Wajax Income Fund
TSX : WJX.UN

Wajax Income Fund

February 27, 2009 12:11 ET

Wajax Announces Fourth Quarter 2008 Results

TORONTO, ONTARIO--(Marketwire - Feb. 27, 2009) - Wajax Income Fund (TSX:WJX.UN) -



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(Dollars in millions, Three Months Ended Year Ended
except per unit data) December 31 December 31
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2008 2007 2008 2007
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CONSOLIDATED RESULTS

Revenue $ 317.3 $ 281.5 $ 1,213.5 $ 1,192.3

Net earnings $ 19.4 $ 18.6 $ 75.8 $ 72.0

Basic earnings per unit $ 1.17 $ 1.12 $ 4.57 $ 4.34

Distributable cash (1) $ 20.4 $ 19.3 $ 77.0 $ 74.1

Basic distributable cash
per unit (1) $ 1.23 $ 1.16 $ 4.64 $ 4.47

SEGMENTS
Revenue - Mobile Equipment $ 148.0 $ 149.9 $ 635.3 $ 627.6

- Industrial Components $ 89.2 $ 75.2 $ 322.8 $ 309.5

- Power Systems $ 80.8 $ 57.3 $ 258.4 $ 258.4

Earnings - Mobile Equipment $ 11.0 $ 12.1 $ 50.0 $ 45.1

% margin 7.4% 8.1% 7.9% 7.2%

- Industrial Components $ 5.0 $ 5.0 $ 20.2 $ 20.0

% margin 5.6% 6.6% 6.3% 6.5%

- Power Systems $ 7.3 $ 4.5 $ 21.7 $ 22.7

% margin 9.1% 7.9% 8.4% 8.8%
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(1) Denotes non-GAAP measure. See Non-GAAP Measures section in the attached
Management's Discussion and Analysis (MD&A).


Wajax Income Fund today announced fourth quarter 2008 results and record revenue and earnings for the full year.

Highlights

- Consolidated revenue in the fourth quarter increased $35.8 million, or 13% to $317.3 million compared to last year. The September 5, 2008 acquisition of Peacock, the Weir Process Equipment division of Weir Canada, accounted for $13.6 million of the increase. The weakening Canadian dollar relative to the U.S. dollar had the effect of increasing fourth quarter 2008 consolidated revenue by approximately $16.2 million as higher costs on U.S. dollar based product purchases were passed on to customers. Power Systems revenue increased 41% as a result of higher equipment and parts and service sales at both its operating units in eastern and western Canada. Industrial Components sales increased 19% as a result of the Peacock acquisition, while Mobile Equipment quarterly revenue decreased 1% to $148.0 million.

- Net earnings for the quarter were $19.4 million or $1.17 per unit compared to $18.6 million or $1.12 per unit recorded in 2007. A 63% improvement in Power Systems segment earnings as a result of the higher revenues accounted for this increase. Mobile Equipment segment earnings were down $1.1 million on lower revenues and increased selling and administrative costs, while Industrial Components earnings were flat with last year.

For the year, consolidated net earnings were a record $75.8 million or $4.57 per unit, up from $72.0 million or $4.34 per unit in 2007. This increase was primarily derived from higher Mobile Equipment segment earnings which posted a 16% increase in parts and service sales.

- Fourth quarter basic distributable cash (See Non-GAAP Measures section in the MD&A) increased to $1.23 per unit for the quarter compared to $1.16 per unit in the previous year due mainly to the improved earnings.

- As a result of the current economic downturn and in anticipation of lower 2009 earnings and a desire to preserve liquidity, the Fund announced a reduction in monthly cash distributions for March and April, 2009 to $0.20 per unit ($2.40 per unit annualized), payable on April 20, 2009 and May 20, 2009, to unitholders of record on March 31, 2009 and April 30, 2009 respectively. As well, a special non-cash distribution of fund units of $0.47 per unit was deemed to have been made to unitholders of record on December 31, 2008 as provided in the Declaration of Trust. This distribution was deemed to have been made to effectively distribute all of the Fund's taxable income for 2008. The tax effect of this non-cash distribution will be to increase the adjusted cost base of units held by certain unitholders. More complete tax information concerning distributions will be available on the Fund's website at www.wajax.com.

Commenting on the results for 2008 and the outlook for 2009, Neil Manning, President and CEO, stated "While the Fund finished 2008 with record revenue and earnings, the latter part of the year witnessed the beginning of a sudden and dramatic change in the Canadian economy. The steep decline in the price of oil and other commodities, the financial crisis resulting in limited credit availability and the volatile Canadian dollar has led to an uncertain and increasingly challenging economic environment for the Fund and our customers going into 2009. The magnitude and duration of this economic downturn and its effect on our operations is currently not possible to predict with any degree of certainty, however, we believe earnings will be lower in 2009. In an effort to minimize the impact on profitability we are currently taking steps to reduce our selling and administrative cost base and the size of our overall workforce by approximately 8%. These measures are expected to result in 2009 cost savings of approximately $18 million. We will also be vigilant in our management of working capital and capital spending. In anticipation of reduced earnings and to preserve liquidity in the short-term we have decided to reduce monthly distributions to $0.20 per unit for the March and April distributions. Despite these conditions, we believe that the magnitude of equipment sales over the last few years should support a strong level of higher margin product support revenues in Mobile Equipment and the Power Systems segment should also continue to benefit from its proportionately higher reliance on product support sales. As well, recently announced government infrastructure spending initiatives should positively affect all three segments as these programs are rolled out."

Wajax Income Fund is a leading Canadian distributor and service support provider of mobile equipment, industrial components and power systems. Reflecting a diversified exposure to the Canadian economy, its three distinct core businesses operate through a network of over 110 branches across Canada. Its customer base spans natural resources, construction, transportation, manufacturing, industrial processing and utilities.

Wajax will Webcast its Fourth Quarter Financial Results Conference Call. You are invited to listen to the live Webcast on Friday, February 27, 2009 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 - Q4 2008

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 quarter ended December 31, 2008. This MD&A should be read in conjunction with the information contained in the interim Unaudited Consolidated Financial Statements and accompanying notes for the quarter ended December 31, 2008, the annual Audited Consolidated Financial Statements and accompanying notes of the Fund for the year ended December 31, 2008 and the associated MD&A. Information contained in this MD&A is based on information available to management as of February 27, 2009.

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 interim 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 interim Unaudited Consolidated Financial Statements and accompanying notes.

Disclosure Controls and Procedures and Internal Control over Financial Reporting

The Fund has designed disclosure controls and procedures ("DC&P") 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 ("ICFR") 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.

The Fund's management was unable to properly evaluate the design of DC&P and ICFR related to Peacock, the Weir Process Equipment division of Weir Canada Inc., that was acquired in September 2008. Peacock had 2008 revenues of approximately $18.0 million since acquisition. The Fund's management anticipates that the integration of Peacock will be completed prior to September 2009 at which time it will be under the existing Industrial Components control environment.

There has been no change in the Fund's ICFR that occurred during the fourth quarter of fiscal 2008 that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting.

Wajax Income Fund Overview

The 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's core distribution businesses are engaged in the sale and after-sales parts and service support of mobile equipment, industrial components and power systems, through a network of 112 branches across Canada. The Fund is a multi-line distributor and represents a number of leading worldwide manufacturers across its core businesses. Its customer base is diversified, spanning natural resources, construction, transportation, manufacturing, industrial processing and utilities.

The Fund's strategy is to grow earnings in all segments through continuous improvement of operating margins and revenue growth while maintaining the Fund's strong balance sheet. Revenue growth will be achieved through market share gains, new geographic territories and the addition of new complementary product lines either organically or through acquisitions.

Forward-Looking Information

This MD&A contains forward-looking statements. These statements relate to future events or future performance and reflect management's current expectations and assumptions. The words "anticipate", "expect", "believe", "may", "should", "estimate", "project", "outlook", "forecast" or similar words are used to identify such forward looking information. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management of 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, among other things, changes in laws and regulations affecting the Fund and its business operations, changes in taxation of the Fund, general business conditions and economic conditions in the markets in which the Fund and its customers compete, fluctuations in commodity prices, the Fund's relationship with its suppliers and manufacturers and its access to quality products, and the ability of the Fund to maintain and expand its customer base. Additional information on these and other factors is included in this MD&A and in the Fund's MD&A for the year ended December 31, 2008 under the heading "Risks and Uncertainties and in other reports filed by the Fund with Canadian securities regulators. Such 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, except as required by law.



