Corporation
Management's Discussion and Analysis – FY 2020
The following management's discussion and analysis ("MD&A") discusses the consolidated financial condition and results of operations of Wajax Corporation ("Wajax" or the "Corporation") for the year ended December 31, 2020. This MD&A should be read in conjunction with the information contained in the consolidated financial statements and accompanying notes for the year ended December 31, 2020. Information contained in this MD&A is based on information available to management as of March 1, 2021.
Management is responsible for the information disclosed in this MD&A and the consolidated financial statements and accompanying notes, and has in place appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. Wajax's Board of Directors has approved this MD&A and the consolidated financial statements and accompanying notes. In addition, Wajax's Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by Wajax and has reviewed this MD&A and the consolidated financial statements and accompanying notes.
Unless otherwise indicated, all financial information within this MD&A is in millions of Canadian dollars, except ratio calculations, share, share rights and per share data. Additional information, including Wajax's Annual Report and Annual Information Form, are available on SEDAR at www.sedar.com.
Wajax Corporation Overview
Founded in 1858, Wajax (TSX: WJX) is one of Canada's longest-standing and most diversified industrial products and services providers. The Corporation operates an integrated distribution system, providing sales, parts and services to a broad range of customers in diverse sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.
Strategic Direction and Outlook
The 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. Wajax is focused on delivering a strong experience for its customers and employees through the execution of clear plans in five key areas:
- Investing in the Wajax team - The safety, well-being and engagement of the Corporation's team of 2,615 employees, including the 154 new employees that joined the team through the acquisition of Tundra Process Solutions Ltd. ("Tundra") on January 22, 2021, is the foundation of the Corporation.
- Investing in Wajax customers - The Corporation has the privilege of supporting 32,000 individual customers across Canada ranging from small local contractors to the country's largest industrial and resource organizations.
- Executing a clear organic growth strategy - The Corporation has classified each of its ten current product and service categories based on a category's contribution to sustainable growth. While Wajax is competitive in all of the categories it participates in, these classifications ensure that resources (such as inventory, capital, personnel and marketing) are allocated appropriately.
- Accretive acquisitions strategy - Wajax has developed clear acquisition criteria for the Canadian and U.S. markets. In Canada, the focus is primarily on acquisitions that add to the Corporation's scale in the Engineered Repair Services ("ERS") business and secondarily to extensions to the Corporation's existing distribution businesses. In the U.S. market, the focus is on reviewing growth opportunities related to distribution businesses that provide a long-term growth platform for the One Wajax multi-category model.
- Investing in the Wajax infrastructure - The Corporation is making major changes to 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 is introducing a more comprehensive sustainability program as outlined below:
Sustainability Roadmap
Areas |
Goals |
Employee Health, Safety and Wellness |
Provide every employee with a healthy and safe working environment that |
Training and Development |
Attract, engage, train, develop and retain the best people across all levels of |
Diversity and Equal Opportunity |
Attract, retain and develop a diverse and skilled workforce that best reflects |
Sustainable Products |
Commit to a continuous process of understanding customer needs and |
Environmental Responsibility |
Ensure operations are managed to minimize their impact on the environment, |
Governance |
Maintain a reputation for fair dealing and integrity and demonstrate ongoing |
Community |
Invest in and contribute to the communities that the Corporation operates in |
Outlook
Recognizing that the challenges Wajax faced in 2020 have persisted into 2021, the Corporation nonetheless enters 2021 with confidence expecting that it is positioned to succeed over the longer term. In 2021, Wajax remains focused on the same priorities that guided it in 2020: protecting the health, safety and well-being of its team, providing excellent customer service, protecting the Corporation's financial health and driving its long-term growth strategy.
The Corporation expects revenue associated with the acquisition of Tundra to be the significant contributor to total revenue growth in 2021. Organic revenue growth is expected to be modest due primarily to heavy equipment markets that are not expected to fully recover to 2019 levels in 2021. Wajax's inventory and working capital investments will remain conservative pending a clear indication of a sustained recovery. Considering the acquisition debt related to Tundra to be incurred in the first quarter, leverage is expected to decline by year-end due to positive cash flow from operations, real estate monetization and other cash management initiatives.
In the Corporation's heavy equipment categories, representing pro-forma sales of 58%, Wajax will continue to focus on success in construction, material handling, forestry and mining, including improvements in product support volumes.(1) While equipment markets are not expected to fully recover in 2021, Wajax has excellent opportunities in these categories and will continue to work closely with its supplier partners to prudently grow market share and capture aftermarket sales.
In industrial parts and ERS, representing pro-forma sales of 42%, Wajax expects higher organic growth and a strong contribution from Tundra.(1) ERS continues to be one of the Corporation's most significant opportunities, capable of growth at each point in the economic cycle.
The Corporation's infrastructure programs are expected to continue in 2021 including investments in branch network consolidation and technology. Following the COVID-19 related delay in 2020, the phased implementation of the Corporation's new ERP system is expected to begin in the second quarter of 2021 and continue over an approximate 24-month timeframe in order to reduce the associated implementation risks.
An update regarding Wajax's response to COVID-19 is set out below.
See the Cautionary Statement Regarding Forward-Looking Information section.
Notes: |
|
(1) |
Pro-forma sales are based on Wajax revenue for 2020 plus Tundra's December 31, 2020 trailing 12-month revenue of $142.1 million included in industrial parts and ERS sales. |
Annual and Fourth Quarter Highlights
2020 Full Year Highlights
- Revenue decreased $130.4 million or 8.4%, to $1,422.6 million in 2020 from $1,553.0 million in 2019. Regionally:
- Revenue in western Canada of $549.6 million decreased 11.9% from the prior year due to lower sales in most categories, but most notably in the construction, industrial parts, and engines and transmissions categories, coupled with lower mining product support revenue. This was partially offset by higher mining equipment sales, and higher ERS sales due to the acquisition of NorthPoint Technical Services ULC ("NorthPoint") earlier in the year.
- Revenue in central Canada of $302.3 million decreased 2.8% from the prior year mainly due to lower forestry, power generation and engines and transmissions sales. This was partially offset by strong ERS sales due to the acquisition of NorthPoint.
- Revenue in eastern Canada of $570.7 million decreased 7.7% from the prior year due primarily to lower equipment sales in the power generation, material handling and forestry categories, partially offset by mining equipment sales gains.
- During the year, the Corporation qualified for the Canada Emergency Wage Subsidy ("CEWS") and recognized $26.6 million as a reimbursement of compensation expense with $14.1 million and $12.5 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Receipt of the subsidy supported the Corporation's objective of minimizing, to the extent possible, the effect of COVID-19 related market conditions on its employees, including the avoidance of higher than experienced layoffs, faster return to work and supplemental compensation for the Corporation's frontline workers.
- Gross profit margin of 18.4% in 2020 decreased 0.4% compared to 2019. Excluding the $14.1 million CEWS recovery discussed above, gross profit margin was 17.4%, representing a decrease of 1.4% compared to the prior year. The decline in margin was driven primarily by lower equipment and parts margins, offset partially by higher ERS sales and margins. The lower equipment margins were driven partially by the Corporation's accelerated disposal of aged and used equipment during the second quarter.
- Selling and administrative expenses as a percentage of revenue decreased 0.4% to 13.3% in 2020 from 13.7% in 2019. Selling and administrative expenses decreased by $23.2 million compared to 2019 due mainly to cost control initiatives and the $12.5 million recovery of personnel expenses from the CEWS discussed above. Excluding the CEWS recovery, selling and administrative expenses as a percentage of revenue increased 0.5% to 14.2% in 2020.
- EBIT decreased $8.9 million, or 12.1%, to $64.6 million in 2020 versus $73.5 million in 2019.(1) The year-over-year decrease is primarily attributable to lower revenue and decreased equipment and parts margins, partially offset by higher ERS sales and margins, lower selling and administrative expenses and the net effect of the CEWS.
- The Corporation generated net earnings of $31.7 million, or $1.58 per share in 2020, versus $39.5 million, or $1.98 per share in 2019. The Corporation generated adjusted net earnings of $35.1 million, or $1.75 per share in 2020, versus $41.9 million, or $2.10 per share in 2019.(1)
- Adjusted EBITDA margin increased to 8.6% in 2020 from 8.4% in 2019.(1)
- Cash flows generated from operating activities amounted to $118.8 million in 2020, compared to cash flows used in operating activities of $9.7 million in 2019. The increase in cash generated of $128.5 million was mainly attributable to an increase in cash generated from changes in inventory of $113.0 million, an increase in cash generated from changes in trade and other receivables of $64.0 million, a decrease in rental equipment additions of $21.0 million, and a decrease in income taxes paid of $18.0 million, partially offset by an increase in cash used in changes in accounts payable and accrued liabilities of $90.9 million.
- The Corporation's backlog at December 31, 2020 of $181.7 million decreased $23.4 million, or 11.4%, compared to September 30, 2020 due primarily to lower mining, forestry, power generation and construction orders, partially offset by higher material handling and industrial parts orders. Compared to December 31, 2019, backlog decreased $62.1 million, or 25.5%, due primarily to lower orders in the mining and power generation categories, partially offset by the addition of NorthPoint's ERS backlog as the Corporation continues to grow its ERS business.(1)(2)
- Total owned and consignment inventory declined $51.2 million in the fourth quarter of 2020. Owned inventory of $357.4 million at December 31, 2020 decreased $32.5 million from September 30, 2020 due to lower equipment, parts and work-in-process inventory in most categories, partially offset by higher mining equipment inventory. Consignment inventory, comprised primarily of construction excavators, declined by $18.7 million in the fourth quarter of 2020. Total owned and consignment inventory declined $130.9 million from December 31, 2019. Owned inventory decreased $57.5 million from December 31, 2019 due primarily to lower equipment, parts and work-in-process inventory in most categories, partially offset by higher mining equipment inventory. Consignment inventory, comprised primarily of construction excavators, declined by $73.4 million from December 31, 2019.
- Working capital of $374.9 million at December 31, 2020 decreased $17.1 million from September 30, 2020 due primarily to lower inventory, offset partially by higher cash and higher trade and other receivables. Trailing four-quarter average working capital as a percentage of the trailing 12-month sales was 27.9%, a decrease of 0.1% from September 30, 2020 due to the moderately lower trailing four-quarter average working capital. Working capital at December 31, 2020 decreased $29.2 million from December 31, 2019 due primarily to lower inventory levels and lower trade and other receivables. These working capital decreases were partially offset by lower accounts payable and accrued liabilities. Trailing four-quarter average working capital as a percentage of the trailing 12-month sales increased by 2.6% from 2019, due primarily to the lower trailing 12-month sales.
- The Corporation's leverage ratio decreased to 2.28 times at December 31, 2020, compared to 2.59 times at September 30, 2020.(1) The decrease in the leverage ratio was due to the lower debt level, partially offset by the lower trailing 12-month pro-forma adjusted EBITDA.(1) The Corporation's senior secured leverage ratio was 1.73 times at December 31, 2020, compared to 2.05 times at September 30, 2020.(1) The Corporation's leverage ratio decreased to 2.28 times at December 31, 2020 compared to 2.60 times at December 31, 2019 due to the lower debt level offset partially by the lower trailing 12-month pro-forma adjusted EBITDA.(1) The Corporation's senior secured leverage ratio was 1.73 times at December 31, 2020, compared to 2.10 times at December 31, 2019.(1)
- The Corporation acquired all of the issued and outstanding shares of Calgary, Alberta-based NorthPoint effective January 13, 2020. The shares were acquired from an affiliate of Denver, Colorado-based Lion Equity Partners for an aggregate purchase price of $19.4 million.
- In the third quarter of 2020, the Corporation implemented workforce reductions in response to the economic conditions created by COVID-19 and related sales volume impacts. A pre-tax restructuring cost of $7.7 million was recognized relating primarily to severance costs. 243 employees were released, representing annual compensation costs of approximately $19.3 million. Almost all affected personnel were on temporary layoff and as such, the majority of the $19.3 million was not incurred by the Corporation in 2020.
- During the second half of the year, the Corporation entered into two sale and leaseback transactions for two of its owned properties. The proceeds net of transaction costs on the sale of the two properties was $6.4 million and the carrying amount was $1.8 million, resulting in a total gain on the sale of properties of $4.6 million, of which $1.5 million has been recognized in the year.
- On December 30, 2020, the Corporation amended its senior secured credit facility. The amendment increased the facility limit from $400 million to $450 million by adding a new non-revolving acquisition term facility of $50 million, which was used to finance the acquisition of Tundra in the first quarter of 2021. Repayment of the acquisition facility is due in full on December 30, 2022.
- Subsequent to year-end, on January 22, 2021, the Corporation announced the completion of the acquisition of all of the issued and outstanding shares of Calgary, Alberta-based Tundra for total consideration of approximately $99.1 million. The purchase price for the Tundra shares was satisfied by the payment in cash of $74.6 million and the issuance of 1,357,142 common shares of Wajax.
Fourth Quarter Highlights
- Revenue in the fourth quarter of 2020 decreased $22.9 million, or 5.7%, to $381.0 million, from $403.9 million in the fourth quarter of 2019. Regionally:
- Revenue in western Canada of $151.6 million decreased 7.6% from the prior year due primarily to lower material handling equipment and mining sales.
- Revenue in central Canada of $81.4 million decreased 1.3% from the prior year mainly due to moderately lower revenue in most categories, offset almost fully by higher crane and utility equipment sales and ERS strength related to the acquisition of NorthPoint earlier in the year.
- Revenue in eastern Canada of $148.0 million decreased 5.9% from the prior year due to moderately lower revenue in most categories, offset partially by strength in construction equipment sales.
- During the quarter, the Corporation qualified for the CEWS and recognized $5.7 million as a reimbursement of compensation expense with $4.4 million and $1.3 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Approximately $4.0 million of the subsidy was allocated to temporary supplemental compensation programs directed primarily at the Corporation's frontline employees who continue to provide excellent and essential support to customers across Canada. The resultant net pre-tax contribution to earnings of the CEWS recovery in the fourth quarter was approximately $1.7 million.
- Gross profit margin of 18.1% in the fourth quarter of 2020 increased 0.5% compared to the same period of 2019. Excluding the $4.4 million CEWS recovery discussed above, gross profit margin was 17.0% in the fourth quarter of 2020, representing a decrease of 0.6% compared to the same period of 2019. The decline in margin was driven primarily by lower equipment margins, offset partially by higher ERS margins.
- Selling and administrative expenses as a percentage of revenue increased 0.9% to 13.2% in the fourth quarter of 2020 from 12.3% in the same period of 2019. Selling and administrative expenses increased by $0.7 million compared to the fourth quarter of 2019, due mainly to Tundra transaction costs of $1.0 million and a lower gain recorded on the sale of properties of $1.0 million, partially offset by the recovery of personnel expenses from the CEWS of $1.3 million discussed above. Excluding the $1.3 million CEWS recovery, selling and administrative expenses as a percentage of revenue increased 1.3% to 13.5% in the fourth quarter of 2020 from 12.3% in the same period of 2019.
- EBIT decreased $2.6 million, or 12.0%, to $18.8 million in the fourth quarter of 2020 versus $21.4 million in the same period of 2019.(1) The year-over-year decrease in EBIT is primarily attributable to lower revenue, lower equipment margins, the Tundra transaction costs of $1.0 million and a lower gain recorded on the sale of properties of $1.0 million, partially offset by higher ERS sales and margins and the net effect of the CEWS.
- The Corporation generated net earnings of $10.7 million, or $0.53 per share, in the fourth quarter of 2020 versus $12.2 million, or $0.61 per share, in the same period of 2019. The Corporation generated adjusted net earnings of $9.6 million, or $0.48 per share, in the fourth quarter of 2020 versus $10.1 million, or $0.51 per share, in the same period of 2019.(1)
- Adjusted EBITDA margin increased to 8.1% in the fourth quarter of 2020 from 7.9% in the same period of 2019.(1)
- Cash flows generated from operating activities amounted to $48.1 million in the fourth quarter of 2020, compared to cash flows generated from operating activities of $16.3 million in the same quarter of the previous year. The increase in cash generated of $31.7 million was mainly attributable to an increase in cash generated from changes in non-cash operating working capital of $24.4 million and a decrease in rental equipment additions of $12.5 million, partially offset by higher income taxes paid of $5.1 million.
Notes: |
|
(1) |
"Backlog", "Leverage ratio", "Senior secured leverage ratio", "Adjusted net earnings", "Adjusted EBITDA", "Adjusted EBITDA margin" |
(2) |
The backlog as at December 31, 2020 now includes customer purchase commitments for its ERS business including Groupe Delom |
Update Regarding COVID-19 Pandemic Response
As health authorities started to take steps to limit the spread of COVID-19, the Corporation rapidly implemented protocols, policy changes and technology to better protect its employees, customers and their communities. The table below summarizes the Corporation's four main objectives in managing through this difficult period, and provides an update regarding key actions taken to date in furtherance of these objectives.
Objective |
Actions Include: |
Protecting the |
|
Providing |
|
Protecting the |
Cost Reduction
Liquidity and Working Capital Management
|
Continuing to |
|
Summary of Annual Operating Results
Twelve months ended |
|||||||
Statement of earnings highlights |
2020 |
2019 |
% change |
||||
Revenue |
$ |
1,422.6 |
$ |
1,553.0 |
(8.4)% |
||
Gross profit |
$ |
262.0 |
$ |
291.8 |
(10.2)% |
||
Selling and administrative expenses |
$ |
189.6 |
$ |
212.8 |
(10.9)% |
||
Restructuring and other related costs |
$ |
7.8 |
$ |
5.6 |
39.3% |
||
Earnings before finance costs and income taxes(1) |
$ |
64.6 |
$ |
73.5 |
(12.1)% |
||
Finance costs |
$ |
21.0 |
$ |
19.7 |
6.6% |
||
Earnings before income taxes(1) |
$ |
43.6 |
$ |
53.8 |
(19.0)% |
||
Income tax expense |
$ |
11.9 |
$ |
14.3 |
(16.8)% |
||
Net earnings |
$ |
31.7 |
$ |
39.5 |
(19.7)% |
||
– Basic earnings per share(2) |
$ |
1.58 |
$ |
1.98 |
(20.2)% |
||
– Diluted earnings per share(2) |
$ |
1.55 |
$ |
1.93 |
(19.7)% |
||
Adjusted net earnings(1)(3) |
$ |
35.1 |
$ |
41.9 |
(16.2)% |
||
– Adjusted basic earnings per share(1)(2)(3) |
$ |
1.75 |
$ |
2.10 |
(16.7)% |
||
– Adjusted diluted earnings per share(1)(2)(3) |
$ |
1.71 |
$ |
2.05 |
(16.6)% |
||
Adjusted EBITDA(1) |
$ |
122.0 |
$ |
130.3 |
(6.4)% |
||
Key ratios: |
|||||||
Gross profit margin |
18.4% |
18.8% |
|||||
Selling and administrative expenses as a |
13.3% |
13.7% |
|||||
EBIT margin(1) |
4.5% |
4.7% |
|||||
Adjusted EBITDA margin(1) |
8.6% |
8.4% |
|||||
Effective income tax rate |
27.4% |
26.5% |
|||||
Statement of financial position highlights As at |
December 31 |
December 31 |
||
Trade and other receivables |
$ |
214.5 |
$ |
238.2 |
Inventory |
$ |
357.4 |
$ |
414.9 |
Accounts payable and accrued liabilities |
$ |
(231.7) |
$ |
(282.6) |
Other working capital amounts(1) |
$ |
34.7 |
$ |
33.6 |
Working capital(1) |
$ |
374.9 |
$ |
404.1 |
Rental equipment |
$ |
56.9 |
$ |
77.0 |
Property, plant and equipment |
$ |
41.4 |
$ |
42.1 |
Funded net debt(1) |
$ |
219.6 |
$ |
276.5 |
Key ratios: |
||||
Leverage ratio(1) |
2.28 |
2.60 |
||
Senior secured leverage ratio(1) |
1.73 |
2.10 |
||
(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 twelve |
|
(3) |
Net earnings excluding the following: |
|
a. |
after-tax restructuring and other related costs of $5.7 million (2019 – $4.1 million), or basic and diluted earnings per share of $0.28 |
|
b. |
after-tax gain recorded on the sale of properties of $2.1 million (2019 - $2.3 million), or basic and diluted earnings per share of |
|
c. |
after-tax non-cash gains on mark to market of derivative instruments of $1.0 million (2019 – gains of $0.4 million), or basic and |
|
d. |
after-tax Tundra transaction costs of $0.8 million (2019 - nil), or basic and diluted earnings per share of $0.04 (2019 - nil) for the |
|
e. |
after-tax NorthPoint transaction costs of $0.2 million (2019 - nil), or basic and diluted earnings per share of $0.01 (2019 - nil) for |
|
f. |
after-tax CSC project costs of nil (2019 - $0.9 million), or basic and diluted earnings per share of nil (2019 - $0.05 and $0.04 |
|
Annual Results of Operations
Revenue by Geographic Region
Twelve months ended |
||||||||
2020 |
2019 |
$ change |
||||||
Western Canada |
$ |
549.6 |
$ |
623.6 |
$ |
(74.0) |
||
Central Canada |
$ |
302.3 |
$ |
311.1 |
$ |
(8.8) |
||
Eastern Canada * |
$ |
570.7 |
$ |
618.3 |
$ |
(47.6) |
||
Total revenue |
$ |
1,422.6 |
$ |
1,553.0 |
$ |
(130.4) |
||
*Includes Quebec and the Atlantic provinces. |
Revenue by Market
Twelve months ended |
||
2020 |
2019 |
|
Mining |
15% |
15% |
Construction |
14% |
15% |
Forestry |
14% |
14% |
Oil Sands |
13% |
11% |
Industrial/Commercial |
12% |
11% |
Transportation |
8% |
9% |
Government & Utilities |
8% |
7% |
Metal Processing |
6% |
7% |
Oil and Gas |
3% |
3% |
Other |
7% |
8% |
Revenue Sources
Twelve months ended |
||||||||
2020 |
2019 |
$ change |
||||||
Equipment sales |
$ |
471.4 |
$ |
523.9 |
$ |
(52.5) |
||
Product support |
$ |
411.8 |
$ |
476.1 |
$ |
(64.3) |
||
Industrial parts |
$ |
342.6 |
$ |
366.6 |
$ |
(24.0) |
||
ERS |
$ |
164.2 |
$ |
149.6 |
$ |
14.6 |
||
Equipment rental |
$ |
32.6 |
$ |
36.9 |
$ |
(4.3) |
||
Total revenue |
$ |
1,422.6 |
$ |
1,553.0 |
$ |
(130.4) |
||
For the year ended December 31, 2020, revenue decreased 8.4%, or $130.4 million, to $1,422.6 million, from $1,553.0 million in the same period of 2019. In addition to regional revenue commentary provided previously herein, the following factors contributed to the decrease in revenue:
- Equipment sales have decreased due mainly to lower forestry and engines and transmissions sales across all regions, and lower power generation and material handling sales in eastern Canada. These decreases were partially offset by higher mining equipment sales in western and eastern Canada.
- Product support sales have decreased primarily on weakness in construction, mining and engines and transmissions sales in western Canada and lower on-highway sales across all regions.
- Industrial parts sales have decreased due primarily to lower bearings and hydraulics sales across all regions.
- ERS sales have increased in western and central Canada due primarily to the acquisition of NorthPoint effective January 13, 2020.
Backlog
The Corporation's backlog at December 31, 2020 of $181.7 million decreased $62.1 million, or 25.5%, compared to December 31, 2019 due primarily to lower orders in the mining and power generation categories, partially offset by the addition of NorthPoint's ERS backlog as the Corporation continues to grow its ERS business.(1)
Canada Emergency Wage Subsidy (CEWS)
For the year ended December 31, 2020, the Corporation recognized $26.6 million as a reimbursement of compensation expense with $14.1 million and $12.5 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Receipt of the subsidy supported the Corporation's objective of minimizing, to the extent possible, the effect of COVID-19 related market conditions on its employees including the avoidance of higher than experienced layoffs, faster return to work and supplemental compensation for the Corporation's frontline workers.
Gross profit
For the year ended December 31, 2020, gross profit decreased $29.9 million, or 10.2%, compared to the same period last year due to decreased volumes and lower equipment and parts margins, partially offset by higher ERS sales and margins, and the recovery of personnel expenses from the CEWS.
For the year ended December 31, 2020, gross profit margin of 18.4% decreased 0.4% compared to the prior year. Excluding the $14.1 million year-to-date CEWS recovery discussed above, gross profit margin was 17.4%, representing a decrease of 1.4% compared to the prior year. The decline in margin was driven primarily by lower equipment and parts margins, offset partially by higher ERS sales and margins. The lower equipment margins were driven partially by the Corporation's accelerated disposal of aged and used equipment during the second quarter.
Selling and administrative expenses
For the year ended December 31, 2020, selling and administrative expenses decreased $23.2 million compared to the same period last year. This decrease was due mainly to cost control initiatives and the $12.5 million recovery of personnel expenses from the CEWS discussed above. Selling and administrative expenses as a percentage of revenue decreased to 13.3% in 2020 from 13.7% in 2019. Excluding the CEWS recovery, selling and administrative expenses as a percentage of revenue increased 0.5% to 14.2% in 2020.
