FIRST QUARTER REPORT TO SHAREHOLDERS FOR THE THREE MONTHS ENDED MARCH 31, 2011

Transcription

1 FIRST QUARTER REPORT TO SHAREHOLDERS FOR THE THREE MONTHS ENDED MARCH 31, 2011 W A J A X C O R P O R A T I O N 2011

2 WAJAX CORPORATION News Release TSX Symbol: WJX WAJAX ANNOUNCES INCREASE IN 2011 FIRST QUARTER EARNINGS AND RAISES DIVIDEND (Dollars in millions, except per share data) Three Months Ended March CONSOLIDATED RESULTS Revenue $303.9 $227.4 Earnings before tax $18.0 $8.5 Net earnings $12.8 $8.9 Basic earnings per share $0.77 $0.53 SEGMENTS Revenue Equipment $151.4 $ Industrial Components $80.7 $ Power Systems $72.9 $47.4 Earnings Equipment $11.2 $7.9 % margin 7.4% 7.3% - Industrial Components $4.4 $3.1 % margin 5.5% 4.3% - Power Systems $7.0 $0.9 % margin 9.6% 2.0% Toronto, Ontario May 10, 2011 Wajax Corporation today announced a substantial increase in 2011 first quarter earnings and raised its monthly dividend. First Quarter Highlights Consolidated first quarter revenue of $303.9 million increased $76.5 million, or 34% compared to last year. Equipment and Power Systems revenue increased 40% and 54% respectively on significantly higher equipment and parts and service sales, with the majority of the increases attributable to western Canada. Industrial Components revenue increased 11% on stronger demand for all major product categories. Net earnings for the quarter were $12.8 million, or $0.77 per share, compared to $8.9 million, or $0.53 per share recorded in This represents an increase of almost 45% even though the Corporation is now subject to income tax since its conversion from an income fund as of January 1, Earnings before tax of $18.0 million more than doubled last year s level as a result of the significantly higher volumes in all three segments. Wajax recently announced the acquisition of the assets of Harper Power Products Inc. ( Harper ) effective May 2, Harper, with 2010 annual sales of approximately $71.0 million, has 10 branches throughout Ontario and will be integrated into Wajax s Power Systems segment. This acquisition secures the Ontario

3 distribution rights to Detroit Diesel, Mercedes-Benz, MTU and Deutz engines, MTU Onsite Energy generator sets and Allison transmissions. With the exception of Deutz engines, Wajax Power Systems is presently the authorized distributor of these lines in the rest of Canada except for portions of British Columbia. The Harper business will be rebranded as Wajax Power Systems. In order to continue to strengthen the Wajax identity, the Corporation will rebrand all three of its businesses. Going forward, the Mobile Equipment division will be known as Wajax Equipment, Kinecor will be rebranded Wajax Industrial Components and Waterous, DDACE and Harper will be known as Wajax Power Systems. This change will allow customers, suppliers and employees to more easily identify with the strength of the Wajax name. The Corporation also announced a $0.03 per share increase in its monthly dividend. Dividends of $0.18 per share ($2.16 annualized) were declared for the months of May, June and July. Commenting on the first quarter results and the outlook for 2011, Neil Manning, President and CEO, stated: With earnings before tax more than doubling, we are very pleased with our 2011 first quarter results. As we had expected, improved results were driven by the robust energy and mining markets in western Canada. However, we were also encouraged by evidence of stronger activity in central and eastern Canada, particularly in forestry, construction and certain other industrial sectors. We are looking forward to realizing on the potential for additional growth in the Ontario market as a result of the Harper acquisition. With this business well established in the on-highway sector of the market, we intend to further expand its presence in the off-highway and power generation sectors. The acquisition represents a major step towards our strategic objective of becoming a national total power systems solution provider. We expect it will be immediately accretive to our 2011 results. As well, we believe we have been able to minimize the potential supply disruptions to our Hitachi product line caused by the earthquake and resulting tsunami in Japan. With the inventory levels we decided to carry prior to, and immediately after this disaster, we expect we will have adequate stock of Hitachi parts and construction excavators to meet market demand. However, we are expecting some delays in obtaining mining equipment, which will have some impact on our 2011 revenue for the remainder of the year. For the balance of 2011, we expect a continuation of the economic activity experienced in the first quarter. Notwithstanding the negative effect of the Hitachi mining equipment supply disruption, we expect pre-tax earnings to continue to be ahead of last year for the balance of Wajax Corporation is a leading Canadian distributor and service support provider of mobile equipment, industrial components and power systems. Reflecting a diversified exposure to the Canadian economy, its three distinct core businesses operate through a network of 118 branches across Canada. Its customer base spans natural resources, construction, transportation, manufacturing, industrial processing and utilities. Wajax will Webcast its First Quarter Financial Results Conference Call. You are invited to listen to the live Webcast on Tuesday, May 10, 2011 at 1:30 p.m. ET. To access the Webcast, enter and click on the link for the Webcast on the Investor Relations page. The archived Webcast will be available at the above mentioned website within 24 hours after the conference call.