Consolidated Results

Three months ended Year ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue $ 317.3 $ 281.5 $ 1,213.5 $ 1,192.3
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Gross profit $ 76.1 $ 64.5 $ 284.8 $ 264.1
Selling and
administrative expenses $ 54.9 $ 45.1 $ 202.4 $ 187.8
Gain on sale of land - - - $ (2.4)
----------------------------------------------------------------------------
Earnings before interest
and income taxes $ 21.3 $ 19.4 $ 82.4 $ 78.8
Interest expense $ 1.4 $ 1.0 $ 4.7 $ 4.9
Income tax expense (recovery) $ 0.5($ 0.2) $ 1.8 $ 1.9
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Net earnings $ 19.4 $ 18.6 $ 75.8 $ 72.0
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Distributable cash(1) $ 20.4 $ 19.1 $ 77.0 $ 74.1

Distributions declared
- Cash $ 17.9 $ 24.2 $ 68.5 $ 72.3
- Non-cash(3) $ 7.8 $ 0.9 $ 7.8 $ 0.9

Distributions paid
- Monthly $ 17.9 $ 16.4 $ 68.0 $ 64.3
- Special - - $ 7.8 $ 18.6
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Earnings per unit
- Basic $ 1.17 $ 1.12 $ 4.57 $ 4.34
- Diluted $ 1.15 $ 1.11 $ 4.53 $ 4.31

Distributable cash
per unit (1)
- Basic(2) $ 1.23 $ 1.15 $ 4.64 $ 4.47
- Diluted $ 1.22 $ 1.14 $ 4.60 $ 4.44

Distributions declared
per unit (2)
- Cash $ 1.08 $ 1.46 $ 4.13 $ 4.36
- Non-cash $ 0.47 $ 0.05 $ 0.47 $ 0.05

Distributions paid
per unit (2)
- Monthly $ 1.08 $ 0.99 $ 4.10 $ 3.88
- Special - - $ 0.47 $ 1.12
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(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.
(3) See Distributions section.


Revenue

Revenue in the fourth quarter of 2008 increased $35.8 million to $317.3 million, from $281.5 million in 2007, and included $13.6 million of revenue from the acquisition of Peacock, the Weir Process Equipment division of Weir Canada Inc., by the Industrial Components segment effective September 5, 2008. In addition, the weakening Canadian dollar relative to the U.S. dollar had the effect of increasing fourth quarter 2008 revenue by approximately $16.2 million, or 6%, compared to last year as the Fund realized higher sales dollars per unit on U.S. sourced products. Segment revenue increased 41% and 19% in Power Systems and Industrial Components, respectively, while revenue in Mobile Equipment fell 1%.

For the twelve months ended December 31, 2008, revenue increased $21.2 million, or 2%, and included $18.0 million of revenue from the acquisition of Peacock. The strength of the Canadian dollar relative to the U.S. dollar in the first half of the year had the effect of decreasing 2008 consolidated annual revenue by approximately $22.9 million, or 2%, compared to last year as the Fund realized lower sales dollars per unit on U.S. sourced products.

Gross profit

Gross profit in the fourth quarter of 2008 increased $11.6 million due principally to higher revenues compared to last year. The gross profit margin percentage for the quarter increased to 24.0% in 2008 from 22.9% in 2007 due to a higher proportion of higher margin parts and service volumes compared to last year and higher gross profit margins resulting from the acquisition of Peacock, offset in part by lower equipment margins in Power Systems. In addition, the gross profit margin was negatively affected by a reclassification of $1.2 million of selling and administrative expenses to cost of sales resulting from adoption of the new CICA Handbook Section 3031, Inventories, effective January 1, 2008 without restatement of 2007 results ("the new inventory accounting standard"). Excluding the impact of the new inventory accounting standard in 2008, the gross profit percentage increased to 24.4% in the fourth quarter of 2008 compared to 22.9% in 2007.

For the twelve months ended December 31, 2008, gross profit increased $20.7 million compared to last year. Excluding the impact of the new inventory accounting standard in 2008, the gross profit margin percentage increased to 23.8% in 2008 from 22.2% in 2007.

Selling and administrative expenses

Selling and administrative expenses increased $9.8 million in the quarter due mainly to higher personnel and occupancy costs in all segments, costs associated with the computer system conversion in Kinecor, and the acquisition of Peacock. These increases were offset partially by decreased corporate costs and a net reclassification of $0.9 million of overhead costs to cost of sales ($1.2 million) and from inventory ($0.3 million), resulting from adoption of the new inventory accounting standard. Excluding the impact of adoption of the new inventory accounting standard, selling and administrative expenses as a percentage of revenue increased to 17.6% in 2008 from 16.0% in 2007.

For the twelve months ended December 31, 2008 selling and administrative expenses increased $14.6 million compared to last year. Increased personnel costs in all segments and the acquisition of Peacock were offset partly by a reclassification of $4.0 million of overhead costs to cost of sales ($3.5 million) and inventory ($0.5 million), resulting from adoption of the new inventory accounting standard. Excluding the impact of adoption of the new inventory accounting standard, selling and administrative expenses as a percentage of revenue increased to 17.0% in 2008 from 15.8% in 2007.

Interest expense

Quarterly interest expense of $1.4 million increased $0.4 million compared to last year. The positive impact of lower interest rates was more than offset by higher funded debt net of cash ("funded net debt") outstanding in 2008 compared to last year as a result of the acquisition of Peacock in September 2008.

For the twelve months ended December 31, 2008, interest expense decreased $0.2 million compared to 2007. The positive impact of lower interest rates and lower amortization of deferred financing costs outweighed the impact of higher funded net debt outstanding in 2008 compared to last year due in part to the acquisition of Peacock in September 2008.

Income tax expense

The effective income tax rate of 2.7% for the quarter increased from negative 1.0% the previous year due mainly to an increase in current income tax expense resulting from higher taxable income in the Fund's subsidiary Wajax Limited compared to last year.

For the twelve months ended December 31, 2008, the effective income tax rate of 2.3% for the year decreased from 2.6% the previous year due mainly to a $1.8 million reduction in future income tax expense offset, in part, by an increase in current income tax expense resulting from higher taxable income in the Fund's subsidiary Wajax Limited compared to last year. The reduction in future income tax expense is mostly due to a $1.2 million adjustment made in 2007 to reflect the Fund's temporary differences in taxable income that are estimated to reverse after 2010, tax effected at rates that will apply in the periods the differences are expected to reverse.

The Fund's effective income tax rate was lower than the Fund's statutory income tax rate of 31.2% as the majority of the Fund's income is not currently subject to tax in the Fund.

The Fund is a "mutual fund trust" as defined under the Income Tax Act (Canada) and is not currently taxable on its income to the extent that it is distributed to its unitholders. Pursuant to the terms of the Declaration of Trust, all income earned by the Fund is distributed to its unitholders. Accordingly, no provision for income taxes is required on income earned by the Fund that is distributed to its unitholders. The Fund's corporate subsidiaries are subject to tax on their taxable income.

Under legislation enacted on June 22, 2007, the Fund as a publicly traded income trust will pay tax on its income distributed commencing in 2011 at a rate that is substantially equivalent to the general corporate income tax rate. The Fund may become taxable on its distributions prior to 2011 if its equity capital grows beyond certain dollar limits measured by reference to the Fund's market capitalization on October 31, 2006. The Fund has not exceeded its growth limits at December 31, 2008.

On November 28, 2008, the Department of Finance released legislation rules designed to permit income funds to "convert" into public corporations without triggering adverse tax consequences to the income fund and its unitholders. The Fund is currently evaluating the draft legislation which provides for alternative methods whereby an income fund can convert to a public corporation. The Fund's current expectation is that it will delay conversion to a corporate structure until January 1, 2011 so long as it continues to benefit from the efficient distribution of its taxable income to unitholders and continues to meet the limitations on growth in equity. After conversion it is anticipated that the Fund's dividends will be equal to its distributions prior to conversion, less incremental income taxes to be paid as a corporation. The Fund will continue to monitor its position on timing of conversion to a corporation and its distribution policy taking into account any changes in tax rules governing income trusts and other capital market considerations.

Net earnings

Quarterly net earnings of $19.4 million, or $1.17 per unit, increased $0.8 million from $18.6 million, or $1.12 per unit in 2007. The positive impact of higher volumes and gross profit margins were mostly offset by increased selling and administrative expenses and higher income tax and interest expenses compared to last year. Net earnings were negatively impacted by $0.3 million after tax resulting from adoption of the new inventory accounting standard.

For the twelve months ended December 31, 2008, net earnings increased $3.8 million to $75.8 million, or $4.57 per unit, from $72.0 million, or $4.34 per unit, in 2007. The increase was a result of higher volumes and gross profit margins and lower interest and income tax expenses, offset partly by higher selling and administrative expenses compared to last year and the $2.4 million gain on sale of land in 2007. Net earnings were positively impacted by $0.5 million of income after tax resulting from adoption of the new inventory accounting standard.

Comprehensive income

Comprehensive income for the quarter of $17.7 million decreased $0.7 million from $18.4 million the previous year due to a $1.5 million increase in other comprehensive loss, reduced by a $0.8 million increase in net earnings compared to last year. The increase in other comprehensive loss resulted from an increase in the change in fair value of outstanding derivative contracts designated as cash flow hedges compared to last year.

For the twelve months ended December 31, 2008, comprehensive income of $73.7 million increased $2.4 million from $71.3 million the previous year due to a $3.8 million increase in net earnings offset by a $1.4 million increase in other comprehensive loss compared to last year. The increase in other comprehensive loss resulted from an increase in the change in fair value of outstanding derivative contracts designated as cash flow hedges compared to last year.

