Wajax Income Fund
TSX : WJX.UN

Wajax Income Fund

November 09, 2007 10:47 ET

Wajax Announces Third Quarter 2007 Results and Acquires Tigercat Distribution Rights

TORONTO, ONTARIO--(Marketwire - Nov. 9, 2007) - Wajax Income Fund (TSX:WJX.UN) -



Three Months Nine Months
(Dollars in millions, except per Ended September 30 Ended September 30
unit data) -------------------------------------
2007 2006 2007 2006

---------------------------------------------------------------------------

Revenue $ 289.4 $ 294.7 $ 910.8 $ 912.0

Net earnings $ 19.6 $ 18.0 $ 53.4 $ 53.4

Distributable cash(i) $ 19.6 $ 19.4 $ 54.9 $ 55.4


Earnings per unit (basic) $ 1.18 $ 1.09 $ 3.22 $ 3.22

Distributable cash per unit (basic)(i) $ 1.18 $ 1.17 $ 3.31 $ 3.34

Cash distributions declared per unit $ 0.98 $ 0.87 $ 2.90 $ 2.37

(i) Denotes non-GAAP measure. See Non-GAAP Measures section in the attached
Management's Discussion and Analysis (MD&A).


Wajax Income Fund today announced third quarter 2007 results.

Third Quarter Highlights

- Consolidated revenues decreased $5.3 million, or 2% compared to last year. The strengthening Canadian dollar relative to the U.S. dollar negatively affected revenues by approximately $7.6 million, or 3% compared to 2006, as cost savings on imported products were passed on to customers. Mobile Equipment's revenues were up 5% led by stronger mining equipment and parts and services sales, which more than offset the negative effect of the change in the U.S. dollar exchange rate and lower forestry and construction equipment volumes. Industrial Components and Power Systems' revenues were down 6% and 12% respectively as a result of reduced natural gas drilling activity in western Canada and the change in the exchange rate.

- Earnings of $1.18 per unit, which included a $0.14 per unit gain on sale of land in Edmonton, were higher than the $1.09 per unit posted last year. The changes in revenues led to higher segment earnings in Mobile Equipment and lower segment earnings in Industrial Components. The gain on sale of the Edmonton land more than offset the impact of lower revenues in Power Systems resulting in slightly higher segment earnings.

- The Fund announced that its Mobile Equipment operation has secured distribution rights to the Tigercat line of forestry equipment for Alberta, Ontario, Quebec, New Brunswick and Nova Scotia, effective December 1, 2007. Tigercat manufactures a full line of high quality purpose built forestry equipment and is recognized as a market leader in the industry.

- Basic distributable cash (See Non-GAAP Measures section in the MD&A) increased to $1.18 per unit for the quarter compared to $1.17 the previous year as a result of the gain on sale of land.

- The Fund announced a $0.33 per unit distribution for the month of November ($3.96 per unit annualized), payable on December 20, 2007, to unitholders of record on November 30, 2007.

Commenting on the third quarter results and the outlook for the remainder of 2007, Neil Manning, President and CEO, stated "Our third quarter earnings generally met our expectations. Once again, a strong mining sector and an increase in GE Energy engine deliveries offset areas of softness including natural gas drilling and forestry. We are also extremely pleased to have acquired distribution rights for the Tigercat forestry line, which will significantly increase our presence in the Canadian forestry market. Although we expect solid results for the year as a whole, reduced drilling activity in western Canada is anticipated to impact results for at least the remainder of 2007."

Wajax is a diversified income fund that has three core distribution businesses engaged in the sale and after-sales parts and service support of mobile equipment, industrial components and power systems, through a network of over 100 branches across Canada. Its customer base spans natural resources, construction, transportation, manufacturing, industrial processing and utilities.

Wajax will Webcast its Third Quarter Financial Results Conference Call. You are invited to listen to the live Webcast on Friday, November 9, 2007 at 2:30 p.m. ET. To access the Webcast, enter www.wajax.com 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.

This news release contains forward-looking information. Actual future results may differ from expected results.

Management's Discussion and Analysis - Q3 2007

The following management's discussion and analysis ("MD&A") discusses the consolidated financial condition and results of operations of Wajax Income Fund (the "Fund" or "Wajax") for the three and nine-month periods ended September 30, 2007. This MD&A should be read in conjunction with the information contained in the Unaudited Interim Consolidated Financial Statements and accompanying notes for the three and nine-month periods ended September 30, 2007, the annual Audited Consolidated Financial Statements and accompanying notes of the Fund for the year ended December 31, 2006 and the associated MD&A. Information contained in this MD&A is based on information available to management as of November 9, 2007.

Unless otherwise indicated, all financial information within this MD&A is in millions of dollars, except per unit data.

Responsibility of Management and the Board of Trustees

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. The Fund's Board of Trustees has approved this MD&A and the quarterly unaudited Consolidated Financial Statements and accompanying notes. In addition, the Fund's Audit Committee, on behalf of the Board of Trustees, provides an oversight role with respect to all public financial disclosures made by the Fund, and has reviewed this MD&A and the annual Consolidated Financial Statements and accompanying notes.

Disclosure Controls and Procedures and Internal Control over Financial Reporting

The Fund has designed disclosure controls and procedures to provide reasonable assurance that material information relating to the Fund 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. The Fund has designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian Generally Accepted Accounting Principles. There has been no change in the Fund's internal control over financial reporting that occurred during the third quarter of fiscal 2007 that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting.

Wajax Income Fund Overview

Wajax Income Fund is an unincorporated open-ended limited purpose trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated April 27, 2005. The Fund was created to indirectly invest, on June 15, 2005, in substantially all of the assets and business formerly conducted by Wajax Limited.

The Fund intends to make monthly cash distributions, generally payable to unitholders of record on the last business day of each calendar month and to be paid on or about the 20th day of the following month. The Fund may make special cash and/or special non-cash distributions at the end of the year to ensure, as provided in the Fund's Declaration of Trust, that the Fund's total distributions for the year are equal to its taxable income for the year. Cash distributions are dependent on, among other things, the cash flow of the Fund.

Wajax has three core distribution businesses engaged in the sale and after-sales parts and service support of mobile equipment, power systems and industrial components, through a network of over 100 branches across Canada. Its customer base spans natural resources, construction, transportation, manufacturing, industrial processing and utilities.

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. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management of the Fund. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. These factors include and are not restricted to the risks identified in this MD&A. In addition these factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. The forward-looking statements reflect management's expectations as of the date hereof and the Fund does not assume any obligation to update or revise them to reflect new events or circumstances.



Consolidated Results

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
---------------------------------------------------------------------------
Revenue $ 289.4 $ 294.7 $ 910.8 $ 912.0

Gross profit $ 62.8 $ 64.9 $ 199.6 $ 199.0
Selling and administrative
expenses $ 44.2 $ 45.1 $ 142.6 $ 139.8
Gain on sale of land ($2.4) - ($2.4) -
Earnings before interest and
income taxes $ 21.0 $ 19.8 $ 59.4 $ 59.2
Interest expense $ 1.2 $ 1.3 $ 3.9 $ 3.2
Income tax expense $ 0.2 $ 0.5 $ 2.1 $ 2.6

Net earnings $ 19.6 $ 18.0 $ 53.4 $ 53.4

Distributable cash(1) $ 19.6 $ 19.4 $ 54.9 $ 55.4

Distributions declared $ 16.3 $ 14.4 $ 48.1 $ 39.3
Distributions paid $ 16.1 $ 13.9 $ 66.5 $ 48.6
---------------------------------------------------------------------------

Earnings per unit
- Basic $ 1.18 $ 1.09 $ 3.22 $ 3.22
- Diluted $ 1.17 $ 1.08 $ 3.20 $ 3.20

Distributable cash per unit(1)(2)
- Basic $ 1.18 $ 1.17 $ 3.31 $ 3.34
- Diluted $ 1.18 $ 1.16 $ 3.29 $ 3.32

Distributions declared per unit(2) $ 0.98 $ 0.87 $ 2.90 $ 2.37
Distributions paid per unit(2) $ 0.97 $ 0.84 $ 4.01 $ 2.93
---------------------------------------------------------------------------
(1) Non-GAAP measure, see the Non-GAAP Measures and Distributable Cash
sections.
(2) Based on actual number of units outstanding on the relevant record
date.


Revenue

Revenue in the third quarter of 2007 decreased $5.3 million to $289.4 million from $294.7 million in 2006. The strengthening Canadian dollar relative to the U.S. dollar had the effect of decreasing 2007 consolidated quarterly revenue by approximately $7.6 million, or 3%, as the Fund realized lower sales dollars per unit on U.S. sourced products. Segment revenue increased 5% in Mobile Equipment while revenue fell 6% and 12% in Industrial Components and Power Systems, respectively. For the nine months ended September 30, 2007, revenue decreased $1.2 million.

Gross profit

Gross profit in the third quarter of 2007 decreased $2.1 million due mainly to the impact of lower volumes. The gross profit margin percentage for the quarter decreased to 21.7% in 2007 from 22.0% in 2006 as increases in Mobile Equipment were more than offset by decreases in Power Systems and Industrial Components.

For the nine months ended September 30, 2007, gross profit increased $0.6 million due to a slight increase in gross profit percentage to 21.9% from 21.8% last year, offset partially by the impact of a slight decline in volumes.

Selling and administrative expenses

Selling and administrative expenses decreased $0.9 million in the quarter mainly due to lower personnel costs in Power Systems and Industrial Components. As a result, selling and administrative expenses as a percentage of revenue remained unchanged at 15.3%.

For the nine months ended September 30, 2007 selling and administrative expenses increased $2.8 million due primarily to increased personnel and occupancy costs in both Mobile Equipment and Power Systems. As a result, selling and administrative expenses as a percentage of revenue increased to 15.7% from 15.3%.

Gain on sale of land

During the quarter, the Fund recognized a $2.4 million, or $0.14 per unit after tax, gain on sale of land previously held for development in Power Systems.

Interest expense

Quarterly interest expense of $1.2 million decreased $0.1 million as the Fund's lower cost of borrowing and lower deferred financing costs were partially offset by higher funded debt net of cash ("funded net debt") outstanding in 2007 compared to last year. For the nine months ended September 30, 2007, interest expense increased $0.7 million compared to 2006 due primarily to higher funded net debt outstanding in 2007.

Income tax expense

The Fund is a "mutual fund trust" as defined under the Income Tax Act (Canada) and accordingly is not taxable on its income to the extent that it is distributed to its unitholders. The Fund's subsidiaries are, however, subject to income taxation and provide for income tax obligations based on statutory corporate tax rates.