4 Forward-Looking Statements This news release contains forward-looking statements. These statements relate to future events or future performance and reflect management s current expectations and assumptions. Although we believe that the expectations represented in such forward-looking statements are reasonable, there is no assurance that such expectations will prove to be correct. Undue reliance should not be placed on forward-looking statements, as a number of factors could cause the actual results to differ materially from the expectations expressed in the forward-looking statements. Information on risk factors is included in the Management s Discussion and Analysis for the year ended December 31, 2010 under the heading Risk and Uncertainties, and in other reports filed by Wajax Income Fund and the Corporation with Canadian securities regulators and available at

5 Management s Discussion and Analysis Q The following management s discussion and analysis ( MD&A ) discusses the consolidated financial condition and results of operations of Wajax Corporation ( Wajax or Corporation ) for the quarter ended March 31, On January 1, 2011, Wajax adopted International Financial Reporting Standards ( IFRS ). The term Canadian GAAP refers to Canadian GAAP before the adoption of IFRS. This MD&A should be read in conjunction with the information contained in the unaudited Condensed Consolidated Financial Statements and accompanying notes for the quarter ended March 31, 2011, which have been prepared using IFRS, the annual Audited Consolidated Financial Statements and accompanying notes of Wajax Income Fund for the year ended December 31, 2010 which were prepared using Canadian GAAP, and the associated MD&A. Information contained in this MD&A is based on information available to management as of May 10, Unless otherwise indicated, all financial information within this MD&A is in millions of Canadian dollars, except share and per share data. Additional information, including Wajax s Annual Report and Annual Information Form, are available at Responsibility of Management and the Board of Directors Management is responsible for the information disclosed in this MD&A and the unaudited Condensed Consolidated Financial Statements and accompanying notes, and has in place appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. Wajax s Board of Directors has approved this MD&A and the unaudited Condensed Consolidated Financial Statements and accompanying notes. In addition, Wajax s Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by Wajax, and has reviewed this MD&A and the unaudited Condensed Consolidated Financial Statements and accompanying notes. Disclosure Controls and Procedures and Internal Control over Financial Reporting Wajax has designed disclosure controls and procedures ( DC&P ) to provide reasonable assurance that material information relating to Wajax is made known to the Chief Executive Officer and the Chief Financial Officer, particularly during the period in which the interim filings are being prepared. Wajax has designed internal controls over financial reporting ( ICFR ) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. There were no changes in internal control over financial reporting that occurred during the Corporation s most recent interim period that have materially affected, or are reasonably likely to materially affect, the Corporation s ICFR. Wajax Corporation Overview Effective January 1, 2011 Wajax Income Fund converted into a corporation, pursuant to a plan of arrangement under the Canada Business Corporations Act ( CBCA ) and the shares of Wajax Corporation began trading on the Toronto Exchange on January 4, 2011 under the symbol WJX. Wajax s core distribution businesses are engaged in the sale and after-sale parts and service support of mobile equipment, industrial components and power systems, through a network of 118 branches across Canada. Wajax is a multi-line distributor and represents a number of leading worldwide manufacturers in its core businesses. Its customer base is diversified, spanning natural resources, construction, transportation, manufacturing, industrial processing and utilities. Wajax s strategy is to continue to grow earnings in all segments through continuous improvement of operating margins and revenue growth while maintaining a strong balance sheet. Revenue growth will be

6 achieved through market share gains, the addition of new or complementary product lines and expansion into new geographic territories either organically or through acquisitions. Forward-Looking Information This MD&A contains forward-looking statements. These statements relate to future events or future performance and reflect management s current expectations and assumptions. The words anticipate, expect, believe, may, should, estimate, project, outlook, forecast or similar words are used to identify such forward-looking information. Such forward-looking statements reflect management s current beliefs and are based on information currently available to management of Wajax. Although we believe that the expectations represented in such forward-looking statements are reasonable, there is no assurance that such expectations will prove to be correct. By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and the risk that the expectations represented in such forward-looking statements will not be achieved. Undue reliance should not be placed on forward-looking statements, as a number of important factors could cause the actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. These factors include, among other things: changes in laws and regulations affecting Wajax and its business operations, changes in taxation of Wajax, general business conditions and economic conditions in the markets in which Wajax and its customers compete, fluctuations in commodity prices, Wajax s relationship with its suppliers and manufacturers and its access to quality products, the ability of Wajax to maintain and expand its customer base, actual future market conditions being different than anticipated by management and the Board of Directors of Wajax, and actual future operating and financial results of Wajax being different than anticipated by management and the Board of Directors of Wajax. You are cautioned that the foregoing list is not exhaustive. You are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes. Additional information on these and other factors is included in this MD&A under the heading Risk and Uncertainties and in other reports filed by Wajax with Canadian securities regulators and available at The forwardlooking statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement. The forward-looking statements contained herein are made as of the date of this MD&A and Wajax 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. International Financial Reporting Standards In February 2008, The Accounting Standards Board of the Canadian Institute of Chartered Accountants confirmed that the use of IFRS is required in Canada for publicly accountable profit oriented enterprises for fiscal years beginning on or after January 1, The Corporation s first annual IFRS financial statements will be for the year ending December 31, 2011 and will include the comparative period of Accordingly, the Corporation has adopted IFRS effective January 1, 2010 (the IFRS transition date) and has prepared its unaudited Condensed Consolidated Financial Statements in accordance with International Accounting Standard 34 Interim Financial Reporting. Prior to the adoption of IFRS, the financial statements of the Corporation were prepared in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ). The most significant impacts on the Corporation s unaudited Condensed Consolidated Financial Statements resulting from the adoption of IFRS are discussed within the applicable sections of this MD&A and Note 16 of the unaudited Condensed Consolidated Financial Statements. All comparative figures have been restated in accordance with IFRS, unless otherwise indicated.