Funded net debt

Funded net debt of $120.5 million increased $16.3 million compared to September 30, 2008 as fourth quarter cash flows from operating activities before changes in non-cash working capital of $22.5 million were outweighed by an increase in non-cash working capital of $17.7 million, cash distributions of $17.9 million and capital spending of $3.1 million. Compared to December 31, 2007 funded net debt increased $59.7 million. The Fund's quarter-end debt-to-equity ratio of 0.59:1 at December 31, 2008 increased from last quarter's ratio of 0.51:1 and increased from last year's ratio of 0.31:1.

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

For the quarter ended December 31, 2008 distributable cash was $20.4 million, or $1.23 per unit, compared to $19.1 million, or $1.15 per unit, the previous year. Distributable cash increased $1.3 million due mostly to higher cash flows from operations before changes in non-cash working capital compared to last year. For the twelve months ended December 31, 2008 distributable cash was $77.0 million, or $4.64 per unit, compared to $74.1 million, or $4.47 per unit, the previous year.

For the quarter ended December 31, 2008 monthly cash distributions declared were $1.08 per unit (2007 - $0.99 per unit) and for the twelve months ended December 31, 2008 monthly cash distributions declared were $4.13 per unit (2007 - $3.89 per unit). In 2007 a special cash distribution of $0.47 per unit was declared. A special cash distribution for 2008 was not declared as the Fund believed it was prudent to maintain liquidity given the level of economic uncertainty going into 2009.

On December 31, 2008 a special non-cash distribution equal to $0.47 per unit was paid to ensure, as provided by the Fund's Declaration of Trust, the Fund's total distributions for the year equaled its taxable income. In 2007 a $0.05 per unit special non-cash distribution was paid in order to distribute the Fund's non-taxable portion of its capital gains for the year.

Distributable cash in excess of cash distributions declared for the twelve months ended December 31, 2008 of $8.5 million, or $0.51 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, capital expenditure requirements or future distributions.

On December 16, 2008 the Fund announced monthly distributions of $0.36 per unit ($4.32 annualized) for the months of January and February, payable on February 20, 2009 and March 20, 2009 to unitholders of record on January 30, 2009 and February 27, 2009 respectively.

On February 27, 2009 the Fund announced a monthly distribution of $0.20 per unit ($2.40 annualized) for the months of March and April, payable on April 20, 2009 and May 20, 2009 to unitholders of record on March 31, 2009 and April 30, 2009 respectively.



Quarterly Results of Operations

Mobile Equipment
Three months ended Year ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
Equipment $ 97.0 $ 105.1 $ 430.1 $ 450.8
Parts and service $ 51.0 $ 44.8 $ 205.2 $ 176.8
----------------------------------------------------------------------------
Gross revenue $ 148.0 $ 149.9 $ 635.3 $ 627.6
----------------------------------------------------------------------------
Segment earnings $ 11.0 $ 12.1 $ 50.0 $ 45.1
Segment earnings margin 7.4% 8.1% 7.9% 7.2%
----------------------------------------------------------------------------


Revenue in the fourth quarter of 2008 decreased $1.9 million, or 1%, to $148.0 million from $149.9 million in the fourth quarter of 2007. Segment earnings for the quarter decreased $1.1 million to $11.0 million compared to the fourth quarter of 2007. The weakening Canadian dollar relative to the U.S. dollar had the net effect of increasing fourth quarter 2008 revenue by approximately $12.9 million, or 9%, compared to last year as the Fund realized higher sales dollars per unit on U.S. sourced products. For the twelve months ended December 31, 2008, revenue increased $7.7 million, while segment earnings increased $4.9 million to $50.0 million. The strength of the Canadian dollar relative to the U.S. dollar in the first half of the year had the effect of decreasing 2008 annual revenues by approximately $16.8 million, or 3%, compared to last year. The following factors contributed to the Mobile Equipment segment's fourth quarter results:

- Equipment revenue decreased $8.1 million compared to last year and included the following quarter-over-quarter variances:

-- Forestry and construction equipment revenue decreased $10.6 million due primarily to a reduction in new Hitachi excavator sales in western Canada resulting from weaker demand and strong competition compared to last year. In addition, forestry equipment sales decreased compared to last year. These decreases in revenue were partially offset by an increase in JCB construction equipment sales in all regions.

-- Mining equipment revenue increased $3.7 million on higher Hitachi mining equipment deliveries, primarily in western Canada.

-- Material handling equipment revenue decreased $3.3 million due to lower equipment volumes in Ontario reflecting weakness in the automotive sector and also several multi-unit deals in 2007 not repeated in 2008.

-- Crane and utility equipment revenue increased $2.1 million due primarily to higher deliveries to a major hydro utility customer in Ontario.

- Parts and service volumes increased $6.2 million compared to last year driven by strong mining sector sales, particularly in western Canada, and increases in both western and eastern Canada's construction sector and forestry sector due to the addition of the Tigercat product line. These increases were partially offset by declines in Ontario's material handling sector.

- Earnings decreased $1.1 million to $11.0 million compared to last year. Excluding a $0.1 million impact of adopting the new inventory accounting standard, earnings decreased $1.2 million as the benefit of a higher gross profit margin was more than offset by lower volumes and a $2.5 million increase in selling and administrative expenses. Margins increased due to higher equipment margins and the impact of a higher proportion of higher margin parts and service sales compared to last year. Selling and administrative expenses increased due to higher after-market sales related costs and lower expense recoveries in all regions compared to last year.

Given the uncertainty surrounding the Canadian economy going into 2009, steps are being taken to reduce the segment's cost structure in anticipation of softer revenues. These steps include workforce reductions of approximately 10%, salaries frozen at 2008 levels and other selling and administrative expense reductions. The segment's cost structure will be monitored and adjusted in response to any further changes in market conditions. In addition, the segment will continue to maintain disciplined control over inventories and receivables.



Industrial Components
Three months ended Year ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
Gross revenue $ 89.2 $ 75.2 $ 322.8 $ 309.5
----------------------------------------------------------------------------
Segment earnings $ 5.0 $ 5.0 $ 20.2 $ 20.0
Segment earnings margin 5.6% 6.7% 6.3% 6.5%
----------------------------------------------------------------------------


Revenue at Industrial Components of $89.2 million increased 19%, or $14.0 million from $75.2 million in the fourth quarter of 2007 and included $13.6 million of revenue from the Peacock acquisition effective September 5, 2008. Segment earnings remained unchanged at $5.0 million. For the twelve months ended December 31, 2008, revenue increased $13.3 million, while segment earnings increased $0.2 million to $20.2 million compared to the same period last year. The following factors contributed to the segment's fourth quarter results:

- Bearings and power transmission parts sales decreased $2.0 million compared to last year primarily due to lower forestry sector volumes.

- Fluid power and process equipment products and service revenues increased $16.0 million and included $13.6 million of revenue from the acquisition of Peacock as well as increased natural gas drilling activity in western Canada. Offsetting these revenue increases were reductions in sales to transportation customers compared to last year.

- Segment earnings of $5.0 million remained unchanged compared to last year, as the positive impact of higher volumes and margins was offset by an increase in selling and administrative expenses. Margins increased due to the acquisition of Peacock and a reduction in lower margin forestry sector volumes compared to last year. Selling and administrative expenses increased $5.1 million compared to last year due mainly to the Peacock acquisition, higher personnel related costs and consulting costs of $0.8 million associated with the new computer system conversion.

The new computer system, currently being implemented in Kinecor, will provide additional functionality and capacity which will accommodate the segment's future growth. The system is expected to be fully implemented into the Industrial Component's operations across Canada by the end of 2009.

Effective September 5, 2008 the Fund completed the acquisition of Peacock, the Weir Process Equipment division of Weir Canada Inc. for $25.7 million subject to post closing adjustments. Weir Process Equipment, which was previously known as Peacock Inc., is a leading distributor of pumps, process controls and instrumentation, filtration products and material handling equipment to the oil & gas, power generation, mining and infrastructure sectors across Canada. These products are complementary to Kinecor's current offering and the acquisition significantly enhances Kinecor's position in the Canadian process equipment market. The acquired business will be combined with Kinecor's process equipment operation under the Peacock name. For the twelve month period ended June 30, 2008, Peacock had adjusted annual sales of approximately $50 million and adjusted earnings before interest, taxes and amortization of approximately $5 million. It is expected that over time the profitability of the combined businesses will be enhanced through expense reduction and revenue growth by leveraging Kinecor's extensive branch network and customer base.

Given the uncertainty surrounding the Canadian economy going into 2009, steps are being taken to reduce the segment's cost structure in anticipation of softer revenues. These steps include workforce reductions of approximately 10%, salaries frozen at 2008 levels and other selling and administrative expense reductions. The segment's cost structure will be monitored and adjusted in response to any further changes in market conditions. In addition, the segment will maintain disciplined control over inventories and receivables.