The effective income tax rate of 0.8% for the quarter decreased from 2.7% the previous year due to an increase in the amount of subordinated indebtedness provided by the Fund to its subsidiary Wajax Limited that resulted in additional interest expense in Wajax Limited compared to last year.

For the nine months ended September 30, 2007 the effective tax rate decreased to 3.8% from 4.6% the previous year as an increase in the amount of subordinated indebtedness provided by the Fund to its subsidiary Wajax Limited resulting in additional interest expense in Wajax Limited. This was partially offset by the $1.5 million future tax adjustment made in the second quarter to reflect taxable temporary differences of the Fund that will reverse after 2010 tax effected at 31.5 percent.

The Fund's effective income tax rate was lower than the Fund's statutory income tax rate of 33.5% as the majority of the Fund's income is not subject to tax in the Fund.

Net earnings

Quarterly net earnings of $19.6 million or $1.18 per unit, increased $1.6 million from $18.0 million, or $1.09 per unit, in 2006 due principally to the $2.4 million ($0.14 per unit after tax) gain on the sale of land offset in part by lower volumes and margins.

For the nine months ended September 30, 2007 net earnings of $53.4 million, or $3.22 per unit remained unchanged compared to $53.4 million, or $3.22 per unit, in 2006.

Comprehensive income

Comprehensive income for the quarter of $19.3 million increased $1.3 million from $18.0 million the previous year due to a $1.6 million increase in net earnings partially offset by an other comprehensive loss of $0.3 million for the quarter. For the nine months ended September 30, 2007, comprehensive income of $52.9 million decreased $0.5 million from $53.4 million the previous year due to another comprehensive loss of $0.5 million. There was no other comprehensive income recorded last year, see the Changes in Accounting Policy section.

Funded net debt

Funded net debt of $77.0 million decreased $9.7 million compared to June 30, 2007 as third quarter cash flows from continuing operating activities of $23.9 million and net proceeds from investing activities of $2.0 million exceeded $16.1 million of cash distributions and $0.1 million of cash used in discontinued operations.

Compared to September 30, 2006 funded net debt increased $5.0 million. The Fund's quarter-end debt-to-equity ratio of 0.38:1 at September 30, 2007 decreased from last quarter's ratio of 0.43:1 and increased from last year's ratio of 0.34:1.

Distributable cash (see Non-GAAP Measures section) and distributions

For the quarter ended September 30, 2007 distributable cash was $19.6 million, or $1.18 per unit, compared to $19.4 million, or $1.17 per unit, the previous year. The $0.2 million increase in distributable cash is due primarily to higher earnings compared to last year, offset partially by higher maintenance capital expenditures. For the same period distributions declared were $0.98 per unit compared to $0.87 per unit in the previous year.

Distributable cash in excess of cash distributions declared for the three months ended September 30, 2007 of $3.3 million, or $0.20 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

For the nine months ended September 30, 2007 distributable cash was $54.9 million, or $3.31 per unit, compared to $55.4 million, or $3.34 per unit, the previous year. For the same period, distributions declared were $2.90 per unit (2006 - $2.37 per unit).

Distributable cash in excess of cash distributions declared for the nine months ended September 30, 2007 of $6.8 million, or $0.41 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

The monthly distribution for August and September increased to $0.33 per unit ($3.96 per unit annualized) from $0.32 per unit in July.

Unitholder tax information relating to 2007 distributions is available on the Fund's website at www.wajax.com.



Quarterly Results of Operations

Mobile Equipment

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
---------------------------------------------------------------------------
Equipment $ 111.8 $ 111.6 $ 345.5 $ 354.8
Parts and service $ 46.4 $ 39.7 $ 132.1 $ 124.8
---------------------------------------------------------------------------
Gross revenue $ 158.2 $ 151.3 $ 477.6 $ 479.6
Segment earnings $ 12.0 $ 10.3 $ 32.9 $ 31.6
Segment earnings margin 7.6% 6.8% 6.9% 6.6%
---------------------------------------------------------------------------


Revenue in the third quarter of 2007 increased $6.9 million, or 5%, to $158.2 million compared to $151.3 million in the third quarter of 2006. The strengthening Canadian dollar relative to the U.S. dollar had the effect of decreasing 2007 quarterly revenues by approximately $5.1 million, or 3%, compared to last year. Segment earnings for the quarter increased $1.7 million to $12.0 million compared to the third quarter of 2006. For the nine months ended September 30, 2007, revenue decreased $2.0 million, while segment earnings increased $1.3 million to $32.9 million. The following factors contributed to the Mobile Equipment segment's third quarter results:



- Equipment revenues increased by $0.2 million compared to last year and
included the following quarter-over-quarter variances:

- Mining equipment revenues increased $8.2 million due mainly to
additional deliveries of Hitachi, Letourneau and Voest Alpine products
across Canada.

- Forestry and construction equipment revenues decreased $7.0 million.
New Hitachi construction equipment sales decreased due to lower volumes
in western Canada and Ontario and due to two Hitachi trucks sold in
2006 not repeated in 2007. Forestry equipment sales declined due to
weaker demand. Partially offsetting these revenue declines were
increased new JCB construction equipment sales across all regions.

- Crane and utility equipment revenues decreased $0.6 million as a
decline in new equipment sales in Ontario and western Canada more than
offset improved sales in eastern Canada resulting primarily from a
multi-unit deal to a provincial power utility.

- Material handling equipment revenues decreased $0.4 million as a
decline in Ontario and eastern Canada more than offset higher volumes
in western Canada.

- Parts and service volumes increased $6.7 million compared to last year
primarily from increases in western Canada due to several large repairs
in the mining sector and increased volume in the material handling
sector. These increases were partly offset by lower revenues in the
forestry sector in eastern Canada due mainly to weaker demand.

- Earnings increased $1.7 million as a result of higher volumes and
margins, offset partly by an increase in selling and administrative
expenses compared to last year.

- Margins increased due mainly to a higher proportion of higher margin
parts and service volumes compared to last year.

- Selling and administrative expenses increased $1.1 million as higher
expense recoveries were more than offset by additional personnel and
occupancy costs in western Canada compared to last year.


During the quarter, the Mobile Equipment operation secured the distribution rights to the Tigercat line of forestry equipment for Alberta, Ontario, Quebec, New Brunswick and Nova Scotia, effective December 1, 2007. Tigercat manufactures a full line of high quality purpose built forestry equipment and is recognized as a market leader in the industry.



Industrial Components - Kinecor

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
------------------------------------------------------------------------
Gross revenue $ 73.7 $ 78.2 $ 234.3 $ 239.1
Segment earnings $ 4.6 $ 5.6 $ 15.0 $ 16.3
Segment earnings margin 6.2% 7.2% 6.4% 6.8%
------------------------------------------------------------------------


Revenue at Kinecor of $73.7 million decreased 6% in the third quarter of 2007, or $4.5 million from $78.2 million in 2006. Segment earnings decreased $1.0 million to $4.6 million compared to $5.6 million the previous year. For the nine months ended September 30, 2007, revenue declined $4.8 million, while segment earnings decreased $1.3 million to $15.0 million compared to the same period last year. The following factors contributed to the segment's third quarter results:

- Bearings and power transmission parts sales increased $1.4 million compared to last year, largely due to increased revenue in eastern and western Canada in the mining and forestry sectors. Improved sales in most Ontario sectors also contributed to the overall revenue increase.

- Fluid power parts and service revenue declined $5.9 million, as decreased activity in the oil and gas sectors from reduced drilling and capital investment activity in western Canada more than offset improved mining and forestry sector sales across all regions.

- Segment earnings decreased $1.0 million to $4.6 million, compared to last year. The negative impact of lower volumes and margins were partially offset by a $0.6 million decrease in selling and administrative expenses due primarily to lower personnel costs in western Canada. Margin decreased mainly from the reduction in higher margin fluid power parts and service revenues compared to last year.



Power Systems

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
---------------------------------------------------------------------------
Equipment $ 26.8 $ 36.5 $ 101.1 $ 100.7
Parts and service $ 31.4 $ 29.5 $ 100.0 $ 94.9
---------------------------------------------------------------------------
Gross revenue $ 58.2 $ 66.0 $ 201.1 $ 195.6
Segment earnings $ 6.2 $ 6.1 $ 18.2 $ 18.4
Segment earnings margin 10.7% 9.2% 9.1% 9.4%
---------------------------------------------------------------------------


Revenue in the third quarter decreased 12%, or $7.8 million, to $58.2 million compared to $66.0 million in 2006, however segment earnings increased $0.1 million to $6.2 million in the quarter compared to the previous year. The strengthening Canadian dollar relative to the U.S. dollar had the effect of decreasing 2007 quarterly revenues by approximately $2.5 million compared to last year. For the nine months ended September 30, 2007, revenue increased $5.5 million, or 3%, to $201.1 million, while earnings decreased $0.2 million to $18.2 million compared to $18.4 million in 2006. The following factors impacted quarterly revenues and earnings:

- Revenue at Waterous Power Systems ("Waterous") in western Canada was down $13.1 million, or 27%, compared to last year as a decline in equipment sales of $15.3 million was offset by a $2.2 million increase in parts and service revenues. The decline in equipment revenue was due to the continuing slowdown in natural gas drilling activity. However, parts and service revenues increased $2.2 million, mostly in the oil sands area as a result of service rate increases and capacity provided through additional mechanics and extended operating hours.

- Revenue at the eastern Canada operation, Detroit Diesel-Allison Canada East ("DD- ACE") increased $5.3 million, or 29%, compared to 2006. Equipment sales increased $5.6 million, due principally to higher GE Energy natural gas engine sales. Improved revenues from industrial engines also contributed to the increase. Parts and service revenues decreased $0.3 million compared to last year.

- Segment earnings increased $0.1 million as the positive impact of the $2.4 million gain on sale of land held for development in Edmonton and selling and administrative expense reduction of $1.0 million were almost fully offset by the negative impact of lower volumes and lower margins compared to last year. Selling and administrative expense reductions were primarily related to lower personnel costs in Waterous.

On September 8, 2007 the Fund sold land, which was previously held for development in Edmonton, for proceeds of $5.5 million resulting in a gain of $2.4 million. Productivity gains combined with expansion of other facilities will allow Waterous to continue to operate out of its current Edmonton location.