7 Consolidated Results Three months ended March Revenue $303.9 $227.4 Gross profit Selling and administrative expenses $65.9 $46.8 $51.6 $42.0 Earnings before finance costs and income taxes $19.0 $9.6 Finance costs $1.0 $1.1 Income tax expense (recovery) $5.2 ($0.4) Net earnings $12.8 $8.9 Earnings per share - Basic - Diluted $0.77 $0.76 $0.53 $0.53 Revenue Revenue in the first quarter of 2011 increased 34% or $76.5 million to $303.9 million, from $227.4 million in Segment revenue increased 40% in Equipment (formerly Mobile Equipment), 11% in Industrial Components and 54% in Power Systems compared to last year. Gross profit Gross profit in the first quarter of 2011 increased $14.3 million due to the positive impact of higher volumes compared to last year. The gross profit margin percentage for the quarter of 21.7% decreased from 22.7% in 2010 due primarily to a sales mix variance resulting from a higher proportion of equipment sales in both the Equipment and Power Systems segments compared to last year. Selling and administrative expenses Selling and administrative expenses increased $4.8 million in the quarter compared to last year due mainly to higher personnel costs resulting from an increase in headcount, primarily sales related, and a $2.1 million increase in annual and mid-term incentive accruals. Selling and administrative expenses as a percentage of revenue decreased to 15.4% in 2011 from 18.5% in Finance costs Quarterly finance costs of $1.0 million decreased $0.1 million compared to last year due to lower interest rates. Income tax expense Effective January 1, 2011, Wajax converted from an income fund to a corporation. As a result, Wajax and its subsidiaries are subject to tax on all of their taxable income from that date forward. The effective income tax rate of 29.0% in the first quarter of 2011 was greater than the Corporation s statutory income tax rate of 27.7% due to certain expenses not fully deductible for tax purposes. Prior to conversion to a corporation, Wajax was not taxable on its income to the extent it was distributed to its unitholders. The first quarter of 2010 includes a $0.6 million deferred tax recovery amount reflecting an adjustment of Wajax s taxable temporary differences that are estimated to reverse after 2010, tax effected at rates that will apply in the year the differences are expected to reverse. Net earnings Quarterly net earnings of $12.8 million, or $0.77 per share, increased $3.9 million from $8.9 million, or $0.53 per share, in The positive impact of higher volumes and lower finance costs more than offset the negative impact of higher selling and administrative and income tax expenses compared to last year.

8 Comprehensive income Comprehensive income for the quarter of $13.2 million increased $4.9 million from $8.3 million the previous year due to the $3.9 million increase in net earnings and a $0.9 million increase in other comprehensive income compared to last year. The increase in other comprehensive income resulted from an increase in losses on derivative instruments designated as cash flow hedges in prior periods transferred to cost of inventory or finance costs in the current period and a decrease in losses on derivative instruments designated as cash flow hedges outstanding at the end of the quarter. Funded net debt Funded debt net of cash including obligations under finance leases ( funded net debt ) of $85.5 million as at March 31, 2011 increased $39.9 million compared to December 31, The increase resulted mainly from cash used for additional non-cash working capital of $34.2 million, distributions and dividends paid of $17.5 million and $7.5 million disbursed for rental fleet additions, interest payments and other capital additions. The increases were offset by first quarter cash flows from operating activities before changes in non-cash working capital of $19.7 million. Wajax s $175 million bank credit facility expires December 31, Management expects to be able to enter into a new credit facility by the end of Dividends For the quarter ended March 31, 2011 monthly dividends declared totaled $0.45 per share and included $0.15 per share for the months of January, February and March. For the quarter ended March 31, 2010 monthly cash distributions declared were $0.45 per unit. On February 25, 2011 Wajax announced a monthly dividend of $0.15 per share ($1.80 annualized) for the month of April payable on May 20, 2011 to shareholders of record on April 29, On May 10, 2011 Wajax announced monthly dividends of $0.18 per share ($2.16 annualized) for each of the months of May, June and July payable on June 20, 2011, July 20, 2011 and August 22, 2011 to shareholders of record on May 31, 2011, June 30, 2011 and July 29, 2011 respectively. Tax information relating to 2011 dividends and prior year distributions is available on Wajax s website at Backlog Consolidated backlog at March 31, 2011 of $215.7 million decreased $1.6 million, or 1%, from $217.3 million at December 31, Quarterly Results of Operations Equipment Three months ended March Equipment* $87.5 $57.3 Parts and service $63.9 $51.1 Segment revenue $151.4 $108.4 Segment earnings $11.2 $7.9 Segment earnings margin 7.4% 7.3% Includes rental revenue. Revenue in the first quarter of 2011 increased $43.0 million, or 40%, to $151.4 million from $108.4 million in the first quarter of Segment earnings for the quarter increased $3.3 million to $11.2 million compared to the first quarter of The following factors contributed to the Equipment segment s first quarter results:

9 Equipment revenue increased $30.2 million compared to last year. Specific quarter-over-quarter variances included the following: - Construction equipment revenue increased $16.0 million due to increases in new Hitachi excavator sales primarily in western Canada and JCB equipment sales in eastern Canada. - Forestry equipment sales increased $9.1 million attributable to higher market demand in all regions for Tigercat and forestry related Hitachi products. - Mining equipment sales increased $4.0 million resulting from an increase in Hitachi mining equipment revenues in western Canada. - Material handling equipment revenue increased $3.9 million on higher volumes in all regions. - Crane and utility equipment revenue decreased $2.8 million due mainly to lower sales to hydro utility customers in Ontario. Parts and service volumes increased $12.8 million compared to last year due principally to higher mining and construction sector sales in western Canada. Segment earnings increased $3.3 million to $11.2 million compared to last year as the positive impact of higher volumes outweighed the negative impact of lower equipment gross margins and a $1.8 million increase in selling and administrative expenses. Selling and administrative expenses increased compared to last year as a result of higher personnel costs, including annual and mid-term incentive accruals, and other sales related expenses. Backlog of $97.3 million at March 31, 2011 increased $3.3 million compared to December 31, The segment continues to monitor developments in Japan related to the effects of the March 11, 2011 earthquake and tsunami on the Hitachi Japan supply chain. The Equipment segment is the distributor of Hitachi construction and forestry excavators and mining equipment in Canada. Hitachi equipment and parts distributed by Wajax are manufactured and sourced from various locations in Japan and the United States. Hitachi announced that it incurred damage to several of its buildings, including the production facilities for large excavators, mining trucks and key component parts. In addition, shipping docks were damaged in the immediate area of these production facilities. While plants have returned to production, damage to the surrounding shipping infrastructure has required alternative arrangements to be made. While the full extent of the impact of the Japanese supply chain disruptions on Wajax s operations is not entirely known, the following is the expected impact on the Equipment segment in 2011: Given the Equipment segment s current level of parts inventory, potential supply disruptions related to parts sourced from Japan are not anticipated to have a significant effect on 2011 parts revenue. Taking into account the segment s current level of inventory and its reserved factory order positions of mid-sized excavators sourced from the United States, the segment is expecting that any product delays as a result of component shortages from Japan will not have a meaningful impact on its 2011 revenue derived from these products. With respect to mining equipment, the segment s current working assumption is that there will be a delay in mining equipment deliveries from Japan of up to six months. The effect on the segment s 2011 revenue is estimated to be a reduction of approximately $40 million.

10 Industrial Components Three months ended March Segment revenue $80.7 $72.6 Segment earnings $4.4 $3.1 Segment earnings margin 5.5% 4.3% Revenue of $80.7 million increased $8.1 million, or 11%, from $72.6 million in the first quarter of Segment earnings increased $1.3 million to $4.4 million in the quarter compared to the previous year. The following factors contributed to the segment s first quarter results: Bearings and power transmission parts sales increased $2.5 million compared to last year due mainly to higher mining sector volumes across all regions and increased sales to industrial customers in eastern Canada and Ontario. Fluid power and process equipment products and service revenue increased $5.6 million on improved oil and gas drilling activity in western Canada and higher mining and construction sector volumes in all regions. These increases were somewhat offset by lower revenues to metal processing customers in eastern Canada. Segment earnings increased $1.3 million compared to last year. The positive impact of higher volumes outweighed the negative impact of slightly lower gross margins and a $0.3 million increase in selling and administrative expenses. Backlog of $45.5 million as of March 31, 2011 increased $10.1 million compared to December 31, Power Systems Three months ended March Equipment $35.4 $13.6 Parts and service $37.5 $33.8 Segment revenue $72.9 $47.4 Segment earnings $7.0 $0.9 Segment earnings margin 9.6% 2.0% Revenue in the first quarter increased $25.5 million, or 54%, to $72.9 million compared to $47.4 million in Segment earnings increased $6.1 million to $7.0 million in the quarter compared to the previous year. The following factors impacted quarterly revenue and earnings: Revenue at Waterous Power Systems ( Waterous ) in western Canada increased $21.0 million compared to last year. Equipment sales improved $16.8 million due primarily to higher product sales to oil and gas customers and increased power generation equipment sales. Parts and service revenue increased $4.2 million mainly as a result of higher sales to off-highway customers, including those in the mining and oil and gas sectors. Revenue at the eastern Canada operation, DDACE Power Systems ( DDACE ) increased by $4.5 million compared to Equipment sales increased $5.0 million on higher generator set sales and an increase in marine and military sector activity. Parts and service revenue decreased $0.5 million.