Power Systems
Three months ended Year ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
Equipment $ 44.0 $ 26.2 $ 117.8 $ 127.3
Parts and service $ 36.8 $ 31.1 $ 140.6 $ 131.1
----------------------------------------------------------------------------
Gross revenue $ 80.8 $ 57.3 $ 258.4 $ 258.4
----------------------------------------------------------------------------
Segment earnings $ 7.3 $ 4.5 $ 21.7 $ 22.7
Segment earnings margin 9.0% 7.9% 8.4% 8.8%
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Revenue in the fourth quarter increased 41%, or $23.5 million, to $80.8 million compared to $57.3 million in 2007. Segment earnings increased $2.8 million to $7.3 million in the quarter compared to the previous year. The weakening Canadian dollar relative to the U.S. dollar had the effect of increasing fourth quarter 2008 revenue by approximately $3.3 million, or 6%, compared to last year as the Fund realized higher sales dollars per unit on U.S. sourced products. For the twelve months ended December 31, 2008, revenue remains the same compared to last year while earnings decreased $1.0 million to $21.7 million compared to $22.7 million in 2007. The strength of the Canadian dollar relative to the U.S. dollar in the first half of the year had the effect of decreasing 2008 annual revenues by approximately $6.1 million, or 2%, compared to last year. The following factors impacted quarterly revenues and earnings:

- Revenue at Waterous Power Systems ("Waterous") in western Canada increased $14.1 million compared to last year as a result of higher equipment sales of $9.4 million, attributable to increased sales of primary power generation equipment and engines to oil and gas drilling and manufacturing customers, and a $4.7 million increase in parts and service revenue.

- Revenue at the eastern Canada operation, DDACE Power Systems ("DDACE") increased $9.4 million compared to 2007. Equipment sales increased $8.4 million, due principally to higher generator set deliveries. Parts and service revenue increased $1.0 million compared to last year.

- Segment earnings increased $2.8 million to $7.3 million compared to last year. Excluding a $0.3 million negative impact of adopting the new inventory accounting standard, earnings increased $3.1 million as the positive impact of improved volumes was only partially offset by lower margins and a $3.4 million increase in selling and administrative expenses compared to last year. Selling and administrative expenses increased as a result of higher personnel costs. Margins decreased due primarily to a higher proportion of lower margin generator set sales compared to last year.

In the short-term, given the increasingly challenging economic conditions, productivity and cost reduction initiatives will be implemented and working capital levels will be closely monitored in this segment. In addition, the cost structure will be periodically reviewed and adjusted in response to any reductions in volumes.



Selected Quarterly Information

-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Revenue $317.3 $299.2 $311.2 $285.7 $281.5 $289.4 $319.1 $302.3
-------------------------------------------------------------------------
Net earnings $19.4 $18.4 $20.0 $18.1 $18.6 $19.6 $15.0 $18.7

Net earnings
per unit
- Basic $1.17 $1.11 $1.20 $1.09 $1.12 $1.18 $0.91 $1.13
- Diluted $1.15 $1.10 $1.19 $1.08 $1.11 $1.17 $0.90 $1.12
-------------------------------------------------------------------------

Distributable
cash(1) $20.4 $19.4 $18.8 $18.4 $19.1 $19.6 $15.8 $19.4

Distributable
cash per unit(1)
- Basic $1.23 $1.17 $1.14 $1.11 $1.15 $1.18 $0.95 $1.17
-------------------------------------------------------------------------
(1) Non-GAAP measure, see the Non-GAAP Measures Section.


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 $1.7 million of cash from operations before financing activities in the fourth quarter of 2008 compared to $32.7 million in the fourth quarter of 2007. The $31.0 million decrease in cash flows from operations before financing activities was due to an increase in non-cash working capital and higher investing activities, offset partly by higher cash flows from operations before changes in non-cash working capital.

Cash generated by operating activities amounted to $4.8 million in the fourth quarter of 2008, with $22.5 million of cash generated from operating activities before changes in non-cash working capital earnings offset by $17.7 million used in non-cash working capital. Significant components of the changes in non-cash working capital are as follows:

- Accounts receivable increased $6.6 million due primarily to a large mining equipment receivable in Mobile Equipment and higher fourth quarter sales activity in Power Systems.

- Accounts payable and accrued liabilities decreased $12.1 million largely due to reduced payables to a mining equipment supplier in Mobile Equipment and lower deferred income related to product deliveries in Power Systems.

During the quarter the Fund invested a net amount of $3.1 million. The investing activities included $1.2 million of lift truck rental fleet additions net of disposals, and $1.9 million of other various capital asset additions net of disposals.

The Fund sponsors certain defined benefit plans that cover executive employees, a small group of inactive employees and a small group of employees on long-term disability benefits. The fair value of the defined benefit plans' assets declined $1.6 million to $9.1 million at December 31, 2008 due primarily to a $1.5 million negative return for the year. In addition, the accrued benefit obligations at December 31, 2008 were $14.2 million and include a $3.1 million benefit obligation related to the Wajax Limited Supplemental Executive Retirement Plan (SERP) that is not funded. The resulting plan deficit at December 31, 2008 excluding the SERP, which is secured by a $3.4 million letter of credit, was $2.0 million. The defined benefit plans are subject to actuarial valuations in 2009 and 2010. Management does not expect future cash contribution requirements to change materially from the 2008 contribution level of $0.5 million as a result of these valuations and any further declines in the fair value of the defined benefit plans' assets.

Funded net debt increased $16.3 million compared to September 30, 2008 as fourth quarter cash flows from operating activities before changes in non-cash working capital of $22.5 million were outweighed by an increase in non-cash working capital of $17.7 million, cash distributions of $17.9 million and capital spending of $3.1 million. Compared to December 31, 2007 funded net debt increased $59.7 million. The Fund's quarter-end debt-to-equity ratio of 0.59:1 at December 31, 2008 increased from last quarter's ratio of 0.51:1 and increased from last year's ratio of 0.31:1.

At December 31, 2008 the Fund had borrowed $117.0 million and issued $4.2 million of letters of credit for a total utilization of $121.2 million of its $175 million bank credit facility and had no utilization of its $15 million equipment financing facility.

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 normal course working capital, maintenance capital and growth capital requirements. However, the recent economic downturn and global financial crisis has resulted in limited credit availability from traditional sources. In particular, management is concerned about the potential increase in working capital due to order cancellations, deferrals, or delays in payment of certain large mining equipment orders as a result of customers experiencing difficulties in obtaining financing. This issue negatively impacted the Fund's year end working capital by $8.0 million. Although management currently believes the Fund has adequate debt capacity to work through this issue, the Fund may have to access the equity or debt markets, or temporarily reduce distributions to accommodate any shortfalls in the Fund's credit facilities.

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 expenditures.

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 has entered into the following interest rate swaps that have effectively fixed the interest rate on $80 million of the Fund's debt at the combined rate of 2.925%, plus applicable margins, until December 31, 2011:

-- On June 7, 2008 the delayed interest rate swap the Fund entered into on May 9, 2007 with two of its lenders became effective. As a result, the interest rate on the $30 million non-revolving term portion of the bank credit facility was effectively fixed at 4.60% plus applicable margins until expiry of the facility on December 31, 2011.

-- On December 18, 2008, the Fund entered into a delayed start interest rate swap with two of its lenders such that in total the interest rate on $50 million of the revolving term portion of the bank credit facility is effectively fixed at 1.92% plus applicable margins. The delayed interest rate swap commences on January 23, 2009 until expiry of the facility on December 31, 2011.

-- Margins on the swaps depend on the Fund's Leverage Ratio and range between 0.75% and 2.5%.

- 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 December 31, 2008, the Fund had contracts outstanding to buy U.S.$13.2 million and EUR 0.04 million and to sell U.S. $10.0 million (December 31, 2007 - to buy U.S.$10.7 million and EUR 1.2 million). These contracts expire between January 2009 and March 2010, with a weighted average U.S. dollar rate of 1.1711 and a weighted average Euro dollar rate of 1.6594.

The Fund measures financial instruments held for trading at fair value with subsequent changes in fair value being charged to earnings. Derivatives designated as effective hedges are measured at fair value with subsequent changes in fair value being charged to other comprehensive income. The fair value of derivative instruments is estimated based upon market conditions using appropriate valuation models. The carrying values reported in the balance sheet for financial instruments are not significantly different from their fair values.

Currency Risk

The Fund's operating results are reported in Canadian dollars. While the Fund's sales are primarily denominated in Canadian dollars, significant portions of its purchases are in U.S. dollars. Changes in the U.S. dollar exchange rate can have a negative or positive impact on the Fund's revenues, margins and working capital balances. 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. (See Financial Instruments section above.)

A declining U.S. dollar relative to the Canadian dollar can have a negative effect on the Fund's revenues and cash flows as a result of certain products being imported from the U.S. Market conditions generally require the Fund to lower its selling prices as the U.S. dollar declines. As well, many of the Fund's customers export products to the U.S., and a strengthening Canadian dollar can negatively impact their overall competitiveness and demand for their products, which in turn may reduce product purchases from the Fund.

A strengthening U.S. dollar relative to the Canadian dollar can have a positive effect on the Fund's revenues as a result of certain products being imported from the U.S. The Fund will periodically institute price increases to offset the negative impact of foreign exchange rate increases and volatility on imported goods to ensure margins are not eroded.

The Fund maintains a hedging policy whereby significant transactional currency risks are identified and hedged.

Contractual Obligations

There have been no material changes to contractual obligations since December 31, 2007.

Off Balance Sheet Financing

The Mobile Equipment segment had $72.6 million of consigned inventory on-hand from a major manufacturer as at December 31, 2008 compared to $52.1 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 December 31, 2008, the non-discounted operating lease commitment for the rental fleet was $12.5 million (December 31, 2007 - $13.1 million).