Selected Quarterly Information

---------------------------------------------------------------------------
2007 2006 2005
---------------------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
---------------------------------------------------------------------------
Revenue $ 289.4 $ 319.1 $ 302.3 $ 294.5 $ 294.7 $ 314.1 $ 303.2 $ 276.8
---------------------------------------------------------------------------
Net earnings
from
continuing
operations $ 19.6 $ 15.0 $ 18.7 $ 18.1 $ 18.0 $ 18.5 $ 16.9 $ 15.8
---------------------------------------------------------------------------
Net earnings
from
continuing
operations
per unit
---------------------------------------------------------------------------
- Basic $ 1.18 $ 0.91 $ 1.13 $ 1.09 $ 1.09 $ 1.11 $ 1.02 $ 0.95
---------------------------------------------------------------------------
- Diluted $ 1.17 $ 0.90 $ 1.12 $ 1.08 $ 1.08 $ 1.11 $ 1.02 $ 0.94
---------------------------------------------------------------------------
Net
earnings $ 19.6 $ 15.0 $ 18.7 $ 19.4 $ 18.0 $ 18.5 $ 16.9 $ 15.8
---------------------------------------------------------------------------
Earnings
per unit
---------------------------------------------------------------------------
- Basic $ 1.18 $ 0.91 $ 1.13 $ 1.17 $ 1.09 $ 1.11 $ 1.02 $ 0.95
---------------------------------------------------------------------------
- Diluted $ 1.17 $ 0.90 $ 1.12 $ 1.16 $ 1.08 $ 1.11 $ 1.02 $ 0.94
---------------------------------------------------------------------------
Distribut-
able
cash(1) $ 19.6 $ 15.9 $ 19.4 $ 18.6 $ 19.4 $ 17.5 $ 18.5 $ 15.5
---------------------------------------------------------------------------
Distribut-
able cash
per unit(1)
---------------------------------------------------------------------------
- Basic $ 1.18 $ 0.96 $ 1.17 $ 1.12 $ 1.17 $ 1.05 $ 1.11 $ 0.94
---------------------------------------------------------------------------
(1) Non-GAAP measure, see the Non-GAAP Measures Section.


Historically the first quarter results reflect some seasonality and are typically the weakest due to decreased activity in many of the sectors serviced by the Fund. However, this trend has not been as evident over the last two-plus years due to the recent strength of the Canadian economy.

A discussion of the Fund's previous quarterly results can be found in the Fund's quarterly MD&A reports available on SEDAR at www.sedar.com.

Liquidity and Capital Resources

The Fund generated $25.9 million of cash from operations before financing activities in the third quarter of 2007 compared to $4.2 million in the third quarter of 2006. The $21.7 million increase in cash flows from operations before financing activities was due to a reduction in non-cash working capital, higher earnings and lower investing activities compared to the same period last year.

Cash generated by operating activities amounted to $23.9 million in the third quarter of 2007, with $21.0 million of cash generated from operating earnings and $2.9 million from non-cash working capital. Significant components of the change in non-cash working capital included the following:

- Accounts payable and accrued liabilities decreased $16.3 million largely attributable to the reduced payables to major suppliers in Mobile Equipment and Power System segments and the reduction of deferred income related to completion of certain GE Energy projects in DD-ACE.

- Inventory decreased $10.8 million, reflecting lower inventory levels in all business segments.

- Prepaid expenses decreased $5.4 million as a result of a decrease in the amount of deposits with suppliers in DD-ACE.

- Accounts receivable decreased $3.0 million as a result of lower sales in all segments compared to the last quarter.

During the quarter the Fund received a net amount of $2.0 million of cash from investing activities. The investing activities included $2.4 million of lift truck rental fleet additions, net of disposals, $1.1 million of other various capital asset additions, net of disposals and $5.5 million of proceeds on sale of land previously held for development.

Funded net debt of $77.0 million decreased $9.7 million compared to June 30, 2007 as third quarter cash flows from continuing operating activities of $23.9 million and net proceeds from investing activities of $2.0 million were only partially offset by $16.1 million of cash distributions and $0.1 million of cash used in discontinued operations. Compared to September 30, 2006 funded net debt increased $5.0 million. The Fund's quarter-end debt-to-equity ratio of 0.38:1 at September 30, 2007 decreased from last quarter's ratio of 0.43:1 and increased from last year's ratio of 0.34:1.

At September 30, 2007 the Fund had borrowed $81.0 million and issued $0.4 million of letters of credit for a total utilization of $81.4 million of its $175 million bank credit facility and had utilized $0.9 million of its $15 million equipment financing facility.

The Fund's amended $175 million bank credit facility along with its $15 million equipment financing demand facility should be sufficient to meet the Fund's short-term working capital and maintenance capital requirements. In the long-term the Fund may be required to access the equity or debt markets in order to fund significant acquisitions and growth related working capital and capital expenditure requirements.

Financial Instruments

The Fund uses derivative financial instruments in the management of its foreign currency and interest rate exposures. The Fund'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:

- The Fund entered into interest-rate swap contracts with two of its lenders in June 2005, such that in total the interest rate on the $30 million non-revolving term portion of the bank credit facility is effectively fixed at 3.47% plus applicable margins until June 6, 2008.

- On May 9, 2007 the Fund entered into a delayed start interest rate swap with two of its lenders such that in total the interest rate on the $30 million non-revolving term portion of the bank credit facility is effectively fixed at 4.60% plus applicable margins. The delayed interest rate swap commences on June 6, 2008 until expiry of the facility on December 31, 2011.

- The Fund enters into short-term currency forward contracts to fix 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 September 30, 2007, the Fund had contracts outstanding to buy US$5.4 million and EUR 0.4 million and to sell US$2.5 million (September 30, 2006 - to buy US$25.9 million and EUR 0.6 million, and to sell US$1.2 million).

Contractual Obligations

There have been no material changes to contractual obligations since December 31, 2006.

Off-Balance Sheet Arrangements

The Mobile Equipment segment had $42.2 million of consigned inventory on-hand from a major manufacturer as at September 30, 2007 compared to $63.7 million the previous year. 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 the Fund's inventory as the manufacturer retains title to the goods.

The Fund's off balance sheet financing arrangements with Wajax Finance (a "private label" financing operation of CIT Financial Ltd.) include operating lease contracts in relation to the Fund's long-term lift truck rental fleet in the Mobile Equipment segment. At September 30, 2007, the non-discounted operating lease commitment for the rental fleet was $14.4 million (September 30, 2006 - $13.9 million).

Non-GAAP Measures

To supplement the consolidated financial statements, the Fund uses certain non-GAAP financial measures that do not have standardized meaning prescribed by Canadian GAAP and are therefore unlikely to be comparable to similar measures used by other entities.

"Distributable cash" and "Distributable cash per unit" are not recognized measures under GAAP, and the method of calculation adopted by the Fund may differ from methods used by other entities. Accordingly, "Distributable cash" and "Distributable cash per unit" as presented may not be comparable to similar measures presented by other entities. The Fund believes that "Distributable cash" and "Distributable cash per unit" are useful financial metrics in the determination of cash flows available for distribution to unitholders. "Distributable cash" and "Distributable cash per unit" should not be construed as an alternative to net earnings as determined by GAAP. See the Distributable Cash section for the method of calculating the Fund's "Distributable cash".

"Maintenance capital expenditures" is not a recognized measure under GAAP, and the method of calculation adopted by the Fund may differ from methods used by other entities. The Fund believes that "Maintenance capital expenditures" represents cash expenditures required to maintain normal operations. "Maintenance capital expenditures" exclude acquisitions and land and building additions as they are considered to be expenditures that are not required to maintain normal operations. See the Distributable Cash section for the method of calculating "Maintenance capital expenditures".

"Standardized distributable cash" and "Standardized distributable cash per unit" are not recognized measures under GAAP. However, "Standardized distributable cash" has been calculated in accordance with the recommendations provided in the CICA publication: Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities: Guidance on Preparation and Disclosure. See the Standardized Distributable Cash and Reconciliation to Distributable Cash section for the method of calculating the Fund's "Standardized distributable cash".

Distributions

The Fund intends to make monthly cash distributions, generally payable to unitholders of record on the last business day of each calendar month and to be paid on or about the 20th day of the following month. The Fund may make special cash and/or special non-cash distributions at the end of the year to ensure, as provided in the Fund's Declaration of Trust, that the Fund's total distributions for the year are equal to its taxable income for the year.

Distributions are based on distributable cash (see Non-GAAP Measures and Distributable Cash sections) and dependent on, among other things, the cash flow generated from operations before changes in non-cash working capital and after providing for maintenance capital expenditures (see Non-GAAP Measures section) and any amount that the Trustees may reasonably consider to be necessary to provide for the payment of costs or other obligations that have been or are reasonably expected to be incurred by the Fund. See Distributable Cash section below.



Cash distributions to unitholders were declared as follows:

---------------------------------------------------------------------------
Record Date Payment Date Per Amount
Unit
---------------------------------------------------------------------------
July 31, 2007 August 20, 2007 $ 0.32 $ 5.3
---------------------------------------------------------------------------
August 31, 2007 September 20, 2007 0.33 5.5
---------------------------------------------------------------------------
September 28, 2007 October 22, 2007 0.33 5.5
---------------------------------------------------------------------------
Three months ended September 30, 2007 $ 0.98 $ 16.3
---------------------------------------------------------------------------
January 1, 2007 to June 30, 2007 1.92 31.8
---------------------------------------------------------------------------
Nine months ended September 30, 2007 $ 2.90 $ 48.1
---------------------------------------------------------------------------


Distributions paid by the Fund during the quarter were funded from cash generated by the Fund's operations before changes in non-cash working capital. Unitholder tax information relating to 2007 distributions is available on the Fund's website at www.wajax.com.

The monthly distribution for August and September increased to $0.33 per unit ($3.96 per unit annualized) from $0.32 per unit in July.

In 2006, 100% of unitholder distributions were taxable. For 2007, management expects the tax status of unitholder distributions to remain comparable with those reported in 2006.

Distributable Cash(1)

The Fund believes that distributable cash is a useful metric in determining distributions to unitholders. The following is a reconciliation of cash flows realized from operating activities from continuing operations (a GAAP measure) to distributable cash (a non-GAAP measure).