11 Segment earnings increased $6.1 million compared to last year as the positive impact of higher volumes and higher gross margins at Waterous, more than offset a $1.3 million increase in selling and administrative expenses. Gross margins at Waterous increased due to higher parts and service margins and higher margins resulting from the commissioning of power generation packages delivered in Selling and administrative expenses increased due to higher personnel costs, including commissions. Backlog of $72.9 million as of March 31, 2011 decreased $15.0 million compared to December 31, 2010 due to equipment deliveries in the first quarter. Effective May 2, 2011, Wajax purchased the assets of Harper Power Products Inc. ( Harper ) the authorized Ontario distributor for Detroit Diesel, Mercedes-Benz, MTU and Deutz engines, MTU Onsite Energy generator sets and Allison transmissions with adjusted 2010 annual revenue of approximately $71 million. The cash purchase price paid for the assets was $21.6 million, subject to post closing adjustments. Wajax Power Systems has assumed the operation of Harper s 10 branches in Ontario located in Toronto, Ottawa, Hamilton, London, Sudbury, Timmins, Kingston, Cornwall, Niagara Falls and Pembroke. With the exception of Deutz engines, Wajax Power Systems is presently the authorized distributor of these lines in the rest of Canada except for portions of British Columbia. This business will be rebranded as Wajax Power Systems. With Harper s business well established in the on-highway sector of the market, Wajax intends to further expand its presence in the off-highway and power generation sectors in Ontario. This acquisition also represents a major step towards the strategic objective of becoming a national total power systems solution provider. Selected Quarterly Information 2011 (1) 2010 (1) 2009 (2) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Revenue $303.9 $316.4 $294.4 $272.0 $227.4 $259.1 $234.6 $248.7 Net earnings $12.8 $15.0 $19.6 $12.2 $8.9 $8.3 $6.8 $9.8 Net earnings per share - Basic $0.77 $0.90 $1.18 $0.73 $0.53 $0.50 $0.41 $ Diluted $0.76 $0.89 $1.16 $0.72 $0.53 $0.50 $0.40 $0.59 (1) 2011 and 2010 financials are prepared in accordance with IFRS. (2) 2009 financials are prepared in accordance with Canadian GAAP. In addition, certain 2009 comparative amounts have been reclassified to conform with the current period presentation. In particular, amounts recovered from customers or manufacturers have been reclassified out of selling and administrative expenses into revenue. In addition, service department overhead amounts have been reclassified out of selling and administrative expenses into cost of sales. The above reclassifications do not affect net earnings or cashflows. A discussion of Wajax s previous quarterly results can be found in Wajax s quarterly MD&A reports available on SEDAR at Cash Flow, Liquidity and Capital Resources Net Cash Flows used in Operating Activities While the IFRS adjustments do not impact the Corporation s total cash flows, cash flows from operating activities and cash flows used in investing activities have each been adjusted, by equal and offsetting amounts to reflect the reclassification of rental equipment additions as operating activities.

12 Net cash flows used in operating activities amounted to $20.7 million in the first quarter of 2011, compared to $3.6 million the previous year. The $17.1 million increase was due mainly to a $20.0 million increase in non-cash working capital and higher lift truck rental fleet additions in the Equipment segment of $4.4 million, offset by higher cash flows from operations before changes in non-cash working capital of $6.7 million. Changes in non-cash working capital include the following components: Three months ended March 31 Increase (decrease) in non-cash working capital Trade and other receivables $16.7 $8.3 Inventories $10.5 $5.7 Prepaid expenses ($1.3) $0.9 Trade and other payables $5.3 ($5.1) Accrued Liabilities $3.3 $4.2 Provisions ($0.2) $0.1 Total $34.2 $14.2 Significant components of the changes in non-cash working capital for the quarter ended March 31, 2011 are as follows: Trade and other receivables increased $16.7 million due to higher parts and service activity in all segments. Inventories increased $10.5 million largely as a result of a continued growth in sales activity. Trade and other payables decreased $5.3 million reflecting reductions in the Equipment and Power Systems segments. Accrued liabilities decreased $3.3 million due mostly to the payment of prior year accrued bonus and mid-term incentive accruals. At March 31, 2011 Wajax had employed $160.5 million in working capital, exclusive of cash and obligations under finance leases, compared to $120.7 million at December 31, The $39.8 million increase was due primarily to the cash flow factors listed above and a $10.0 million decrease in dividends payable related to the payment in January 2011 of distributions declared in December 2010 prior to converting from an income fund to a corporation. This was offset by a $5.5 million increase in current income tax liabilities. Investing Activities Wajax invested a net amount of $1.0 million on capital asset additions net of disposals in the first quarter of 2011 compared to $0.6 million the previous year. Financing Activities Wajax used $18.4 million of cash in financing activities in the first quarter of 2011 compared to $8.4 million in the first quarter of Distributions and dividends paid to shareholders totaled $17.5 million, or $1.05 per share for the quarter ended March 31, Funded net debt of $85.5 million at March 31, 2011 increased $39.9 million compared to December 31, The increase resulted mainly from cash used for additional non-cash working capital of $34.2 million, distributions and dividends paid of $17.5 million and $7.5 million disbursed for rental fleet additions, interest payments and other capital additions. The increases were offset by first quarter cash flows from operating activities before changes in non-cash working capital of $19.7 million. Wajax s quarter-end debt-to-equity ratio of 0.42:1 at March 31, 2011 increased from last quarter s ratio of 0.23:1.