In the event the inventory consignment program was terminated, the Fund would utilize interest free financing, if any, made available by the manufacturer and/or utilize capacity under its credit facilities. In the event the rental fleet program with Wajax Finance was terminated, the Fund would source alternative lenders to replicate the off balance sheet rental fleet program and/or utilize capacity under its credit facilities to finance future additions to the rental fleet. Although management currently believes the Fund has adequate debt capacity, the Fund would have to access the equity or debt markets, or temporarily reduce distributions to accommodate any shortfalls in the Fund's credit facilities. See Liquidity and Capital Resources section.

Non-GAAP Measures

To supplement the consolidated financial statements, the Fund uses 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 as they represent the key determination of cash flow 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. Distributable cash is calculated as cash flows from operating activities adjusted for changes in non-cash working capital, less maintenance capital expenditures and amortization of deferred financing costs. Changes in non-cash working capital are excluded from 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 the Distributable Cash section below 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 business acquisitions and land and building additions as they are not considered to be expenditures to maintain normal operations. See the Distributable Cash and Estimated Distributable Cash sections below 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 following the guidance provided in the CICA publication: Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities: Guidance on Preparation and Disclosure. While the Fund has followed the principles of this guidance, the Fund has made assumptions and judgments in determining how such guidance is to be applied. In this respect, the Fund's calculation may differ from similar calculations done by other entities. See the Standardized Distributable Cash and Reconciliation to Distributable Cash section for the method of calculating the Fund's "Standardized distributable cash".

"EBIT" is not a recognized measure under GAAP, and has been calculated as earnings before, interest and taxes and may differ from methods used by other entities.

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 depend 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 the Liquidity and Capital Resources and Distributable Cash sections.

On December 16, 2008 the Fund announced that it would not declare a special cash distribution for 2008 as it believed it was prudent to maintain liquidity given the level of economic uncertainty going into 2009.

As a result, on December 31, 2008 a special non-cash distribution equal to $0.47 per unit was paid to ensure, as provided by the Fund's Declaration of Trust, the Fund's total distributions for the year equaled its taxable income. In 2007 a $0.05 per unit special non-cash distribution was paid in order to distribute the Fund's non-taxable portion of its capital gains for the year.

Cash distributions to unitholders were declared as follows:



---------------------------------------------------------------------------
Record Date Payment Date Per Unit Amount
---------------------------------------------------------------------------
October 31, 2008 November 20, 2008 $ 0.36 $ 6.0
November 28, 2008 December 22, 2008 0.36 6.0
December 31, 2008 January 20, 2009 0.36 6.0
---------------------------------------------------------------------------
Three months ended December 31, 2008 $ 1.08 $ 17.9
---------------------------------------------------------------------------
(1) See Distributable Cash section below


Cash 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 and the Fund's bank credit facilities.

On December 16, 2008 the Fund announced monthly distributions of $0.36 per unit ($4.32 annualized) for the months of January and February, payable on February 20, 2009 and March 20, 2009 to unitholders of record on January 30, 2009 and February 27, 2009 respectively.

On February 27, 2009 the Fund announce a monthly distribution of $0.20 per unit ($2.40 annualized) for the months of March and April, payable on April 20, 2009 and May 20, 2009 to unitholders of record on March 31, 2009 and April 30, 2009 respectively.

Unitholder tax information relating to 2008 and 2007 distributions is available on the Fund's website at www.wajax.com.

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 from operating activities before changes in non-cash working capital (a GAAP measure) to distributable cash (a non-GAAP measure).



For the quarter For the year
ended ended
December December December December
31, 2008 31, 2007 31, 2008 31, 2007
----------------------------------------------------------------------------
Cash flows from operating
activities $ 4.8 $ 35.1 $ 58.7 $ 97.2

Changes in non-cash working
capital(2) 17.7 (13.9) 28.8 (12.2)
----------------------------------------------------------------------------

Cash flows from operating
activities before changes in 22.5 21.1 87.5 85.0
non cash working capital
Entity specific
adjustments(3):
Maintenance capital
expenditures(1) (3a) (2.0) (2.2) (11.1) (11.4)
Gain on sale of land(3b) - - - 2.4
Accrual for mid-term
incentives(3c) - 0.3 0.9 (1.6)
Amortization of deferred
financing charges(3d) (0.1) (0.1) (0.3) (0.4)
----------------------------------------------------------------------------

Distributable Cash(1) - $ 20.4 19.1 77.0 74.1
- per unit basic $ 1.23 $ 1.15 $ 4.64 $ 4.47
- per unit fully diluted $ 1.22 $ 1.14 $ 4.60 $ 4.44
----------------------------------------------------------------------------

Distributions Declared - $
- Cash 17.9 24.2 68.5 72.3
- Non-cash (4) 7.8 0.9 7.8 0.9

Distributions Declared - per
unit
- Cash $ 1.08 $ 1.46 $ 4.13 $ 4.36
- Non-cash (4) $ 0.47 $ 0.05 $ 0.47 $ 0.05
----------------------------------------------------------------------------

Payout Ratio (5) 87.9% 126.8% 88.9% 97.6%
----------------------------------------------------------------------------
(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 discussion of bank credit facility financial
covenants.
(3) Other Entity Specific Adjustments made in calculating distributable cash
include the following:
a. Maintenance Capital Expenditures represent capital expenditures,
net of disposals and rental fleet transfers to inventory, required
to maintain normal operations. "Maintenance capital expenditures"
exclude business 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 third quarter of 2007, 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: Changes in 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 Costs is a deduction in
calculating distributable cash based on the amount included in the
operating activities section of the statement of cash flow (in the
years following the financing transaction) allocated over the term
of the financing. The Fund believes this treatment provides a
better indication of annual financing costs.
(4) See Distributions section.
(5) Payout Ratio is equal to cash distributions declared as a percentage of
distributable cash.


For the quarter ended December 31, 2008 distributable cash was $20.4 million, or $1.23 per unit, compared to $19.1 million, or $1.15 per unit, the previous year. Distributable cash increased $1.3 million due primarily to the higher cash flows from operations before changes in non-cash working capital compared to last year. Monthly cash distributions declared for the quarter ended December 31, 2008 were $1.08 per unit (2007 - $0.99 per unit) and in 2007 a special cash distribution of $0.47 per unit was declared. In addition, a special non-cash distribution was declared December 31, 2008 equal to $0.47 per unit (2007 - $0.05 per unit). Distributable cash in excess of cash distributions declared for the three months ended December 31, 2008 of $2.5 million, or $0.15 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 December 31, 2008 distributable cash was $77.0 million, or $4.64 per unit, compared to $74.1 million, or $4.47 per unit, the previous year. The $2.9 million increase in distributable cash is due primarily to a $2.5 million increase in cash flows from operations before changes in non-cash working capital. In addition, the lower accruals for mid-term incentives offset the $2.4 million gain on sale of land included in 2007. For the same period, monthly cash distributions declared were $4.13 per unit (2007 - $3.89 per unit) and in 2007 a special cash distribution of $0.47 per unit was declared. In addition, a special non-cash distribution was declared December 31, 2008 equal to $0.47 per unit (2007 - $0.05 per unit). Distributable cash in excess of cash distributions declared for the twelve months ended December 31, 2008 of $8.5 million, or $0.51 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

For the three months ended December 31, 2008, the payout ratio of cash distributions based on distributable cash was 88%, compared to 127% the previous year.

For the twelve months ended December 31, 2008, the payout ratio of cash distributions based on distributable cash was 89%, compared to 98% (87% excluding the special cash distribution of $0.47 per unit) the previous year.

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



For the quarter For the year For the year
ended ended ended
($millions) December 31, December 31, December 31,
2008 2008 2007
----------------------------------------------------------------------------

A. Cash flows from operating
activities $ 4.8 $ 58.7 $ 97.2

B. Net earnings 19.4 75.8 72.0

C. Distributable cash (1) 20.4 77.0 74.1

D. Cash distributions declared 17.9 68.5 72.3
----------------------------------------------------------------------------

E. Excess (shortfall) of cash flows
from operating activities over
cash distributions declared
(A - D) (13.1) (9.8) 24.9

F. Excess (shortfall) of net
earnings over cash
distributions declared
(B - D) 1.5 7.3 (0.3)

G. Excess of distributable cash over
cash distributions declared
(C - D) 2.5 8.5 1.8
----------------------------------------------------------------------------
(1) Non-GAAP measure, see Non-GAAP Measures section


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

For the quarter ended December 31, 2008, the $13.1 million shortfall of cash flows from operating activities over cash distributions declared is comprised of an increase in non-cash working capital of $17.7 million, less maintenance capital expenditures, net of disposals, of $2.0 million, other entity specific adjustments totaling $0.1 million and the $2.5 million excess of distributable cash over cash distributions declared. The shortfall was funded through the Fund's bank credit facilities.

For the twelve months ended December 31, 2008, the $9.8 million shortfall of cash flows from operating activities over cash distributions declared is due primarily to an increase in non-cash working capital of $28.8 million and other entity specific adjustments totaling $0.6 million, less maintenance capital expenditures, net of disposals, of $11.1 million and the $8.5 million excess of distributable cash over cash distributions declared. The shortfall was funded through the Fund's bank credit facilities.