Restructuring and other related costs
During the year, the Corporation implemented workforce reductions in response to the economic conditions created by COVID-19 and related sales volume impacts. A restructuring cost of $7.7 million was recognized relating primarily to severance costs.
In the first quarter of 2018, the Corporation commenced the redesign of its finance function (the "Finance Reorganization Plan"). For the year ended December 31, 2020, the Corporation has recognized $0.1 million related to duplicate labour costs. The Finance Reorganization Plan is now complete.
Finance costs
For the year ended December 31, 2020, finance costs of $21.0 million increased $1.3 million compared to the same period in 2019 due primarily to the issuance of senior unsecured debentures in the fourth quarter of 2019, the acquisition of NorthPoint in the first quarter of 2020 and higher interest on lease liabilities, partially offset by lower borrowings under the bank credit facility. See the Liquidity and Capital Resources section.
Income tax expense
The Corporation's effective income tax rate of 27.4% for the twelve months ended December 31, 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 26.5% for the same period in 2019 was lower compared to the statutory rate of 26.8% due mainly to the non-taxable portion of the gain recorded on sales of properties.
Net earnings
For the year ended December 31, 2020, the Corporation generated net earnings of $31.7 million, or $1.58 per share, compared to $39.5 million, or $1.98 per share, in the same period of 2019. The $7.9 million decrease in net earnings resulted primarily from lower revenue and decreased equipment and parts margins, partially offset by higher ERS sales and margins, lower selling and administrative expenses and the net effect of the CEWS.
Adjusted net earnings (See the Non-GAAP and Additional GAAP Measures section)
Adjusted net earnings for the twelve months ended December 31, 2020 excludes restructuring and other related costs of $5.7 million after-tax, or $0.28 per share (2019 – $4.1 million after-tax, or $0.21 per share), non-cash gains on mark to market of derivative instruments of $1.0 million after-tax, or $0.05 per share (2019 – gains of $0.4 million after-tax, or $0.02 per share), a gain recorded on the sale of properties of $2.1 million after-tax, or $0.11 per share (2019 - $2.3 million after-tax, or $0.11 per share), NorthPoint transaction costs of $0.2 million after-tax, or $0.01 per share (2019 - nil), and Tundra transaction costs of $0.8 million after-tax, or $0.04 per share (2019 - nil). Adjusted net earnings in the same period of 2019 also excludes certain non-recurring CSC project costs of $0.9 million after-tax, or $0.05 per share.
As such, adjusted net earnings decreased $6.8 million to $35.1 million, or $1.75 per share, for the twelve months ended December 31, 2020 from $41.9 million, or $2.10 per share, in the same period of 2019.
Comprehensive income
For the year ended December 31, 2020, the total comprehensive income of $27.4 million included net earnings of $31.7 million and an other comprehensive loss of $4.2 million. The other comprehensive loss of $4.2 million in the current year resulted primarily from $4.2 million of losses on derivative instruments outstanding at the end of the period designated as cash flow hedges.
Acquisition of NorthPoint
On January 13, 2020, the Corporation completed the acquisition of all of the issued and outstanding shares of NorthPoint for an aggregate purchase price of $19.4 million paid in cash. NorthPoint was formed in 2018 as a national electro-mechanical services provider and serves a broad range of resource and industrial customers. Specializing in the repair of rotating industrial equipment, including motors, generators, gearboxes, switchgear, transformers, pumps, fans and turbines, NorthPoint operates nine branches across Canada and employed approximately 177 people on the date of acquisition. NorthPoint added revenues of $36.9 million and net earnings of $2.1 million during the twelve months ended December 31, 2020. Consistent with Wajax's strategy, the acquisition of NorthPoint is expected to provide meaningful growth in the Corporation's ERS business. NorthPoint is complementary to Wajax's existing ERS business, which includes Montréal, Québec-based Groupe Delom Inc. ("Delom"), acquired by Wajax in October 2018. The addition of NorthPoint provides further technical expertise, a skilled workforce and minimal branch overlap with Wajax's current ERS locations.
Notes: |
|
(1) |
The backlog as at December 31, 2020 now includes customer purchase commitments for its ERS business, including Delom |
Selected Annual Information
The following selected annual information is audited and has been prepared on the same basis as the 2020 annual audited consolidated financial statements except for 2018 which has not been adjusted for the adoption on January 1, 2019 of IFRS 16 Leases ("IFRS 16").
For the twelve months ended December 31 |
2020 |
2019 |
2018 |
|||||
Revenue |
$ |
1,422.6 |
$ |
1,553.0 |
$ |
1,481.6 |
||
Net earnings |
$ |
31.7 |
$ |
39.5 |
$ |
35.9 |
||
Basic earnings per share |
$ |
1.58 |
$ |
1.98 |
$ |
1.82 |
||
Diluted earnings per share |
$ |
1.55 |
$ |
1.93 |
$ |
1.78 |
||
Total assets |
$ |
981.4 |
$ |
1,045.1 |
$ |
831.2 |
||
Non-current liabilities |
$ |
376.9 |
$ |
404.8 |
$ |
244.1 |
||
Dividends declared per share |
$ |
1.00 |
$ |
1.00 |
$ |
1.00 |
||
In 2020, the COVID-19 pandemic resulted in governments and public health authorities worldwide enacting emergency measures to combat the spread of the novel coronavirus and its variants. These measures, which include the implementation of travel bans, physical distancing, self-isolation and quarantine periods, have impacted economies and financial markets worldwide, resulting in an economic slowdown. The pandemic also affected customer demand and supply chains, impacted capital resources, and increased government regulations and intervention, among other things, all of which has negatively affected the business and the financial results of the Corporation and altered typical seasonal trends.
Revenue in 2020 of $1,422.6 million decreased $130.4 million compared to 2019. The decrease is due primarily to lower forestry, on-highway, industrial parts and engines and transmissions sales in all regions, and lower power generation and material handling sales in eastern Canada. These declines were partially offset by ERS strength in western and central Canada due to the acquisition of NorthPoint during the year as the Corporation continues to focus on expanding its ERS business. Revenue in 2019 of $1,553.0 million increased $71.4 million compared to 2018. The increase was due primarily to ERS strength in central and eastern Canada, forestry strength in all regions, and strong material handling sales in eastern Canada. These gains were partially offset by lower construction revenue in western and central Canada.
Net earnings in 2020 of $31.7 million decreased $7.9 million, or 19.9%, from 2019. The decrease in net earnings resulted primarily from lower revenue and decreased equipment and parts margins, partially offset by higher ERS sales and margins, lower selling and administrative expenses and the $26.6 million CEWS recovery. The Corporation generated adjusted net earnings of $35.1 million, or $1.75 per share in 2020, versus $41.9 million, or $2.10 per share in 2019. Net earnings in 2019 of $39.5 million increased $3.7 million, or 10.2%, from 2018. The increase in net earnings resulted primarily from increased revenue and gross profit margins, partially offset by higher operating expenses, higher restructuring and other related costs, and higher finance costs. The Corporation generated adjusted net earnings of $41.9 million, or $2.10 per share in 2019, versus $39.9 million, or $2.02 per share, in 2018.
The $150.1 million increase in total assets between December 31, 2018 and December 31, 2020 was mainly attributable to higher deposits on inventory of $30.8 million, higher goodwill and intangible assets of $17.0 million, and the recognition of right-of-use assets of $131.7 million due to the adoption of IFRS 16. These increases were partially offset by lower property, plant and equipment of $17.6 million and lower rental equipment of $16.8 million.
Non-current liabilities at December 31, 2020 of $376.9 million increased $132.7 million from December 31, 2018 primarily attributable to the issuance of the debentures in the fourth quarter of 2019 resulting in a liability of $54.6 million as at December 31, 2020, and an increase in lease liabilities of $120.1 million due to the adoption of IFRS 16, partially offset by a $46.5 million decrease in long-term debt.
Selected Quarterly Information
The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters.
2020 |
2019 |
||||||||||||||||||||||
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
Revenue |
$ |
381.0 |
$ |
340.6 |
$ |
356.9 |
$ |
344.1 |
$ |
403.9 |
$ |
365.1 |
$ |
409.4 |
$ |
374.6 |
|||||||
Net earnings |
$ |
10.7 |
$ |
6.7 |
$ |
10.2 |
$ |
4.1 |
$ |
12.2 |
$ |
7.6 |
$ |
11.9 |
$ |
7.9 |
|||||||
Earnings per share |
|||||||||||||||||||||||
- Basic |
$ |
0.53 |
$ |
0.33 |
$ |
0.51 |
$ |
0.20 |
$ |
0.61 |
$ |
0.38 |
$ |
0.59 |
$ |
0.39 |
|||||||
- Diluted |
$ |
0.52 |
$ |
0.33 |
$ |
0.50 |
$ |
0.20 |
$ |
0.60 |
$ |
0.37 |
$ |
0.58 |
$ |
0.39 |
|||||||
Adjusted net earnings(1) |
$ |
9.6 |
$ |
10.1 |
$ |
9.6 |
$ |
5.8 |
$ |
10.1 |
$ |
10.3 |
$ |
12.6 |
$ |
8.7 |
|||||||
Adjusted earnings per share(1) |
|||||||||||||||||||||||
- Basic |
$ |
0.48 |
$ |
0.50 |
$ |
0.48 |
$ |
0.29 |
$ |
0.51 |
$ |
0.52 |
$ |
0.63 |
$ |
0.43 |
|||||||
- Diluted |
$ |
0.47 |
$ |
0.49 |
$ |
0.47 |
$ |
0.28 |
$ |
0.50 |
$ |
0.51 |
$ |
0.62 |
$ |
0.43 |
|||||||
Dividends declared per share |
$ |
0.25 |
$ |
0.25 |
$ |
0.25 |
$ |
0.25 |
$ |
0.25 |
$ |
0.25 |
$ |
0.25 |
$ |
0.25 |
|||||||
Weighted average common shares |
20,034 |
20,034 |
20,034 |
20,016 |
20,009 |
20,004 |
20,004 |
19,978 |
|||||||||||||||
(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. During 2020, revenues and net earnings were further impacted by COVID-19.
Effective January 13, 2020, the Corporation acquired NorthPoint. The results of operations and financial position of this acquired business have been included in the figures since the date of acquisition. The acquisition of NorthPoint has facilitated year-over-year growth in the Corporation's ERS revenue, which has contributed to weathering the conditions of the COVID-19 pandemic, adding $36.9 million in incremental revenue and $2.1 million in incremental net earnings in 2020.
A discussion of Wajax's previous quarterly results can be found in Wajax's quarterly MD&A available on SEDAR at www.sedar.com.
Consolidated Financial Condition
Capital Structure and Key Financial Condition Measures
December 31 |
December 31 |
||||
Shareholders' equity |
$ |
325.6 |
$ |
316.8 |
|
Funded net debt(1) |
$ |
219.6 |
$ |
276.5 |
|
Total capital |
$ |
545.2 |
$ |
593.3 |
|
Funded net debt to total capital(1) |
40.3% |
46.6% |
|||
Leverage ratio(1) |
2.28 |
2.60 |
|||
Senior secured leverage ratio(1) |
1.73 |
2.10 |
|||
(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 investment 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 above the target range primarily due to the acquisition of NorthPoint in the first quarter of 2020 and the adverse effect of COVID-19 on the Corporation's operating results. See the Funded Net Debt section.
Shareholders' Equity
The Corporation's shareholders' equity at December 31, 2020 of $325.6 million increased $8.8 million from December 31, 2019, due primarily to net earnings of $31.7 million partially offset by dividends declared of $20.0 million.
The Corporation's share capital included in shareholders' equity on the consolidated statements of financial position, consists of:
Number of |
Amount |
|||
Issued and outstanding, December 31, 2020 and December 31, 2019 |
20,167,703 |
$ |
182.5 |
|
Shares held in trust, December 31, 2019 |
(156,113) |
$ |
(1.4) |
|
Released for settlement of certain share-based compensation plans |
22,029 |
$ |
0.2 |
|
Shares held in trust, December 31, 2020 |
(134,084) |
$ |
(1.2) |
|
Issued and outstanding, net of shares held in trust, December 31, 2020 |
20,033,619 |
$ |
181.3 |
|
At the date of this MD&A, the Corporation had 20,033,619 common shares issued and outstanding, net of shares held in trust.
At December 31, 2020, Wajax had 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") (with MTIP awards being composed of performance share units ("PSUs") and restricted share units ("RSUs")) and the Deferred Share Unit Plan (the "DSUP").
As of December 31, 2020, there were 482,224 SOP and DDSUP (treasury share rights plans) rights outstanding of which 453,466 rights were vested, 289,570 MTIP PSUs and equity-settled DSUP (market-purchased share rights plans) rights outstanding of which 21,004 rights were vested, and 465,452 MTIP RSUs and cash-settled DSUP (cash-settled rights plans) rights outstanding of which 10,182 rights were vested. Depending on the actual level of achievement of the performance targets associated with the outstanding MTIP PSUs, the number of market-purchased shares required to satisfy the Corporation's obligations could be higher or lower.
Wajax recorded compensation expense of $4.5 million for the twelve months ended December 31, 2020 (2019 - expense of $3.4 million) in respect of these plans.
Funded Net Debt (See the Non-GAAP and Additional GAAP Measures section)
December 31 |
December 31 |
||||
Cash |
$ |
(6.6) |
$ |
(3.2) |
|
Debentures |
$ |
54.6 |
$ |
54.1 |
|
Long-term debt |
$ |
171.6 |
$ |
225.6 |
|
Funded net debt |
$ |
219.6 |
$ |
276.5 |
|
Funded net debt of $219.6 million at December 31, 2020 decreased $56.9 million compared to $276.5 million at December 31, 2019. The decrease during the year was due primarily to cash generated from operating activities of $118.8 million, offset partially by the $17.9 million acquisition of NorthPoint, payment of lease liabilities of $22.9 million and dividends paid of $20.0 million.
The Corporation's ratio of funded net debt to total capital decreased to 40.3% at December 31, 2020 from 46.6% at December 31, 2019, primarily due to the lower funded net debt level in the current year.
The Corporation's leverage ratio of 2.28 times at December 31, 2020 decreased from the December 31, 2019 ratio of 2.60 times due to the lower debt level, partially offset by the lower trailing 12-month pro-forma adjusted EBITDA. See the Non-GAAP and Additional GAAP Measures section.
See the Liquidity and Capital Resources section.
Financial Instruments
Wajax uses derivative financial instruments in the management of its foreign currency, interest rate and share-based compensation exposures. Wajax policy restricts the use of derivative financial instruments for trading or speculative purposes.
Wajax monitors the proportion of variable rate debt to its total debt portfolio and may enter into interest rate hedge contracts to mitigate a portion of the interest rate risk on its variable rate debt. A change in interest rates, in particular related to the Corporation's unhedged variable rate debt, is not expected to have a material impact on the Corporation's results of operations or financial condition over the long term.
Wajax has entered into interest rate hedge contracts to minimize exposure to interest rate fluctuations on its variable rate debt. All interest rate hedge contracts are recorded in the consolidated financial statements at fair value. As at December 31, 2020, Wajax had the following interest rate hedge contracts outstanding:
- $150.0 million, expiring in November 2024, with a weighted average interest rate of 2.12% (December 31, 2019 - $104.0 million, expiring in November 2024, with a weighted average interest rate of 2.56%)
Wajax enters into foreign exchange forward contracts to hedge the exchange risk associated with the cost of certain inbound inventory and foreign currency-denominated sales to customers along with the associated receivables as part of its normal course of business. As at December 31, 2020, Wajax had the following contracts outstanding:
- to buy U.S. $45.9 million (December 31, 2019 – to buy U.S. $45.2 million),
- to buy Euro €0.1 million (December 31, 2019 - nil),
- to sell U.S. $32.2 million (December 31, 2019 – to sell U.S. $30.5 million), and
- to sell Euro €0.9 million (December 31, 2019 – to sell €1.1 million).
The U.S. dollar contracts expire between January 2021 and December 2022, with an average U.S./Canadian dollar rate of 1.3234.
The Euro contracts expire between January 2021 and December 2022, with an average Euro/Canadian dollar rate of 1.5611.
Wajax has entered into total return swap contracts to hedge the exposure to share price market risk on a class of MTIP rights that are cash-settled. All total return swap contracts are recorded in the consolidated financial statements at fair value. As at December 31, 2020, Wajax had the following total return swap contracts outstanding:
- contracts totaling 387,000 shares at an initial share value of $7.2 million (December 31, 2019 - contracts totaling 365,000 shares at an initial share value of $8.3 million)
The total return swap contracts expire between March 2021 and March 2023.
Wajax measures derivative instruments not accounted for as hedging items at fair value with subsequent changes in fair value being recorded in earnings. Derivatives designated as effective hedges are measured at fair value with subsequent changes in fair value being recorded in other comprehensive income until the related hedged item is recorded and affects income or inventory. The fair value of derivative instruments is estimated based upon market conditions using appropriate valuation models. The carrying values reported in the statement of financial position for financial instruments are not significantly different from their fair values.
A change in foreign currency value, relative to the Canadian dollar, on transactions with customers that include unhedged foreign currency exposures is not expected to have a material impact on the Corporation's results of operations or financial condition over the longer term.
Wajax will periodically institute price increases to offset the negative impact of foreign exchange rate increases and volatility on imported goods to ensure margins are not eroded. However, a sudden strengthening of the U.S. dollar relative to the Canadian dollar can have a negative impact mainly on parts margins in the short term prior to price increases taking effect.
The impact of a change in the Corporation's share price on cash-settled MTIP rights is not expected to have a material impact on the Corporation's results of operations or financial condition over the longer term.
Wajax is exposed to the risk of non-performance by counterparties to foreign exchange forward contracts, long-term interest rate hedge contracts and total return swap contracts. These counterparties are large financial institutions that maintain high short-term and long-term credit ratings. To date, no such counterparty has failed to meet its financial obligations to Wajax. Management does not believe there is a significant risk of non-performance by these counterparties and will continue to monitor the credit risk of these counterparties.
Contractual Obligations
Contractual Obligations |
Total |
< 1 year |
1 - 3 years |
3 - 5 years |
After 5 years |
|||||||||
Accounts payable and accrued liabilities |
$ |
231.7 |
$ |
231.7 |
$ |
— |
$ |
— |
$ |
— |
||||
Undiscounted lease obligations |
$ |
226.9 |
$ |
37.0 |
$ |
64.8 |
$ |
44.0 |
$ |
81.1 |
||||
Bank debt |
$ |
173.0 |
$ |
— |
$ |
— |
$ |
173.0 |
$ |
— |
||||
Debentures |
$ |
57.0 |
$ |
— |
$ |
— |
$ |
57.0 |
$ |
— |
||||
Total |
$ |
688.6 |
$ |
268.7 |
$ |
64.8 |
$ |
274.0 |
$ |
81.1 |
||||
The lease obligations relate primarily to contracts entered into for facilities, certain leased vehicles, leased computer hardware, and leased material handling equipment. The bank debt obligation relates to the bank credit facility, and the debentures obligation relates to the senior unsecured debentures. See the Liquidity and Capital Resources section.
The Corporation sponsors three pension plans: one employee plan and two executive plans. The Wajax Limited Pension Plan for employees, primarily a defined contribution plan with a small group of employees participating in a defined benefit component, is being wound up, with effect from December 31, 2019. Benefit accruals under the plan were frozen effective as of such date and all active members joined a new defined contribution plan sponsored by the Corporation, the Wajax Limited Defined Contribution Pension Plan. The windup has not resulted in a curtailment or additional termination benefits. The timing of the full settlement of the defined benefit portion of the plan is not known as the windup is pending regulatory approval and the settlement cost will be measured at the settlement date. The two executive plans, the Pension Plan for Executive Employees of Wajax Limited and the Wajax Limited Supplemental Executive Retirement Plan, are defined benefit plans. Management does not expect future cash contribution requirements for the defined benefit plans to change materially from the 2020 contribution level of $0.6 million as a result of future actuarial valuations or any declines in fair value of the defined benefit plans' assets.
Related Party Transactions
The Corporation's related party transactions, consisting of the compensation of the Board of Directors and key management personnel, totaled $5.9 million in 2020 (2019 - $6.2 million).
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, Wajax may incur capital expenditures to acquire equivalent capacity.
The Corporation had $54.6 million (December 31, 2019 – $128.0 million) of consigned inventory on hand from a major manufacturer at December 31, 2020, net of deposits of $42.3 million (December 31, 2019 – $33.1 million). In the normal course of business, Wajax receives inventory on consignment from this manufacturer which is generally sold or rented to customers or purchased by Wajax. Under the terms of the consignment program, Wajax is required to make periodic deposits to the manufacturer on the consigned inventory that is rented to Wajax customers or on-hand for greater than nine months. This consigned inventory is not included in Wajax's inventory as the manufacturer retains title to the goods. In the event the inventory consignment program was terminated, Wajax would utilize interest free financing, if any, made available by the manufacturer and/or utilize capacity under its credit facility to finance the purchase of inventory.
Although management currently believes Wajax has adequate debt capacity, Wajax would have to access the equity or debt capital markets, or reduce dividends to accommodate any shortfalls in Wajax's credit facility. See the Liquidity and Capital Resources section.
Liquidity and Capital Resources
The Corporation's liquidity is maintained through various sources, including bank and non-bank credit facilities, debentures and cash generated from operations.
Bank and Non-bank Credit Facilities and Debentures
On December 30, 2020, the Corporation amended its senior secured credit facility. The amendment increased the facility limit from $400 million to $450 million by adding a new non-revolving acquisition term facility of $50 million, which was used to finance the acquisition of Tundra in the first quarter of 2021. As at December 31, 2020, the non-revolving acquisition term facility had not been utilized. Repayment of the facility is due in full on December 30, 2022. The $0.3 million cost of amending the facility has been capitalized and will be amortized over the term of the non-revolving acquisition term facility.
At December 31, 2020, Wajax had borrowed $173.0 million and issued $6.4 million of letters of credit for a total utilization of $179.4 million of its $450.0 million bank credit facility. Borrowing capacity under the bank credit facility is dependent on the level of inventories on-hand and outstanding trade accounts receivables. At December 31, 2020, borrowing capacity under the bank credit facility was equal to $438.7 million.
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 December 31, 2020. In particular, the Corporation is restricted from declaring dividends in the event the Corporation's senior secured leverage ratio, as defined in the bank credit facility agreement, exceeds 4.0 times. At December 31, 2020, the Corporation's senior secured leverage ratio was 1.73 times.
Borrowings under the bank credit facility bear floating rates of interest at margins over Canadian dollar bankers' acceptance yields, U.S. dollar LIBOR rates or prime. Margins on the facility depend on the Corporation's leverage ratio at the time of borrowing and range between 1.5% and 3.0% for Canadian dollar bankers' acceptances and U.S. dollar LIBOR borrowings, and 0.5% and 2.0% for prime rate borrowings under the non-revolving and revolving term facilities. Margins on the non-revolving acquisition term facility range between 1.7% and 3.3% for Canadian dollar bankers' acceptances and U.S. dollar LIBOR borrowings, and 0.7% and 2.3% for prime rate borrowings.
In addition, Wajax had $57.0 million of senior unsecured debentures outstanding at December 31, 2020, bearing interest at a rate of 6.00% per annum, payable semi-annually and maturing on January 15, 2025 (the "Debentures"). The Debentures will not be redeemable before January 15, 2023 (the "First Call Date"), except upon the occurrence of a change of control of the Corporation in accordance with the terms of the indenture governing the Debentures (the "Indenture"). On and after the First Call Date and prior to January 15, 2024, the Debentures will be redeemable in whole or in part from time to time at the Corporation's option at a redemption price equal to 103.0% of the principal amount of the Debentures redeemed plus accrued and unpaid interest, if any, up to but excluding the date set for redemption. On and after January 15, 2024 and prior to the maturity date, the Debentures will be redeemable, in whole or in part, from time to time at the Corporation's option at par plus accrued and unpaid interest, if any, up to but excluding the date set for redemption. The Corporation shall provide not more than 60 nor less than 30 days' prior notice of redemption of the Debentures.
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 tradeable 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, Wajax is permitted to have additional interest bearing debt of $25.0 million. As such, Wajax has up to $25.0 million of demand inventory equipment financing capacity with two non-bank lenders. At December 31, 2020, Wajax had no utilization of the interest bearing equipment financing facilities.
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 $20.0 million of accounts receivable is permitted to be sold to the financial institution and can remain outstanding at any point in time. After the sale, Wajax does not retain any interests in the accounts receivable, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. At December 31, 2020, the Corporation continues to service and collect $11.7 million in accounts receivable on behalf of the financial institution.
As at December 31, 2020, $270.6 million was unutilized under the bank facility and $25.0 million was unutilized under the non-bank facilities. As of March 1, 2021, Wajax continues to maintain its $450.0 million bank credit facility and an additional $25.0 million in credit facilities with non-bank lenders. Wajax maintains sufficient liquidity to meet short-term normal course working capital and maintenance capital requirements and certain strategic investments. However, Wajax may be required to access the equity or debt capital markets to fund significant acquisitions.
The Corporation's tolerance to interest rate risk decreases/increases as the Corporation's leverage ratio increases/decreases. At December 31, 2020, $204.6 million of the Corporation's funded net debt, or 93.2%, was at a fixed interest rate which is within the Corporation's interest rate risk policy.