13 Liquidity and Capital Resources At March 31, 2011 Wajax had borrowed $80.0 million and issued $5.5 million of letters of credit for a total utilization of $85.5 million of its $175 million bank credit facility and had no utilization of its $15 million equipment financing facility. Borrowing capacity under the bank credit facility is dependent on the level of inventories on-hand and outstanding trade accounts receivables. At March 31, 2011 borrowing capacity under the bank credit facility was equal to $175 million. Wajax s $175 million bank credit facility along with an additional $15 million of capacity permitted under the credit facility, should be sufficient to meet Wajax s short-term normal course working capital, maintenance capital and growth capital requirements. In the long-term Wajax may be required to access the equity or debt markets in order to fund significant acquisitions and growth related working capital and capital expenditures. The $175 million bank credit facility expires December 31, Management expects to be able to enter into a new credit facility by the end of Financial Instruments Wajax uses derivative financial instruments in the management of its foreign currency and interest rate exposures. Wajax s policy is not to utilize derivative financial instruments for trading or speculative purposes. Significant derivative financial instrument transactions and those outstanding at the end of the quarter were as follows: Wajax has entered into the following interest rate swaps that have effectively fixed the interest rate on $80 million of Wajax s debt at the combined rate of 2.925%, plus applicable margins, until December 31, 2011: - On June 7, 2008 the delayed interest rate swap Wajax entered into on May 9, 2007 with two of its lenders became effective. As a result, the interest rate on the $30 million non-revolving term portion of the bank credit facility was effectively fixed at 4.60% plus applicable margins until expiry of the facility on December 31, On January 23, 2009 a delayed interest rate swap Wajax entered into on December 18, 2008 with two of its lenders became effective. As a result, the interest rate on the $50 million revolving term portion of the bank credit facility was effectively fixed at 1.92% plus applicable margins until expiry of the facility on December 31, Margins on the debt associated with the interest rate swaps depend on Wajax s Leverage Ratio and range between 0.75% and 2.5%. Wajax enters into short-term currency forward contracts to fix the exchange rate on the cost of certain inbound inventory and to hedge certain foreign currency-denominated sales to (receivables from) customers as part of its normal course of business. As at March 31, 2011, Wajax had contracts outstanding to buy U.S.$26.2 million and to sell U.S.$4.7 million (December 31, 2010 to buy U.S.$34.1 million and to sell U.S.$0.3 million, March 31, 2010 to buy U.S.$33.2 million and 0.3 million and to sell U.S.$0.03 million). The U.S. dollar contracts expire between April 2011 and December 2012, with a weighted average U.S./Canadian dollar rate of Wajax measures financial instruments held for trading and not accounted for as hedging items, at fair value with subsequent changes in fair value being charged to earnings. Derivatives designated as effective hedges are measured at fair value with subsequent changes in fair value being charged to other comprehensive income. The fair value of derivative instruments is estimated based upon market conditions using appropriate valuation models. The carrying values reported in the balance sheet for financial instruments are not significantly different from their fair values. The transition to IFRS did not have a material effect on the Corporation s accounting for financial instruments. Currency Risk There have been no material changes to currency risk since December 31, 2010.