For the nine
For the quarter ended months ended Last 12
months
September September September September September
30, 2007 30, 2006 30, 2007 30, 2006 30, 2007
---------------------------------------------------------------------------

Cash flows from operating
activities from
continuing operations $ 23.9 $ 6.2 $ 62.2 $ 33.8 $ 84.5

Changes in non-cash
working capital(2) (2.9) 15.0 1.6 30.1 0.5
---------------------------------------------------------------------------

Cash flows from continuing
operations before changes
in non-cash working capital 21.0 21.2 63.8 63.9 85.0
Entity specific
adjustments(3):
Maintenance capital
expenditures(1) (3.4) (1.6) (9.1) (8.0) (11.5)
Gain on sale of land 2.4 2.4 2.4
Accrual for mid-term
incentives (0.3) - (1.9) - (1.9)
Amortization of deferred
financing charges (0.1) (0.2) (0.3) (0.5) (0.5)
---------------------------------------------------------------------------
Distributable Cash(1) - $ 19.6 19.4 54.9 55.4 73.5
- per unit basic $ 1.18 $ 1.17 $ 3.31 $ 3.34 $ 4.43
- per unit fully diluted $ 1.18 $ 1.16 $ 3.29 $ 3.32 $ 4.40
---------------------------------------------------------------------------
Distributions Declared - $ 16.3 14.4 48.1 39.3 82.3
Distributions Declared -
per unit
- Monthly cash $ 0.98 $ 0.87 $ 2.90 $ 2.37 $ 3.84
- Special cash - - - - $ 1.12
- Total $ 0.98 $ 0.87 $ 2.90 $ 2.37 $ 4.96
---------------------------------------------------------------------------
Payout Ratio based on
distributable cash 82.8% 74.3% 87.7% 71.0% 112.0%
---------------------------------------------------------------------------
(1) Non-GAAP measure, see Non-GAAP Measures section
(2) Changes in Non-cash Working Capital are excluded from the calculation
of distributable cash as the Fund currently has a $175 million bank
credit facility which is available for use to fund general corporate
requirements including working capital requirements (subject to
borrowing capacity restrictions dependent on the level of the Fund's
inventories on-hand and outstanding trade accounts receivable) and a
$15 million demand inventory equipment financing facility with a
non-bank lender. In addition, the Fund will periodically finance
equipment inventory on a non-interest bearing basis through Wajax
Finance, a "private label" financing operation of CIT Financial Ltd.
See "Financing Strategies" section for further bank credit facility
financial covenants.
(3) Other Entity Specific Adjustments made in calculating distributable
cash include the following:
a. Maintenance Capital Expenditures represent cash expenditures, net
of disposals and rental fleet transfers to inventory, required to
maintain normal operations. "Maintenance capital expenditures"
exclude acquisitions and land and building additions as they are
considered to be expenditures that are not required to maintain
normal operations.
b. Gain on Sale of Land: during the quarter, the Fund excluded
proceeds from the sale of land previously held for development, up
to the cost amount, of $3.1 million as the cost was excluded from
the distributable cash when it was originally acquired.
c. Accruals for Mid-Term Incentives are added back in determining
cash flows from operating activities as they were treated as
long-term liabilities effective January 1, 2007. These accruals
are deducted in calculating distributable cash as the Fund
believes it provides unitholders with a better indication of
annual compensation costs and provides consistency with prior
years.
d. Amortization of Deferred Financing Charges is a deduction in
calculating distributable cash based on the amount included in
the financing activities section of the statement of cash flow (in
the year of the financing transaction) allocated over the term of
the financing. The Fund believes this treatment provides a better
indication of annual financing costs.


For the quarter ended September 30, 2007 distributable cash was $19.6 million, or $1.18 per unit, compared to $19.4 million, or $1.17 per unit, the previous year. The $0.2 million increase in distributable cash is due primarily to higher earnings compared to last year, offset partially by higher maintenance capital expenditures. Distributions declared for the quarter ended September 30, 2007 were $0.98 per unit (2006 - $0.87 per unit). Distributable cash in excess of cash distributions declared for the three months ended September 30, 2007 of $3.3 million, or $0.20 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

For the nine months ended September 30, 2007 distributable cash was $54.9 million, or $3.31 per unit, compared to $55.4 million, or $3.34 per unit, the previous year. The $0.5 million reduction in distributable cash is due primarily to higher maintenance capital expenditures compared to last year. For the same period, distributions declared were $2.90 per unit (2006 -$2.37 per unit). Distributable cash in excess of cash distributions declared for the nine months ended September 30, 2007 of $6.8 million, or $0.41 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

For the twelve months ended September 30, 2007, distributable cash was $73.5 million, or $4.43 per unit. For the same period, distributions declared were $4.96 per unit and included monthly cash distributions totaling $3.84 per unit and a special cash distribution of $1.12 per unit declared in December 2006. Special cash distributions are declared to ensure, as provided by the Fund's Declaration of Trust, the Fund's total distributions for any fiscal year are equal to its taxable income for such year.

For the twelve months ended September 30, 2007, the payout ratio of distributions based on distributable cash was 112%. However, distributions included a $1.12 per unit special cash distribution declared in December 2006 relating to excess distributable cash over taxable income for the entire 2006 year. Excluding the special cash distribution of $1.12 per unit, the payout ratio was 87%. (Special cash distributions are declared to ensure, as provided by the Fund's Declaration of Trust, the Fund's total distributions for any fiscal year are equal to its taxable income for such year.)



The following shows the relationship between distributions and cash flows
from operating activities, net income and distributable cash.

For the For the For the For the
quarter nine months year period
($millions) ended ended ended ended
September September December December
30, 2007 30, 2007 31, 2006 31, 2005(1)
---------------------------------------------------------------------------

A. Cash flows from
operating activities(2) $ 23.9 $ 62.2 $ 56.2 na

B. Net Income(2) 19.6 53.4 71.5 na

C. Distributable Cash(3) 19.6 54.9 74.0 33.5

D. Cash Distributions
Declared 16.3 48.1 73.5 31.4
---------------------------------------------------------------------------

E. Excess (shortfall) of
cash flows from
operating activities
over cash distributions
declared (A - D) 7.6 14.1 (17.3) na

F. Excess (shortfall) of
net income over cash
distributions declared
(B - D) 3.3 5.3 (2.0) na

G. Excess (shortfall) of
distributable cash over
cash distributions
declared (C - D) 3.3 6.8 0.5 2.1
---------------------------------------------------------------------------
(1) Based on pro-rated results for the month of June 2005,
subsequent to conversion, plus results for the six months
ended December 31, 2005.
(2) Based on continuing operations.
(3) Non-GAAP measure, see Non-GAAP Measures section.


Significant variances between cash distributions declared by the Fund and cash flows from operating activities, net income and distributable cash include the following:

For the quarter ended September 30, 2007, the $7.6 million excess of cash flows from operating activities over cash distributions declared is due primarily to capital expenditures, net of disposals, of $3.4 million, $0.3 million reserve for mid-term incentives and reductions in non-cash working capital of $2.9 million plus the $2.4 million gain on sale of land and a $3.3 million reserve. The $3.3 million provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

For the nine months ended September 30, 2007, the $14.1 million excess of cash flows from operating activities over cash distributions declared is due primarily to capital expenditures, net of disposals, of $9.1 million and $1.9 million reserve for mid-term incentives, less an increase in non-cash working capital of $1.6 million and the $2.4 million gain on sale of land, plus a $6.8 million reserve. The $6.8 million provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

For the year ended December 31, 2006 the $17.3 million excess of cash distributions declared over cash flows from operating activities was due to a $28.9 million increase non-cash working capital less capital expenditures, net of disposals, of $10.4 million. The shortfall was funded through the Fund's bank credit facilities.

Standardized Distributable Cash(1) and Reconciliation to Distributable Cash(2)

The following is a calculation of standardized distributable cash calculated in accordance with the recommendations provided in the CICA publication: Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities: Guidance on Preparation and Disclosure. In addition, the table provides a reconciliation of standardized distributable cash to distributable cash (see Distributable Cash section).



For the nine
For the quarter ended months ended Last 12
months
September September September September September
30, 2007 30, 2006 30, 2007 30, 2006 30, 2007
---------------------------------------------------------------------------
Cash flows from
operating activities
- Continuing $ 23.9 $ 6.2 $ 62.2 $ 33.8 $ 84.6
- Discontinued (0.1) (0.1) - (0.4) 0.3
A. Capital expenditure
outlays(3): (3.7) (2.2) (10.8) (14.6) (14.9)
B. Restriction on
distributions(4) - - - - -
---------------------------------------------------------------------------

Standardized
Distributable
Cash(1)(2) - $ 20.2 3.9 51.4 18.8 70.0
- per unit basic $ 1.22 $ 0.24 $ 3.10 $ 1.13 $ 4.22
- per unit fully
diluted $ 1.21 $ 0.24 $ 3.08 $ 1.13 $ 4.19
i. Capital adjustments
made to reflect
maintenance capital
expenditures(5):
- Proceeds from
disposals of
capital
expenditures 0.2 0.3 0.8 1.3 1.0
- Growth capital
expenditures - - - 3.8 1.1
- Rental fleet
transferred
to inventory 0.1 0.3 0.9 1.6 1.3
ii. Non-recurring
adjustments(6):
- Cash flow (used in)
from discontinued
operations 0.1 0.1 - 0.4 (0.3)
iii. Other entity specific
adjustments(7):
- Changes in
non-cash
working capital (2.9) 15.0 1.6 30.0 0.4
- Gain on sale of
land 2.4 2.4 2.4
- Accrual for
mid-term
incentives (0.4) - (1.9) - (1.9)
- Amortization of
deferred financing
charges (0.1) (0.2) (0.3) (0.5) (0.5)
---------------------------------------------------------------------------

Distributable Cash(2) - $ 19.6 19.4 54.9 55.4 73.5
- per unit basic $ 1.18 $ 1.17 $ 3.31 $ 3.34 $ 4.43
- per unit fully diluted $ 1.18 $ 1.16 $ 3.29 $ 3.32 $ 4.40
---------------------------------------------------------------------------
Distributions Declared
- $ 16.3 14.4 48.1 39.3 82.3
Distributions Declared
- per unit
- Monthly cash $ 0.98 $ 0.87 $ 2.90 $ 2.37 $ 3.84
- Special cash - - - - $ 1.12
- Total $ 0.98 $ 0.87 $ 2.90 $ 2.37 $ 4.96
---------------------------------------------------------------------------
Payout Ratio
- based on standardized
distributable cash 80.6% 368.4% 93.6% 208.9% 117.5%
- based on distributable
cash 82.8% 74.3% 87.7% 71.0% 112.0%
---------------------------------------------------------------------------

(1) Standardized distributable cash is a non-GAAP measure calculated in
accordance with the recommendations provided in the CICA publication:
Standardized Distributable Cash in Income Trusts and Other Flow-Through
Entities: Guidance on Preparation and Disclosure.
(2) Non-GAAP measure, see Non-GAAP Measures section.
(3) Capital expenditure outlays include both maintenance capital
expenditure outlays and growth capital expenditure outlays deducted
in calculating standardized distributable cash. See Productivity
Capacity and Productivity Capacity Management section.
(4) There are currently no restrictions on distributions arising from
compliance with financial covenants. See Financing Strategies section.
(5) Capital adjustments are made to adjust capital expenditure outlays
(deducted in computing standardized distributable cash) to reflect
maintenance capital expenditures, net of disposals, as a deduction in
computing distributable cash. These adjustments include: the exclusion
of growth capital, the inclusion of proceeds from the disposal of
capital expenditures and rental fleet transferred to inventory. See
Non- GAAP Measures and Productivity Capacity and Productivity Capacity
Management sections for calculation of maintenance capital
expenditures.
(6) Non-recurring adjustments include the exclusion of cash flows (used in)
from discontinued operations in calculating distributable cash as they
are not a reflection of the Fund's expected future cash flows.
(7) Other Entity Specific Adjustments made in calculating distributable
cash include the following:
a. Changes in Non-cash Working Capital see Distributable Cash section.
b. Gain on Sale of Land see Distributable Cash section.
c. Accruals for Mid-Term Incentives see Distributable Cash section.
d. Amortization of Deferred Financing Charges see Distributable Cash
section.