Cash Flow
The following table highlights the major components of cash flow as reflected in the Consolidated Statements of Cash Flows for the years ended December 31, 2020 and December 31, 2019:
2020 |
2019 |
Change |
||||||
Net earnings |
$ |
31.7 |
$ |
39.5 |
$ |
(7.9) |
||
Items not affecting cash flow |
85.4 |
88.2 |
(2.8) |
|||||
Changes in non-cash operating working capital |
48.8 |
(50.5) |
99.4 |
|||||
Finance costs paid on debts |
(11.2) |
(13.1) |
1.8 |
|||||
Finance costs paid on lease liabilities |
(8.2) |
(5.7) |
(2.5) |
|||||
Interest collected on lease receivables |
0.1 |
— |
0.1 |
|||||
Income taxes paid |
(9.8) |
(27.8) |
18.0 |
|||||
Rental equipment additions |
(16.5) |
(37.5) |
21.0 |
|||||
Other non-current liabilities |
(0.2) |
(1.4) |
1.1 |
|||||
Cash paid on settlement of total return swaps |
(1.4) |
(1.5) |
0.1 |
|||||
Cash generated from (used in) operating activities |
$ |
118.8 |
$ |
(9.7) |
$ |
128.5 |
||
Cash used in investing activities |
$ |
(17.6) |
$ |
(2.0) |
$ |
(15.7) |
||
Cash (used in) generated from financing activities |
$ |
(97.7) |
$ |
18.7 |
$ |
(116.5) |
||
Operating Activities
For the year ended December 31, 2020, cash flows generated from operating activities amounted to $118.8 million, compared to cash flows used in operating activities of $9.7 million for the previous year. The increase in cash generated of $128.5 million was mainly attributable to an increase in cash generated from changes in non-cash operating working capital of $99.4 million, a decrease in rental equipment additions of $21.0 million, and a decrease in income taxes paid of $18.0 million, partially offset by a decrease in net earnings of $7.9 million. The increase in cash generated from changes in non-cash operating working capital of $99.4 million was driven primarily by an increase in cash generated from changes in inventory of $113.0 million and an increase in cash generated from changes in trade and other receivables of $64.0 million, offset partially by an increase in cash used from changes in accounts payable and accrued liabilities of $90.9 million.
For the year ended December 31, 2020, rental equipment additions of $16.5 million (2019 – $37.5 million) related primarily to material handling lift trucks.
Changes in significant components of non-cash operating working capital for the years ended December 31, 2020 and December 31, 2019 include the following:
Changes in Non-cash Operating Working Capital(1) |
2020 |
2019 |
|||
Trade and other receivables |
$ |
31.9 |
$ |
(32.1) |
|
Contract assets |
2.8 |
7.0 |
|||
Inventory |
76.7 |
(36.3) |
|||
Deposits on inventory |
(6.7) |
(24.1) |
|||
Prepaid expenses |
0.8 |
1.1 |
|||
Accounts payable and accrued liabilities |
(58.1) |
32.8 |
|||
Provisions |
1.7 |
2.0 |
|||
Contract liabilities |
(0.3) |
(1.1) |
|||
Total Changes in Non-cash Operating Working Capital |
$ |
48.8 |
$ |
(50.5) |
|
(1) |
Increase (decrease) in cash flow |
Significant components of the changes in non-cash operating working capital for the year ended December 31, 2020 compared to the year ended December 31, 2019 are as follows:
- Trade and other receivables decreased $31.9 million in 2020 compared to an increase of $32.1 million in 2019. The decrease in 2020 resulted primarily from lower sales activity and a large material handling equipment delivery made to a customer at the end of 2019. The increase in 2019 resulted primarily from higher current trade receivables from large oil sands customers and a large material handling equipment delivery to a new customer.
- Inventory decreased $76.7 million in 2020 compared to an increase of $36.3 million in 2019. The decrease in 2020 was due mainly to lower equipment, parts and work-in-process inventory as the Corporation continues to manage its inventory levels. The increase in 2019 was due mainly to higher construction equipment inventory and mining equipment and parts inventory.
- Deposits on inventory increased $6.7 million in 2020 compared to an increase of $24.1 million in 2019. The increase in both years was due primarily to increased deposits related to consignment inventory being held in excess of nine months.
- Accounts payable and accrued liabilities decreased $58.1 million in 2020 compared to an increase of $32.8 million in 2019. The decrease in 2020 resulted primarily from reduced inventory purchasing activity. The increase in 2019 resulted primarily from higher trade payables, including higher trade payables related to mining equipment inventory.
Investing Activities
For the year ended December 31, 2020, Wajax invested $6.5 million in property, plant and equipment additions, compared to $5.9 million in the same period of 2019. Proceeds on disposal of property, plant and equipment, consisting primarily of proceeds on disposal of properties, amounted to $9.9 million for the year ended December 31, 2020, compared to $10.1 million for the year ended December 31, 2019. Intangible assets additions of $4.2 million (2019 – $5.4 million) for the year ended December 31, 2020 resulted primarily from software additions relating to the Corporation's new ERP system; implementation of the new ERP system, previously planned for the second quarter of 2020, is now expected to begin in the second quarter of 2021. For the year ended December 31, 2020, Wajax invested $17.9 million (2019 - nil) on the acquisition of NorthPoint, net of cash acquired of $1.4 million.
Financing Activities
For the year ended December 31, 2020, the Corporation used $97.7 million of cash in financing activities compared to generating $18.7 million in the same period of 2019. Financing activities for the twelve months ended December 31, 2020 included a net bank credit facility repayment of $54.4 million (2019 – net borrowing of $7.4 million), the payment of lease liabilities of $22.9 million (2019 – $22.0 million) and dividends paid to shareholders of $20.0 million (2019 – $20.0 million). Financing activities for the 2019 year also included proceeds from the issuance of debentures of $57.0 million.
Dividends
Dividends to shareholders for the 2020 and 2019 years were declared and payable to shareholders of record as follows:
Record Date |
Payment Date |
Per Share |
Amount |
|||
March 16, 2020 |
April 2, 2020 |
$ |
0.25 |
$ |
5.0 |
|
June 15, 2020 |
July 3, 2020 |
$ |
0.25 |
$ |
5.0 |
|
September 15, 2020 |
October 2, 2020 |
$ |
0.25 |
$ |
5.0 |
|
December 15, 2020 |
January 5, 2021 |
$ |
0.25 |
$ |
5.0 |
|
Twelve months ended December 31, 2020 |
$ |
1.00 |
$ |
20.0 |
||
Record Date |
Payment Date |
Per Share |
Amount |
|||
March 29, 2019 |
April 2, 2019 |
$ |
0.25 |
$ |
5.0 |
|
June 14, 2019 |
July 3, 2019 |
$ |
0.25 |
$ |
5.0 |
|
September 16, 2019 |
October 2, 2019 |
$ |
0.25 |
$ |
5.0 |
|
December 16, 2019 |
January 3, 2020 |
$ |
0.25 |
$ |
5.0 |
|
Twelve months ended December 31, 2019 |
$ |
1.00 |
$ |
20.0 |
||
On March 1, 2021, the Corporation declared a dividend of $0.25 per share for the first quarter of 2021 payable on April 6, 2021 to shareholders of record on March 15, 2021.
Fourth Quarter Consolidated Results
For the three months ended December 31 |
2020 |
2019 |
% change |
|||||
Revenue |
$ |
381.0 |
$ |
403.9 |
(5.7) |
% |
||
Gross profit |
$ |
69.1 |
$ |
71.1 |
(2.8) |
% |
||
Selling and administrative expenses |
$ |
50.3 |
$ |
49.6 |
1.4 |
% |
||
Restructuring and other related costs |
$ |
— |
$ |
0.2 |
(100.0) |
% |
||
Earnings before finance costs and income taxes(1) |
$ |
18.8 |
$ |
21.4 |
(12.0) |
% |
||
Finance costs |
$ |
4.1 |
$ |
5.4 |
(24.9) |
% |
||
Earnings before income taxes(1) |
$ |
14.8 |
$ |
16.0 |
(7.7) |
% |
||
Income tax expense |
$ |
4.0 |
$ |
3.8 |
6.3 |
% |
||
Net earnings |
$ |
10.7 |
$ |
12.2 |
(12.0) |
% |
||
Basic earnings per share(2) |
$ |
0.53 |
$ |
0.61 |
(12.1) |
% |
||
Diluted earnings per share(2) |
$ |
0.52 |
$ |
0.60 |
(12.7) |
% |
||
Adjusted net earnings(1)(3) |
$ |
9.6 |
$ |
10.1 |
(5.0) |
% |
||
Adjusted basic earnings per share(1)(2)(3) |
$ |
0.48 |
$ |
0.51 |
(5.1) |
% |
||
Adjusted diluted earnings per share(1)(2)(3) |
$ |
0.47 |
$ |
0.50 |
(5.7) |
% |
||
Adjusted EBITDA(1) |
$ |
30.9 |
$ |
31.9 |
(3.1) |
% |
||
Key ratios: |
||||||||
Gross profit margin |
18.1 |
% |
17.6 |
% |
||||
Selling and administrative expenses as a percentage of revenue |
13.2 |
% |
12.3 |
% |
||||
EBIT margin(1) |
4.9 |
% |
5.3 |
% |
||||
Adjusted EBITDA margin(1) |
8.1 |
% |
7.9 |
% |
||||
Effective income tax rate |
27.4 |
% |
23.8 |
% |
||||
(1) |
These measures do not have a standardized meaning prescribed by GAAP. See the Non-GAAP and Additional GAAP Measures section. |
(2) |
Weighted average shares, net of shares held in trust outstanding for calculation of basic and diluted earnings per share for the three months ended December 31, 2020 was 20,033,619 (2019 – 20,009,494) and 20,574,840 (2019 – 20,421,685), respectively. |
(3) |
Net earnings excluding the following: |
a. after-tax gain recorded on the sale of properties of $1.0 million (2019 - $2.3 million), or basic and diluted earnings per share of $0.05 (2019 - $0.11) for the three months ended December 31, 2020. |
|
b. after-tax non-cash gains on mark to market of derivative instruments of $0.9 million (2019 – nil), or basic and diluted earnings per share of $0.04 (2019 – nil) for the three months ended December 31, 2020. |
|
c. after-tax Tundra transaction costs of $0.8 million (2019 – nil), or basic and diluted earnings per share of $0.04 (2019 – nil) for the three months ended December 31, 2020. |
|
d. after-tax restructuring and other related costs of nil (2019 - $0.1 million), or basic and diluted earnings per share of nil (2019 - $0.01) for the three months ended December 31, 2020. |
Revenue
For the three months ended December 31 |
2020 |
2019 |
$ change |
|||||
Equipment sales |
$ |
145.0 |
$ |
156.5 |
$ |
(11.5) |
||
Product support |
$ |
101.9 |
$ |
110.2 |
$ |
(8.3) |
||
Industrial parts |
$ |
85.5 |
$ |
88.5 |
$ |
(3.0) |
||
ERS |
$ |
40.5 |
$ |
39.2 |
$ |
1.3 |
||
Equipment rental |
$ |
8.1 |
$ |
9.5 |
$ |
(1.4) |
||
Total revenue |
$ |
381.0 |
$ |
403.9 |
$ |
(22.9) |
||
Revenue in the fourth quarter of 2020 decreased 5.7%, or $22.9 million, to $381.0 million from $403.9 million in the fourth quarter of 2019. In addition to regional revenue commentary provided previously herein, the following factors contributed to the decrease in revenue:
- Equipment sales have decreased due primarily to lower material handling sales in western and eastern Canada and lower power generation sales in all regions. These decreases were partially offset by higher construction sales in all regions.
- Product support revenue has decreased due primarily to lower mining and on-highway revenue in western Canada.
Backlog
Backlog of $181.7 million at December 31, 2020 decreased $23.4 million compared to September 30, 2020 due primarily to decreases in mining, forestry, power generation and construction orders, partially offset by an increase in material handling and industrial parts orders.(1)
Canada Emergency Wage Subsidy (CEWS)
During the fourth quarter, the Corporation qualified for the CEWS and recognized $5.7 million as a reimbursement of compensation expense with $4.4 million and $1.3 million, respectively, allocated to cost of sales and selling and administrative expenses in proportion to personnel costs recorded in those areas. Approximately $4.0 million of the subsidy was allocated to temporary supplemental compensation programs directed primarily at the Corporation's frontline employees who continue to provide excellent and essential support to customers across Canada. The resultant net pre-tax contribution to earnings of the CEWS recovery in the fourth quarter was approximately $1.7 million.
Gross profit
Gross profit decreased $2.0 million, or 2.8%, in the fourth quarter of 2020 compared to the same quarter last year due to lower volumes and lower equipment margins, partially offset by higher ERS sales and margins and the recovery of personnel expenses from the CEWS.
Gross profit margin of 18.1% in the fourth quarter of 2020 increased 0.5% compared to the same period of 2019. Excluding the $4.4 million CEWS recovery discussed above, gross profit margin was 17.0% in the fourth quarter of 2020, representing a decrease of 0.6% compared to the same period of 2019. The decline in margin was driven primarily by lower equipment margins, offset partially by higher ERS margins.
Selling and administrative expenses
Selling and administrative expenses as a percentage of revenue increased to 13.2% in the fourth quarter of 2020 from 12.3% in the fourth quarter of 2019. Selling and administrative expenses in the fourth quarter of 2020 increased $0.7 million compared to the fourth quarter of 2019 due mainly to Tundra transaction costs of $1.0 million and a lower gain recorded on the sale of properties of $1.0 million, partially offset by the recovery of personnel expenses from the CEWS of $1.3 million discussed above. Excluding the $1.3 million CEWS recovery, selling and administrative expenses as a percentage of revenue increased to 13.5% in the fourth quarter of 2020 from 12.3% in the same period of 2019.
Finance costs
Finance costs of $4.1 million in the fourth quarter of 2020 decreased $1.3 million compared to the same quarter last year due primarily to lower average borrowings under the bank credit facility and the capitalization of $0.9 million of borrowing costs, partially offset by higher interest on lease liabilities and the issuance of the debentures in December 2019. See the Liquidity and Capital Resources section.
Income tax expense
The Corporation's effective income tax rate of 27.4% for the fourth 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 23.8% for the fourth quarter of 2019 was lower compared to the statutory rate of 26.8% due mainly to the non-taxable portion of the gain recorded on sales of properties.
Net earnings
In the fourth quarter of 2020, the Corporation had net earnings of $10.7 million, or $0.53 per share, compared to $12.2 million, or $0.61 per share, in the fourth quarter of 2019. The $1.5 million decrease in net earnings resulted primarily from lower revenue, lower equipment margins, the Tundra transaction costs of $1.0 million and a lower gain recorded on the sale of properties of $1.0 million, partially offset by higher ERS sales and margins and the net effect of the CEWS.
Adjusted net earnings (See the Non-GAAP and Additional GAAP Measures section)
Adjusted net earnings for the three months ended December 31, 2020 excludes a gain recorded on the sale of properties of $1.0 million after-tax, or $0.05 per share (2019 - $2.3 million after-tax, or $0.11 per share), non-cash gains on mark to market of derivative instruments of $0.9 million after-tax, or $0.04 per share (2019 - nil), and Tundra transaction costs of $0.8 million after-tax, or $0.04 per share (2019 - nil). Adjusted net earnings in the same period of 2019 also excludes restructuring and other related costs of $0.1 million after-tax, or $0.01 per share.
As such, adjusted net earnings decreased $0.5 million to $9.6 million, or $0.48 per share, in the fourth quarter of 2020 from $10.1 million, or $0.51 per share, in the same period of 2019.
Comprehensive income
Total comprehensive income of $11.5 million in the fourth quarter of 2020 included net earnings of $10.7 million and an other comprehensive gain of $0.8 million. The other comprehensive gain of $0.8 million in the current period resulted primarily from $0.8 million of losses on derivative instruments designated as cash flow hedges in prior periods reclassified to earnings during the current period.
Notes: |
|
(1) |
The backlog as at December 31, 2020 now includes customer purchase commitments for its ERS business, including Delom and NorthPoint, and therefore for comparability purposes the backlog as at September 30, 2020 also includes customer purchase commitments for its ERS business including Delom and NorthPoint. |
Fourth Quarter Cash Flows
Cash Flow
The following table highlights the major components of cash flow for the quarters ended December 31, 2020 and December 31, 2019:
For the quarter ended December 31 |
2020 |
2019 |
Change |
|||||
Net earnings |
$ |
10.7 |
$ |
12.2 |
$ |
(1.5) |
||
Items not affecting cash flow |
20.2 |
20.6 |
(0.4) |
|||||
Net change in non-cash operating working capital |
27.7 |
3.3 |
24.4 |
|||||
Finance costs paid on debts |
(1.8) |
(3.7) |
1.9 |
|||||
Finance costs paid on lease liabilities |
(1.9) |
(1.7) |
(0.3) |
|||||
Income taxes paid |
(5.2) |
(0.1) |
(5.1) |
|||||
Rental equipment additions |
(1.6) |
(14.2) |
12.5 |
|||||
Cash generated from operating activities |
$ |
48.1 |
$ |
16.3 |
$ |
31.7 |
||
Cash (used in) generated from investing activities |
$ |
(1.4) |
$ |
5.8 |
$ |
(7.2) |
||
Cash used in financing activities |
$ |
(38.4) |
$ |
(18.5) |
$ |
(19.9) |
||
Operating Activities
Cash flows generated from operating activities amounted to $48.1 million in the fourth quarter of 2020, compared to $16.3 million in the same quarter of the previous year. The increase of $31.7 million was mainly attributable to an increase in cash generated from changes in non-cash operating working capital of $24.4 million and a decrease in rental equipment additions of $12.5 million, partially offset by higher income taxes paid of $5.1 million. The increase in cash generated from changes in non-cash operating working capital of $24.4 million was driven primarily by an increase in cash generated from changes in trade and other receivables of $36.1 million, an increase in cash generated from changes in deposits on inventory of $16.1 million, and an increase in cash generated from changes in inventory of $10.3 million, partially offset by an increase in cash used in changes in accounts payable and accrued liabilities of $37.4 million.
Rental equipment additions in the fourth quarter of 2020 of $1.6 million (2019 – $14.2 million) related primarily to material handling lift trucks.
Changes in significant components of non-cash operating working capital for the quarters ended December 31, 2020 and December 31, 2019 include the following:
Changes in Non-cash Operating Working Capital(1) |
2020 |
2019 |
||
Trade and other receivables |
$ |
(4.3) |
$ |
(40.4) |
Contract assets |
$ |
0.3 |
$ |
7.3 |
Inventory |
$ |
35.0 |
$ |
24.7 |
Deposits on inventory |
$ |
1.8 |
$ |
(14.3) |
Prepaid expenses |
$ |
1.5 |
$ |
(0.6) |
Accounts payable and accrued liabilities |
$ |
(4.3) |
$ |
33.0 |
Provisions |
$ |
(4.0) |
$ |
(0.9) |
Contract liabilities |
$ |
1.7 |
$ |
(5.4) |
Total Changes in Non-cash Operating Working Capital |
$ |
27.7 |
$ |
3.3 |
(1) Increase (decrease) in cash flow |
Significant components of the changes in non-cash operating working capital for the quarter ended December 31, 2020 compared to the quarter ended December 31, 2019 are as follows:
- Trade and other receivables increased $4.3 million in the fourth quarter of 2020 compared to an increase of $40.4 million in the same period of 2019. The increase in the fourth quarter of 2020 resulted primarily from higher sales activity in the quarter compared to the previous quarter. The increase in the fourth quarter of 2019 resulted primarily from higher current trade receivables from large oil sands customers and a large material handling equipment delivery to a new customer.
- Inventory decreased $35.0 million in the fourth quarter of 2020 compared to a decrease of $24.7 million in the same period of 2019. The decrease in the fourth quarter of 2020 was due to lower equipment, parts and work-in-process inventory in most categories as the Corporation continues to manage its inventory levels. These decreases were partially offset by higher mining equipment inventory. The decrease in the fourth quarter of 2019 was due to lower equipment and parts inventory in most categories, partially offset by higher mining equipment and parts inventory.
- Deposits on inventory decreased $1.8 million in the fourth quarter of 2020 compared to an increase of $14.3 million in the same period of 2019. The increase in the fourth quarter of 2019 was due primarily to increased deposits related to consignment inventory being held in excess of nine months.
- Accounts payable and accrued liabilities decreased $4.3 million in the fourth quarter of 2020 compared to an increase of $33.0 million in the same period of 2019. The decrease in the fourth quarter of 2020 resulted primarily from lower trade payables. The increase in 2019 resulted primarily higher trade payables, including higher trade payables related to mining equipment inventory.
Investing Activities
During the fourth quarter of 2020, Wajax invested $2.4 million in property, plant and equipment additions, compared to $0.9 million in the fourth quarter of 2019. Proceeds on disposal of property, plant and equipment, consisting primarily of proceeds on disposal of properties, amounted to $3.2 million in the fourth quarter of 2020, compared to $9.7 million in the same quarter of the previous year. Intangible assets additions of $2.5 million (2019 – $2.2 million) in the fourth quarter of 2020 resulted primarily from software additions relating to the Corporation's new ERP system; implementation of the new ERP system, previously planned for the second quarter of 2020, is now expected to begin in the second quarter of 2021.
Financing Activities
The Corporation used $38.4 million of cash in financing activities in the fourth quarter of 2020 compared to cash used in financing activities of $18.5 million in the same quarter of 2019. Financing activities in the quarter included a net bank credit facility repayment of $27.1 million (2019 – net repayment of $61.6 million), dividends paid to shareholders of $5.0 million (2019 – $5.0 million) and finance lease payments of $6.2 million (2019 – $5.6 million). Financing activities for the fourth quarter of 2019 also included proceeds from the issuance of debentures of $57.0 million.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. 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 March 11, 2020, the World Health Organization declared the novel coronavirus a global pandemic. With the majority of governments worldwide declaring a state of emergency in response to the COVID-19 pandemic, any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Corporation's operations, financial results and condition in future periods are also subject to significant uncertainty. Therefore, uncertainty about judgements, estimates and assumptions made by management during the preparation of the Corporation's consolidated financial statements related to the potential impacts of the COVID-19 outbreak on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.
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 Canada. In addition, the Corporation's customer base spans large public companies, small independent contractors, original equipment manufacturers and various levels of government. The Corporation follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Corporation maintains an allowance for possible credit losses, and any such losses to date have been within management's expectations. The allowance for credit losses is determined by estimating the lifetime expected credit losses, taking into account the Corporation's past experience of collecting payments as well as observable changes in and forecasts of future economic conditions that correlate with default on receivables. At the point when the Corporation is satisfied that no recovery of the amount owing is possible, the amount is considered not recoverable and the financial asset is written off. The $3.6 million allowance for credit losses at December 31, 2020 increased $1.3 million from $2.4 million at December 31, 2019. As economic conditions change, there is risk that the Corporation could experience a greater number of defaults compared to prior periods which would result in an increased charge to earnings.
Inventory obsolescence
The value of the Corporation's new and used equipment and high value parts are evaluated by management throughout the year, on a unit-by-unit basis 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 December 31, 2020 was a charge of $1.7 million (2019 – recovery of $1.0 million) and for the twelve months ended December 31, 2020 was a charge of $7.1 million (2019 - charge of $2.3 million). As economic conditions change, there is risk that the Corporation could have an increase in inventory obsolescence compared to prior periods which would result in an increased charge to earnings.
Goodwill and intangible assets
The value in use of goodwill and intangible assets has been estimated using the forecasts prepared by management for the next five years. The key assumptions for the estimate are those regarding revenue growth, EBITDA margin, discount rate and the level of working capital required to support the business. These estimates are based on past experience and management's expectations of future changes in the market and forecasted growth initiatives.
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.
During the year, the Corporation performed an annual impairment test, based on value in use, of its goodwill and intangible assets with an indefinite life based on its single cash generating unit group and concluded that no impairment existed.
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 year, the Corporation did not adopt any new accounting standards or amendments that had an impact on the Corporation's consolidated financial statements.
Accounting standards and amendments issued but not yet adopted
- Amendments to IAS 1, Presentation of Financial Statements (effective January 1, 2023) clarify the classification of liabilities as current or non-current. For the purposes of non-current classification, the amendments remove the requirement for a right to defer settlement of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period in order to qualify for non-current classification. Management is currently assessing the impact of adopting these amendments on its financial statements.
- Amendments to IFRS 9, Financial Instruments and IFRS 7, Financial Instruments: Disclosures (effective January 1, 2021) are the IASB's response to the ongoing reform of inter-bank offered rates and other interest rate benchmarks. The amendments are the Phase 2 amendments and complement those issued in 2019 as part of Phase 1 amendments. A company will not have to derecognize the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate. In addition, a company will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria. And finally, some additional disclosure may be necessary relating to any new risks arising from the reform. Management is currently assessing the impact of adopting these amendments on its financial statements, but does not expect the impact to be material.
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.
The following are a number of risks that deserve particular comment:
COVID-19
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. COVID-19's impact on global markets has been significant through the year and as the situation continues to evolve, the full magnitude of its effects on the economy and on the Corporation's financial and operational performance is uncertain.