For the twelve months ended December 31, 2007, the $24.9 million excess of cash flows from operating activities over cash distributions declared is due primarily to a reduction in non-cash working capital of $12.2 million, maintenance capital expenditures net of disposals of $11.4 million and other entity specific adjustments totaling $2.0 million, less the $2.4 million gain on sale of land, plus a $1.8 million reserve. The $1.8 million provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

The following is a reconciliation of net earnings to distributable cash.




For the quarter For the year
ended ended
December December December December
31, 2008 31, 2007 31, 2008 31, 2007
----------------------------------------------------------------------------
Net earnings $ 19.4 $ 18.6 $ 75.8 $ 72.0
Add (deduct)
Amortization(1) 2.3 2.5 9.4 9.5
Maintenance capital
Expenditures (2)(3) (2.0) (2.3) (11.1) (11.3)
Non-cash items:
- Pension expense,
net of payment - (0.4) 0.2 0.1
- Non-cash rental
expense 0.2 - 0.3 0.1
- Unit-based
compensation expense 0.4 0.4 1.8 1.3
- Future income taxes 0.1 0.2 0.6 2.4
----------------------------------------------------------------------------

Distributable cash(1) - $ 20.4 19.1 77.0 74.1
----------------------------------------------------------------------------
(1) Includes amortization of rental equipment; property, plant and
equipment; and intangible assets.
(2) Non-GAAP measure, see Non-GAAP Measures section
(3) Maintenance capital expenditures represent capital expenditures, net
of disposals and rental fleet transfers to inventory, required to
maintain normal operations. "Maintenance capital expenditures" exclude
acquisition and land and building additions as they are considered to be
expenditures that are not required to maintain normal operations.


For the quarter ended December 31, 2008 distributable cash exceeded net earnings by $1.0 million (2007 - $0.5 million) due to the excess of amortization and other non-cash items over maintenance capital expenditures for the quarter.

For the twelve months ended December 31, 2008 distributable cash exceeded net earnings by $1.2 million (2007 - $2.1 million) due to the excess of amortization and other non-cash items over maintenance capital expenditures for the year.

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

The following is a calculation of standardized distributable cash calculated following the guidance 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 quarter ended For the year ended
December December December December
31, 2008 31, 2007 31, 2008 31, 2007
Cash flows from
operating activities $ 4.8 $ 35.1 $ 58.7 $ 97.2
A. Capital expenditure
outlays(3): (3.4) (2.7) (15.8) (13.4)
B. Restriction on
distributions (4) - - - -
----------------------------------------------------------------------------

Standardized Distributable
Cash (1)(2) - $ 1.4 32.4 42.9 83.8
- per unit basic $ 0.08 $ 1.95 $ 2.59 $ 5.05
- per unit fully diluted $ 0.08 $ 1.94 $ 2.56 $ 5.02
i. Capital adjustments made
to reflect maintenance
capital expenditures(5):
- Proceeds from disposals
of capital expenditures 0.3 0.3 1.3 1.0
- Growth capital expenditures 0.7 - 1.5 -
- Rental fleet transferred
to inventory 0.4 0.2 1.9 1.1
ii. Other entity specific
adjustments(6):
- Changes in non-cash
working capital(6a) 17.7 (13.9) 28.8 (12.2)
- Gain on sale of land(6b) - - - 2.4
- Accrual for mid-term
incentives(6c) - 0.3 0.9 (1.6)
- Amortization of deferred
financing charges(6d) (0.1) (0.1) (0.3) (0.4)
----------------------------------------------------------------------------
Distributable Cash(2) - $ 20.4 19.1 77.0 74.1
- per unit basic $ 1.23 $ 1.15 $ 4.64 $ 4.47
- per unit fully diluted $ 1.22 $ 1.14 $ 4.60 $ 4.44
----------------------------------------------------------------------------

Distributions Declared - $
- Cash 17.9 24.2 68.5 72.3
- Non-cash(7) 7.8 0.9 7.8 0.9
----------------------------------------------------------------------------

Distributions Declared - per unit
- Cash $ 1.08 $ 1.46 $ 4.13 $ 4.36
- Non-cash(7) $ 0.47 $ 0.05 $ 0.47 $ 0.05
----------------------------------------------------------------------------

Payout ratio(8)
- based on standardized
distributable cash 1,312.2% 74.7% 159.6% 86.3%
- based on distributable cash 87.9% 126.8% 88.9% 97.6%
----------------------------------------------------------------------------
(1) Standardized distributable cash is a non-GAAP measure calculated
following the guidance 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) 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 Costs see Distributable Cash
section.
(7) See Distributions section.
(8) Payout ratio is equal to cash distributions declared as a percentage of
distributable cash.


For the quarter ended December 31, 2008 standardized distributable cash was $1.4 million, or $0.08 per unit, compared to $32.4 million, or $1.95 per unit, the previous year. The $31.0 million reduction was due primarily to $30.3 million decrease in cash flows from operating activities.

For the twelve months ended December 31, 2008 standardized distributable cash was $42.9 million, or $2.59 per unit, compared to $83.8 million, or $5.05 per unit, the previous year. The $40.9 million reduction was due primarily to $38.5 million decrease in cash flows from operating activities.

Since the conversion of Wajax Limited to Wajax Income Fund on June 15, 2005, the payout ratio of cash distributions based on standardized distributable cash and distributable cash is 130.3% and 95.0%, respectively. The difference is due primarily to changes in non-cash working capital of $51.4 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.

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 112 facilities throughout Canada, of which 80 are leased. Wajax's principal properties are primarily sales and service outlets. (At December 31, 2008, the non-discounted operating lease commitments for facilities totaled $71.2 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 each 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, 2008, the non-discounted operating lease commitments for rental fleet totaled $12.5 million, vehicles $0.6 million and other equipment $1.5 million.

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

For the eight year period from 2000 to 2008, 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 $9.4 million. The annual maintenance capital expenditures varied between $2.8 million and $13.0 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 normal course working capital, maintenance capital and growth capital requirements.

The Fund's short-term normal course working capital requirements can swing widely quarter-to-quarter due to timing of large inventory purchases and/or sales and changes in market activity. In general, as Wajax experiences growth, there is a need for additional working capital as was the case in 2006 and 2008. 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.

However, there has been a sudden and dramatic change in the economy and the financial crisis has resulted in limited credit availability from traditional sources. In particular, management is concerned about the potential increase in working capital due to order cancellations or deferrals and delays in the payment for certain large mining equipment orders as a result of customers experiencing difficulties in obtaining financing. This issue negatively impacted the Fund's year end working capital by $8.0 million. Although management currently believes the Fund has adequate debt capacity to work through this issue, the Fund may have to access the equity or debt markets, or temporarily reduce distributions to accommodate any shortfalls in the Fund's credit facilities.

In the long-term the Fund may also 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 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 December 31, 2008 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 four unit-based compensation plans: the Wajax Unit Ownership Plan ("UOP"), the Deferred Unit Program ("DUP"), the Trustees' Deferred Unit Plan ("TDUP") and the Mid-Term Incentive Plan ("MTIP"). UOP, DUP 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 subject to time and performance vesting criteria. Compensation expense for the UOP, DUP and TDUP is determined based upon the fair value of the rights at the date of grant and charged to earnings on a straight line basis over the vesting period, with an offsetting adjustment to unitholders' equity. Compensation expense for the MTIP varies with the price of Fund units and is recognized over the 3 year vesting period with and offsetting adjustment to accrued liabilities. The Fund recorded compensation cost of $405 thousand for the quarter (2007 - $372 thousand) and $1,759 thousand for the year to date (2007 - $1,342 thousand) in respect of these plans.

Critical Accounting Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Fund has taken into account the current economic downturn when determining the provision for inventory obsolescence, provision for doubtful accounts and any impairment of goodwill and other assets. As conditions change in 2009, actual results could differ from those estimates. Critical accounting estimates used by the Fund's management are discussed in detail in the MD&A for the year ended December 31, 2008 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, 2008.

Capital Disclosures

CICA Handbook Section 1535, Capital Disclosures, establishes standards for disclosure of information regarding an entity's capital and how it is managed. It requires disclosure of an entity's objectives, policies and processes for managing capital. In addition, disclosures are to be included whether the entity has complied with externally imposed capital requirements and the consequences of any non-compliance. This standard has no impact on the recognition and measurement of amounts included in the financial statements.

Inventories

CICA Handbook Section 3031, Inventories, changes the standards for the measurement and disclosure of inventories. 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. The Fund retrospectively adopted the new inventory requirements without restatement. It reassessed the method whereby it was allocating service department overhead to cost of conversion resulting in an increase in the carrying value of work in process inventory of $0.7 million and an adjustment of $0.6 million (net of tax of $0.1 million) which was recorded directly to opening accumulated retained earnings. Inventory disclosures 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.

Financial Instruments - Disclosures and Financial Instruments - Presentation

CICA Handbook Sections 3862 and 3863 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. The above standard has no impact on the recognition and measurement of amounts included in the financial statements.