For the quarter ended September 30, 2007 standardized distributable cash was $20.1 million, or $1.22 per unit, compared to $3.9 million, or $0.24 per unit, the previous year. The $16.2 million increase was due primarily to the $17.9 million decline in non-cash working capital usage offset partially by higher capital expenditures of $1.5 million compared to last year.

For the nine months ended September 30, 2007, standardized distributable cash was $51.4 million, or $3.10 per unit, compared to $18.8 million, or $1.13 per unit, the previous year. The $32.6 million increase was due mainly to the $28.5 million decline in non-cash working capital usage and a $3.8 million reduction in capital expenditures compared to last year.

Since the conversion of Wajax Limited to Wajax Income Fund on June 15, 2005, the payout ratio of distributions based on standardized distributable cash and distributable cash is 132.5% and 94.2%, respectively. The difference is due primarily to changes in non-cash working capital of $36.5 million, capital adjustments and other entity specific adjustments since conversion that have been funded through the Fund's bank credit facility. See Financing Strategies section.

For the twelve months ended September 30, 2007, the payout ratio of distributions based on distributable cash was 112%. However, distributions included a $1.12 per unit special cash distribution declared in December 2006 relating to excess distributable cash over taxable income for the entire 2006 year. Excluding the special cash distribution of $1.12 per unit, the payout ratio was 87%. (Special cash distributions are declared to ensure, as provided by the Fund's Declaration of Trust, the Fund's total distributions for any fiscal year is equal to its taxable income for such year.)

Productive Capacity and Productive Capacity Management

Wajax is a distributor and service support provider. As such, the Fund's productive capacity is determined primarily by its branch infrastructure across Canada, manufacturer relationships and other maintenance and growth capital employed.

Wajax operates from 103 facilities throughout Canada, of which 73 are leased. Wajax's principal properties are primarily sales and service outlets. (At December 31, 2006, the non-discounted operating lease commitments for facilities totalled $61.9 million.)

The Fund 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. The Fund endeavours to align itself in long-term relationships with manufacturers that are committed to achieving a competitive advantage and long-term market leadership in their targeted market segments. In the mobile equipment, power systems, and hydraulics and process pumps businesses, manufacturer relationships are generally governed through effectively exclusive distribution agreements. Distribution agreements are for the most part open-ended, but are cancellable within a relatively short notification period specified in the agreement.

Maintenance capital employed includes rental fleet primarily in the Mobile Equipment segment, which will vary with market demand, and other capital which is employed primarily to support and maintain the branch network operations.

In addition, the Fund enters into off balance sheet financing arrangements including operating lease contracts entered into for the long-term lift truck rental fleet in Mobile Equipment with Wajax Finance, vehicles and other equipment. (At December 31, 2006, the non-discounted operating lease commitments for rental fleet totaled $14.2 million, vehicles $11.2 million and other equipment $1.9 million.)

Growth capital expenditures include acquisitions and land and building that are not required to maintain normal operations.

For the seven year period from 2000 to 2006, average annual maintenance capital expenditures, net of proceeds from disposals, (including rental fleet but excluding discontinued operations and an ERP computer system abandoned in 2002), were $9.5 million. The annual maintenance capital expenditures varied between $3.4 million and $12.0 million during the period. Management's expectation for future annual maintenance capital expenditures is between $8 million and $14 million.

Financing Strategies

The Fund's $175 million bank credit facility along with the $15 million demand inventory equipment financing facility should be sufficient to meet the Fund's short-term working capital, maintenance capital and growth capital requirements.

In the long-term the Fund may be required to access the equity or debt markets or reduce distributions in order to fund significant acquisitions and growth related working capital and capital expenditures.

The Fund's short-term 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 as was the case in 2006. Conversely, as Wajax experiences economic slowdowns working capital reduces reflecting the lower activity levels. This can result in standardized distributable cash increasing in years of declining activity and decreasing in years of growth. Fluctuations in working capital are generally funded by, or used to repay, the bank credit facilities. Therefore, for the reasons noted the Fund adjusts for changes in non-cash working capital in calculating distributable cash in periods where the Fund has capacity under its credit facility to fund the changes in non-cash working capital.

The bank credit facility contains covenants that could restrict the ability of the Fund to make cash distributions, if (i) an event of default exists or would exist as a result of a cash distribution, 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 cash distributions by the borrowers in each fiscal quarter may not exceed 115% of distributable cash for the trailing four fiscal quarters. Notwithstanding the restrictions relating to the leverage ratio, a special cash distribution in the first quarter of each fiscal year is permitted in an amount not to exceed the amount by which distributable cash for the preceding fiscal year exceeds declared cash distributions for the preceding fiscal year plus any excess cumulative distributable cash over cash distributions of prior years. In addition, borrowing capacity under the bank credit facility is dependent on the level of the Fund's inventories on-hand and outstanding trade accounts receivables. For further detail, the Fund's bank credit facility is available on SEDAR at www.sedar.com.



Unit Capital

The trust units of the Fund issued are included in unitholders' equity on
the balance sheet as follows:

Issued and fully paid Trust Units as at September 30,
2007 Number Amount
---------------------------------------------------------------------------
Balance at the beginning of quarter 16,585,206 $ 104.9
Rights exercised - -
Balance at end of quarter 16,585,206 $ 104.9
---------------------------------------------------------------------------


The Fund has two unit rights plans that issue rights to the participants which are settled by issuing Wajax Income Fund units: the Wajax Unit Ownership Plan in which certain members of management participate and the Trustees' Deferred Unit Plan. Compensation expense is determined based upon the fair value of the rights when issued and recognized over the vesting period. The Fund recorded compensation cost of $350 thousand for the quarter (2006 - $238 thousand) and $970 thousand for the year to date (2006 - $595 thousand) in respect of these plans.

Critical Accounting Estimates

Critical accounting estimates used by the Fund's management are discussed in detail in the MD&A for the year ended December 31, 2006 which can be found on SEDAR at www.sedar.com.

Changes in Accounting Policy

The following is a summary of the relevant Canadian Institute of Chartered Accountants ("CICA") Handbook revisions that were adopted by the Fund on January 1, 2007. Prior periods will not be restated in accordance with the prospective application required by these standards.

Comprehensive Income

CICA Handbook Section 1530, Comprehensive Income, requires presenting comprehensive income and its components (defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources) in financial statements as well as in net income.

Equity

CICA Handbook Section 3251, Equity, establishes standards for the presentation of equity and changes in equity during the period. It provides standards for an enterprise to present separately each of the changes in equity during the period, including accumulated other comprehensive income, as well as components of equity at the end of the period. Accordingly, the Fund now reports a consolidated statement of comprehensive income and includes the account "accumulated other comprehensive income" in the unitholders' equity section of the consolidated balance sheets.

Financial Instruments

CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement, establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. It provides standards for the classification of financial instruments, related interest, dividends, losses and gains, the circumstances in which financial assets and financial liabilities are offset, and disclosures about financial instruments and non-financial derivatives.

CICA Handbook Section 3861, Financial Instruments - Disclosure and Presentation, replaces Handbook Section 3860, Financial Instruments - Disclosure and Presentation, and establishes standards for presentation of financial instruments and non-financial derivatives, and identifies information that should be disclosed.

Hedges

CICA Handbook Section 3865, Hedges, replaces and expands on Accounting Guideline AcG-13, "Hedging Relationships", and the hedging guidance in Section 1650, "Foreign Currency Translation", by specifying how hedge accounting is applied and what disclosures are necessary when it is applied.

Under adoption of these new standards, the Fund designated its cash and cash equivalents as held-for-trading, which is measured at fair value, with subsequent changes in fair value being charged to earnings. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Bank indebtedness, accounts payable and accrued liabilities, long-term debt, equipment notes payable, distributions payable and other liabilities are classified as other financial liabilities, which are measured at amortized cost.

All derivative instruments, including embedded derivatives, are recorded in the consolidated balance sheets at fair value unless exempted from derivative treatment as a normal purchase and sale. All changes in their fair value are recorded in earnings unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other comprehensive income with any ineffectiveness charged to earnings. The Fund elected to apply this accounting treatment for all embedded derivatives in host contracts entered into on or after January 1, 2003. The change in accounting policy related to embedded derivatives had no impact on the consolidated financial statements.

The Fund enters into short-term foreign currency contracts to fix the cost of certain inbound inventory and to hedge certain foreign currency-denominated sales to customers as part of its normal course of business. The Fund also enters into interest-rate swap contracts with two of its lenders to effectively fix the interest rate until expiry of the facility. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in other comprehensive income. Any gain or loss in fair value relating to the ineffective portion is recognized immediately in the consolidated statement of earnings in selling and administrative expenses.

Upon adoption of the new standards on January 1, 2007, the Fund measured its cash flow hedge derivative contracts at the fair value of $626 thousand which resulted in a derivative instrument asset of $626 thousand and a gain of $626 thousand. $14 thousand of this gain was recorded in opening retained earnings for the ineffective portion of the contracts and the remaining effective portion, $612 thousand ($553 thousand - net of taxes) was recorded in accumulated other comprehensive income.