The coronavirus pandemic and the measures implemented to stop the spread of COVID-19 have had a significant effect on the Corporation. The Corporation's focus is to continue to manage the business in 2021 in accordance with the four objectives for managing through the pandemic as outlined in the Annual and Fourth Quarter Highlights section of the Corporation's MD&A for the year ended December 31, 2020, and to partially offset volume declines with cost reductions while managing customer service levels, working capital and capital spending accordingly.
The Corporation will continue to closely monitor the COVID-19 situation. Should the duration, spread or intensity of the pandemic further develop, the Corporation's supply chain, market pricing and customer demand could be affected. These factors may further impact the Corporation's operating plan, its liquidity and cash flows, and the valuation of its long-lived assets.
Manufacturer relationships and product access
Wajax seeks to distribute leading product lines in each of its regional markets and its success is dependent upon continuing relations with the manufacturers it represents. Wajax endeavours to align itself in long-term relationships with manufacturers that are committed to achieving a competitive advantage and long-term market leadership in their targeted market segments. In equipment and certain industrial categories, manufacturer relationships are governed through effectively exclusive distribution agreements. Distribution agreements are typically multi-year terms and are cancellable by Wajax or the manufacturer based on a notification period specified in the agreement. Although Wajax enjoys good relationships with its major manufacturers and seeks to develop additional strong long-term partnerships, a loss of a major product line without a comparable replacement would have a significantly adverse effect on Wajax's results of operations or cash flow.
There is a continuing consolidation trend among industrial equipment and component manufacturers. Consolidation may impact the products distributed by Wajax, in either a favourable or unfavourable manner. Consolidation of manufacturers may have a negative impact on the results of operations or cash flow if product lines Wajax distributes become unavailable as a result of the consolidation.
Suppliers generally have the ability to unilaterally change distribution terms and conditions, product lines or limit supply of product in times of intense market demand. Supplier changes in the area of product pricing and availability can have a negative or positive effect on Wajax's revenue and margins. A change in one of a supplier's product lines can result in conflicts with another supplier's product lines that may have a negative impact on the results of operations or cash flow if one of the suppliers cancels its distribution with Wajax due to the conflict. As well, from time to time suppliers make changes to payment terms for distributors. This may affect Wajax's interest-free payment period or consignment terms, which may have a materially negative or positive impact on working capital balances such as cash, inventory, deposits on inventory, trade and other payables and bank debt.
Economic conditions/Business cyclicality
Wajax's customer base consists of businesses operating in the natural resources, construction, transportation, manufacturing, industrial processing and utilities industries. These industries can be capital intensive and cyclical in nature, and as a result, customer demand for Wajax's products and services may be affected by economic conditions at both a global or local level. Changes in interest rates, consumer and business confidence, corporate profits, credit conditions, foreign exchange, commodity prices and the level of government infrastructure spending may influence Wajax's customers' operating, maintenance and capital spending, and therefore Wajax's sales and results of operations. Although Wajax has attempted to address its exposure to business and industry cyclicality by diversifying its operations by geography, product offerings and customer base, there can be no assurance that Wajax's results of operations or cash flows will not be adversely affected by changes in economic conditions.
Commodity prices
Many of Wajax's customers are directly and indirectly affected by fluctuations in commodity prices in the forestry, metals and minerals and petroleum and natural gas industries, and as a result Wajax is also indirectly affected by fluctuations in these prices. In particular, each of Wajax's products and services categories are exposed to fluctuations in the price of oil and natural gas. A downward change in commodity prices, and particularly in the price of oil and natural gas, could therefore adversely affect Wajax's results of operations or cash flows.
Growth initiatives, integration of acquisitions and project execution
The Corporation's Strategic Plan establishes priorities for organic growth, acquisitions and operating infrastructure, including maintaining a target leverage ratio range of 1.5 - 2.0 times unless a leverage ratio outside this range is required either to support key growth initiatives or fluctuations in working capital levels during changes in economic cycles. The Corporation may also maintain a leverage ratio above the stated range as a result of investment in significant 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. See the Strategic Direction and Outlook section and the Non-GAAP and Additional GAAP Measures sections. While end market conditions remain challenging, the Corporation believes it has a robust strategy and is confident in its growth prospects. The Corporation's confidence is strengthened by the enhanced earnings potential of a reorganized Corporation and by relationships with its customers and vendors. Wajax's ability to develop its core capabilities and successfully grow its business through organic growth will be dependent on achieving the individual growth initiatives. Wajax's ability to successfully grow its business through acquisitions will be dependent on a number of factors including: identification of accretive new business or acquisition opportunities; negotiation of purchase agreements on satisfactory terms and prices; prior approval of acquisitions by third parties, including any necessary regulatory approvals; securing attractive financing arrangements; and integration of newly acquired operations into the existing business. All of these activities associated with growing the business, realizing enhanced earnings potential from the new structure and investments made in systems may be more difficult to implement or may take longer to execute than management anticipates. Further, any significant expansion of the business may increase the operating complexity of Wajax, and divert management away from regular business activities. Any failure of Wajax to successfully manage its growth strategy, including acquisitions, could have a material adverse impact on Wajax's business, results of operations or financial condition.
Key personnel
The success of Wajax is largely dependent on the abilities and experience of its senior management team and other key personnel. Its future performance will also depend on its ability to attract, develop and retain highly qualified employees in all areas of its business. Competition for skilled management, sales and technical personnel is intense, particularly in certain markets where Wajax competes. Wajax continuously reviews and makes adjustments to its hiring, training and compensation practices in an effort to attract and retain a highly competent workforce. There can be no assurance, however, that Wajax will be successful in its efforts and a loss of key employees, or failure to attract and retain new talent as needed, may have an adverse impact on Wajax's current operations or future prospects.
Leverage, credit availability and restrictive covenants
Wajax has a $450 million bank credit facility, of which $400 million matures October 1, 2024 and $50 million matures December 30, 2022. The bank credit facility contains restrictive covenants which place restrictions on, among other things, the ability of Wajax to encumber or dispose of its assets, the amount of finance costs incurred and dividends declared relative to earnings and certain reporting obligations. A failure to comply with the obligations of the facility could result in an event of default which, if not cured or waived, could require an accelerated repayment of the facility. There can be no assurance that Wajax's assets would be sufficient to repay the facility in full.
Wajax's short-term normal course working capital requirements can swing widely quarter-to-quarter due to timing of large inventory purchases and/or sales and changes in market activity. In general, as Wajax experiences growth, there is a need for additional working capital. Conversely, as Wajax experiences economic slowdowns, working capital reduces reflecting the lower activity levels. While management believes the bank credit facility will be adequate to meet the Corporation's normal course working capital requirements, maintenance capital requirements and certain strategic investments, there can be no assurance that additional credit will become available if required, or that an appropriate amount of credit with comparable terms and conditions will be available when the bank credit facility matures.
Wajax may be required to access the equity or debt markets or reduce dividends in order to fund significant acquisitions and growth related working capital and capital expenditures. The amount of debt service obligations under the bank credit facility will be dependent on the level of borrowings and fluctuations in interest rates to the extent the rate is unhedged. As a result, fluctuations in debt servicing costs may have a detrimental effect on future earnings or cash flow.
Wajax also has credit lines available with other financial institutions for purposes of financing inventory. These facilities are not committed lines and their future availability cannot be assured, which may have a negative impact on cash available for dividends and future growth opportunities.
Quality of products distributed
The ability of Wajax to maintain and expand its customer base is dependent upon the ability of the manufacturers represented by Wajax to sustain or improve the quality of their products. The quality and reputation of such products are not within Wajax's control, and there can be no assurance that manufacturers will be successful in meeting these goals. The failure of these manufacturers to maintain a market presence could adversely affect Wajax's results of operations or cash flow.
Inventory obsolescence
Wajax maintains substantial amounts of inventory in its business operations. While Wajax believes it has appropriate inventory management systems in place, variations in market demand for the products it sells can result in certain items of inventory becoming obsolete. This could result in a requirement for Wajax to take a material write down of its inventory balance resulting in Wajax not being able to realize expected revenue and cash flows from its inventory, which would negatively affect results from operations or cash flow.
Government regulation
Wajax's business is subject to evolving laws and government regulations, particularly in the areas of taxation, the environment, and health and safety. Changes to such laws and regulations may impose additional costs on Wajax and may adversely affect its business in other ways, including requiring additional compliance measures by Wajax.
Insurance
Wajax maintains a program of insurance coverage that is comparable to those maintained by similar businesses, including property, general liability, directors and officers liability, and cyber security insurance. Although the limits and self-insured retentions of such insurance policies have been established through risk analysis and the recommendations of professional advisors, there can be no assurance that such insurance will remain available to Wajax at commercially reasonable rates or that the amount of such coverage will be adequate to cover all liability incurred by Wajax. If Wajax is held liable for amounts exceeding the limits of its insurance coverage or for claims outside the scope of that coverage, its business, results of operations or financial condition could be adversely affected.
Information systems and technology
Information systems are an integral part of Wajax's business processes, including marketing of equipment and support services, inventory and logistics, and finance. Some of these systems are integrated with certain suppliers' core processes and systems. Any disruptions to these systems or new systems due, for example, to the upgrade or conversion thereof, or the failure of these systems or new systems to operate as expected could, depending on the magnitude of the problem, adversely affect Wajax's operating results by limiting the ability to effectively monitor and control Wajax's operations.
Credit risk
Wajax extends credit to its customers, generally on an unsecured basis. Although Wajax is not substantially dependent on any one customer and it has a system of credit management in place, the loss of a large receivable would have an adverse effect on Wajax's profitability.
Labour relations
Wajax had approximately 2,461 employees as at December 31, 2020. Subsequent to the end of 2020, approximately 154 employees were added through the acquisition of Tundra, bringing the Wajax team to approximately 2,615 employees. At the outset of 2020, Wajax was party to twelve collective agreements covering approximately 300 employees. The acquisition of NorthPoint in early 2020 added two additional collective agreements covering approximately 25 employees. During 2020, one collective agreement covering 34 employees was decertified, and two collective agreements covering 26 employees were ratified. Four agreements covering 46 employees expired at the end of 2020 and renewal negotiations are in progress. Two agreements covering 106 employees expire in 2021; one of which is currently in negotiation. Two agreements covering 25 employees expire in 2022. Four agreements covering 88 employees expire in 2023. One agreement covering 8 employees expires in 2024. As at December 31, 2020, Wajax was party to 13 collective agreements covering a total of 273 employees. Wajax believes its labour relations to be satisfactory and does not anticipate it will be unable to renew the collective agreements. If Wajax is unable to renew or negotiate collective agreements from time to time, it could result in work stoppages and other labour disturbances. The failure to renew collective agreements upon satisfactory terms could have a material adverse impact on Wajax's business, results of operations or financial condition.
Foreign exchange exposure
Wajax's operating results are reported in Canadian dollars. While the majority of Wajax's sales are in Canadian dollars, significant portions of its purchases are in U.S. dollars. Changes in the U.S. dollar exchange rate can have a negative or positive impact on Wajax's revenue, margins and working capital balances. Wajax mitigates certain exchange rate risks by entering into foreign exchange forward contracts to fix the cost of certain inbound inventory and to hedge certain foreign-currency denominated sales to customers. In addition, Wajax will periodically institute price increases to offset the negative impact of foreign exchange rate increases on imported goods. The inability of Wajax to mitigate exchange rate risks or increase prices to offset foreign exchange rate increases, including sudden and volatile changes in the U.S. dollar exchange rate, may have a material adverse effect on the results of operations or financial condition of Wajax.
A declining U.S. dollar relative to the Canadian dollar can have a negative effect on Wajax's revenue and cash flows as a result of certain products being imported from the U.S. In some cases market conditions require Wajax to lower its selling prices as the U.S. dollar declines. As well, many of Wajax's customers export products to the U.S., and a strengthening Canadian dollar can negatively impact their overall competitiveness and demand for their products, which in turn may reduce product purchases from Wajax.
A strengthening U.S. dollar relative to the Canadian dollar can have a positive effect on Wajax's revenue, as Wajax will periodically institute price increases on inventory imported from the U.S. to offset the negative impact of foreign exchange rate increases to ensure margins are not eroded. However, a sudden strengthening U.S. dollar relative to the Canadian dollar can have a negative impact mainly on parts margins in the short-term prior to price increases taking effect.
Wajax maintains a hedging policy whereby significant transactional currency risks are identified and hedged.
Interest rate risk
Wajax has exposure to interest rate fluctuations on its interest-bearing financial liabilities, in particular from its long-term debt. Changes in interest rates can have a negative or positive impact on Wajax's finance costs and cash flows. Wajax monitors the proportion of variable rate debt to its total debt portfolio and may enter into interest rate hedge contracts to mitigate a portion of the interest rate risk on its variable rate debt. The inability of Wajax to mitigate interest rate risks to offset interest rate increases may have a material adverse effect on the results of operations or financial condition of Wajax.
Equity price risk
Certain share-based compensation plans of the Corporation, and the resulting liabilities, are exposed to fluctuations in the Corporation's share price. Changes in the Corporation's share price can have a positive or negative impact on Wajax's net earnings and cash flows. Wajax monitors the proportion of MTIP rights that are cash-settled and may enter into total return swap contracts to mitigate a portion of the equity price risk on these MTIP rights. The inability of Wajax to mitigate equity price risks to offset fluctuations in its share price may have a material adverse effect on the results of operations or financial condition of Wajax.
Competition
The categories in which Wajax participates are highly competitive and include competitors who are national, regional and local. Competitors can be grouped into three classifications:
Capital Equipment Dealers and Distributors - these competitors typically represent a major alternative manufacturer and provide sales, product support, rental, financing and other services in categories such as construction, forestry, mining and power generation. Examples include the regional dealer and distributor networks of Caterpillar, Komatsu, John Deere and Cummins. Competition is based on product range and quality, aftermarket support and price.
Industrial Parts Distributors - these competitors typically represent a broad range of industrial parts manufacturers and offer sales and, in many cases, product support services including design, assembly and repair. Competitive product range varies from focused on specific applications (e.g., hydraulics) to very broad (similar to Wajax). Competitors can be local, regional and national. Competition is based on brand access, product quality, customer service levels, price and ancillary services.
Aftermarket Service Providers - these competitors provide aftermarket services in areas such as on-highway transportation. Competitors vary from the dealer and distributor networks of manufacturers such as Freightliner and Western Star to local service providers. Competition is based on customer service levels and price.
There can be no assurance that Wajax will be able to continue to effectively compete. Increased competitive pressures, the growing influence of online distribution or the inability of Wajax to maintain the factors which have enhanced its competitive position could adversely affect its results of operations or cash flow.
Litigation and product liability claims
In the ordinary course of its business, Wajax may be made a party to various legal actions, the outcome of which cannot be predicted with certainty. One category of potential legal actions is product liability claims. Wajax carries product liability insurance, and management believes that this insurance is adequate to protect against potential product liability claims. Not all risks, however, are covered by insurance, and no assurance can be given that insurance will be consistently available, or will be consistently available on an economically feasible basis, or that the amounts of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving Wajax's assets or operations.
Guaranteed residual value, recourse and buy-back contracts
In some circumstances Wajax makes certain guarantees to finance providers on behalf of its customers. These guarantees can take the form of assuring the resale value of equipment, guaranteeing a portion of customer lease payments, or agreeing to buy back the equipment at a specified price. These contracts are subject to certain conditions being met by the customer, such as maintaining the equipment in good working condition. Historically, Wajax has not incurred substantial losses on these types of contracts, however, there can be no assurance that losses will not be incurred in the future.
Future warranty claims
Wajax provides manufacturers' and/or dealer warranties for most of the product it sells. In some cases, the product warranty claim risk is shared jointly with the manufacturer. In addition, Wajax provides limited warranties for workmanship on services provided. Accordingly, Wajax has some liability for warranty claims. There is a risk that a possible product quality erosion or a lack of a skilled workforce could increase warranty claims in the future, or may be greater than management anticipates. If Wajax's liability in respect of such claims is greater than anticipated, it may have a material adverse impact on Wajax's business, results of operations or financial condition.
Maintenance and repair contracts
Wajax frequently enters into long-term maintenance and repair contracts with its customers, whereby Wajax is obligated to maintain certain fleets of equipment at various negotiated performance levels. The length of these contracts varies significantly, often ranging up to five or more years. The contracts are generally fixed price, although many contracts have additional provisions for inflationary adjustments. Due to the long-term nature of these contracts, there is a risk that significant cost overruns may be incurred. If Wajax has miscalculated the extent of maintenance work required, or if actual parts and service costs increase beyond the contracted inflationary adjustments, the contract profitability will be adversely affected. In order to mitigate this risk, Wajax closely monitors the contracts for early warning signs of cost overruns. In addition, the manufacturer may, in certain circumstances, share in the cost overruns if profitability falls below a certain threshold. Any failure by Wajax to effectively price and manage these contracts could have a material adverse impact on Wajax's business, results of operations or financial condition.
Environmental factors
From time to time, Wajax experiences environmental incidents, emissions or spills in the course of its normal business activities. Wajax has established environmental compliance and monitoring programs, including an internal compliance audit function, which management believes are appropriate for its operations. In addition, Wajax retains environmental engineering consultants to conduct the following activities: environmental site assessments prior to the acquisition or occupation by Wajax; ongoing monitoring of soil and groundwater contamination; and remediation of contaminated sites. There can be no assurance that any future incidents, emissions or spills will not result in a material adverse effect on Wajax's results of operations or cash flows. Management is not aware of any material environmental concerns for which a provision has not been recorded.
Cyber security
Wajax's business relies on information technology including third party service providers, to process, transmit and store electronic information including that related to customers, vendors and employees. A breach in the security of the Corporation's information technology, or that of its third party service providers, could expose the business to a risk of loss, misuse of confidential information and/or business interruption.
The Corporation has general security controls in place, including security tools, and reviews security internally and with the assistance of a third party. In addition, the Corporation has policies in place regarding security over confidential customer, vendor and employee information, performs employee security training, and has recovery plans in place in the event of a cyber-attack.
Despite such security controls, there is no assurance that cyber security threats can be fully detected, prevented or mitigated. Should such threats materialize and depending on the magnitude of the problem, they could have a material impact on Wajax's business, results of operations or financial condition.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Wajax's management, under the supervision of its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), is responsible for establishing and maintaining disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR").
As at December 31, 2020, Wajax's management, under the supervision of its CEO and CFO, had designed DC&P to provide reasonable assurance that information required to be disclosed by Wajax in annual filings, interim filings or other reports filed or submitted under applicable securities legislation is recorded, processed, summarized and reported within the time periods specified in such securities legislation. DC&P are designed to ensure that information required to be disclosed by Wajax in annual filings, interim filings or other reports filed or submitted under applicable securities legislation is accumulated and communicated to Wajax's management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
As at December 31, 2020, Wajax's management, under the supervision of its CEO and CFO, had designed ICFR to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. In completing the design, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 version of Internal Control – Integrated Framework. With regard to general controls over information technology, management also used the set of practices of Control Objectives for Information and related Technology created by the IT Governance Institute.
During the year, Wajax's management, under the supervision of its CEO and CFO, evaluated the effectiveness and operation of its DC&P and ICFR. This evaluation included a risk evaluation, documentation of key processes and tests of effectiveness conducted on a sample basis throughout the year. Due to the inherent limitations in all control systems, an evaluation of the DC&P and ICFR can only provide reasonable assurance over the effectiveness of the controls. As a result, DC&P and ICFR are not expected to prevent and detect all misstatements due to error or fraud. The CEO and CFO have concluded that Wajax's DC&P and ICFR were effective as at December 31, 2020. The Corporation has excluded from its evaluation the ICFR of NorthPoint, which was acquired on January 13, 2020, as discussed in Note 5 of the consolidated financial statements and accompanying notes for the year ended December 31, 2020. The total revenue subject to NorthPoint's ICFR represented 2.6% of the Corporation's consolidated total revenue for the year ended December 31, 2020. The total assets subject to NorthPoint's ICFR represented 2.4% of the Corporation's consolidated total assets as at December 31, 2020.
There was no change in Wajax's ICFR that occurred during the three months ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, Wajax's ICFR.
Non-GAAP and Additional GAAP Measures
The MD&A contains certain non-GAAP and additional GAAP measures that do not have a standardized meaning prescribed by GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that these measures should not be construed as an alternative to net earnings or to cash flow from operating, investing, and financing activities determined in accordance with GAAP as indicators of the Corporation's performance. The Corporation's management believes that:
(i) |
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; and |
(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. |
(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 consolidated 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, CSC project costs, 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, CSC project costs, 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, CSC project costs, Tundra transaction costs and NorthPoint transaction costs. |
Adjusted EBITDA margin |
Defined as adjusted EBITDA divided by revenue, as presented in the consolidated 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. |
|
|
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. |
|
|
Earnings (loss) before finance costs and income taxes (EBIT) |
Earnings (loss) before finance costs and income taxes, as presented in the consolidated statements of earnings. |
|
Defined as EBIT divided by revenue, as presented in the consolidated statements of earnings. |
|
Earnings (loss) before income taxes, as presented in the consolidated statements of earnings.