Goodwill and Intangible Assets

In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. Section 3064 provides new guidelines for recognition, measurement, presentation and disclosure of goodwill and intangible assets. The Section also issued amendments to Section 1000, Financial Statement Concepts. These changes are effective for fiscal years beginning on or after October 1, 2008, with earlier adoption encouraged. Collectively, these changes bring Canadian practice closer to International Financial Reporting Standards and U.S. GAAP by eliminating the practice of recognizing as assets a variety of startup, pre-production and similar costs that do not meet the definition and recognition criteria of an asset. The Fund has decided to early adopt CICA 3064 on January 1, 2008. Adoption of this standard has no impact on the recognition and measurement of amounts included in the financial statements and no additional disclosure is necessary.

Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the CICA issued EIC 173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, which clarifies that the credit risk of counterparties should be taken into account in determining the fair value of derivative instruments. EIC 173 is to be applied retrospectively without restatement of prior periods to all financial assets and liabilities measured at fair value in the interim and annual financial statements for periods ending on or after the date of issuance of the Abstract. The Fund has early adopted this Abstract, and has concluded that this standard has no material impact on its consolidated financial statements.

Accounting Changes

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

In February 2008, The Canadian Accounting Standards Board confirmed that the use of International Financial Reporting Standards ("IFRS") will be required in Canada for publicly accountable profit oriented enterprises for fiscal years beginning on or after January 1, 2011. The Fund will be required to report using IFRS beginning January 1, 2011. IFRS uses a conceptual framework similar to current Canadian GAAP, but there are significant differences in recognition, measurement and disclosures. Due to anticipated changes in Canadian GAAP and IFRS prior to the Fund's transition to IFRS, the full impact of adopting IFRS on the Fund's future financial position and results of operations cannot be reasonably determined at this time.

We have prepared a comprehensive IFRS conversion plan that addresses the changes in accounting policy, restatement of comparative periods, internal control over financial reporting, modification of existing systems, staff training as well as other related business matters. Our project will consist of four phases: awareness, assessment, design and implementation. During 2008 we substantially completed the awareness phase. Based on this phase, the areas identified with the most potential to have significant effects upon adoption of IFRS include leases, inventories, provisions, property plant and equipment, impairment, and revenue recognition. In addition, the Fund will have to make a number of decisions with respect to IFRS 1 (First Time Adoption) regarding the prospective or retrospective application of certain standards.

During 2009, the assessment phase will identify major recognition, measurement and reporting differences and assess impacts on business process and information systems. Subsequently, the design phase will involve selection of accounting policies where choices exist and development of appropriate disclosures. We will then implement the revised accounting policies based on the choices made, change business processes and information systems and execute training and communications programs. While we will not actually be reporting under IFRS until the first quarter of 2011, our goal is to prepare the opening IFRS balance sheet and restate the Canadian GAAP financial statements to IFRS for internal purposes beginning at the end of the first quarter of 2010.

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, 2008 which can be found on SEDAR at www.sedar.com. For the period January 1, 2009 to February 27, 2009 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, 2008.

Outlook

While the Fund finished 2008 with record revenue and earnings, the latter part of the year witnessed the beginning of a sudden and dramatic change in the Canadian economy. The steep decline in the price of oil and other commodities, the financial crisis resulting in limited credit availability and the volatile Canadian dollar has led to an uncertain and increasingly challenging economic environment for the Fund and its customer base going into 2009. The magnitude and duration of this economic downturn and its effect on the Fund's operations is currently not possible to predict with any degree of certainty. However, in an effort to minimize the impact on profitability and preserve liquidity in the short-term, the Fund has undertaken the following steps:

- All segments are focused on reducing working capital through strict controls over inventory purchases, vigilant accounts receivable collections and deferral of capital spending where appropriate.

- Cost structures are being reduced in anticipation of softer revenues. Workforce reductions of approximately 220 employees or 8% of the Fund's overall headcount will be completed by the end of the first half of 2009, salaries have been frozen at 2008 levels and other selling and administrative costs will be reduced accordingly. These measures are expected to result in 2009 cost savings of approximately $18 million before severance costs which are expected to approach $2 million. Cost structures will continue to be monitored throughout 2009 and additional reduction measures may be taken depending on the direction of economic activity.

- In anticipation of reduced earnings and to preserve cash in the short-term the Fund will reduce its regular monthly cash distributions to $0.20 per unit ($2.40 annualized) beginning March 2009.

At December 31, 2008 the Fund had approximately $49 million of available credit under its $175 million bank term debt facility which matures December 31, 2011 and was in compliance with all covenants. It also has a $15 million equipment finance demand facility with a non-bank lender, which was not utilized at December 31, 2008. However, the recent lack of credit availability in the market may result in the Fund carrying more mining equipment in inventory than normal if customers delay deliveries or are unable to secure equipment financing for their purchases in a timely fashion. Management currently believes the Fund's unused debt capacity is adequate for these potential working capital changes.

Management also believes that the magnitude of equipment sales over the last few years should support a strong level of higher margin product support revenues in Mobile Equipment and the Power Systems segment should also continue to benefit from its proportionately higher reliance on product support sales. As well, recently announced government infrastructure spending initiatives should positively affect all three segments as these programs are rolled out throughout 2009.

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 twelve months ended December 31, 2008

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 Fund's auditors.



WAJAX INCOME FUND
CONSOLIDATED BALANCE SHEETS


December 31 December 31
(unaudited, in thousands of dollars) 2008 2007
---------------------------------------------------------------------------

Current Assets
Accounts receivable $ 162,696 $ 143,669
Inventories (note 3) 226,971 207,212
Future income taxes 2,644 2,247
Prepaid expenses and other recoverable
amounts 4,966 4,799
---------------------------------------------------------------------------
397,277 357,927
---------------------------------------------------------------------------

Non-Current Assets
Rental equipment 21,812 21,700
Property, plant and equipment 33,568 29,491
Goodwill and other assets 76,073 59,108
---------------------------------------------------------------------------
131,453 110,299
---------------------------------------------------------------------------
$ 528,730 $ 468,226
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Current Liabilities
Bank indebtedness $ 4,320 $ 6,830
Accounts payable and accrued liabilities 185,443 188,735
Distributions payable to unitholders 5,972 13,268
Income taxes payable 2,697 1,457
Equipment notes payable - 70
---------------------------------------------------------------------------
198,432 210,360
---------------------------------------------------------------------------

Non-Current Liabilities
Future income taxes 1,486 914
Other liabilities 818 1,716
Long-term pension liability 3,371 3,079
Derivative instrument liability 2,770 175
Long-term debt 116,160 53,879
---------------------------------------------------------------------------
124,605 59,763
---------------------------------------------------------------------------

Unitholders' Equity
Trust units (note 5) 104,871 104,871
---------------------------------------------------------------------------
Unit-based compensation (note 6) 4,666 2,907
---------------------------------------------------------------------------
Accumulated earnings 98,407 90,432
Accumulated other comprehensive loss (note 4) (2,251) (107)
---------------------------------------------------------------------------
96,156 90,325
---------------------------------------------------------------------------
Total unitholders' equity 205,693 198,103
---------------------------------------------------------------------------
$ 528,730 $ 468,226
---------------------------------------------------------------------------




WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF EARNINGS
AND ACCUMULATED EARNINGS


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


(unaudited, in thousands of Three months ended Twelve months ended
dollars, except per unit December 31 December 31
data) 2008 2007 2008 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Revenue $ 317,285 $ 281,495 $ 1,213,475 $ 1,192,267
Cost of sales 241,161 216,956 928,674 928,126
---------------------------------------------------------------------------

Gross profit 76,124 64,539 284,801 264,141
Selling and administrative
expenses 54,864 45,125 202,449 187,756
Gain on sale of land - - - (2,384)
---------------------------------------------------------------------------

Earnings before interest and
income taxes 21,260 19,414 82,352 78,769
Interest expense 1,371 1,001 4,746 4,870
---------------------------------------------------------------------------

Earnings before income taxes 19,889 18,413 77,606 73,899
Income tax expense (recovery)
- current 488 (409) 1,158 (487)
- future 51 234 626 2,416
---------------------------------------------------------------------------

Net earnings $ 19,350 $ 18,588 $ 75,822 $ 71,970
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Basic earnings per unit
(note 5) $ 1.17 $ 1.12 $ 4.57 $ 4.34
Diluted earnings per unit
(note 5) 1.15 1.11 4.53 4.31
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Accumulated earnings,
beginning of period $ 96,969 96,058 $ 90,432 90,773
Accounting change - effect
of inventory adjustment
(note 2) - - 650 -
Distributions (note 8) (17,912) (24,214) (68,497) (72,311)
Net earnings 19,350 18,588 75,822 71,970
---------------------------------------------------------------------------

Accumulated earnings, end
of period $ 98,407 $ 90,432 $ 98,407 $ 90,432
---------------------------------------------------------------------------
---------------------------------------------------------------------------




WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME


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


Three months ended Twelve months ended
December 31 December 31
(unaudited, in thousands of dollars) 2008 2007 2008 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings $ 19,350 $ 18,588 $ 75,822 $ 71,970
---------------------------------------------------------------------------

(Gains) losses on derivative
instruments designated as cash
flow hedges in prior periods
transferred to net income in the
current period, net of tax
(note 4) (2) 113 (234) 152


Losses on derivative instruments
designated as cash flow
hedges, net of tax (note 4) (1,606) (307) (1,910) (812)