During the quarter ending September 30, 2007, $232 thousand ($210 thousand - net of tax) of losses on derivative contracts designated as cash flow hedges in prior periods were transferred out of comprehensive income into net income, while the change in the fair value of the outstanding contracts at September 30, 2007 resulted in a net loss of $555 thousand. The ineffective portion of the outstanding contracts was recognized as a $30 thousand gain in selling and administrative expenses and the remaining effective portion, a loss of $585 thousand ($529 thousand - net of tax) was reported in other comprehensive income.

Year to date, $43 thousand ($39 thousand - net of tax) of losses on derivative contracts designated as cash flow hedges in prior periods were transferred out of comprehensive income into net income, while the change in the fair value of the outstanding contracts at September 30, 2007 resulted in a net loss of $571 thousand. The ineffective portion of the outstanding contracts was recognized as a $12 thousand gain in selling and administrative expenses and the remaining effective portion, a loss of $559 thousand ($505 thousand - net of tax) was reported in other comprehensive income.

As at September 30, 2007 the cash flow hedge derivative contracts had a fair value of $98 thousand and are recorded as a derivative instrument asset on the consolidated balance sheets.

Accounting Changes

As at April 1, 2007, the Fund adopted Handbook Section 1506 "Accounting changes". The new standard allows for voluntary changes in accounting policy only when they result in the financial statements providing reliable and more relevant information, requires changes in accounting policy to be applied retroactively unless doing so is impractical, requires prior period errors to be corrected retroactively and calls for enhanced disclosures about the effects of changes in accounting policies, estimates and errors on the financial statements. The new standard also requires that the Fund disclose new primary sources of GAAP that have been issued, but are not yet effective and have not been adopted by the Fund.

The following is a summary of the new standards which may impact the Fund:

Financial Instruments - Disclosures (Handbook Section 3862) and Financial Instruments - Presentation (Handbook Section 3863)

As of January 1, 2008, the Fund will be required to adopt two new CICA standards, Handbook Section 3862 "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments -Presentation," which will replace Handbook Section 3861 "Financial Instruments - Disclosure and Presentation" The new disclosure standards increase the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standards carry forward the former presentation requirements and are effective for fiscal years beginning on or after October 1, 2007. The Fund is currently assessing the impact on its consolidated financial statements.

Capital Disclosures - (Handbook Section 1535)

As of January 1, 2008, the Fund will be required to adopt Handbook Section 1535 "Capital Disclosures", which will require companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements. The new standard is effective for fiscal years beginning on or after October 1, 2007. The Fund is currently assessing the impact on its consolidated financial statements.

Inventories - (Handbook Section 3031)

As of January 1, 2008, the Fund will be required to adopt Handbook Section 3031
"Inventories", which supersedes existing guidance on inventories in Handbook Section 3030, "Inventories". The new standard introduces significant changes to the measurement and disclosure of inventory. The measurement changes include the elimination of the last in first out method, the requirement to measure inventories at the lower of cost and net realizable value, the allocation of overhead based on normal capacity, the use of the specific cost method for inventories that are not ordinarily interchangeable or goods and services produced for specific purposes, the requirement for an entity to use a consistent cost formula for inventory of a similar nature and use, and the reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of inventories. Disclosures of inventories have also been enhanced. Inventory policies, carrying amounts, amounts recognized as an expense, write-downs and the reversals of write-downs are required to be disclosed. The new standard is effective for fiscal years beginning on or after January 1, 2008. The Fund is currently assessing the impact on its consolidated financial statements.

Risks and Uncertainties

As with most businesses, the Fund is subject to a number of marketplace and industry related risks and uncertainties which could have a material impact on operating results. The Fund 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, 2006 which can be found on SEDAR at www.sedar.com. For the period January 1, 2007 to August 8, 2007 there have been no material changes to the business of the Fund that require an update to the discussion of the applicable risks discussed in the MD&A for the year ended December 31, 2006.

Outlook

In general, third quarter earnings met management's expectations. Once again, a strong mining sector and an increase in GE Energy engine deliveries offset areas of softness including natural gas drilling and forestry. Management is also extremely pleased about acquiring the Tigercat forestry line, which should significantly improve the Fund's presence in the Canadian forestry market. Although management expects solid results for the year as a whole, reduced drilling activity in western Canada is anticipated to impact results for at least the remainder of the 2007.

Additional information, including the Fund's Annual Report and Annual Information Form, are available on SEDAR at www.sedar.com.



WAJAX INCOME FUND

Unaudited Consolidated Financial Statements

For the three and nine months ended September 30, 2007

Notice required under National Instrument 51-102, "Continuous Disclosure
Obligations" Part 4.3(3) (a):

The attached consolidated financial statements have been prepared by
Management of Wajax Income Fund and have not been reviewed by the auditors
of Wajax Income Fund.


WAJAX INCOME FUND
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------
---------------------------------------------------------------------------

September December September
(unaudited, in thousands of dollars) 30 2007 31 2006 30 2006
---------------------------------------------------------------------------

Current Assets
Cash and cash equivalents $ 5,365 $ - $ 3,140
Accounts receivable 145,751 145,583 144,243
Inventories 206,749 232,318 230,527
Future income taxes 2,906 3,571 3,164
Prepaid expenses and other
recoverable amounts 3,428 7,451 5,501
Derivative instrument asset (note 2) 98 - -
Discontinued operations - 178 540
---------------------------------------------------------------------------
364,297 389,101 387,115
---------------------------------------------------------------------------

Non-Current Assets
Rental equipment 21,928 18,893 19,070
Property, plant and equipment 29,449 33,280 31,807
Goodwill and other assets 59,176 59,059 60,337
Future income taxes - 473 1,602
---------------------------------------------------------------------------
110,553 111,705 112,816
---------------------------------------------------------------------------
$ 474,850 $ 500,806 $ 499,931
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Current Liabilities
Bank indebtedness $ - $ 5,668 $ -
Accounts payable and accrued
liabilities 174,874 206,096 200,509
Distributions payable to unitholders 5,473 23,883 4,976
Income taxes payable 1,852 2,710 2,580
Equipment notes payable 905 2,734 5,075
Discontinued operations 391 600 1,916
---------------------------------------------------------------------------
183,495 241,691 215,056
---------------------------------------------------------------------------

Non-Current Liabilities
Future income taxes 1,416 - 201
Other liabilities 1,985 120 120
Long-term pension liability 2,989 2,777 2,803
Long-term debt (note 5) 81,414 59,023 70,000
---------------------------------------------------------------------------
87,804 61,920 73,124
---------------------------------------------------------------------------
Unitholders' Equity
Trust units (note 1) 104,871 104,871 104,871
---------------------------------------------------------------------------
Unit-based compensation 2,535 1,565 1,306
---------------------------------------------------------------------------
Accumulated earnings 96,058 90,759 105,574
Accumulated other comprehensive
income (notes 2 and 3) 87 - -
---------------------------------------------------------------------------
96,145 90,759 105,574
---------------------------------------------------------------------------
Total Unitholders' Equity 203,551 197,195 211,751
---------------------------------------------------------------------------
$ 474,850 $ 500,806 $ 499,931
---------------------------------------------------------------------------
---------------------------------------------------------------------------



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF EARNINGS
AND ACCUMULATED EARNINGS

---------------------------------------------------------------------------
---------------------------------------------------------------------------

Three months ended Nine months ended
(unaudited, in thousands of September 30 September 30
dollars, except per unit data) 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Revenue $ 289,355 $ 294,685 $ 910,772 $ 912,016
Cost of sales 226,523 229,811 711,169 712,971
---------------------------------------------------------------------------

Gross profit 62,832 64,874 199,603 199,045
Selling and administrative
expenses 44,221 45,094 142,632 139,873
Gain on sale of land (note 13) (2,384) - (2,384) -
---------------------------------------------------------------------------

Earnings before interest and
income taxes 20,995 19,780 59,355 59,172
Interest expense 1,202 1,274 3,869 3,188
---------------------------------------------------------------------------

Earnings before income taxes 19,793 18,506 55,486 55,984
Income tax expense (recovery)
- current (80) 86 (80) 531
- future (note 4) 242 406 2,184 2,052
---------------------------------------------------------------------------

Net earnings $ 19,631 $ 18,014 $ 53,382 $ 53,401

Accumulated earnings,
beginning of period 92,680 101,989 90,759 91,479
Transitional adjustment (note 2) - - 14 -
Distributions (16,253) (14,429) (48,097) (39,306)
---------------------------------------------------------------------------

Accumulated earnings,
end of period $ 96,058 $ 105,574 $ 96,058 $ 105,574
---------------------------------------------------------------------------

Earnings per unit (note 6)
- basic $ 1.18 $ 1.09 $ 3.22 $ 3.22
- diluted 1.17 1.08 3.20 3.20
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Number of trust units
outstanding 16,585,206 16,585,206 16,585,206 16,585,206
Number of Trustees'
Deferred Unit Plan and
Wajax Unit Ownership
Plan rights outstanding 128,558 99,406 128,558 99,406
---------------------------------------------------------------------------
---------------------------------------------------------------------------



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME

---------------------------------------------------------------------------
---------------------------------------------------------------------------

Three months ended Nine months ended
September 30 September 30
(unaudited, in thousands of dollars) 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings $ 19,631 $ 18,014 $ 53,382 $ 53,401
---------------------------------------------------------------------------

Losses on derivative instruments
designated as cash flow hedges
in prior periods transferred
to net income in the current
period, net of tax (note 3) 210 - 39 -

Losses on derivative instruments
designated as cash flow
hedges, net of tax (note 3) (529) - (505) -

---------------------------------------------------------------------------
Other comprehensive loss (319) (466)
---------------------------------------------------------------------------

Comprehensive income $ 19,312 $ 18,014 $ 52,916 $ 53,401
---------------------------------------------------------------------------



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended September 30
(unaudited, in thousands of dollars) 2007 2006
---------------------------------------------------------------------------