|
Working capital |
Defined as current assets less current liabilities, as presented in the consolidated 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 consolidated 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 |
Twelve months ended |
|||||||||
December 31 |
December 31 |
|||||||||
2020 |
2019 |
2020 |
2019 |
|||||||
Net earnings |
$ |
10.7 |
$ |
12.2 |
$ |
31.7 |
$ |
39.5 |
||
Restructuring and other related costs, after-tax |
$ |
— |
$ |
0.1 |
$ |
5.7 |
$ |
4.1 |
||
Gain recorded on the sale of properties, after-tax |
$ |
(1.0) |
$ |
(2.3) |
$ |
(2.1) |
$ |
(2.3) |
||
Non-cash gains on mark to market of derivative instruments, after-tax |
$ |
(0.9) |
$ |
— |
$ |
(1.0) |
$ |
(0.4) |
||
NorthPoint transaction costs, after-tax |
$ |
— |
$ |
— |
$ |
0.2 |
$ |
— |
||
Tundra transaction costs, after-tax |
$ |
0.8 |
$ |
— |
$ |
0.8 |
$ |
— |
||
CSC project costs, after-tax |
$ |
— |
$ |
— |
$ |
— |
$ |
0.9 |
||
Adjusted net earnings |
$ |
9.6 |
$ |
10.1 |
$ |
35.1 |
$ |
41.9 |
||
Adjusted basic earnings per share(1)(2) |
$ |
0.48 |
$ |
0.51 |
$ |
1.75 |
$ |
2.10 |
||
Adjusted diluted earnings per share(1)(2) |
$ |
0.47 |
$ |
0.50 |
$ |
1.71 |
$ |
2.05 |
||
(1) |
At December 31, 2020, the numbers of basic and diluted shares outstanding were 20,033,619 and 20,574,840, respectively for the three months ended and 20,029,345 and 20,486,768, respectively for the twelve months ended. |
(2) |
At December 31, 2019, the numbers of basic and diluted shares outstanding were 20,009,494 and 20,421,685, respectively for the three months ended and 19,998,656 and 20,416,191, respectively for the twelve 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 |
Twelve months ended |
|||||||
December 31 |
December 31 |
December 31 |
December 31 |
|||||
Net earnings |
$ |
10.7 |
$ |
12.2 |
$ |
31.7 |
$ |
39.5 |
Income tax expense |
$ |
4.0 |
$ |
3.8 |
$ |
11.9 |
$ |
14.3 |
EBT |
$ |
14.8 |
$ |
16.0 |
$ |
43.6 |
$ |
53.8 |
Finance costs |
$ |
4.1 |
$ |
5.4 |
$ |
21.0 |
$ |
19.7 |
EBIT |
$ |
18.8 |
$ |
21.4 |
$ |
64.6 |
$ |
73.5 |
Depreciation and amortization |
$ |
13.5 |
$ |
12.5 |
$ |
52.4 |
$ |
52.8 |
EBITDA |
$ |
32.3 |
$ |
33.9 |
$ |
117.0 |
$ |
126.3 |
Restructuring and other related costs(1) |
$ |
— |
$ |
0.2 |
$ |
7.8 |
$ |
5.6 |
Gain recorded on the sale of properties |
$ |
(1.2) |
$ |
(2.3) |
$ |
(2.7) |
$ |
(2.3) |
Non-cash gains on mark to market of derivative instruments(2) |
$ |
(1.2) |
$ |
— |
$ |
(1.4) |
$ |
(0.5) |
NorthPoint transaction costs(3) |
$ |
— |
$ |
— |
$ |
0.2 |
$ |
— |
Tundra transaction costs(4) |
$ |
1.0 |
$ |
— |
$ |
1.0 |
$ |
— |
CSC project costs(5) |
$ |
— |
$ |
0.1 |
$ |
— |
$ |
1.2 |
Adjusted EBITDA |
$ |
30.9 |
$ |
31.9 |
$ |
122.0 |
$ |
130.3 |
Payment of lease liabilities(6) |
$ |
(6.2) |
$ |
(5.6) |
$ |
(22.9) |
$ |
(22.0) |
Pro-forma adjusted EBITDA |
$ |
24.7 |
$ |
26.3 |
$ |
99.0 |
$ |
108.4 |
(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 2020, the Corporation incurred transaction costs relating to the upcoming Tundra acquisition which closed on January 22, 2021. These costs were primarily for advisory services. |
(5) |
In 2019, the Corporation incurred professional fees relating to the CSC project. |
(6) |
Effective with the reporting period beginning on January 1, 2019 and the adoption of IFRS 16, the Corporation amended the definition of Funded net debt to exclude lease liabilities not considered part of debt. As a result, the corresponding lease costs must also be deducted from EBITDA for the purpose of calculating the leverage ratio. |
Calculation of the Corporation's funded net debt, debt, leverage ratio and senior secured leverage ratio is as follows:
December 31 |
December 31 |
|||
Cash |
$ |
(6.6) |
$ |
(3.2) |
Debentures |
$ |
54.6 |
$ |
54.1 |
Long-term debt |
$ |
171.6 |
$ |
225.6 |
Funded net debt |
$ |
219.6 |
$ |
276.5 |
Letters of credit |
$ |
6.4 |
$ |
5.5 |
Debt |
$ |
226.0 |
$ |
282.0 |
Pro-forma adjusted EBITDA(1) |
$ |
99.0 |
$ |
108.4 |
Leverage ratio(2) |
2.28 |
2.60 |
||
Senior secured leverage ratio(3) |
1.73 |
2.10 |
||
(1) |
For the twelve months ended December 31, 2020 and December 31, 2019. |
(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, our organic growth strategy, our acquisition strategy and investments in our infrastructure; our introduction of a more comprehensive sustainability program and the achievement of 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, despite the challenges of 2020 carrying over into 2021, we are positioned to succeed over the long term; our focus and main objectives in managing our business through the COVID-19 pandemic; our expectation that Tundra will be the significant contributor to our total revenue growth in 2021, and that organic revenue growth will be modest during the year; our intention to make conservative inventory and working capital investment pending clear indication of a sustained recovery; our expectation that, considering the debt related to the acquisition of Tundra to be incurred during the first quarter, our leverage will decline by year-end due to positive cash flow from operations, our real estate monetization program and other cash management initiatives; regarding our key product categories, our plans to continue our focus on success in construction, material handling, forestry and mining, and our believe that we have excellent opportunities in these areas; our expectation that our industrial parts and ERS categories will yield higher organic growth and a strong contribution will come from Tundra, and that ERS continues to be one of Wajax's most significant opportunities; our expectation that our key infrastructure programs will continue in 2021, including investments in branch consolidation and technology; our plans to begin implementing our new ERP system in the second quarter of 2021 and our plans to minimize the associated implementation risks; our intention to manage owned and consignment equipment inventory levels in accordance with market conditions in 2021; our expectation that the proceeds of our real estate monetization program will be used for debt reduction; our objective of maintaining a target leverage ratio range of 1.5 - 2.0 times unless a leverage ratio outside such range is required to support key growth initiatives or fluctuations in working capital levels during changes in economic cycles; our expectation that none of the impact of (a) changes in interest rates (in particular, related to unhedged variable rate debt), (b) a change in foreign currency value relative to the Canadian dollar, on transactions with customers which include unhedged foreign currency exposures, nor (c) a change in the Corporation's share price on cash-settled MTIP rights, will have a material impact on our results of operations or financial condition over the longer term; our belief that there is no significant risk of non-performance by counterparties to foreign exchange forward contracts, long-term interest rate hedge contracts and total return swap contracts; our expectation that future cash contribution requirements to defined benefit pension plans will not change materially; the adequacy of our debt capacity and sufficiency of our debt facilities; our intention and ability to access debt and equity markets or reduce dividends should additional capital be required, including the potential that we may access equity or debt markets to fund significant acquisitions, growth related capital and capital expenditures; and our financing, working and maintenance capital requirements, as well as our capital structure and leverage ratio. These statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, our ability to successfully manage our business through the COVID-19 pandemic and actions taken by governments, public authorities, suppliers and customers in response to the novel coronavirus and its variants; general business and economic conditions; the supply and demand for, and the level and volatility of prices for, oil, natural gas and other commodities; financial market conditions, including interest rates; our ability to execute our updated Strategic Plan, including our ability to develop our core capabilities, execute our organic growth priorities, complete and effectively integrate acquisitions, such as NorthPoint and Tundra, and to successfully implement new information technology platforms, systems and software; the future financial performance of the Corporation; our costs; market competition; our ability to attract and retain skilled staff; our ability to procure quality products and inventory; and our ongoing relations with suppliers, employees and customers. The foregoing list of assumptions is not exhaustive. Factors that may cause actual results to vary materially include, but are not limited to, the geographic spread and ultimate impact of the COVID-19 virus and its variants, and the duration of the coronavirus pandemic; the duration of travel, business and other restrictions imposed by governments and public authorities in response to COVID-19, as well as other measures that may be taken by such authorities; actions taken by our suppliers customers in relation to the COVID-19 pandemic, including slowing, reducing or halting operations; a continued or prolonged deterioration in general business and economic conditions (including as a result of the COVID-19 pandemic); volatility in the supply and demand for, and the level of prices for, oil, natural gas and other commodities; a continued or prolonged decrease in the price of oil or natural gas; fluctuations in financial market conditions, including interest rates; the level of demand for, and prices of, the products and services we offer; levels of customer confidence and spending; market acceptance of the products we offer; termination of distribution or original equipment manufacturer agreements; unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, our inability to reduce costs in response to slow-downs in market activity, unavailability of quality products or inventory, supply disruptions (including disruptions caused by the COVID-19 pandemic), job action and unanticipated events related to health, safety and environmental matters); our ability to attract and retain skilled staff and our ability to maintain our relationships with suppliers, employees and customers. The foregoing list of factors is not exhaustive. Further information concerning the risks and uncertainties associated with these forward-looking statements and the Corporation's business may be found in this MD&A under the heading "Risk Management and Uncertainties" and in our Annual Information Form for the year ended December 31, 2020 (the "AIF"), and in our annual MD&A for financial risks, each of which have been filed on SEDAR. The forward-looking statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement. The Corporation does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.
Readers are 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 Wajax's Annual Report, are available on SEDAR at www.sedar.com.
W A J A X C O R P O R A T IO N
C O N S O L I D A T E D 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 |
Note |
December 31, 2020 |
December 31, 2019 |
||
ASSETS |
|||||
CURRENT |
|||||
Cash |
$ |
6,625 |
$ |
3,180 |
|
Trade and other receivables |
6 |
214,507 |
238,194 |
||
Contract assets |
7 |
23,003 |
23,318 |
||
Inventory |
8 |
357,421 |
414,928 |
||
Deposits on inventory |
8 |
44,197 |
37,513 |
||
Lease receivables - current |
14 |
784 |
617 |
||
Income taxes receivable |
— |
3,166 |
|||
Prepaid expenses |
5,639 |
6,110 |
|||
Derivative financial assets - current |
18 |
1,597 |
484 |
||
653,773 |
727,510 |
||||
NON-CURRENT |
|||||
Rental equipment |
9 |
56,901 |
77,020 |
||
Property, plant and equipment |
9 |
41,371 |
42,139 |
||
Right-of-use assets |
10 |
131,733 |
117,091 |
||
Lease receivables |
14 |
6,375 |
1,714 |
||
Goodwill and intangible assets |
11 |
90,726 |
79,572 |
||
Derivative financial assets |
18 |
511 |
48 |
||
327,617 |
317,584 |
||||
Total assets |
$ |
981,390 |
$ |
1,045,094 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||
CURRENT |
|||||
Accounts payable and accrued liabilities |
12 |
$ |
231,726 |
$ |
282,611 |
Provisions - current |
13 |
6,744 |
5,045 |
||
Contract liabilities |
7 |
7,064 |
7,230 |
||
Dividends payable |
19 |
5,008 |
5,003 |
||
Income taxes payable |
1,085 |
— |
|||
Lease liabilities - current |
14 |
23,852 |
20,706 |
||
Derivative financial liabilities - current |
18 |
3,387 |
2,849 |
||
278,866 |
323,444 |
||||
NON-CURRENT |
|||||
Provisions |
13 |
216 |
216 |
||
Deferred tax liabilities |
25 |
1,388 |
3,787 |
||
Employee benefits |
15 |
9,223 |
9,144 |
||
Derivative financial liabilities |
18 |
8,285 |
4,190 |
||
Other liabilities |
2,365 |
1,386 |
|||
Lease liabilities |
14 |
129,181 |
106,424 |
||
Debentures |
16 |
54,638 |
54,115 |
||
Long-term debt |
17 |
171,580 |
225,573 |
||
376,876 |
404,835 |
||||
Total liabilities |
655,742 |
728,279 |
|||
SHAREHOLDERS' EQUITY |
|||||
Share capital |
19 |
181,274 |
181,075 |
||
Contributed surplus |
7,698 |
7,165 |
|||
Retained earnings |
143,271 |
130,961 |
|||
Accumulated other comprehensive loss |
(6,595) |
(2,386) |
|||
Total shareholders' equity |
325,648 |
316,815 |
|||
Total liabilities and shareholders' equity |
$ |
981,390 |
$ |
1,045,094 |
|
Subsequent events (Note 32)
See accompanying notes to consolidated financial statements.
W A J A X C O R P O R A T I O N
C O N S O L I D A T E D S T A T E M E N T S O F
E A R N I N G S
For the years ended December 31 |
Note |
2020 |
2019 |
||
Revenue |
21 |
$ |
1,422,648 |
$ |
1,553,046 |
Cost of sales |
1,160,688 |
1,261,222 |
|||
Gross profit |
261,960 |
291,824 |
|||
Selling and administrative expenses |
189,593 |
212,752 |
|||
Restructuring and other related costs |
13, 23 |
7,799 |
5,587 |
||
Earnings before finance costs and income taxes |
64,568 |
73,485 |
|||
Finance costs |
24 |
20,975 |
19,716 |
||
Earnings before income taxes |
43,593 |
53,769 |
|||
Income tax expense |
25 |
11,940 |
14,265 |
||
Net earnings |
$ |
31,653 |
$ |
39,504 |
|
Basic earnings per share |
19 |
$ |
1.58 |
$ |
1.98 |
Diluted earnings per share |
19 |
1.55 |
1.93 |
||
W A J A X C O R P O R A T I O N
C O N S O L I D A T E D 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
For the years ended December 31 |
Note |
2020 |
2019 |
||
Net earnings |
$ |
31,653 |
$ |
39,504 |
|
Items that will not be reclassified to income |
|||||
Actuarial (losses) gains on pension plans, net of tax recovery of |
15 |
(32) |
14 |
||
Items that may be subsequently reclassified to earnings |
|||||
(Gains) losses on derivative instruments designated as cash |
(13) |
262 |
|||
(Losses) gains on derivative instruments outstanding at the end |
(4,196) |
(1,047) |
|||
Other comprehensive loss, net of tax |
(4,241) |
(771) |
|||
Total comprehensive income |
$ |
27,412 |
$ |
38,733 |
|
See accompanying notes to consolidated financial statements.
W A J A X C O R P O R A T I O N
C O N S O L I D A T E D S T A T E M E N T 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 year ended December 31, 2020 |
Note |
Share |
Contributed |
Retained |
Cash flow |
Total |
|||||
December 31, 2019 |
$ |
181,075 |
$ |
7,165 |
$ |
130,961 |
$ |
(2,386) |
$ |
316,815 |
|
Net earnings |
— |
— |
31,653 |
— |
31,653 |
||||||
Other comprehensive loss |
— |
— |
(32) |
(4,209) |
(4,241) |
||||||
Total comprehensive income (loss) |
— |
— |
31,621 |
(4,209) |
27,412 |
||||||
Shares released from trust to settle share-based compensation |
19 |
199 |
(1,264) |
721 |
— |
(344) |
|||||
Share-based compensation expense |
20 |
— |
1,797 |
— |
— |
1,797 |
|||||
Dividends declared |
19 |
— |
— |
(20,032) |
— |
(20,032) |
|||||
December 31, 2020 |
$ |
181,274 |
$ |
7,698 |
$ |
143,271 |
$ |
(6,595) |
$ |
325,648 |
|
See accompanying notes to consolidated financial statements.
W A J A X C O R P O R A T I O N
C O N S O L I D A T E D S T A T E M E N T 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 year ended December 31, 2019 |
Note |
Share |
Contributed |
Retained |
Cash flow |
Total |
|||||
December 31, 2018 |
$ |
180,369 |
$ |
7,360 |
$ |
110,842 |
$ |
(1,601) |
$ |
296,970 |
|
Net earnings |
— |
— |
39,504 |
— |
39,504 |
||||||
Other comprehensive gain (loss) |
— |
— |
14 |
(785) |
(771) |
||||||
Total comprehensive income (loss) |
— |
— |
39,518 |
(785) |
38,733 |
||||||
Shares issued to settle share-based compensation |
19 |
530 |
(530) |
— |
— |
— |
|||||
Shares released from trust to settle share-based compensation plans |
19 |
176 |
(1,215) |
607 |
— |
(432) |
|||||
Share-based compensation expense |
20 |
— |
1,550 |
— |
— |
1,550 |
|||||
Dividends declared |
19 |
— |
— |
(20,006) |
— |
(20,006) |
|||||
December 31, 2019 |
$ |
181,075 |
$ |
7,165 |
$ |
130,961 |
$ |
(2,386) |
$ |
316,815 |
|
See accompanying notes to consolidated financial statements.
W A J A X C O R P O R A T I O N
C O N S O L I D A T E D S T A T E M E N T S O F
C A S H F L O W S
For the years ended December 31 |
Note |
2020 |
2019 |
||
OPERATING ACTIVITIES |
|||||
Net earnings |
$ |
31,653 |
$ |
39,504 |
|
Items not affecting cash flow: |
|||||
Depreciation and amortization: |
|||||
Rental equipment |
9 |
18,526 |
20,678 |
||
Property, plant and equipment |
9 |
7,527 |
6,876 |
||
Right-of-use assets |
10 |
23,953 |
23,029 |
||
Intangible assets |
11 |
2,404 |
2,182 |
||
Gain on disposal of property, plant and equipment |
(2,998) |
(2,329) |
|||
Share-based compensation expense |
20 |
4,482 |
3,446 |
||
Non-cash income from finance leases |
(491) |
(174) |
|||
Employee benefits expense, net of payments |
248 |
470 |
|||
(Gain) loss on derivative financial instruments |
18 |
(1,129) |
88 |
||
Finance costs |
24 |
20,975 |
19,716 |
||
Income tax expense |
25 |
11,940 |
14,265 |
||
117,090 |
127,751 |
||||
Changes in non-cash operating working capital |
26 |
48,834 |
(50,546) |
||
Rental equipment additions |
9 |
(16,489) |
(37,531) |
||
Other non-current liabilities |
(246) |
(1,374) |
|||
Cash paid on settlement of total return swaps |
18 |
(1,396) |
(1,479) |
||
Finance costs paid on debts |
(11,207) |
(13,051) |
|||
Finance costs paid on lease liabilities |
14, 24 |
(8,152) |
(5,675) |
||
Interest collected on lease receivables |
24 |
147 |
— |
||
Income taxes paid |
(9,774) |
(27,764) |
|||
Cash generated from (used in) operating activities |
118,807 |
(9,669) |
|||
INVESTING ACTIVITIES |
|||||
Property, plant and equipment additions |
9 |
(6,510) |
(5,943) |
||
Proceeds on disposal of property, plant and equipment |
9,895 |
10,124 |
|||
Intangible assets additions |
11 |
(4,181) |
(5,352) |
||
Collection of lease receivables |
1,085 |
— |
|||
Acquisition of business (net of cash acquired) |
5 |
(17,931) |
(795) |
||
Cash used in investing activities |
(17,642) |
(1,966) |
|||
FINANCING ACTIVITIES |
|||||
Net (decrease) increase in bank debt |
17 |
(54,371) |
7,362 |
||
Proceeds from issuance of debentures |
16 |
— |
57,000 |
||
Transaction costs on debts |
16 |
(37) |
(3,224) |
||
Payment of lease liabilities |
14 |
(22,940) |
(21,967) |
||
Payment of tax withholding for share-based compensation |
(345) |
(432) |
|||
Dividends paid |
(20,027) |
(19,992) |
|||
Cash (used in) generated from financing activities |
(97,720) |
18,747 |
|||
Change in cash and bank indebtedness |
3,445 |
7,112 |
|||
Cash (bank indebtedness) - beginning of year |
3,180 |
(3,932) |
|||
Cash - end of year |
$ |
6,625 |
$ |
3,180 |
|
See accompanying notes to consolidated financial statements.
W A J A X C O R P O R A T I O N
N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
For the years ended December 31, 2020 and 2019
(amounts in thousands of Canadian dollars, except share and per share data)
1. COMPANY PROFILE
Wajax Corporation (the "Corporation") is incorporated in Canada. The address of the Corporation's registered head office is 2250 Argentia Road, Mississauga, Ontario, Canada. The Corporation operates an integrated distribution system, providing sales, parts and services to a broad range of customers in diversified sectors of the Canadian economy, including: construction, forestry, mining, industrial and commercial, oil sands, transportation, metal processing, government and utilities, and oil and gas.
2. BASIS OF PREPARATION
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as published by the International Accounting Standards Board ("IASB").
These consolidated financial statements were authorized for issue by the Board of Directors on March 1, 2021.
Basis of measurement
These consolidated financial statements have been prepared under the historical cost basis except for derivative financial instruments and share-based payment arrangements that have been measured at fair value. The defined benefit liability is recognized as the net total of the fair value of the plan assets and the present value of the defined benefit obligation.
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand, unless otherwise stated and except share and per share data.
Judgements and estimation uncertainty
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts and disclosures made in these consolidated financial statements. Actual results could differ from those judgements, estimates and assumptions. The Corporation bases its estimates on historical experience and various other assumptions that are believed to be reasonable in the circumstances.
On March 11, 2020, the World Health Organization declared the novel coronavirus a global pandemic. The COVID-19 outbreak and related mitigation measures have had an adverse impact on global economic conditions resulting in government response actions, business closures, social distancing and disruptions. The duration of the pandemic and its impact on the Corporation's financial performance and position is an area of judgment and estimation uncertainty, which is continuously monitored and reflected in management's estimates.
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 which covers many business sectors across Canada. In addition, the Corporation's customer base spans large public companies, small independent contractors, original equipment manufacturers and various levels of government. The Corporation follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Corporation maintains an allowance for possible credit losses, and any such losses to date have been within management's expectations. The allowance for credit losses is determined by estimating the lifetime expected credit losses, taking into account the Corporation's past experience of collecting payments as well as observable changes in and forecasts of future economic conditions that correlate with default on receivables. At the point when the Corporation is satisfied that no recovery of the amount owing is possible, the amount is considered not recoverable and the financial asset is written off.
Inventory obsolescence
The value of the Corporation's new and used equipment and high value parts is evaluated by management throughout the year, on a unit-by-unit basis considering projected customer demand, future market conditions, and other considerations evaluated by management. When required, provisions are recorded to ensure that equipment and parts are valued at the lower of cost and estimated net realizable value. The Corporation performs an aging analysis to identify slow moving or obsolete lower value parts inventory and estimates appropriate obsolescence provisions related thereto. The Corporation takes advantage of supplier programs that allow for the return of eligible parts for credit within specified time periods.
Goodwill and intangible assets
The value in use of goodwill and intangible assets has been estimated using the forecasts prepared by management for the next five years. The key assumptions for the estimate are those regarding revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin, tax rates, discount rates 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.
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 advantage for renewal.
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include the accounts of Wajax Corporation and its subsidiary entities, which are all wholly-owned. Intercompany balances and transactions are eliminated on consolidation.
Revenue recognition
Revenue from contracts with customers is recognized for each performance obligation as control is transferred to the customer. The following is a description of principal activities from which the Corporation generates its revenue, and the associated timing of revenue recognition.
Revenue type |
Nature and timing of satisfaction of performance obligations |
Equipment sales |
|
Retail sales |
Retail sales include the sale of new and used equipment. The Corporation recognizes revenue when control of the equipment passes to the customer based on shipment terms. |
Construction contracts |
Construction contracts are equipment sales that involve design, installation, and assembly. As a result of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The Corporation generally uses the cost-to-cost measure of progress for its contracts because it best reflects the transfer of control of the work-in-progress to the customer as the asset is being constructed. |
Industrial parts |
The Corporation recognizes revenue when control of the parts passes to the customer based on shipment terms. |
Product support |
|
Service |
As a result of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The Corporation generally uses the cost-to-cost measure of progress for its service work because the customer controls the asset as it is being serviced. |
Parts |
The Corporation recognizes revenue when control of the parts passes to the customer based on shipment terms or upon customer pickup. |
Engineered repair services ("ERS") |
This revenue consists primarily of ERS. As a result of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The Corporation generally uses the cost-to-cost measure of progress for ERS because it best reflects the transfer of control of the work-in-progress to the customer as the asset is being constructed or modified. |
The transaction price is generally the amount stated in the contract. Certain contracts are subject to discounts which are estimated and included in the transaction price. Provisions are made for expected returns and warranty costs based on historical data.
Revenue from the rental of equipment is recognized on a straight-line basis over the term of the lease.
Business combinations
Business combinations are accounted for using the acquisition method at the acquisition date, which is the date that control is transferred to the Corporation. In assessing control, the Corporation takes into consideration potential voting rights that are currently exercisable.
Goodwill is measured as the excess of the sum of the fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of any previously held equity interest in the acquiree over the net of the acquisition date fair value of the identifiable assets acquired and the liabilities assumed. If the excess is negative, a bargain purchase gain is recognized immediately in earnings. Transaction costs, other than those associated with the issue of debt or equity, are recognized in earnings as incurred.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured, and settlement is accounted for in equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in earnings.
When the initial accounting for a business combination has not been finalized by the end of the reporting period in which the combination occurs, the Corporation reports provisional amounts for the items for which the accounting has not been finalized. These provisional amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date, to reflect new information obtained about facts and circumstances that existed at the acquisition date.
Trade and other receivables
Trade accounts receivable are amounts due from customers for merchandise sold or services performed in the ordinary course of business. Other accounts receivable are generally from suppliers for warranty and rebates. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade accounts receivable are recognized initially at amounts due, net of impairment for estimated expected credit losses. The expense relating to expected credit losses is included within selling and administrative expenses in the consolidated statements of earnings.
Contract assets
Contract assets primarily relate to the Corporation's rights to consideration for work completed but not billed at the reporting date on product support and ERS revenue. The contract assets are transferred to receivables when billed.
Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is determined using the weighted average method except where the items are not ordinarily interchangeable, in which case the specific identification method is used. Cost of equipment and parts includes purchase cost, conversion cost, if applicable, and the cost incurred in bringing inventory to its present location and condition. Cost of work-in-process and cost of conversion includes cost of direct labour, direct materials and a portion of direct and indirect overheads, allocated based on normal capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs to sell.
Deposits on inventory
In the normal course of business, the Corporation receives inventory on consignment from a major manufacturer which is either rented, sold to customers, or purchased. Under the terms of the consignment program, the Corporation is required to make periodic deposits to the manufacturer on the consigned inventory that is rented to customers or on-hand for greater than nine months. This consigned inventory is not included in the Corporation's inventory as the manufacturer retains title to the goods, however the deposits paid to the manufacturer are recorded as deposits on inventory. Other inventory prepayments are also included in deposits on inventory.
Rental equipment
Rental equipment is recorded at cost less accumulated depreciation. Cost includes all expenditures directly attributable to the acquisition of the asset. Rental equipment is depreciated over its estimated useful life to its estimated residual value on a straight-line basis, which ranges from 4 to 5 years.
Rental equipment includes units transferred from inventory and excludes units transferred to inventory when the rental equipment becomes available for sale.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Cost includes all expenditures directly attributable to the acquisition of the asset. Assets are depreciated over their estimated useful lives based on the following methods and annual rates:
Asset |
Method |
Rate |
Buildings |
declining balance |
5% - 10% |
Equipment and vehicles |
declining balance |
20% - 30% |
Computer hardware |
straight-line |
3 - 5 years |
Furniture and fixtures |
declining balance |
10% - 20% |
Leasehold improvements |
straight-line |
over the remaining terms of the leases |
Leases
As a lessee
The Corporation leases properties for its branch network, certain vehicles, machinery and IT equipment. At the commencement of the lease, the Corporation recognizes a right-of-use asset and a corresponding lease liability.
Lease liabilities are initially measured at the present value of the remaining lease payments discounted using the implicit interest rate in the lease or, if that rate is not readily determinable, the Corporation's incremental borrowing rate. Lease payments over the estimated lease term included in the measurement of the lease liability comprise of: fixed payments, adjusted for any lease incentives receivable, variable payments that are based on an index or a rate, amounts expected to be payable under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for early termination of a lease unless the Corporation is reasonably certain not to terminate early. Not included in the balance of lease liabilities are short-term leases (defined as leases with a lease term of 12 months or less), leases of low-value assets and variable lease payments not linked to an index, which are all expensed as incurred in the consolidated statements of earnings. Lease liabilities are subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest rate method) and by reducing the carrying amount to reflect the lease payments made.