14 Contractual Obligations There have been no material changes to contractual obligations since December 31, Off Balance Sheet Financing The Equipment segment had $38.0 million ( $25.1 million) of consigned inventory on-hand from a major manufacturer as at March 31, In the normal course of business, Wajax receives inventory on consignment from this manufacturer which is generally sold to customers or purchased by Wajax. This consigned inventory is not included in Wajax s inventory as the manufacturer retains title to the goods. Wajax s off balance sheet financing arrangements, with non-bank lenders, include operating lease contracts in relation to Wajax s long-term lift truck rental fleet in the Equipment segment. At March 31, 2011, the non-discounted operating lease commitment for the rental fleet was $5.0 million (December 31, $6.0 million). 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 bank credit facility. Although management currently believes Wajax has adequate debt capacity, Wajax would have to access the equity or debt markets, or temporarily reduce dividends to accommodate any shortfalls in Wajax s credit facility. See the Liquidity and Capital Resources section. Under IFRS, vehicle leases that were previously classified as operating leases under Canadian GAAP are assessed as financing leases. Assets under finance lease are capitalized at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. The liability is recorded in the statement of financial position and classified between current and noncurrent amounts. Lease payments are apportioned between finance charges and a reduction of the lease liability so as to achieve a constant rate of return of interest on the remaining balance of the liability. Dividends Dividends to shareholders were declared as follows: Record Date Payment Date Per Share Amount January 31, 2011 February 22, 2011 $0.15 $2.5 February 28, 2011 March 21, March 31, 2011 April 20, Three months ended March 31, 2011 $0.45 $7.5 On February 25, 2011 Wajax announced a monthly dividend of $0.15 per share ($1.80 annualized) for the month of April payable on May 20, 2011 to shareholders of record on April 29, On May 10, 2011 the Wajax announced monthly dividends of $0.18 per share ($2.16 annualized) for each of the months of May, June and July payable on June 20, 2011, July 20, 2011 and August 22, 2010 to shareholders of record on May 31, 2011, June 30, 2011 and July 29, 2011 respectively. Tax information relating to 2011 dividends and prior year distributions is available on Wajax s website at Productive Capacity and Productive Capacity Management There have been no material changes to the Corporation s productive capacity and productive capacity management since December 31, 2010.

15 Financing Strategies Wajax s $175 million bank credit facility along with the $15 million demand inventory equipment financing facility should be sufficient to meet Wajax s short-term normal course working capital, maintenance capital and growth capital requirements. The $175 million bank credit facility expires December 31, Management expects to be able to enter into a new credit facility by the end of Wajax s short-term normal course working capital requirements can swing widely quarter-to-quarter due to the timing of large inventory purchases and/or sales and changes in market activity. In general, as Wajax experiences growth, there is a need for additional working capital as was the case in 2006 and Conversely, as Wajax experiences economic slowdowns working capital reduces reflecting the lower activity levels as was the case in Fluctuations in working capital are generally funded by, or used to repay, the bank credit facilities. In the long-term Wajax may also 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. Borrowing capacity under the bank credit facility is dependent on the level of Wajax s inventories on-hand and outstanding trade accounts receivables. At March 31, 2011 borrowing capacity under the bank credit facility was equal to $175 million. The bank credit facility contains covenants that could restrict the ability of Wajax to make dividend payments, if (i) an event of default exists or would exist as a result of a dividend payment, and (ii) the leverage ratio (Debt to EBITDA) is greater than 3.0. If the leverage ratio is less than or equal to 3.0, then the aggregate dividend payments by the borrowers in each fiscal quarter may not exceed 115% of distributable cash for the trailing four fiscal quarters. Borrowing capacity under the bank credit facility is dependent on the level of inventories on-hand and outstanding trade accounts receivables. For further detail, the bank credit facility is available on SEDAR at Share Capital The shares of Wajax issued are included in shareholders equity on the balance sheet as follows: Issued and fully paid shares as at March 31, 2011 Number Amount Balance at the beginning of quarter Rights exercised 16,629,444 - $ Balance at end of quarter 16,629,444 $105.9 Wajax has five share-based compensation plans; the Wajax Share Ownership Plan ( SOP ), the Deferred Share Program ( DSP ), the Directors Deferred Share Unit Plan ( DDSUP ), the Mid-Term Incentive Plan for Senior Executives ( MTIP ) and the Deferred Stock Unit Plan ( DSUP ). SOP, DSP and DDSUP rights are issued to the participants and are settled by issuing Wajax Corporation shares. The cash-settled MTIP and DSUP consist of annual grants that vest over three years and are subject to time and performance vesting criteria, a portion of which is determined by the price of the Corporation s shares. Compensation expense for the SOP, DSP and DDSUP is determined based upon the fair value of the rights at the date of grant and charged to earnings on a straight line basis over the vesting period, with an offsetting adjustment to contributed surplus. Compensation expense for the share-based portions of the MTIP and DSUP varies with the price of the Corporation s shares and is recognized over the vesting period. Wajax recorded compensation cost of $2.2 million for the quarter ( $0.6 million) in respect of these plans. Effective January 1, 2011 the plans have been amended to reflect the conversion to a corporation. In particular, rights issued to participants will be valued and settled by Wajax Corporation shares and portions of the MTIP and DSUP compensation expense will vary with the price of Wajax Corporation s shares.