OPERATING ACTIVITIES
Net earnings from continuing operations $ 19,631 $ 18,014
Items not affecting cash flows:
Amortization
- Rental equipment 1,244 1,115
- Property, plant and equipment 1,150 1,150
- Deferred expenses and intangible assets 141 290
Gain on sale of land (note 13) (2,384) -
Employees' pension plans, net of contributions made 297 (38)
Long term portion of mid-term incentive plan expense 351 -
Non-cash rental expense 12 31
Unit compensation expense (note 7) 350 237
Future income taxes 242 406
Other 13 -
---------------------------------------------------------------------------
Cash flows from continuing operations before
changes in non-cash working capital 21,047 21,205
---------------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable 3,005 (7,638)
Inventories 10,846 (7,203)
Prepaid expenses and other recoverable amounts 5,366 (232)
Accounts payable and accrued liabilities (16,321) 167
Income taxes payable (46) (102)
---------------------------------------------------------------------------
2,850 (15,008)
---------------------------------------------------------------------------
Cash flows from operating activities from continuing
operations 23,897 6,197
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Rental equipment additions (2,520) (851)
Proceeds on disposal of rental equipment 126 202
Property, plant and equipment additions (1,162) (1,369)
Proceeds on disposal of property, plant and equipment
(note 13) 5,557 44
---------------------------------------------------------------------------
2,001 (1,974)
---------------------------------------------------------------------------
Cash flows from continuing operations before
financing activities 25,898 4,223
---------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease)/Increase in long-term bank debt (394) 10,000
Deferred financing costs - (35)
(Decrease)/Increase in equipment notes payable (313) 3,427
Distributions paid (note 12) (16,087) (13,932)
---------------------------------------------------------------------------
(16,794) (540)
---------------------------------------------------------------------------
Net change in cash and cash equivalents before
discontinued operations $ 9,104 $ 3,683
Cash and cash equivalents used in discontinued
operations (62) (60)
Bank indebtedness - beginning of period (3,677) (483)
---------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 5,365 $ 3,140
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash flows from operating activities from continuing
operations include the following:
Interest paid $ 1,146 $ 1,006
Income tax (refund) paid $ (77) $ 197
---------------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 121 $ 320



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30
(unaudited, in thousands of dollars) 2007 2006
---------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings from continuing operations $ 53,382 $ 53,401
Items not affecting cash flows:
Amortization
- Rental equipment 3,395 3,152
- Property, plant and equipment 3,374 3,522
- Deferred expenses and intangible assets 542 743
Gain on sale of land (note 13) (2,384) -
Employees' pension plans, net of
contributions made 316 326
Long term portion of mid-term incentive
plan expense 1,865 -
Non-cash rental expense 54 91
Unit compensation expense (note 7) 970 595
Future income taxes 2,184 2,052
Other 55 -
---------------------------------------------------------------------------
Cash flows from continuing operations before
changes in non-cash working capital 63,753 63,882
---------------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable (168) (11,822)
Inventories 26,510 (34,310)
Prepaid expenses and other recoverable amounts 4,023 (1,645)
Accounts payable and accrued liabilities (31,397) 18,346
Income taxes payable (540) (617)
---------------------------------------------------------------------------
(1,572) (30,048)
---------------------------------------------------------------------------
Cash flows from operating activities from
continuing operations 62,181 33,834
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Rental equipment additions (7,991) (7,672)
Proceeds on disposal of rental equipment 620 1,074
Property, plant and equipment additions (2,768) (5,920)
Proceeds on disposal of property, plant and
equipment (note 13) 5,609 198
Acquisition of businesses (note 9) (322) (8,192)
---------------------------------------------------------------------------
(4,852) (20,512)
---------------------------------------------------------------------------
Cash flows from continuing operations before
financing activities 57,329 13,322
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term bank debt 22,071 35,000
Deferred financing costs - (35)
Increase in other liabilities - 120
Repayment of debt upon acquisition of business - (446)
Decrease in equipment notes payable (1,829) (644)
Distributions paid (note 12) (66,507) (48,592)
---------------------------------------------------------------------------
(46,265) (14,597)
---------------------------------------------------------------------------
Net change in cash and cash equivalents before
discontinued operations $ 11,064 $ (1,275)
Cash and cash equivalents used in discontinued
operations (31) (425)
(Bank indebtedness)/Cash and cash equivalents -
beginning of period (5,668) 4,840
---------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 5,365 $ 3,140
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash flows from operating activities from
continuing operations include the following:
Interest paid $ 3,595 $ 2,592
Income taxes paid $ 426 $ 1,125
---------------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 941 $ 1,625



WAJAX INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of dollars, except unit and per unit data or where
otherwise noted)
(unaudited)


Note 1 Structure of the trust and basis of presentation

Wajax Income Fund (the "Fund") is an unincorporated, open-ended, limited purpose investment trust governed by the laws of Ontario pursuant to the declaration of trust dated April 27, 2005. The Fund was created to indirectly acquire all the outstanding shares of Wajax Limited ("Wajax") and exchange those on an equal basis for Wajax Trust Units ("Units") in the Fund pursuant to a Plan of Arrangement (the "Arrangement") effective June 15, 2005. The Fund is authorized to issue an unlimited number of units and each Unitholder participates pro-rata in any distribution from the Fund.

These unaudited interim consolidated financial statements do not include all of the disclosures included in the audited annual consolidated financial statements. Accordingly, these unaudited interim financial statements should be read in conjunction with the annual consolidated financial statements of the Fund for the year ended December 31, 2006. The significant accounting policies follow those disclosed in the most recently reported annual financial statements, except as described in note 2.

Additional information, including the Fund's Annual Report and Annual Information Form, may be found on SEDAR at www.sedar.com.

Note 2 Changes in accounting policy

Financial Instruments

On January 1, 2007, the Fund adopted CICA Handbook Section 1530, "Comprehensive Income", Section 3251 "Equity", Section 3855, "Financial Instruments - Recognition and Measurement", Section 3861, "Financial Instruments - Disclosure and Presentation" and Section 3865, "Hedges".

Handbook Section 1530, Comprehensive Income, requires presenting comprehensive income and its components (defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources) in financial statements as well as in net income.

Handbook Section 3251, Equity, establishes standards for the presentation of equity and changes in equity during the period. It provides standards for an enterprise to present separately each of the changes in equity during the period, including accumulated other comprehensive income, as well as components of equity at the end of the period. Accordingly, the Fund now reports a consolidated statement of comprehensive income and includes the account "accumulated other comprehensive income" in the unitholders' equity section of the consolidated balance sheets.

Handbook Section 3855, Financial Instruments - Recognition and Measurement, establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. It provides standards for the classification of financial instruments, related interest, dividends, losses and gains, the circumstances in which financial assets and financial liabilities are offset, and disclosures about financial instruments and non-financial derivatives.

Handbook Section 3861, Financial Instruments - Disclosure and Presentation, replaces Handbook Section 3860, Financial Instruments - Disclosure and Presentation, and establishes standards for presentation of financial instruments and non-financial derivatives, and identifies information that should be disclosed.

Handbook Section 3865, Hedges, replaces and expands on Accounting Guideline AcG-13, "Hedging Relationships", and the hedging guidance in Section 1650, "Foreign Currency Translation", by specifying how hedge accounting is applied and what disclosures are necessary when it is applied.

Under adoption of these new standards, the Fund designated its cash and cash equivalents as held-for-trading, which is measured at fair value, with subsequent changes in fair value being charged to earnings. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Bank indebtedness, accounts payable and accrued liabilities, long-term debt, equipment notes payable, distributions payable to unitholders and other liabilities are classified as other financial liabilities, which are measured at amortized cost.

All derivative instruments, including embedded derivatives, are recorded in the consolidated balance sheets at fair value unless exempted from derivative treatment as a normal purchase and sale. All changes in their fair value are recorded in earnings unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other comprehensive income with any ineffectiveness charged to earnings. The Fund elected to apply this accounting treatment for all embedded derivatives in host contracts entered into on or after January 1, 2003. The change in accounting policy related to embedded derivatives had no impact on the consolidated financial statements.

The Fund enters into short-term foreign currency contracts to fix the cost of certain inbound inventory and to hedge certain foreign currency-denominated sales to customers as part of its normal course of business. The Fund also enters into interest-rate swap contracts with two of its lenders to effectively fix the interest rate until expiry of the facility. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. Any gain or loss in fair value relating to the ineffective portion is recognized immediately in the consolidated statement of earnings in selling and administrative expenses.

Upon adoption of the new standards on January 1, 2007, the Fund measured its cash flow hedge derivative contracts at the fair value of $626 which resulted in a derivative instrument asset of $626 and a gain of $626. $14 of this gain was recorded in opening retained earnings for the ineffective portion of the contracts and the remaining effective portion, $612 ($553 - net of taxes) was recorded in accumulated other comprehensive income.

During the quarter ending September 30, 2007, $232 ($210 - net of tax) of losses on derivative contracts designated as cash flow hedges in prior periods were transferred out of comprehensive income into net income, while the change in the fair value of the outstanding contracts at September 30, 2007 resulted in a net loss of $ 555. The ineffective portion of the outstanding contracts was recognized as a $ 30 gain in selling and administrative expenses and the remaining effective portion, a loss of $585 ($529 - net of tax) was reported in other comprehensive income. Accordingly, as at September 30, 2007 the cash flow hedge derivative contracts had a fair value of $98 and are recorded as a derivative instrument asset on the consolidated balance sheets.

Year to date, $43 ($39 - net of tax) of losses on derivative contracts designated as cash flow hedges in prior periods were transferred out of comprehensive income into net income, while the change in the fair value of the outstanding contracts at September 30, 2007 resulted in a net loss of $571. The ineffective portion of the outstanding contracts was recognized as a $12 gain in selling and administrative expenses and the remaining effective portion, a loss of $559 ($505 - net of tax) was reported in other comprehensive income.

Accounting Changes

As at April 1, 2007, the Fund adopted Handbook Section 1506 "Accounting Changes". The new standard allows for voluntary changes in accounting policy only when they result in the financial statements providing reliable and more relevant information, requires changes in accounting policy to be applied retrospectively unless doing so is impractical, requires prior period errors to be corrected retrospectively and calls for enhanced disclosures about the effects of changes in accounting policies, estimates and errors on the financial statements. The new standard also requires that the Fund disclose new primary sources of GAAP that have been issued, but are not yet effective and have not been adopted by the Fund.

The Fund is currently assessing the impact of the following new standards on its consolidated financial statements:

(i) Financial Instruments - Disclosures (Handbook Section 3862) and Financial Instruments - Presentation (Handbook Section 3863)

As of January 1, 2008, the Fund will be required to adopt two new CICA standards, Handbook Section 3862 "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation," which will replace Handbook Section 3861 "Financial Instruments - Disclosure and Presentation" The new disclosure standards increase the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standards carry forward the former presentation requirements and are effective for fiscal years beginning on or after October 1, 2007.