Right-of-use assets at inception include the initial measurement of the corresponding lease liability, lease payments made at or before the commencement date and any initial direct costs. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation of right-of-use assets is recorded in selling and administrative expenses. Depreciation is recorded on a straight-line basis over the lease term, unless the lease transfers ownership of the underlying asset to the Corporation by the end of the lease term, in which case depreciation is recorded from the commencement date to the end of the useful life of the underlying asset.
The Corporation remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) if there is a change in the future lease payments, a change in the Corporation's estimate of the amounts expected to be payable or if the Corporation changes its assessments of whether it will exercise a purchase, renewal, or termination option.
As a lessor
When the Corporation acts as lessor, it determines at lease commencement whether each lease is a finance lease or an operating lease. To classify each lease, the Corporation makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Corporation considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
Operating leases
The Corporation rents equipment to customers under rental agreements with terms of up to 5 years. The rentals are 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 finance 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.
Goodwill and intangible assets
Goodwill arising in a business combination is recognized as an asset at the date that control is acquired. Goodwill and indefinite life intangible assets are subsequently measured at cost less accumulated impairment losses. Goodwill and indefinite life intangible assets are not amortized but are tested for impairment at least annually, or more frequently if certain indicators arise that indicate the assets might be impaired. Goodwill and indefinite life intangible assets are allocated to cash-generating units ("CGUs") that are expected to benefit from the synergies of the acquisition.
Product distribution rights represent the fair value attributed to these rights at the time of acquisition and are classified as indefinite life intangible assets because the Corporation is generally able to renew these rights with minimal cost of renewal.
Customer lists and non-competition agreements are amortized on a straight-line basis over their useful lives which range from 2 to 12 years. Computer application software is classified as an intangible asset and is amortized on a straight-line basis over the useful life ranging from 1 to 7 years.
Impairment
Property, plant and equipment, rental equipment, right-of-use assets and definite life intangible assets are reviewed at the end of each period to determine if any indicators of impairment exist. If an indicator of impairment is identified, an impairment test is performed comparing its recoverable amounts to its carrying value. An impairment loss would be recognized as the amount by which the asset's carrying amount exceeds its recoverable amount. Where the asset does not generate cash flows that are independent of other assets, impairment is considered for the CGU or group of CGUs to which the asset belongs.
Goodwill and indefinite life intangible assets are tested for impairment at least annually or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. To test for impairment, the Corporation compares the carrying values of its goodwill and indefinite life intangibles to their recoverable amounts. Recoverable amount is the higher of value in use or fair value less costs of disposal, if the fair value can be readily determined. The value in use is the present value of future cash flows using a pre-tax discount rate that reflects the time value of money and the risk specific to the assets. The fair value less costs of disposal is determined either by an adjusted net asset-based approach or by the present value of future cash flows from a market participant perspective. Any impairment of goodwill or indefinite life intangible assets would be recorded as a charge against earnings.
A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. For the purpose of impairment testing the CGUs are grouped at the level at which it is monitored, which is at the consolidated Corporation level. As a result, goodwill and intangible assets impairment has been tested for impairment using the cash flows generated by the consolidated operations of the Corporation.
Financial assets measured at amortized cost are assessed for impairment at the end of each reporting period and a loss allowance is measured by estimating the lifetime expected credit losses ("ECL"). The Corporation uses the simplified approach to determine ECL on trade and other receivables, using a provision matrix based on historical credit loss experiences adjusted to reflect information about current economic conditions and forecasts of future economic conditions to estimate lifetime ECL. The ECL models applied to other financial assets and contract assets also required judgement, assumptions and estimations on changes in credit risks, forecasts of future economic conditions and historical information on the credit quality of the financial asset. Impairment losses are recorded in selling and administrative expenses with the carrying amount of the financial asset reduced through the use of impairment allowance accounts.
Cash and bank indebtedness
Cash and bank indebtedness includes cash on hand, demand deposits, bank overdrafts and outstanding cheques. The Corporation considers bank indebtedness to be an integral part of the Corporation's cash management. Cash and bank indebtedness are offset and the net amount presented in the consolidated statements of financial position to the extent that there is a right to set off and a practice of net settlement.
Borrowing costs
Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalized, until those assets are substantially ready for their intended use. Qualifying assets are those that take a substantial period of time to prepare for their intended use. All other borrowing costs are recognized in finance costs in the period in which they are incurred.
Finance costs
Finance costs are comprised of interest on the Corporation's long-term debt and debentures, interest on lease liabilities, and interest income on lease receivables, and are net of any borrowing costs that have been capitalized. Transaction costs directly attributable to the acquisition or amendment of long-term debt or debentures are deferred and amortized to finance costs over the term of the related long-term debt or debentures using the effective interest rate method. Deferred financing costs reduce the carrying amount of the related long-term debt or debentures.
Government grants
Government grants are recognized when there is reasonable assurance that the grant will be received and all conditions associated with the grant are met. Claims under income-related government grants are reported in the consolidated statements of earnings as a deduction from the related expenses. Government grants receivable are recorded in trade and other receivables on the consolidated statements of financial position.
Derivative financial instruments and hedge accounting
The Corporation uses derivative financial instruments in the management of: a) its foreign currency exposures related to certain inventory purchases and customer sales commitments, b) its interest rate risk related to its variable rate debt, and c) its equity price risk related to certain share-based compensation plans. The Corporation's policy is to not utilize derivative financial instruments for trading or speculative purposes. Where the Corporation intends to apply hedge accounting it formally documents the relationship between the derivative and the risk being hedged, as well as the risk management objective and strategy for undertaking the hedge transaction. The documentation links the derivative to a specific asset or liability or to specific firm commitments or forecasted transactions. The Corporation also assesses, at the hedge's inception and at least quarterly whether the hedge is effective in offsetting changes in fair values or cash flows of the risk being hedged. Should a hedge become ineffective, hedge accounting will be discontinued prospectively. All derivative instruments are recorded in the consolidated statements of financial position at fair value. All changes in fair value are recorded in earnings unless hedge accounting is applied, in which case the effective portion of changes in fair value of the hedged instrument are recorded in other comprehensive income. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a non-financial asset or liability, then, at the time the asset or liability is recognized, the associated gains or losses on the derivative that had previously been recognized in other comprehensive income are included in the initial measurement of the asset or liability.
Share-based compensation plans
The fair value of share-based compensation plan rights is based on the trading price of a Wajax Corporation common share on the Toronto Stock Exchange ("TSX") or a Monte Carlo simulation. Compensation expense for share-settled plans is based upon the fair value of the rights at the date of grant and is charged to selling and administrative expenses on a straight-line basis over the vesting period, with an offsetting adjustment to contributed surplus. Compensation expense for cash-settled plans varies with the price of the Corporation's shares and is charged to selling and administrative expenses, recognized over the vesting period with an offset to accounts payable and accrued liabilities.
Employee benefits
The Corporation has defined contribution pension plans for most of its employees. The cost of the defined contribution plans is recognized in earnings based on the contributions required to be made each year.
The Corporation also has defined benefit plans covering certain of its employees. The benefits are based on years of service and the employees' earnings. Defined benefit plan obligations are accrued as the employees render the services necessary to earn the pension benefits. The Corporation has adopted the following policies:
- The cost of pension benefits earned by employees is actuarially determined using the projected unit credit method for defined benefit plans and management's best estimate of salary escalation, and retirement ages of employees.
- For purposes of calculating expected return on plan assets, those assets are valued at fair value.
- The charge to earnings for the defined benefit plans is split between an operating cost and a finance charge. The finance charge represents the net interest cost on the defined benefit obligation net of the expected return on plan assets and is included in selling and administrative expenses.
- Actuarial gains and losses are recognized in full in other comprehensive income in the year in which they occur.
Income taxes
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in earnings except to the extent that they relate to a business combination or to items recognized directly in equity or in other comprehensive income.
Current tax is the expected taxes payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to income taxes payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognized for unused tax losses and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
4. CHANGE IN ACCOUNTING POLICIES
During the year, the Corporation did not adopt any new accounting standards or amendments that had an impact on the Corporation's consolidated financial statements.
Accounting standards and amendments issued but not yet adopted
- Amendments to IAS 1, Presentation of Financial Statements (effective January 1, 2023) clarify the classification of liabilities as current or non-current. For the purposes of non-current classification, the amendments remove the requirement for a right to defer settlement of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period in order to qualify for non-current classification. Management is currently assessing the impact of adopting these amendments on its financial statements.
- Amendments to IFRS 9, Financial Instruments and IFRS 7, Financial Instruments: Disclosures (effective January 1, 2021) are the IASB's response to the ongoing reform of inter-bank offered rates and other interest rate benchmarks. The amendments are the Phase 2 amendments and complement those issued in 2019 as part of Phase 1 amendments. A company will not have to derecognize the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate. In addition, a company will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria. And finally, some additional disclosure may be necessary relating to any new risks arising from the reform. Management is currently assessing the impact of adopting these amendments on its financial statements, but does not expect the impact to be material.
5. ACQUISITION OF BUSINESS
NorthPoint Technical Services ULC ("NorthPoint")
On January 13, 2020, the Corporation acquired all of the issued and outstanding shares of Calgary, Alberta-based NorthPoint. The aggregate purchase price for the shares was $19,369 in cash. NorthPoint was formed in 2018 as a national electro-mechanical services provider and specializes in the repair of rotating industrial equipment. NorthPoint revenues of $36,877 and net earnings of $2,095 were included in the consolidated statements of earnings from the date of acquisition.
Recognized amounts of identifiable assets acquired and liabilities assumed for the acquisition are as follows:
Cash |
$ |
1,438 |
Trade and other receivables |
8,236 |
|
Contract assets |
2,471 |
|
Inventory |
1,128 |
|
Prepaid expenses |
337 |
|
Property, plant and equipment |
3,409 |
|
Right-of-use assets |
12,926 |
|
Accounts payable and accrued liabilities |
(5,340) |
|
Contract liabilities |
(116) |
|
Income taxes payable |
(68) |
|
Lease liabilities - current |
(1,680) |
|
Deferred tax liabilities |
(1,179) |
|
Lease liabilities - non-current |
(11,570) |
|
Tangible net assets acquired |
$ |
9,992 |
Intangible assets |
4,000 |
|
Goodwill |
5,377 |
|
Total Purchase Price |
$ |
19,369 |
As at December 31, 2020, the purchase price allocation is considered final. Net cash outflow for the acquisition was $17,931, as $1,438 of cash was acquired as part of NorthPoint's net assets.
Trade and other receivables represents gross contractual amounts receivable of $8,294 less management's best estimate of the allowance for credit losses of $58.
Goodwill arises principally from the ability to leverage the assembled workforce, industry knowledge, future growth and the potential to realize synergies in the form of cost savings. The goodwill recorded on the acquisition of NorthPoint is not deductible for income tax purposes.
NorthPoint transaction costs, primarily for advisory services, were approximately $241 and were included in selling and administrative expenses for the year ended December 31, 2020.
6. 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:
December 31, 2020 |
December 31, 2019 |
||||
Trade accounts receivable |
$ |
191,482 |
$ |
213,686 |
|
Less: allowance for credit losses |
(3,626) |
(2,371) |
|||
Net trade accounts receivable |
187,856 |
211,315 |
|||
Other receivables |
26,651 |
26,879 |
|||
Total trade and other receivables |
$ |
214,507 |
$ |
238,194 |
|
The Corporation has two agreements with financial institutions to sell 100% of selected trade accounts receivable on a recurring, non-recourse basis. Under the first agreement, up to $20,000 of accounts receivable may be sold to the financial institution and can remain outstanding at any point in time, while the second has no limit. After the sale, the Corporation does not retain any interests in the accounts receivable and removes them from its consolidated statement of financial position. For the first agreement, the Corporation continues to service and collect the outstanding accounts receivable on behalf of the financial institution. As at December 31, 2020, the Corporation continues to service and collect $11,696 in accounts receivable on behalf of this financial institution (December 31, 2019 - $13,388). For the second agreement, after the sale of accounts receivable to the financial institution, the Corporation does not continue to service and collect the outstanding accounts receivable on behalf of the financial institution. Net proceeds from these programs are classified in operating activities in the consolidated statements of cash flows.
The Corporation's exposure to credit and currency risks related to trade and other receivables is disclosed in Note 18.
7. CONTRACT ASSETS AND LIABILITIES
The following table provides information about contract assets and contract liabilities from contracts with customers:
December 31, 2020 |
December 31, 2019 |
||||
Contract assets |
$ |
23,003 |
$ |
23,318 |
|
Contract liabilities |
$ |
7,064 |
$ |
7,230 |
|
The contract assets primarily relate to the Corporation's rights to consideration for work completed but not billed at the reporting date on product support and ERS revenue. The contract assets are transferred to receivables when billed upon completion of significant milestones. The contract liabilities primarily relate to the advance consideration received from customers on equipment sales, industrial parts, and ERS revenue, for which revenue is recognized when control transfers to the customer.
Revenue recognized in 2020 that was included in the contract liability balance at the beginning of the year was $6,535 (2019 - $6,905).
8. INVENTORY
The Corporation's inventory balances consists of the following:
December 31, 2020 |
December 31, 2019 |
||||
Equipment |
$ |
218,740 |
$ |
256,058 |
|
Parts |
125,252 |
138,210 |
|||
Work-in-process |
13,429 |
20,660 |
|||
Total inventory |
$ |
357,421 |
$ |
414,928 |
|
All amounts shown are net of obsolescence provisions of $28,144 (December 31, 2019 - $26,263). For the year ended December 31, 2020, $7,111 (2019 - $2,297) was recorded in cost of sales for the write-down of inventory to estimated net realizable value.
For the year ended December 31, 2020, the Corporation recognized $929,646 (2019 - $1,006,929) of inventory as an expense which is included in cost of sales.
As at December 31, 2020, the Corporation has included $41,815 (December 31, 2019 - $54,022) in equipment inventory related to short-term rental contracts that are expected to convert to equipment sales within a six to twelve month period.
Substantially all of the Corporation's inventory is pledged as security for the bank credit facility.
Deposits on inventory in the consolidated statements of financial position, amounting to $44,197 as at December 31, 2020 (December 31, 2019 - $37,513), represents deposits and other required periodic payments on equipment held on consignment. These payments reduce the collateral value of the equipment and therefore the ultimate amount owing to the supplier upon eventual purchase. Upon sale of the equipment to a customer, the Corporation is required to purchase the equipment in full from the supplier.
9. PROPERTY, PLANT AND EQUIPMENT & RENTAL EQUIPMENT
Land and |
Equipment |
Computer |
Furniture |
Leasehold |
Property, |
Rental |
||||||||
Cost |
||||||||||||||
December 31, 2019 |
$ |
33,216 |
$ |
65,655 |
$ |
6,389 |
$ |
11,651 |
$ |
12,182 |
$ |
129,093 |
$ |
134,124 |
Additions |
2,006 |
2,853 |
77 |
674 |
900 |
6,510 |
16,489 |
|||||||
Transfer from leased to owned at end of lease |
— |
4,516 |
— |
— |
— |
4,516 |
— |
|||||||
Other transfers |
— |
66 |
— |
— |
— |
66 |
(66) |
|||||||
Disposals |
(6,475) |
(11,708) |
(1,730) |
(1,734) |
(891) |
(22,538) |
(38,743) |
|||||||
Acquisition of business (Note 5) |
— |
2,944 |
268 |
26 |
171 |
3,409 |
— |
|||||||
December 31, 2020 |
$ |
28,747 |
$ |
64,326 |
$ |
5,004 |
$ |
10,617 |
$ |
12,362 |
$ |
121,056 |
$ |
111,804 |
Accumulated depreciation |
||||||||||||||
December 31, 2019 |
$ |
16,891 |
$ |
48,548 |
$ |
4,153 |
$ |
8,790 |
$ |
8,572 |
$ |
86,954 |
$ |
57,104 |
Charge for the year |
506 |
4,469 |
1,041 |
573 |
938 |
7,527 |
18,526 |
|||||||
Transfer from leased to owned at end of lease |
— |
3,881 |
— |
— |
— |
3,881 |
— |
|||||||
Other transfers |
— |
66 |
— |
— |
— |
66 |
(66) |
|||||||
Disposals |
(3,698) |
(10,839) |
(1,729) |
(1,595) |
(882) |
(18,743) |
(20,661) |
|||||||
December 31, 2020 |
$ |
13,699 |
$ |
46,125 |
$ |
3,465 |
$ |
7,768 |
$ |
8,628 |
$ |
79,685 |
$ |
54,903 |
Carrying amount |
||||||||||||||
December 31, 2020 |
$ |
15,048 |
$ |
18,201 |
$ |
1,539 |
$ |
2,849 |
$ |
3,734 |
$ |
41,371 |
$ |
56,901 |
Cost |
||||||||||||||
December 31, 2018 |
$ |
37,492 |
$ |
85,851 |
$ |
5,712 |
$ |
11,135 |
$ |
11,799 |
$ |
151,989 |
$ |
128,168 |
Adoption of IFRS 16 reclassification |
— |
(24,804) |
— |
— |
— |
(24,804) |
— |
|||||||
Additions |
525 |
2,810 |
1,173 |
693 |
742 |
5,943 |
37,531 |
|||||||
Net transfers to intangibles |
— |
— |
(135) |
— |
— |
(135) |
— |
|||||||
Transfer from leased to owned at end of lease |
— |
4,168 |
— |
— |
— |
4,168 |
— |
|||||||
Disposals |
(4,801) |
(2,370) |
(361) |
(177) |
(359) |
(8,068) |
(31,575) |
|||||||
December 31, 2019 |
$ |
33,216 |
$ |
65,655 |
$ |
6,389 |
$ |
11,651 |
$ |
12,182 |
$ |
129,093 |
$ |
134,124 |
Accumulated depreciation |
||||||||||||||
December 31, 2018 |
$ |
18,092 |
$ |
54,657 |
$ |
3,795 |
$ |
8,312 |
$ |
8,116 |
$ |
92,972 |
$ |
54,452 |
Adoption of IFRS 16 reclassification |
— |
(11,617) |
— |
— |
— |
(11,617) |
— |
|||||||
Charge for the year |
687 |
3,951 |
836 |
592 |
810 |
6,876 |
20,678 |
|||||||
Net transfers to intangibles |
— |
— |
(122) |
— |
— |
(122) |
— |
|||||||
Transfer from leased to owned at end of lease |
— |
3,498 |
— |
— |
— |
3,498 |
— |
|||||||
Disposals |
(1,888) |
(1,941) |
(356) |
(114) |
(354) |
(4,653) |
(18,026) |
|||||||
December 31, 2019 |
$ |
16,891 |
$ |
48,548 |
$ |
4,153 |
$ |
8,790 |
$ |
8,572 |
$ |
86,954 |
$ |
57,104 |
Carrying amount |
||||||||||||||
December 31, 2019 |
$ |
16,325 |
$ |
17,107 |
$ |
2,236 |
$ |
2,861 |
$ |
3,610 |
$ |
42,139 |
$ |
77,020 |
All property, plant and equipment except land and buildings have been pledged as security for bank debt (Note 17).
10. RIGHT-OF-USE ASSETS
Properties |
Vehicles |
Computer |
Equipment |
Total |
||||||
Cost |
||||||||||
December 31, 2019 |
$ |
120,242 |
$ |
25,614 |
$ |
1,510 |
$ |
— |
$ |
147,366 |
Additions |
18,906 |
7,123 |
939 |
5,412 |
32,380 |
|||||
Disposals |
(1,898) |
(1,414) |
— |
— |
(3,312) |
|||||
Disposal to lease receivables upon sublease |
— |
— |
— |
(5,412) |
(5,412) |
|||||
Transfer from leased to owned at end of lease |
— |
(4,516) |
— |
— |
(4,516) |
|||||
Acquisition of business (Note 5) |
12,578 |
348 |
— |
— |
12,926 |
|||||
December 31, 2020 |
$ |
149,828 |
$ |
27,155 |
$ |
2,449 |
$ |
— |
$ |
179,432 |
Accumulated depreciation |
||||||||||
December 31, 2019 |
$ |
17,344 |
$ |
12,785 |
$ |
146 |
$ |
— |
$ |
30,275 |
Charge for the year |
18,495 |
4,962 |
496 |
— |
23,953 |
|||||
Disposals |
(1,898) |
(750) |
— |
— |
(2,648) |
|||||
Transfer from leased to owned at end of lease |
— |
(3,881) |
— |
— |
(3,881) |
|||||
December 31, 2020 |
$ |
33,941 |
$ |
13,116 |
$ |
642 |
$ |
— |
$ |
47,699 |
Carrying amount |
||||||||||
December 31, 2020 |
$ |
115,887 |
$ |
14,039 |
$ |
1,807 |
$ |
— |
$ |
131,733 |
Cost |
||||||||||
January 1, 2019 |
$ |
80,375 |
$ |
372 |
$ |
475 |
$ |
— |
$ |
81,222 |
Adoption of IFRS 16 reclassification |
— |
24,805 |
— |
— |
24,805 |
|||||
Additions |
40,613 |
4,777 |
1,035 |
2,128 |
48,553 |
|||||
Disposals |
(746) |
(172) |
— |
— |
(918) |
|||||
Disposal to lease receivables upon sublease |
— |
— |
— |
(2,128) |
(2,128) |
|||||
Transfer from leased to owned at end of lease |
— |
(4,168) |
— |
— |
(4,168) |
|||||
December 31, 2019 |
$ |
120,242 |
$ |
25,614 |
$ |
1,510 |
$ |
— |
$ |
147,366 |
Accumulated depreciation |
||||||||||
January 1, 2019 |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
Adoption of IFRS 16 reclassification |
— |
11,617 |
— |
— |
11,617 |
|||||
Charge for the year |
18,090 |
4,793 |
146 |
— |
23,029 |
|||||
Disposals |
(746) |
(127) |
— |
— |
(873) |
|||||
Transfer from leased to owned at end of lease |
— |
(3,498) |
— |
— |
(3,498) |
|||||
December 31, 2019 |
$ |
17,344 |
$ |
12,785 |
$ |
146 |
$ |
— |
$ |
30,275 |
Carrying amount |
||||||||||
December 31, 2019 |
$ |
102,898 |
$ |
12,829 |
$ |
1,364 |
$ |
— |
$ |
117,091 |
During the year ended December 31, 2020, the Corporation entered into sale and leaseback transactions for two of its owned properties (2019 - two of its owned properties). The proceeds net of transaction costs on the sale of the properties were $6,351 (2019 - $9,385) and the carrying amount was $1,779 (2019 - $2,773), resulting in a total gain on the sale of the properties of $4,572 (2019 - $6,612), of which $1,470 (2019 - $2,262) has been recognized in the consolidated statements of earnings and the remaining $3,102 (2019 - $4,350) deferred as a reduction of the right-of-use assets. The Corporation also recorded lease liabilities of $4,429 (2019 - $6,526) and right-of-use assets of $1,327 (2019 - $2,178) related to these sale and leaseback transactions. The terms of the leases are 10 years (2019 - 10 and 15 years).
11. GOODWILL AND INTANGIBLE ASSETS
The Corporation performed its annual impairment test of its goodwill and indefinite life intangibles as at December 31, 2020. The recoverable amount of the CGU group was estimated based on the present value of the future cash flows expected to be derived from the CGU group (value in use). This approach requires assumptions about revenue growth rates, EBITDA margins, tax rates, discount rates and the level of working capital required to support the business. The maintainable discretionary after-tax cash flows from operations are based on historical results, the Corporation's projected 2021 operating budget and its long term strategic plan. To prepare these calculations, the forecasts were extrapolated beyond the five year period at the estimated long-term inflation rate of 2% (2019 - 2%). The Corporation assumed a discount rate of approximately 9.0% (2019 - 9.4%) which is based on the Corporation's after-tax weighted average cost of capital.
The tax rates applied to the cash flow projections were based on the effective tax rate of the Corporation of approximately 27.4%. Tax assumptions are sensitive to changes in tax laws as well as assumptions about the jurisdictions in which profits are earned. It is possible that actual tax rates could differ from those assumed.
The Corporation concluded as at December 31, 2020 that no impairment existed in either the goodwill or the intangible assets with an indefinite life, as the recoverable amount of the CGU group exceeded its carrying value.
The Corporation did not reverse any impairment losses for definite life intangible assets for the years ended December 31, 2020 and December 31, 2019.