16 Critical Accounting Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant accounting estimates include the provision for inventory obsolescence, provision for doubtful accounts and any impairment of goodwill and other assets, classification of leases, warranty reserve and measurement of employee benefit obiligations. Wajax makes a provision for doubtful accounts when there is evidence that a specific account may become uncollectible. Wajax does not provide a general reserve for bad debts. As conditions change, actual results could differ from those estimates. Critical accounting estimates used by Wajax s management are discussed in detail in the MD&A for the year ended December 31, 2010 which can be found on SEDAR at Accounting Changes Transition to International Financial Reporting Standards The Corporation has adopted IFRS on January 1, 2011 as required by the Accounting Standards Board of the Canadian Institute of Chartered Accountants. The Corporation provided information on its transition to IFRS in its 2010 annual MD&A. This information has not changed materially from what was provided. Note 16 of the condensed consolidated financial statements provides an explanation of the transition to IFRS. In addition, Note 16 provides detailed reconciliations between Canadian GAAP and IFRS of the consolidated income statement and consolidated statement of comprehensive income for the three months ended March 31, 2010 and for the year ended December 31, 2010 and of the consolidated statement of financial position as at March 31, January 1 and December 31, These reconciliations provide explanations of each major difference. New standards and interpretations not yet adopted As of January 1, 2013, the Corporation will be required to adopt IFRS 9 Financial Instruments, which is the result of the first phase of the IASB s project to replace IAS 39 Financial Instruments: Recognition and Measurement. The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The Corporation is currently assessing the impact of this standard on its consolidated financial statements. Risks and Uncertainties As with most businesses, Wajax is subject to a number of marketplace and industry related risks and uncertainties which could have a material impact on operating results. Wajax attempts to minimize many of these risks through diversification of core businesses and through the geographic diversity of its operations. There are however, a number of risks that deserve particular comment which are discussed in detail in the MD&A for the year ended December 31, 2010 which can be found on SEDAR at For the period April 1, 2011 to May 10, 2011 there have been no material changes to the business of Wajax that require an update to the discussion of the applicable risks discussed in the MD&A for the year ended December 31, Outlook First quarter improved results were driven by the robust energy and mining markets in western Canada. In addition, management was also encouraged by evidence of stronger activity in central and eastern Canada, particularly in forestry, construction and certain other industrial sectors.

17 Management is looking forward to realizing on the potential for additional growth in the Ontario market as a result of the Harper acquisition. With this business well established in the on-highway sector of the market, Wajax Power Systems intends to further expand its presence in the off-highway and power generation sectors. The acquisition represents a major step towards the segment s strategic objective of becoming a national total power systems solution provider. Management expects it will be immediately accretive to its 2011 results. As well, management believes it has been able to minimize the potential supply disruptions to its Hitachi product line caused by the earthquake and resulting tsunami in Japan. With the inventory levels the Equipment segment decided to carry prior to, and immediately after this disaster, management expects it will have adequate stock of Hitachi parts and construction excavators to meet market demand. However, the Equipment segment is expecting some delays in obtaining mining equipment, which will have some impact on 2011 revenue for the remainder of the year. For the balance of 2011, Wajax expects a continuation of the economic activity experienced in the first quarter. Notwithstanding the negative effect of the Hitachi mining equipment supply disruption, management expects pre-tax earnings to continue to be ahead of last year for the balance of Additional information, including Wajax s Annual Report and Annual Information Form, are available on SEDAR at

18 WAJAX CORPORATION Unaudited Condensed Consolidated Financial Statements For the three months ended March 31, 2011 Notice required under National Instrument , Continuous Disclosure Obligations Part 4.3(3) (a): The attached condensed consolidated financial statements have been prepared by Management of Wajax Corporation and have not been reviewed by the Corporation s auditors.

19 W A J A X C O R P O R A T I O N C O N D E N S E D C O N S O L I D A T E D 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 March 31, 2011 December 31, 2010 January 1, 2010 (unaudited, in thousands of Canadian dollars) ASSETS CURRENT Cash $ 2,873 $ 42,954 $ 9,207 Trade and other receivables 152, , ,537 Inventories 208, , ,909 Prepaid expenses 5,945 7,244 7, , , ,453 NON-CURRENT Rental equipment Note 4 19,370 15,794 16,370 Property, plant and equipment Note 5 45,846 46,090 46,008 Intangible assets 72,853 72,972 73,505 Deferred tax assets Pension asset Note 12 5, , , , , ,112 $ 512,729 $ 522,548 $ 456,565 LIABILITIES AND SHAREHOLDERS EQUITY CURRENT Trade and other payables $ 129,542 $ 134,832 $ 83,723 Accrued liabilities 61,001 64,229 66,089 Provisions Note 6 5,119 4,892 4,859 Dividends payable 2,494 12,472 2,491 Income taxes payable 7,557 2, Obligations under finance leases Note 7 3,596 3,677 3,850 Derivative instrument liability 1,989 2,452 - Bank debt 79,759 79, , , ,286 NON-CURRENT Provisions Note 6 4,477 4,338 3,518 Employee benefits 4,021 4,132 3,699 Derivative instrument liability - - 2,643 Bank debt ,461 Other liabilities 2,601 5, Obligations under finance leases Note 7 5,036 5,227 6,140 16,135 18,918 96,302 SHAREHOLDERS EQUITY Share capital Note 9 105, Trust units Note , ,307 Contributed surplus Note 11 6,971 6,426 5,645 Retained earnings 94,744 89,411 90,258 Accumulated other comprehensive loss (2,070) (2,405) (2,233) 92,674 87,006 88,025 Total shareholders equity 205, , ,977 $ 512,729 $ 522,548 $ 456,565 These condensed consolidated financial statements were approved by the Board of Directors on May 10, 2011.