(ii) Capital Disclosures - (Handbook Section 1535)

As of January 1, 2008, the Fund will be required to adopt Handbook Section 1535 "Capital Disclosures", which will require companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements. The new standard is effective for fiscal years beginning on or after October 1, 2007.

(iii) Inventories - (Handbook Section 3031)

As of January 1, 2008, the Fund will be required to adopt Handbook Section 3031 "Inventories", which supersedes existing guidance on inventories in Handbook Section 3030, "Inventories". The new standard introduces significant changes to the measurement and disclosure of inventory. The measurement changes include the elimination of the last in first out method, the requirement to measure inventories at the lower of cost and net realizable value, the allocation of overhead based on normal capacity, the use of the specific cost method for inventories that are not ordinarily interchangeable or goods and services produced for specific purposes, the requirement for an entity to use a consistent cost formula for inventory of a similar nature and use, and the reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of inventories. Disclosures of inventories have also been enhanced. Inventory policies, carrying amounts, amounts recognized as an expense, write-downs and the reversals of write-downs are required to be disclosed. The new standard is effective for fiscal years beginning on or after January 1, 2008.



Note 3 Accumulated other comprehensive income

Three months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Balance beginning of period $ 406 $ -

Losses on derivatives designated as cash flow hedges
in prior periods transferred to net income in the current
period, net of tax of 2007 - $22; 2006 - Nil 210 -

Losses on derivatives designated as cash flow hedges,
net of tax of 2007 - $56; 2006 - Nil (529) -

---------------------------------------------------------------------------
Accumulated other comprehensive income $ 87 $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Nine months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Balance beginning of period $ - $ -

Transitional amount for new accounting guidelines
January 1, 2007 (note 2), net of tax of 2007 - $59;
2006 - Nil 553 -

Losses on derivatives designated as cash flow hedges
in prior periods transferred to net income in the current
period, net of tax of 2007 - $4; 2006 - Nil 39 -

Losses on derivatives designated as cash flow hedges,
net of tax of 2007 - $54; 2006 - Nil (505) -

---------------------------------------------------------------------------
Accumulated other comprehensive income $ 87 $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Note 4 Income taxes

The Fund is a "mutual fund trust" as defined under the Income Tax Act (Canada) and is not taxable on its income to the extent that it is distributed to its unitholders.

On June 12, 2007, Bill C-52 Budget Implementation Act, 2007 was substantively enacted by the Canadian federal government, which contains legislation to tax certain publicly traded trusts in Canada. As a result, a new 31.5 per cent tax will be applied to certain distributions from Canadian public income trusts. The new tax is not expected to apply to the Fund until 2011 as a transition period applies to publicly traded trusts that existed prior to November 1, 2006. As a result of this substantive enactment of trust taxation, the Fund recorded an additional $1.5 million future income tax expense and increased its future income tax liability in the second quarter of 2007. The future income tax adjustment represents the taxable temporary differences of the Fund (that will reverse after 2010) tax-effected at 31.5 per cent, which is the rate that will be applicable in 2011 under the current legislation and the Fund's current structure.

Note 5 Long-term debt

On April 5, 2007, the Fund amended its bank credit facility. The revolving term portion of the facility was increased $45 million to $145 million. The $175 million fully secured bank credit facility is now made up of a $30 million non-revolving term portion and a $145 million revolving term portion. In addition, the maturity date was extended from June 8, 2008 to December 31, 2011 and the $0.5 million cost to amend the facility will be amortized over the expected life of the facility. The amended facility contains customary restrictive covenants including restrictions on the payment of cash distributions and the maintenance of certain financial ratios.



Note 6 Earnings per unit

The following table sets forth the computation of basic and diluted
earnings per unit:

Three months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Numerator for basic and diluted earnings per unit:
- net earnings $ 19,631 $ 18,014
---------------------------------------------------------------------------
Denominator for basic earnings per unit:
- weighted average units 16,585,206 16,585,206
---------------------------------------------------------------------------

Denominator for diluted earnings per unit:
- weighted average units 16,585,206 16,585,206
- effect of dilutive unit rights 123,533 95,751
---------------------------------------------------------------------------
Denominator for diluted earnings per unit 16,708,739 16,680,957
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic earnings per unit $ 1.18 $ 1.09
---------------------------------------------------------------------------
Diluted earnings per unit $ 1.17 $ 1.08
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Nine months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Numerator for basic and diluted earnings per unit:
- net earnings $ 53,382 $ 53,401
---------------------------------------------------------------------------
Denominator for basic earnings per unit:
- weighted average units 16,585,206 16,584,616
---------------------------------------------------------------------------

Denominator for diluted earnings per unit:
- weighted average units 16,585,206 16,584,616
- effect of dilutive unit rights 116,971 93,288
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Denominator for diluted earnings per unit 16,702,177 16,677,904
---------------------------------------------------------------------------
Basic earnings per unit $ 3.22 $ 3.22
---------------------------------------------------------------------------
Diluted earnings per unit $ 3.20 $ 3.20
---------------------------------------------------------------------------
---------------------------------------------------------------------------


At the end of the quarter 80,549 rights were outstanding under the Wajax Unit Ownership Plan (2006 - 68,242) and 48,009 rights were outstanding under the Trustees' Deferred Unit Plan (2006 - 31,164). No options or unit rights were excluded from the above calculations as none were anti-dilutive.

Note 7 Unit-based compensation plans

The Fund has three unit-based compensation plans: the Wajax Unit Ownership Plan ("UOP"), the Trustees' Deferred Unit Plan ("TDUP") and the Mid-Term Incentive Plan ("MTIP"). UOP and TDUP rights are issued to the participants and are settled by issuing Wajax Income Fund units, while the MTIP consists of an annual grant that vests over three years and is based upon performance vesting criteria, a portion of which is determined by the price of Fund units. Compensation expense for the UOP and the TDUP is determined based upon the fair value of the rights at the date of grant and charged to operations on a straight line basis over the vesting period, with an offsetting adjustment to unitholders' equity. Compensation expense for the MTIP varies with the price of Fund units and is recognized over the 3 year vesting period.

During the quarter 2,244 rights (2006 - 1,375) were granted under the UOP and 4,389 rights (2006 - 3,166) were granted under the TDUP.

Year to date, 10,332 rights (2006 - 5,202) were granted under the UOP and 13,023 rights (2006 - 6,901) were granted under the TDUP. Also in 2006, 2,676 rights were exercised under the TDUP which were settled by issuing Wajax Income Fund units.

The Fund recorded compensation cost of $350 for the quarter (2006 - $237) and $970 for the year to date (2006 - $595) in respect of unit rights plans and $310 for the quarter (2006 - $75) and $778 for the year to date (2006 - $175) in respect of the unit based MTIP.

Note 8 Financial instruments

The Fund entered into interest-rate swap contracts with two of its lenders in June 2005, such that in total the interest rate on $30 million of its non-revolving term facility portion of the bank credit facility is effectively fixed at 3.47% plus applicable margins until June 6, 2008.

On May 9, 2007, the Fund entered into a delayed start interest rate swap with two of its lenders such that in total the interest rate on the $30 million non-revolving term portion of the bank credit facility is effectively fixed at 4.60% plus applicable margins. The delayed interest rate swap commences on June 6, 2008 until expiry of the facility on December 31, 2011.

The Fund enters into short-term currency forward contracts to fix 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 September 30, 2007, the Fund had contracts outstanding to buy US$5.4 million and EUR 0.4 million and to sell US$2.5 million (September 30, 2006 - to buy US$25.9 million and EUR 0.6 million, to sell US$1.2 Million).

Note 9 Acquisition of businesses

On March 22, 2006, the Fund's Industrial Components segment acquired all the shares of Baytec Fluid Power Limited ("Baytec") for approximately $1.7 million, which was subject to post closing adjustments. Pursuant to the Agreement of Purchase and Sale, depending on Baytec's earnings before interest and taxes during the 24 month period following the transaction, the purchase price could be increased by up to $0.6 million with the additional amount being charged to goodwill. In April 2007, the first conditional payment of $0.3 million was made to the vendors.



Note 10 Employees' pension plans

Net pension plan expenses are as follows:

Three months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net pension plan expense - defined benefit plans $ 268 $ 272
Net pension plan expense - defined contribution plans 1,100 1,041
---------------------------------------------------------------------------
$ 1,368 $ 1,313
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Nine months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net pension plan expense - defined benefit plans $ 601 $ 814
Net pension plan expense - defined contribution plans 3,561 3,224
---------------------------------------------------------------------------
$ 4,162 $ 4,038
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Note 11 Segmented information

Three months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenue
Mobile Equipment $ 158,167 $ 151,338
Industrial Components 73,700 78,181
Power Systems 58,198 66,002
Segment eliminations (710) (836)
---------------------------------------------------------------------------

Revenue $ 289,355 $ 294,685
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Segment Earnings
Mobile Equipment $ 11,961 $ 10,282
Industrial Components 4,556 5,564
Power Systems 6,232 6,123
Corporate costs and eliminations (1,754) (2,189)
---------------------------------------------------------------------------

Earnings $ 20,995 $ 19,780
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Interest expense, income taxes and corporate costs are not allocated to
business segments.



Nine months ended September 30 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenue
Mobile Equipment $ 477,638 $ 479,584
Industrial Components 234,252 239,065
Power Systems 201,075 195,559
Segment eliminations (2,193) (2,192)
---------------------------------------------------------------------------

Revenue $ 910,772 $ 912,016
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Segment Earnings
Mobile Equipment $ 32,932 $ 31,626
Industrial Components 14,963 16,260
Power Systems 18,241 18,405
Corporate costs and eliminations (6,781) (7,119)
---------------------------------------------------------------------------

Earnings $ 59,355 $ 59,172
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Interest expense, income taxes and corporate costs are not allocated to
business segments


Note 12 Distributions paid

The Fund makes monthly cash distributions and may make special cash/or special non-cash distributions at the end of the year to ensure, as provided in the Fund's Declaration of Trust, that the Fund's total distributions for the year are equal to its taxable income for the year. Cash distributions are dependent on, among other things, the cash flow of the Fund.

Although the Fund intends to make distributions of its available cash, such distributions are affected by numerous factors, including the Fund's financial performance, debt covenants and obligations, working capital requirements and future capital requirements.

Note 13 Gain on sale of land

On September 8, 2007, the Fund's Power Systems segment sold land, located in Edmonton, which was previously held for development, for proceeds of $5.5 million resulting in a gain of $2.4 million.

Note 14 Comparative information

Certain comparative numbers have been reclassified to conform with the current period presentation.

Contact Information