Goodwill |
Product |
Customer |
Software |
Total |
||||||
Cost |
||||||||||
December 31, 2019 |
$ |
50,737 |
$ |
3,236 |
$ |
23,902 |
$ |
16,020 |
$ |
93,895 |
Additions |
— |
— |
— |
4,181 |
4,181 |
|||||
Disposals |
— |
— |
— |
(4,071) |
(4,071) |
|||||
Acquisition of business (Note 5) |
5,377 |
— |
4,000 |
— |
9,377 |
|||||
December 31, 2020 |
$ |
56,114 |
$ |
3,236 |
$ |
27,902 |
$ |
16,130 |
$ |
103,382 |
Accumulated amortization |
||||||||||
December 31, 2019 |
$ |
— |
$ |
— |
$ |
9,223 |
$ |
5,100 |
$ |
14,323 |
Charge for the year |
— |
— |
2,175 |
229 |
2,404 |
|||||
Disposals |
— |
— |
— |
(4,071) |
(4,071) |
|||||
December 31, 2020 |
$ |
— |
$ |
— |
$ |
11,398 |
$ |
1,258 |
$ |
12,656 |
Carrying amount |
||||||||||
December 31, 2020 |
$ |
56,114 |
$ |
3,236 |
$ |
16,504 |
$ |
14,872 |
$ |
90,726 |
Cost |
||||||||||
December 31, 2018 |
$ |
47,663 |
$ |
3,376 |
$ |
24,131 |
$ |
10,548 |
$ |
85,718 |
Additions |
— |
— |
— |
5,352 |
5,352 |
|||||
Disposals |
— |
— |
— |
(15) |
(15) |
|||||
Transfers |
— |
— |
— |
135 |
135 |
|||||
Acquisition of business |
3,074 |
(140) |
(229) |
— |
2,705 |
|||||
December 31, 2019 |
$ |
50,737 |
$ |
3,236 |
$ |
23,902 |
$ |
16,020 |
$ |
93,895 |
Accumulated amortization |
||||||||||
December 31, 2018 |
$ |
— |
$ |
— |
$ |
7,528 |
$ |
4,505 |
$ |
12,033 |
Charge for the year |
— |
— |
1,695 |
487 |
2,182 |
|||||
Disposals |
— |
— |
— |
(14) |
(14) |
|||||
Transfers |
— |
— |
— |
122 |
122 |
|||||
December 31, 2019 |
$ |
— |
$ |
— |
$ |
9,223 |
$ |
5,100 |
$ |
14,323 |
Carrying amount |
||||||||||
December 31, 2019 |
$ |
50,737 |
$ |
3,236 |
$ |
14,679 |
$ |
10,920 |
$ |
79,572 |
During the year, $857 (2019 - nil) of borrowing costs directly attributable to the construction of qualifying assets were capitalized. The capitalization rate used to determine the amount of borrowing costs capitalized during the year was 3.7%.
Amortization of intangible assets is charged to selling and administrative expenses.
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are comprised of the following:
December 31, 2020 |
December 31, 2019 |
||||
Trade payables |
$ |
137,016 |
$ |
174,770 |
|
Deferred rental income |
854 |
1,078 |
|||
Supplier payables with extended terms |
23,493 |
41,310 |
|||
Payroll, bonuses and incentives |
26,204 |
21,869 |
|||
Accrued liabilities |
44,159 |
43,584 |
|||
Accounts payable and accrued liabilities |
$ |
231,726 |
$ |
282,611 |
|
Supplier payables with extended terms relate to equipment purchases from suppliers with payment terms ranging anywhere from approximately 60 days to 8 months.
13. PROVISIONS AND CONTINGENCIES
Restructuring |
Warranties |
Other |
Total |
||||||||
Provisions, December 31, 2019 |
$ |
3,646 |
$ |
773 |
$ |
842 |
$ |
5,261 |
|||
Charge for the year |
7,799 |
10,237 |
3,626 |
21,662 |
|||||||
Utilized in the year |
(7,693) |
(9,936) |
(2,334) |
(19,963) |
|||||||
Provisions, December 31, 2020 |
$ |
3,752 |
$ |
1,074 |
$ |
2,134 |
$ |
6,960 |
|||
Current |
$ |
3,752 |
$ |
1,074 |
$ |
1,918 |
$ |
6,744 |
|||
Non-current |
— |
— |
216 |
216 |
|||||||
Total |
$ |
3,752 |
$ |
1,074 |
$ |
2,134 |
$ |
6,960 |
|||
See Note 23 for details on the restructuring charge recognized in the year.
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 consolidated financial statements when the liability is expected to result in an outflow of economic resources, and where the obligation can be reliably measured.
14. LEASE LIABILITIES & 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:
For the year ended December 31 |
Note |
2020 |
2019 |
||||
Balance at beginning of year |
$ |
127,130 |
$ |
13,749 |
|||
Changes from operating cash flows |
|||||||
Finance costs paid on lease liabilities |
(8,152) |
(5,675) |
|||||
Changes from financing cash flows |
|||||||
Payment of lease liabilities |
(22,940) |
(21,967) |
|||||
Other changes |
|||||||
Lease liabilities recognized on January 1, 2019 per IFRS 16, Leases |
— |
82,544 |
|||||
Acquisition of business |
5 |
13,250 |
— |
||||
Interest expense |
24 |
8,152 |
5,675 |
||||
New leases, net of disposals |
35,593 |
52,804 |
|||||
Balance at end of year |
$ |
153,033 |
$ |
127,130 |
|||
Current |
$ |
23,852 |
$ |
20,706 |
|||
Non-Current |
$ |
129,181 |
$ |
106,424 |
|||
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 consolidated statements of earnings.
For the year ended December 31 |
Note |
2020 |
2019 |
||||
Expense related to short term leases |
$ |
396 |
$ |
209 |
|||
Expense related to low value assets, excluding short term leases of low value assets |
10 |
— |
|||||
Expense relating to variable lease payments not included in the measurement of lease liabilities |
1,867 |
1,323 |
|||||
Payment of lease liabilities |
22,940 |
21,967 |
|||||
Interest paid on lease liabilities |
24 |
8,152 |
5,675 |
||||
Total outflow for leases |
$ |
33,365 |
$ |
29,174 |
|||
The maturity analysis of contractual undiscounted cash flows of lease obligations is as follows:
December 31, 2020 |
December 31, 2019 |
||||
Within one year |
$ |
37,008 |
$ |
32,695 |
|
Between one and three years |
64,811 |
54,611 |
|||
Between three and five years |
43,997 |
38,398 |
|||
More than five years |
81,109 |
65,550 |
|||
Total undiscounted lease obligations |
$ |
226,925 |
$ |
191,254 |
|
As lessor
Operating leases
The Corporation rents equipment to customers under rental agreements with terms of up to 5 years. The future minimum lease payments receivable under the agreements are as follows:
December 31, 2020 |
December 31, 2019 |
||||
Less than one year |
$ |
6,074 |
$ |
9,175 |
|
Between one and five years |
5,855 |
12,052 |
|||
$ |
11,929 |
$ |
21,227 |
||
Finance leases
The Corporation subleases certain equipment to customers. The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date:
December 31, 2020 |
December 31, 2019 |
||||
Less than one year |
$ |
2,223 |
$ |
676 |
|
Between one and five years |
5,255 |
1,812 |
|||
Total undiscounted lease payments receivable |
7,478 |
2,488 |
|||
Unearned finance income |
(319) |
(157) |
|||
Lease receivables |
$ |
7,159 |
$ |
2,331 |
|
Current portion |
$ |
784 |
$ |
617 |
|
Long term portion |
$ |
6,375 |
$ |
1,714 |
|
15. EMPLOYEE BENEFITS
The Corporation sponsors 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 Wajax Limited (the "Executive Plan") and the Wajax Limited Supplemental Executive Retirement Plan (the "SERP").
Effective December 31, 2019, the Employees' Plan was wound up, which was comprised of both defined benefit and defined contribution components. Benefit accruals under the plan were frozen effective as of such date and all active members joined a new defined contribution plan sponsored by the Corporation, the Wajax Limited Defined Contribution Pension Plan (the "DC Plan"). The windup did not result in a curtailment or additional termination benefits. The timing of the full settlement of the defined benefit portion of the plan is not known as the windup is pending regulatory approval and the settlement cost will be measured at the settlement date.
The Corporation also contributes to several union sponsored multi-employer pension plans for a small number of employees. Two of these are target benefit plans but they are accounted for as defined contribution plans since the Corporation has no involvement in the management of these plans and does not have sufficient information to account for the plans as defined benefit plans.
The Corporation uses actuarial reports prepared by independent actuaries for funding and accounting purposes and measures its defined benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. These actuarial assumptions include discount rates, compensation increases, mortality rates, inflation and service life. While management believes that the actuarial assumptions are appropriate, any significant changes to those used would affect the statements of financial position and statements of earnings.
The previous actuarial valuation for the Employees' Plan for funding purposes was December 31, 2019, when it was wound up. The previous actuarial valuation for the Executive Plan for funding purposes was as at January 1, 2018, and the next valuation is as at January 1, 2021.
The following significant actuarial assumptions were used to determine the net defined benefit plan cost and the defined benefit plan obligations:
December 31, 2020 |
December 31, 2019 |
|||
Discount rate - at beginning of year (to determine plan expenses) |
3.0 |
% |
3.5 |
% |
Discount rate - at end of year (to determine defined benefit obligation) |
2.5 |
% |
3.0 |
% |
Rate of compensation increase |
— |
% |
3.0 |
% |
Rate of inflation |
2.0 |
% |
2.0 |
% |
Assumptions regarding future mortality were based on the following mortality tables: 2014 Private Sector Canadian Pensioner's Mortality Table for the Employees' Plan, and 2014 Public Sector Canadian Pensioner's Mortality Table for the Executive Plan and SERP.
Plan assets for the defined contribution plans are invested according to the directions of the plan members. Plan assets for defined benefit plans are invested in the following major categories of plan assets as a percentage of total plan assets:
Employees' Plan |
Executive Plan |
Employees' Plan |
Executive Plan |
|||||
December 31, 2020 |
December 31, 2020 |
December 31, 2019 |
December 31, 2019 |
|||||
Cash |
— |
% |
— |
% |
2.3 |
% |
0.6 |
% |
Fixed Income |
100.0 |
% |
39.9 |
% |
97.7 |
% |
40.2 |
% |
Canadian Equities |
— |
% |
— |
% |
— |
% |
0.3 |
% |
Foreign Equities |
— |
% |
60.1 |
% |
— |
% |
58.9 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
The history of adjustments on the defined benefit plans recognized in other comprehensive income for the current and prior year are as follows:
2020 |
2019 |
||||
Actuarial (gain) loss on defined benefit obligation arising from: |
|||||
Experience adjustment |
$ |
(35) |
$ |
— |
|
Demographic assumption changes |
(157) |
— |
|||
Financial assumption changes |
958 |
1,308 |
|||
766 |
1,308 |
||||
Actuarial gain on asset return |
(722) |
(1,327) |
|||
Total remeasurement loss (gain) recognized in OCI, pre-tax |
$ |
44 |
$ |
(19) |
|
Total cash payments
Total cash payments for employee future benefits for 2020, consisting of cash contributed by the Corporation to its funded pension plans, cash payments directly to beneficiaries for its unfunded pension plans, and cash contributed to its defined contribution plans was $8,610 (2019 - $8,459).
The Corporation expects to contribute $585 to the defined benefit pension plans in the year ended December 31, 2021.
The plan expenses recognized in earnings are as follows:
2020 |
2019 |
||||
Defined contribution plans |
|||||
Current service cost |
$ |
8,015 |
$ |
7,967 |
|
Defined benefit plans |
|||||
Current service cost |
288 |
295 |
|||
Administration expenses |
275 |
358 |
|||
SERP line of credit fees |
318 |
228 |
|||
Interest cost on defined benefit obligation |
648 |
728 |
|||
Interest income on assets |
(368) |
(419) |
|||
1,161 |
1,190 |
||||
Total plan expense recognized in earnings |
$ |
9,176 |
$ |
9,157 |
|
Of the amounts recognized in earnings, $3,644 (2019 - $3,600) is included in cost of sales and $5,532 (2019 - $5,557) is included in selling and administrative expenses.
The amounts recognized in other comprehensive income are as follows:
2020 |
2019 |
|||||
Net actuarial losses (gains) |
$ |
44 |
$ |
(19) |
||
Deferred tax (recovery) expense |
(12) |
5 |
||||
Amount recognized in other comprehensive income |
$ |
32 |
$ |
(14) |
||
Cumulative actuarial losses, net of tax |
$ |
3,189 |
$ |
3,157 |
||
Information about the Corporation's defined benefit pension plans, in aggregate, is as follows: |
||||||
Present value of benefit obligation |
2020 |
2019 |
||||
Present value of benefit obligation, beginning of year |
$ |
22,185 |
$ |
21,390 |
||
Current service cost |
288 |
295 |
||||
Participant contributions |
19 |
19 |
||||
Interest cost on defined benefit obligation |
648 |
728 |
||||
Actuarial loss |
766 |
1,308 |
||||
Benefits paid |
(1,085) |
(1,555) |
||||
Present value of benefit obligation, end of year |
$ |
22,821 |
$ |
22,185 |
||
Plan assets |
2020 |
2019 |
||||
Fair value of plan assets, beginning of year |
$ |
12,669 |
$ |
12,325 |
||
Actual return |
1,335 |
1,746 |
||||
Participant contributions |
19 |
19 |
||||
Employer contributions |
595 |
492 |
||||
Benefits paid |
(1,085) |
(1,555) |
||||
Administration expenses |
(520) |
(358) |
||||
Fair value of plan assets, end of year |
$ |
13,013 |
$ |
12,669 |
||
Funded Status |
2020 |
2019 |
||||
Fair value of plan assets, end of year |
$ |
13,013 |
$ |
12,669 |
||
Present value of benefit obligation, end of year |
(22,821) |
(22,185) |
||||
Plan deficit |
$ |
(9,808) |
$ |
(9,516) |
||
The accrued benefit liability is included in the Corporation's statement of financial position as follows: |
||||||
2020 |
2019 |
|||||
Accounts payable and accrued liabilities |
$ |
(585) |
$ |
(372) |
||
Employee benefits |
(9,223) |
(9,144) |
||||
Plan deficit |
$ |
(9,808) |
$ |
(9,516) |
||
Present value of benefit obligation includes a benefit obligation of $6,335 (2019 - $6,332) related to the SERP that is not funded. This obligation is secured by a letter of credit of $6,349 (2019 - $5,359).
Sensitivity analysis
The following sensitivity analysis is hypothetical and should be used with caution. The sensitivities of the key assumption have been calculated independently of any changes in other assumptions. Actual experience may result in changes in a number of assumptions simultaneously. Changes in one factor may result in changes in another, which could amplify or reduce the impact of such assumptions.
A 1% increase in discount rate would result in a $2,070 (2019 - $2,548) decrease to the defined benefit obligation as at December 31, 2020. A 1% decrease in discount rate would result in a $2,485 (2019 - $2,879) increase to the defined benefit obligation.
16. DEBENTURES
Senior Unsecured Debentures - 6%, due January 15, 2025
In December 2019, the Corporation issued $57,000 in unsecured subordinated debentures with a term of five years due January 15, 2025. These debentures bear a fixed interest rate of 6.00% per annum, payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2020.
The debentures will not be redeemable before January 15, 2023, except upon the occurrence of a change of control of the Corporation in accordance with the terms of the indenture governing the debentures. On or after January 15, 2023, but prior to January 15, 2024, the debentures are redeemable, in whole at any time or in part from time to time at the option of the Corporation at a price equal to 103% of the principal amount redeemed plus accrued and unpaid interest. On or after January 15, 2024, but prior to the maturity date of January 15, 2025, the debentures are redeemable at a price equal to their principal amount plus accrued and unpaid interest.
On redemption or at maturity on January 15, 2025, the Corporation has the option to repay the debentures in either cash or freely tradable voting shares of the Corporation.
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:
December 31, 2020 |
December 31, 2019 |
||||
Debentures issued |
$ |
57,000 |
$ |
57,000 |
|
Deferred financing costs, net of accumulated amortization |
(2,362) |
(2,885) |
|||
Total debentures |
$ |
54,638 |
$ |
54,115 |
|
Movements in the debentures balance are as follows:
For the year ended December 31 |
2020 |
2019 |
||||
Balance at beginning of year |
$ |
54,115 |
$ |
— |
||
Changes from financing cash flows |
||||||
Proceeds from issuance |
— |
57,000 |
||||
Transaction costs related to issuance |
(37) |
(2,925) |
||||
Other changes |
||||||
Amortization of deferred financing costs |
560 |
40 |
||||
Balance at end of year |
$ |
54,638 |
$ |
54,115 |
||
Finance costs on the debentures for the year ended December 31, 2020 were $3,999 (2019 - $295).
17. LONG-TERM DEBT
On December 30, 2020, the Corporation amended its senior secured credit facility, increasing the facility limit from $400,000 to $450,000 by adding a new non-revolving acquisition term facility of $50,000 to be used to finance the acquisition of Tundra Process Solutions Ltd. ("Tundra") in the first quarter of 2021. See Note 32 Subsequent Events for details on the acquisition of Tundra. As at December 31, 2020, the non-revolving acquisition term facility has not been utilized. Once drawn upon, repayment of the facility is due in full on December 30, 2022. The $256 cost of amending the facility has been capitalized, recorded in prepaid expenses and will be amortized over the term of the non-revolving acquisition term facility.
Borrowings under the bank credit facility bear floating rates of interest at margins over Canadian dollar bankers' acceptance yields, U.S. dollar LIBOR rates or prime. Margins on the facility depend on the Corporation's leverage ratio at the time of borrowing and range between 1.5% and 3.0% for Canadian dollar bankers' acceptances and U.S. dollar LIBOR borrowings, and 0.5% and 2.0% for prime rate borrowings under the non-revolving and revolving term facilities. Margins on the non-revolving acquisition term facility range between 1.7% and 3.25% for Canadian dollar bankers' acceptances and U.S. dollar LIBOR borrowings, and 0.7% and 2.25% for prime rate borrowings.
Borrowing capacity under the bank credit facility is dependent upon the level of the Corporation's inventory on hand and the outstanding trade accounts receivable. In addition, the bank credit facility contains customary restrictive covenants including limitations on the declaration of cash dividends and an interest coverage maintenance ratio, all of which were met as at December 31, 2020.
The following balances were outstanding:
December 31, 2020 |
December 31, 2019 |
||||
Bank credit facility |
|||||
Non-revolving term portion |
$ |
50,000 |
$ |
50,000 |
|
Revolving term portion |
122,991 |
177,362 |
|||
$ |
172,991 |
$ |
227,362 |
||
Deferred financing costs, net of accumulated amortization |
$ |
(1,411) |
$ |
(1,789) |
|
Total long-term debt |
$ |
171,580 |
$ |
225,573 |
|
The Corporation had $6,423 (December 31, 2019 - $5,489) letters of credit outstanding at the end of the year. Finance costs on long-term debt amounted to $8,971 (2019 - $13,746). Movements in the long-term debt balance are as follows:
For the year ended December 31 |
2020 |
2019 |
|||
Balance at beginning of year |
$ |
225,573 |
$ |
218,116 |
|
Changes from financing cash flows |
|||||
Net (repayments) proceeds of borrowings |
(54,371) |
7,362 |
|||
Transaction costs related to borrowings |
— |
(299) |
|||
Other changes |
|||||
Amortization of deferred financing costs |
378 |
394 |
|||
Balance at end of year |
$ |
171,580 |
$ |
225,573 |
|
18. 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:
December 31, 2020 |
December 31, 2019 |
||||
Financial assets measured at amortized cost: |
|||||
Cash |
$ |
6,625 |
$ |
3,180 |
|
Trade and other receivables |
214,507 |
238,194 |
|||
Contract assets |
23,003 |
23,318 |
|||
Lease receivables |
7,159 |
2,331 |
|||
Financial liabilities measured at amortized cost: |
|||||
Accounts payable and accrued liabilities |
(231,726) |
(282,611) |
|||
Provisions |
(6,960) |
(5,261) |
|||
Contract liabilities |
(7,064) |
(7,230) |
|||
Dividends payable |
(5,008) |
(5,003) |
|||
Other liabilities |
(2,365) |
(1,386) |
|||
Lease liabilities |
(153,033) |
(127,130) |
|||
Debentures |
(54,638) |
(54,115) |
|||
Long-term debt |
(171,580) |
(225,573) |
|||
Net derivative financial liabilities measured at fair value: |
|||||
Foreign exchange forwards |
(710) |
(930) |
|||
Total return swaps |
(578) |
(2,952) |
|||
Interest rate swaps |
(8,276) |
(2,625) |
|||
The Corporation measures non-derivative financial assets and financial liabilities at amortized cost. Derivative financial assets/liabilities are recorded on the consolidated statements of financial position at fair value. Changes in fair value are recognized in the consolidated statements of earnings except for changes in fair value related to derivative financial assets/liabilities which are effectively designated as hedging instruments which are recognized in other comprehensive income. The Corporation's derivative financial assets/liabilities are held with major Canadian chartered banks and are deemed to be Level 2 financial instruments. Cash-settled share-based compensation liabilities are recorded at fair value based on the Corporation's share price and deemed to be a Level 1 financial instrument. The fair value of long-term debt approximates its recorded value due to its floating interest rate. The 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 December 31, 2020, the Corporation has estimated the fair value of its debentures to be $58,151. The fair values of all other financial assets and liabilities, other than lease liabilities, approximate their recorded values due to the short-term maturities of these instruments.
The Corporation, through its financial assets and liabilities, has exposure to the following risks from its use of financial instruments: credit risk, liquidity risk, and market risk (consisting of currency risk, interest rate risk and equity price risk). The following analysis provides a measurement of these risks as at December 31, 2020 and 2019:
Credit risk
The Corporation is exposed to credit risk with respect to its trade and other receivables. This risk is mitigated by the Corporation's large customer base which covers many business sectors across Canada. The Corporation follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Corporation's trade and other receivables consist of trade accounts receivable from customers and other accounts receivable, generally from suppliers for warranty and rebates.
The aging of the trade accounts receivable is as follows:
December 31, 2020 |
December 31, 2019 |
||||
Current |
$ |
86,525 |
$ |
113,565 |
|
Less than 60 days overdue |
89,097 |
79,126 |
|||
More than 60 days overdue |
15,860 |
20,995 |
|||
Total trade accounts receivable |
$ |
191,482 |
$ |
213,686 |
|
The carrying amounts of accounts receivable represent the maximum credit exposure.
The Corporation maintains an allowance for expected credit losses taking into account past experience of collecting payments as well as observable changes in and forecasts of future economic conditions that correlate with default on receivables. Any such losses to date have been within management's expectations. Movement of the allowance for credit losses is as follows:
For the year ended December 31 |
2020 |
2019 |
|||
Opening balance |
$ |
2,371 |
$ |
953 |
|
Additions |
2,808 |
1,891 |
|||
Utilization |
(1,553) |
(473) |
|||
Closing balance |
$ |
3,626 |
$ |
2,371 |
|
The Corporation is also exposed to the risk of non-performance by counterparties to foreign exchange forwards, interest rate swaps and total return swaps. These counterparties are large financial institutions that maintain high short-term and long-term credit ratings. To date, no such counterparty has failed to meet its financial obligations to the Corporation. Management does not believe there is a significant risk of non-performance by these counterparties and will continue to monitor the credit risk of these counterparties.
Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with its financial liabilities as they become due. On December 30, 2020, the Corporation amended its senior secured credit facility, increasing the facility limit from $400,000 to $450,000 by adding a new non-revolving acquisition term facility of $50,000 to be used to finance the acquisition of Tundra in the first quarter of 2021. At December 31, 2020, the Corporation had borrowed $172,991 (2019 - $227,362) from the bank credit facility, maturing on October 1, 2024. The Corporation issued $6,423 (2019 - $5,489) of letters of credit for a total utilization of $179,414 (2019 - $232,851) of its $450,000 (2019 - $400,000) bank credit facility and had not utilized any (2019 - nil) of its $25,000 (2019 - $25,000) interest bearing equipment financing facilities.
In December 2019, the Corporation issued $57,000 in unsecured subordinated debentures with a term of five years due January 15, 2025. These debentures bear a fixed interest rate of 6.00% per annum, payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2020. On redemption or at maturity on January 15, 2025, the Corporation has the option to repay the debentures in either cash or freely tradable voting shares of the Corporation.
The Corporation had not utilized $270,586 of its $450,000 bank credit facility as at December 31, 2020. Of the $270,586 unutilized portion of the facility, $50,000 can only be used to fund the acquisition of Tundra in the first quarter of 2021, and therefore the remaining $220,586, along with the additional $25,000 of equipment financing available under the bank credit facility, is deemed to be sufficient to meet Wajax's short-term normal course working capital and maintenance capital requirements and certain strategic investments. However, Wajax may be required to access the equity or debt markets to fund significant acquisitions.
Contractual obligations are as follows:
Total |
< 1 year |
1 - 3 years |
3 - 5 years |
After 5 years |
||||||||||
Accounts payable and accrued liabilities |
$ |
231,726 |
$ |
231,726 |
$ |
— |
$ |
— |
$ |
— |
||||
Undiscounted lease obligations |
226,925 |
37,008 |
64,811 |
43,997 |
81,109 |
|||||||||
Long-term debt |
172,991 |
— |
— |
172,991 |
— |
|||||||||
Debentures |
57,000 |
— |
— |
57,000 |
— |
|||||||||
Total |
$ |
688,642 |
$ |
268,734 |
$ |
64,811 |
$ |
273,988 |
$ |
81,109 |
||||
Market risk
Market risk is the risk from changes in market prices, such as changes in foreign exchange rates, interest rates, and the Corporation's share price which will affect the Corporation's earnings as well as the value of the financial instruments held and cash-settled share-based liabilities outstanding. The exposure to these risks is managed through the use of various derivative instruments.
a) Currency risk
Certain of the Corporation's sales to customers and purchases from vendors are exposed to fluctuations in the U.S. dollar ("USD") and the Euro ("EUR"). When considered appropriate, the Corporation purchases foreign exchange forwards for USD and EUR as a means of mitigating this risk. A change in foreign currency relative to the Canadian dollar would not have a material impact on the Corporation's unhedged foreign currency-denominated sales to customers along with the associated receivables, or on the Corporation's unhedged foreign currency-denominated purchases from vendors along with the associated payables. The Corporation will periodically institute price increases to offset the negative impact of foreign exchange rate increases and volatility on imported goods to ensure margins are not eroded. However, a sudden strengthening of the U.S. dollar relative to the Canadian dollar can have a negative impact mainly on parts margins in the short term prior to price increases taking effect.
The Corporation maintains a hedging policy whereby significant transactional currency risks are typically identified and hedged.
b) Interest rate risk
The Corporation's borrowing costs are impacted by changes in interest rates. The Corporation's tolerance to interest rate risk decreases as the Corporation's leverage ratio increases and interest coverage ratio decreases. To manage this risk prudently, guideline percentages of floating interest rate debt decrease as the Corporation's leverage ratio increases. Wajax has entered into interest rate swap contracts primarily to minimize exposure to interest rate fluctuations on its variable rate debt.
A 1.00 percentage point change in interest rates on the average amount outstanding under the bank credit facility for 2020 would result in a change to earnings before income taxes of approximately $2,374 for the year.
c) Equity price risk
The Corporation's total return swaps are exposed to fluctuations in its share price. A $1.00 per share decrease in the share price would result in a decrease in earnings before income taxes of $387 relating to the total return swaps. An increase of $1.00 per share would result in an equal and opposite effect on earnings before income taxes.
Derivative financial instruments and hedges
The interest rate swaps are designated as effective hedges and are measured at fair value with subsequent changes in fair value recorded in other comprehensive income. Amounts in accumulated other comprehensive income are reclassified to net earnings in the periods when the hedged item affects profit or loss. For the year ended December 31, 2020, the Corporation recognized a loss of $4,131 (2019 - loss of $284), net of tax in other comprehensive income associated with its interest rate swaps.
The Corporation's interest rate swaps outstanding are summarized as follows:
Interest rate swaps |
Notional |
Weighted |
Maturity |
||
December 31, 2020 |
$ |
150,000 |
2.12 |
% |
November 2024 |
December 31, 2019 |
$ |
104,000 |
2.56 |
% |
November 2024 |
The Corporation enters into short-term foreign exchange forwards to hedge the exchange risk associated with the cost of certain inbound inventory and certain foreign currency-denominated sales to customers along with the associated receivables as part of its normal course of business. Foreign exchange forwards are initially recognized on the date the derivative contract is entered into and are subsequently re-measured at their fair values. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument. In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative, net of taxes, is recognized in other comprehensive income while the ineffective portion is recognized within net earnings. Amounts in accumulated other comprehensive income are reclassified to net earnings in the periods when the hedged item affects profit or loss. For the year ended December 31, 2020, the Corporation recognized a gain of $151 (2019 - gain of $79) associated with its foreign exchange forwards in the consolidated statements of earnings, and a gain of $51 (2019 - loss of $688), net of tax in other comprehensive income.
The Corporation's contracts to buy and sell foreign currencies are summarized as follows:
December 31, 2020 |
Notional |
Average |
Maturity |
|||
Purchase contracts |
US$ |
45,912 |
1.3236 |
January 2021 to December 2022 |
||
€ |
102 |
1.5790 |
October 2021 to December 2022 |
|||
Sales contracts |
US$ |
32,187 |
1.3233 |
January 2021 to December 2022 |
||
€ |
939 |
1.5591 |
January 2021 to December 2022 |
|||
December 31, 2019 |
Notional Amount |
Average |
Maturity |
|||
Purchase contracts |
US$ |
45,190 |
1.3270 |
January 2020 to October 2020 |
||
Sales contracts |
US$ |
30,545 |
1.3091 |
January 2020 to March 2021 |
||
€ |
1,074 |
1.5003 |
January 2020 to November 2020 |
|||
The Corporation has certain total return swaps to hedge the exposure associated with increases in its share price on its outstanding restricted share units ("RSUs"). The Corporation does not apply hedge accounting to these relationships and as such, gains and losses arising from marking these derivatives to market are recognized in earnings in the period in which they arise. As at December 31, 2020, the Corporation's total return swaps cover 387,000 of the Corporation's underlying common shares (December 31, 2019 - 365,000), and expire between March 2021 and March 2023. During the year, the Corporation settled a total return swap contract for 121,000 shares (2019 - 205,000 shares), resulting in a cash payout of $1,396 (2019 - $1,479). For the year ended December 31, 2020, the Corporation recognized a gain of $978 (2019 - loss of $167) associated with its total return swaps.
Derivative financial assets consist of:
December 31, 2020 |
December 31, 2019 |
||||
Foreign exchange forwards |
$ |
1,652 |
$ |
532 |
|
Total return swaps |
456 |
— |
|||
Total derivative financial assets |
$ |
2,108 |
$ |
532 |
|
Current portion |
$ |
1,597 |
$ |
484 |
|
Long-term portion |
$ |
511 |
$ |
48 |
|
Derivative financial liabilities consist of:
December 31, 2020 |
December 31, 2019 |
||||
Interest rate swaps |
$ |
8,276 |
$ |
2,625 |
|
Foreign exchange forwards |
2,362 |
1,462 |
|||
Total return swaps |
1,034 |
2,952 |
|||
Total derivative financial liabilities |
$ |
11,672 |
$ |
7,039 |
|
Current portion |
$ |
3,387 |
$ |
2,849 |
|
Long-term portion |
$ |
8,285 |
$ |
4,190 |
|
Movements in the net derivative financial liabilities balance are as follows:
For the year ended December 31 |
2020 |
2019 |
|||
Opening net derivative financial liabilities |
$ |
6,507 |
$ |
6,568 |
|
(Gain) loss recognized in net earnings |
(1,129) |
88 |
|||
Loss recognized in other comprehensive income - net of tax |
4,080 |
972 |
|||
Tax on loss recognized in other comprehensive income |
1,502 |
358 |
|||
Cash paid on settlement of total return swaps |
(1,396) |
(1,479) |
|||
Ending net derivative financial liabilities |
$ |
9,564 |
$ |
6,507 |
|
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 consolidated 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.
19. SHARE CAPITAL AND EARNINGS PER SHARE
The Corporation is authorized to issue an unlimited number of no par value common shares and an unlimited number of no par value preferred shares. Each common share entitles the holder of record to one vote at all meetings of shareholders. All issued common shares are fully paid. There were no preferred shares outstanding as at December 31, 2020 (2019 - nil). Each common share represents an equal beneficial interest in any distributions of the Corporation and in the net assets of the Corporation in the event of its termination or winding-up.
Number of |
Amount |
||||
Issued and outstanding, December 31, 2019 and December 31, 2020 |
20,167,703 |
$ |
182,482 |
||
Shares held in trust, December 31, 2019 |
(156,113) |
(1,407) |
|||
Released for settlement of certain share-based compensation plans |
22,029 |
199 |
|||
Shares held in trust, December 31, 2020 |
(134,084) |
(1,208) |
|||
Issued and outstanding, net of shares held in trust, December 31, 2020 |
20,033,619 |
$ |
181,274 |
||
Number of |
Amount |
||||
Issued and outstanding, December 31, 2018 |
20,132,194 |
$ |
181,952 |
||
Common shares issued to settle share-based compensation plans |
35,509 |
530 |
|||
Issued and outstanding, December 31, 2019 |
20,167,703 |
182,482 |
|||
Shares held in trust, December 31, 2018 |
(175,680) |
(1,583) |
|||
Released for settlement of certain share-based compensation plans |
19,567 |
176 |
|||
Shares held in trust, December 31, 2019 |
(156,113) |
(1,407) |
|||
Issued and outstanding, net of shares held in trust, December 31, 2019 |
20,011,590 |
$ |
181,075 |
||
Dividends declared
During the twelve months ended December 31, 2020, the Corporation declared cash dividends of $1.00 per share or $20,032 (2019 - dividends of $1.00 per share or $20,006). As at December 31, 2020, the Corporation had $5,008 (December 31, 2019 - $5,003) dividends outstanding which were paid on January 5, 2021.
Earnings per share
The following table sets forth the computation of basic and diluted earnings per share:
For the year ended December 31 |
2020 |
2019 |
|||
Numerator for basic and diluted earnings per share: |
|||||
– net earnings |
$ |
31,653 |
$ |
39,504 |
|
Denominator for basic earnings per share: – weighted average shares, net of shares held in trust |
20,029,345 |
19,998,656 |
|||
Denominator for diluted earnings per share: |
|||||
– weighted average shares, net of shares held in trust |
20,029,345 |
19,998,656 |
|||
– effect of dilutive share rights |
457,423 |
417,535 |
|||
Denominator for diluted earnings per share |
20,486,768 |
20,416,191 |
|||
Basic earnings per share |
$ |
1.58 |
$ |
1.98 |
|
Diluted earnings per share |
$ |
1.55 |
$ |
1.93 |
|
20,768 anti-dilutive share rights were excluded from the above calculation (2019 – 24,906).
20. 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:
For the year ended December 31 |
2020 |
2019 |
|||
Treasury share rights plans |
|||||
SOP equity-settled |
$ |
88 |
$ |
52 |
|
DDSUP equity-settled |
564 |
597 |
|||
Total treasury share rights plans expense |
$ |
652 |
$ |
649 |
|
Market-purchased share rights plans |
|||||
MTIP equity-settled |
$ |
1,094 |
$ |
920 |
|
DSUP equity-settled |
51 |
(19) |
|||
Total market-purchased share rights plans expense |
$ |
1,145 |
$ |
901 |
|
Cash-settled rights plans |
|||||
MTIP cash-settled |
$ |
2,645 |
$ |
1,897 |
|
DSUP cash-settled |
40 |
(1) |
|||
Total cash-settled rights plans expense |
$ |
2,685 |
$ |
1,896 |
|
Total share-based compensation expense |
$ |
4,482 |
$ |
3,446 |
|
a) Treasury share rights plans
Under the SOP and the DDSUP, rights are issued to the participants which are settled by issuing Wajax Corporation shares for no cash consideration. Rights under the SOP vest over three years, while rights under the DDSUP vest immediately. Vested rights are settled when the participant is no longer employed by the Corporation or one of its subsidiary entities or no longer sits on its Board. Whenever dividends are paid on the Corporation's shares, additional rights (dividend equivalents) with a value equal to the dividends are credited to the participants' accounts.
The following rights under these plans are outstanding:
Number of rights |
Fair value at time of grant |
|||
Outstanding at December 31, 2019 |
361,100 |
$ |
5,984 |
|
Grants – new grants |
75,789 |
642 |
||
– dividend equivalents |
45,335 |
— |
||
Outstanding at December 31, 2020 |
482,224 |
$ |
6,626 |
|
At December 31, 2020, 453,466 share rights were vested (December 31, 2019 - 347,946 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 |
(352,810) |
Rights outstanding |
(482,224) |
Available for future grants at December 31, 2020 |
464,966 |
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, 2019 |
213,149 |
$ |
5,081 |
|
Grants – new grants |
109,294 |
1,828 |
||
– dividend equivalents |
29,512 |
— |
||
Forfeitures |
(15,459) |
(337) |
||
Settlements |
(46,926) |
(1,138) |
||
Outstanding at December 31, 2020 |
289,570 |
$ |
5,434 |
|
At December 31, 2020, 21,004 outstanding rights were vested (December 31, 2019 - 15,426 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 five previous day volume weighted average share price, from the date of settlement. At December 31, 2020, the carrying amount of the liabilities for these plans was $3,863 (December 31, 2019 – $2,524).
The following rights under these plans are outstanding:
Number of rights |
|
Outstanding at December 31, 2019 |
334,696 |
Grants – new grants |
195,252 |
– dividend equivalents |
47,815 |
Forfeitures |
(14,155) |
Settlements |
(98,156) |
Outstanding at December 31, 2020 |
465,452 |
At December 31, 2020, 10,182 outstanding rights were vested (December 31, 2019 - 9,127 rights were vested).
21. REVENUE
a) Disaggregation of revenue
In the following table, revenue is disaggregated by revenue type:
For the year ended December 31 |
2020 |
2019 |
|||
Equipment sales |
$ |
471,447 |
$ |
523,874 |
|
Product support |
411,767 |
476,125 |
|||
Industrial parts |
342,576 |
366,561 |
|||
ERS |
164,246 |
149,579 |
|||
Revenue from contracts with customers |
1,390,036 |
1,516,139 |
|||
Equipment rental |
32,612 |
36,907 |
|||
Total |
$ |
1,422,648 |
$ |
1,553,046 |
|
As at December 31, 2020, the Corporation has included $18,193 (2019 - $22,504) in Equipment sales related to short-term rental contracts that are expected to convert to Equipment sales within a six to twelve month period.
b) Transaction price allocated to the remaining performance obligations
The following table includes revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the reporting date:
2021 |
2022 |
Total |
||||||
Equipment sales |
$ |
29,407 |
$ |
581 |
$ |
29,988 |
||
Product support |
285 |
— |
285 |
|||||
ERS |
6,180 |
317 |
6,497 |
|||||
Total |
$ |
35,872 |
$ |
898 |
$ |
36,770 |
||
The Corporation has applied the practical expedient which permits the Corporation to not disclose information about remaining performance obligations that have original expected durations of one year or less.
22. EMPLOYEE COSTS
Employee costs recorded in cost of sales and selling and administrative expenses for the Corporation during the year amounted to:
Note |
2020 |
2019 |
||||
Wages and salaries, including bonuses |
$ |
197,006 |
$ |
236,512 |
||
Other benefits |
34,882 |
35,036 |
||||
Pension costs - defined contribution plans |
15 |
8,015 |
7,967 |
|||
Pension costs - defined benefit plans |
15 |
1,161 |
1,190 |
|||
Share-based compensation expense |
20 |
4,482 |
3,446 |
|||
$ |
245,546 |
$ |
284,151 |
|||
23. RESTRUCTURING AND OTHER RELATED COSTS
In the first half of 2020, a restructuring cost of $112 was recognized relating to the Finance Reorganization Plan. The Corporation does not expect any further restructuring costs relating to the Finance Reorganization Plan.
In the third quarter of 2020, the Corporation implemented workforce reductions in response to the economic conditions created by COVID-19 and related revenue impacts. A restructuring cost of $7,687 was recognized in the third quarter relating primarily to severance costs.
See Note 13 for the restructuring provision balance and movement.
24. FINANCE COSTS
Finance costs are comprised of the following:
For the year ended December 31 |
Note |
2020 |
2019 |
|||
Finance costs on long-term debt |
17 |
$ |
8,971 |
$ |
13,746 |
|
Finance costs on debentures |
16 |
3,999 |
295 |
|||
Interest on lease liabilities |
14 |
8,152 |
5,675 |
|||
Interest income on lease receivables |
(147) |
— |
||||
Finance costs |
$ |
20,975 |
$ |
19,716 |
||
During the year, $857 (2019 - nil) of borrowing costs directly attributable to the construction of qualifying assets were capitalized.
25. INCOME TAX EXPENSE
Income tax expense comprises current and deferred tax as follows:
For the year ended December 31 |
2020 |
2019 |
|||
Current |
$ |
13,957 |
$ |
12,425 |
|
Deferred |
(2,017) |
1,840 |
|||
Income tax expense |
$ |
11,940 |
$ |
14,265 |
|
The calculation of current tax is based on a combined federal and provincial statutory income tax rate of 26.5% (2019 – 26.8%). 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 26.5% 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 year ended December 31 |
2020 |
2019 |
||||
Combined statutory income tax rate |
26.5 |
% |
26.8 |
% |
||
Expected income tax expense at statutory rates |
$ |
11,552 |
$ |
14,410 |
||
Non-deductible expenses |
522 |
636 |
||||
Non-taxable portion of gain on real estate disposal |
(410) |
(654) |
||||
Other |
276 |
(127) |
||||
Income tax expense |
$ |
11,940 |
$ |
14,265 |
||
Recognized deferred tax assets and liabilities and the movement of temporary differences during the year are as follows:
December |
Recognized |
Recognized in |
Recognized |
December |
||||||||||
Property, plant and equipment |
$ |
(8,310) |
$ |
(328) |
$ |
— |
$ |
(146) |
$ |
(8,784) |
||||
Finance leases |
2,068 |
1,701 |
— |
(12) |
3,757 |
|||||||||
Intangible assets |
(3,580) |
506 |
— |
(1,060) |
(4,134) |
|||||||||
Goodwill |
(184) |
(134) |
— |
— |
(318) |
|||||||||
Accrued liabilities |
3,781 |
1,317 |
12 |
39 |
5,149 |
|||||||||
Provisions |
375 |
230 |
— |
— |
605 |
|||||||||
Derivative instruments |
1,694 |
(672) |
1,549 |
— |
2,571 |
|||||||||
Employee benefits |
2,450 |
50 |
— |
— |
2,500 |
|||||||||
Deferred financing costs |
(20) |
(310) |
— |
— |
(330) |
|||||||||
Partnership income not currently taxable |
(1,948) |
(618) |
— |
— |
(2,566) |
|||||||||
Tax loss carryforwards |
(113) |
275 |
— |
— |
162 |
|||||||||
Net deferred tax (liabilities) assets |
$ |
(3,787) |
$ |
2,017 |
$ |
1,561 |
$ |
(1,179) |
$ |
(1,388) |
||||
December 31, 2018 |
Recognized in |
Recognized in |
Recognized |
December 31, |
||||||||||
Property, plant and equipment |
$ |
(3,894) |
$ |
(3,394) |
$ |
— |
$ |
(1,022) |
$ |
(8,310) |
||||
Finance leases |
153 |
1,915 |
— |
— |
2,068 |
|||||||||
Intangible assets |
(4,898) |
1,318 |
— |
— |
(3,580) |
|||||||||
Goodwill |
— |
(184) |
— |
— |
(184) |
|||||||||
Accrued liabilities |
4,613 |
(827) |
(5) |
— |
3,781 |
|||||||||
Provisions |
915 |
(540) |
— |
— |
375 |
|||||||||
Derivative instruments |
1,777 |
(372) |
289 |
— |
1,694 |
|||||||||
Employee benefits |
2,272 |
178 |
— |
— |
2,450 |
|||||||||
Deferred financing costs |
656 |
(676) |
— |
— |
(20) |
|||||||||
Partnership income not currently taxable |
(2,803) |
855 |
— |
— |
(1,948) |
|||||||||
Tax loss carryforwards |
— |
(113) |
— |
(113) |
||||||||||
Net deferred tax (liabilities) assets |
$ |
(1,209) |
$ |
(1,840) |
$ |
284 |
$ |
(1,022) |
$ |
(3,787) |
||||
26. CHANGES IN NON-CASH OPERATING WORKING CAPITAL
The net change in non-cash operating working capital comprises the following:
For the year ended December 31 |
2020 |
2019 |
|||
Trade and other receivables |
$ |
31,900 |
$ |
(32,093) |
|
Contract assets |
2,786 |
6,989 |
|||
Inventory |
76,718 |
(36,270) |
|||
Deposits on inventory |
(6,684) |
(24,068) |
|||
Prepaid expenses |
808 |
1,080 |
|||
Accounts payable and accrued liabilities |
(58,111) |
32,831 |
|||
Provisions |
1,699 |
2,046 |
|||
Contract liabilities |
(282) |
(1,061) |
|||
Total |
$ |
48,834 |
$ |
(50,546) |
|
27. CAPITAL MANAGEMENT
Objective
The Corporation defines its capital as the total of its shareholders' equity, long-term debt, and debentures ("interest bearing debt"). The Corporation's objective when managing capital is to have a capital structure and capacity to support the Corporation's operations and strategic objectives set by the Board of Directors.
Management of capital
As part of the Corporation's renewed long-term strategy, its capital structure will continue to be managed such that it maintains a prudent leverage ratio, defined below, in order to provide funds available to invest in strategic growth initiatives, provide liquidity in times of economic uncertainty and to allow for the payment of dividends. In addition, the Corporation's tolerance to interest rate risk decreases/increases as the Corporation's leverage ratio increases/decreases. The Corporation's objective is to 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 investment in significant 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 leverage ratio at the end of a particular quarter is defined as debt divided by trailing 12-month pro-forma adjusted EBITDA. Debt includes bank indebtedness, debentures, and total long-term debt, and letters of credit, net of cash. Pro-forma adjusted EBITDA used in calculating the leverage ratio under the bank credit agreement is calculated as earnings before restructuring and other related costs (recoveries), gain recorded on sales of properties, non-cash losses (gains) on mark to market of derivative instruments, Customer Support Centre project costs, Tundra transaction costs, NorthPoint transaction costs, finance costs, income tax expense and depreciation and amortization, adjusted for the EBITDA of business acquisitions made during the period as if they were made at the beginning of the trailing 12-month period, and adjusted for payment on lease liabilities pursuant to the terms of the bank credit facility.
Although management currently believes the Corporation has adequate debt capacity, the Corporation may have to access the equity or debt markets, or temporarily reduce dividends to accommodate any shortfalls in the Corporation's credit facilities or significant growth capital requirements.
There were no significant changes in the Corporation's approach to capital management during the year.
Restrictions on capital
The interest bearing debt includes a $450,000 bank credit facility, of which $400,000 expires on October 1, 2024 and $50,000 expires on December 30, 2022. The bank credit facility contains the following key covenants:
- Borrowing capacity is dependent upon the level of the Corporation's inventory on hand and the outstanding trade accounts receivable ("borrowing base"). Of the borrowing capacity of $438,710 as at December 31, 2020, $50,000 can only be used to fund the acquisition of Tundra in the first quarter of 2021.
- The Corporation will be restricted from the declaration of cash dividends in the event the Corporation's leverage ratio, as defined under the bank credit facility, exceeds 4.0 times.
- An interest coverage maintenance ratio.
At December 31, 2020, the Corporation was in compliance with all covenants and there were no restrictions on the declaration of quarterly cash dividends.
Under the terms of the $450,000 bank credit facility, the Corporation is permitted to have additional interest bearing debt of $25,000. As a result, the Corporation has up to $25,000 of demand inventory equipment financing capacity with two lenders. The equipment notes payable under the facilities bear floating rates of interest at margins over Canadian dollar bankers' acceptance yields and U.S. LIBOR rates. Principal repayments are generally due the earlier of 12 months from the date of financing and the date the equipment is sold. At December 31, 2020, the Corporation had not utilized any of its interest bearing equipment financing facilities.
28. RELATED PARTY TRANSACTIONS
The Corporation's related party transactions consist of the compensation of the Board of Directors and key management personnel which is set out in the following table:
2020 |
2019 |
||||
Salaries, bonus and other short-term employee benefits |
$ |
2,779 |
$ |
3,771 |
|
Pension costs - defined contribution plans |
87 |
189 |
|||
Pension costs - defined benefit plans |
288 |
255 |
|||
Share-based compensation expense |
2,775 |
1,972 |
|||
Total compensation |
$ |
5,929 |
$ |
6,187 |
|
29. OPERATING SEGMENTS
The Corporation's Chief Executive Officer, who is also the Chief Operating Decision Maker, regularly assesses the performance of, and makes resource allocation decisions based on, the Corporation as a whole. As a result, the Corporation has determined that it comprises a single operating segment and therefore a single reportable segment.
30. GOVERNMENT ASSISTANCE
Canada Emergency Wage Subsidy
On April 11, 2020, the Government of Canada passed the Canada Emergency Wage Subsidy ("CEWS") to support employers facing financial hardship as measured by certain revenue declines as a result of the COVID-19 pandemic. The CEWS currently provides eligible businesses with a reimbursement of compensation expense for the period from March 15, 2020 to December 19, 2020 of up to 75% of eligible employees' employment remuneration, subject to certain criteria. The Corporation applied for the CEWS for the period from March 15, 2020 to December 19, 2020 to the extent it met the requirements to receive the subsidy. In accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, during the year, the Corporation recognized $26,592 as a reimbursement of compensation expense, with $14,132 and $12,460 allocated to cost of sales and selling and administrative expenses, respectively, in proportion to personnel costs recorded in those areas. As at December 31, 2020, $1,929 of the total $26,592 subsidy has not yet been received from the Government of Canada and is included in trade and other receivables.
On October 14, 2020, the Government of Canada announced that it would be extending the CEWS program until June 2021. The Corporation will continue to monitor its eligibility for the subsidy.
31. COMPARATIVE INFORMATION
Certain comparative information has been reclassified to conform to the current year's presentation.
32. SUBSEQUENT EVENTS
On March 1, 2021, the Corporation declared a first quarter 2021 dividend of $0.25 per share or $5,008.
On January 22, 2021, the Corporation acquired all of the issued and outstanding shares of Calgary, Alberta-based Tundra for total consideration of approximately $99,093, subject to final working capital adjustments. The purchase price for the Tundra shares was satisfied by the payment in cash of $74,584 and the issuance of 1,357,142 common shares of Wajax. Tundra transaction costs, primarily for advisory services, were approximately $1,041 and were included in selling and administrative expenses for the year ended December 31, 2020.
SOURCE Wajax Corporation
Mark Foote, President and Chief Executive Officer, Email: [email protected]; Stuart Auld, Chief Financial Officer, Email: [email protected]; Trevor Carson, Vice President, Supply Chain and Corporate Development, Email: [email protected], Telephone #: (905) 212-3300
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