---------------------------------------------------------------------------
Other comprehensive loss (1,608) (194) (2,144) (660)
---------------------------------------------------------------------------

Comprehensive income $ 17,742 $ 18,394 $ 73,678 $ 71,310
---------------------------------------------------------------------------
---------------------------------------------------------------------------




WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS


Three months ended December 31
(unaudited, in thousands of dollars) 2008 2007
---------------------------------------------------------------------------

OPERATING ACTIVITIES
Net earnings $ 19,350 $ 18,588
Items not affecting cash flows:
Amortization
- Rental equipment 1,297 1,273
- Property, plant and equipment 829 1,168
- Intangible assets 192 72
- Deferred financing costs 71 71
Pension expense, net of payments 25 (373)
Long-term portion of mid-term incentive
plan expense 21 (269)
Non-cash rental expense 210 12
Unit-based compensation expense (note 6) 405 372
Future income taxes 51 234
---------------------------------------------------------------------------
Cash flows before changes in non-cash
working capital 22,451 21,148
---------------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable (6,603) 2,082
Inventories 335 (308)
Prepaid expenses and other recoverable amounts 233 (1,371)
Accounts payable and accrued liabilities (12,100) 13,756
Income taxes payable 490 (404)
Unrealized gain in derivative instrument - 172
---------------------------------------------------------------------------
(17,645) 13,927
---------------------------------------------------------------------------
Cash flows from operating activities 4,806 35,075
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Rental equipment additions (1,497) (1,457)
Proceeds on disposal of rental equipment 285 257
Property, plant and equipment additions (1,944) (1,229)
Proceeds on disposal of property, plant and
equipment 62 19
---------------------------------------------------------------------------
Cash flows used in investing activities (3,094) (2,410)
---------------------------------------------------------------------------
Cash flows before financing activities 1,712 32,665
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in long-term bank debt 13,000 (27,606)
Decrease in equipment notes payable - (835)
Distributions paid (note 8) (17,912) (16,419)
---------------------------------------------------------------------------
Cash flows used in financing activities (4,912) (44,860)
---------------------------------------------------------------------------
Net change in cash and cash equivalents (3,200) (12,195)
(Bank indebtedness) cash and cash equivalents -
beginning of period (1,120) 5,365
---------------------------------------------------------------------------
Bank indebtedness - end of period $ (4,320) $ (6,830)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash flows from operating activities include
the following:
Interest paid $ 1,072 $ 425
Income tax paid $ - $ (25)
---------------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 381 $ 155




WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS


Twelve months ended December 31
(unaudited, in thousands of dollars) 2008 2007
---------------------------------------------------------------------------

OPERATING ACTIVITIES
Net earnings $ 75,822 $ 71,970
Items not affecting cash flows:
Amortization
- Rental equipment 5,002 4,663
- Property, plant and equipment 3,981 4,542
- Intangible assets 470 287
- Deferred financing costs 281 391
Gain on sale of land - (2,384)
Pension expense, net of payments 172 148
Long-term portion of mid-term incentive
plan expense (898) 1,596
Non-cash rental expense 246 67
Unit-based compensation expense (note 6) 1,759 1,342
Future income taxes 626 2,416
---------------------------------------------------------------------------
Cash flows before changes in non-cash
working capital 87,461 85,038
---------------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable (10,406) 1,914
Inventories (11,403) 26,206
Prepaid expenses and other recoverable amounts (167) 2,652
Accounts payable and accrued liabilities (8,051) (17,667)
Income taxes payable 1,240 (942)
Unrealized gain in derivative instrument - 23
---------------------------------------------------------------------------
(28,787) 12,186
---------------------------------------------------------------------------
Cash flows from operating activities 58,674 97,224
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Rental equipment additions (8,183) (9,447)
Proceeds on disposal of rental equipment 1,190 877
Property, plant and equipment additions (7,581) (3,997)
Proceeds on disposal of property, plant
and equipment 147 5,628
Acquisition of business (note 10) (27,874) (322)
---------------------------------------------------------------------------
Cash flows used in investing activities (42,301) (7,261)
---------------------------------------------------------------------------
Cash flows before financing activities 16,373 89,963
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term bank debt 62,000 (5,000)
Deferred financing costs - (535)
Decrease in equipment notes payable (70) (2,664)
Distributions paid (note 8) (75,793) (82,926)
---------------------------------------------------------------------------
Cash flows used in financing activities (13,863) (91,125)
---------------------------------------------------------------------------
Net change in cash and cash equivalents 2,510 (1,162)
Bank indebtedness - beginning of period (6,830) (5,668)
---------------------------------------------------------------------------
Bank indebtedness - end of period $ (4,320) $ (6,830)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash flows from operating activities
include the following:
Interest paid $ 4,198 $ 4,026
Income tax (received) paid $ (16) $ 401
---------------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 1,879 $ 1,100


WAJAX INCOME FUND

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of dollars, except unit and per unit data)

(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 established under the laws of Ontario pursuant to the 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.

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, 2007. 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 policies

Effective January 1, 2008, the Fund adopted the following standards:

Capital Disclosures

CICA Handbook Section 1535, Capital Disclosures, establishes standards for disclosure of information regarding an entity's capital and how it is managed. It requires disclosure of an entity's objectives, policies and processes for managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements and the consequences of any non-compliance. These new disclosures are included in note 12.

The above standard has no impact on the recognition and measurement of amounts included in the financial statements.

Inventories

CICA Handbook Section 3031, Inventories, changes the standards for the measurement and disclosure of inventories. 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.

The Fund retrospectively adopted the new inventory requirements without restatement. It reassessed the method whereby it was allocating service department overhead to costs of conversion resulting in an increase in the carrying value of inventory of $713 and an adjustment of $651(net of tax of $62) which was recorded directly to opening accumulated earnings.

Inventory disclosures 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. These new disclosures are included in note 3.

Financial Instruments - Disclosures and Financial Instruments - Presentation

Handbook Sections 3862 and 3863 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. These new disclosures are included in note 9.

The above standard has no impact on the recognition and measurement of amounts included in the financial statements.

Goodwill and Intangible Assets

In February 2008, the Canadian Institute of Chartered Accountants issued Handbook Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. Section 3064 provides new guidelines for recognition, measurement, presentation and disclosure of goodwill and intangible assets. The Section also issued amendments to Section 1000, Financial Statement Concepts. These changes are effective for fiscal years beginning on or after October 1, 2008, with earlier adoption encouraged. Collectively, these changes bring Canadian practice closer to International Financial Reporting Standards and U.S. GAAP by eliminating the practice of recognizing as assets a variety of startup, pre-production and similar costs that do not meet the definition and recognition criteria of an asset.

The Fund has decided to early adopt CICA 3064 on January 1, 2008. Adoption of this standard has no impact on the recognition and measurement of amounts included in the financial statements and no additional disclosure is necessary.

Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the CICA issued EIC 173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, which clarifies that the credit risk of counterparties should be taken into account in determining the fair value of derivative instruments. EIC 173 is to be applied retrospectively without restatement of prior periods to all financial assets and liabilities measured at fair value in the interim and annual financial statements for periods ending on or after the date of issuance of the Abstract. The Fund has early adopted this Abstract, and has concluded that this standard has no material impact on its consolidated financial statements.

New Standards Issued but not yet Effective

In February 2008, The Canadian Accounting Standards Board confirmed that the use of International Financial Reporting Standards (IFRS) will be required in Canada for publicly accountable profit oriented enterprises for fiscal years beginning on or after January 1, 2011. The Fund will be required to report using IFRS beginning January 1, 2011. The Fund is currently in the process of evaluating the impact of the change to IFRS.

Note 3 Inventories

Inventories are valued at the lower of cost and estimated net realizable value.

Cost of equipment and parts include purchase cost, conversion cost and cost incurred in bringing inventory to its present location and condition.

Cost of conversion includes cost of direct labour, direct materials and a portion of direct and indirect overheads, allocated based on normal capacity.

Cost of inventories includes the associated gains or losses transferred from accumulated comprehensive income relating to forward contracts hedging the purchase of inventory.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs to sell.




Cost Formula December 31 December 31
2008 2007
---------------------------------------------------------------------
---------------------------------------------------------------------

Equipment Specific item $ 99,722 $ 102,245
Parts Weighted average 111,323 89,893
Work in process Specific item 15,926 15,074
---------------------------------------------------------------------
Total inventories $ 226,971 $ 207,212
---------------------------------------------------------------------
---------------------------------------------------------------------
All amounts shown are net of applicable reserves.


The Fund recognized $235,167 of inventory as an expense which is included in cost of sales during the quarter (2007 - $209,971) and $909,203 year to date (2007 - $907,197). During the quarter $242 was recorded in cost of sales for the write-down of inventory to estimated net realizable value (2007 - $249). Year to date, the write-down of inventory was $2,956 (2007 - $5,393).

All of the Fund's inventory is pledged as security for the bank credit facility.

Note 4 Accumulated other comprehensive loss

During the quarter ending December 31, 2008, $2 ($2 - net of tax) of losses on derivative contracts designated as cash flow hedges in prior periods were reclassified out of comprehensive income into earnings, while the change in the fair value of the outstanding contracts at December 31, 2008 resulted in a loss of $1,797 ($1,606 - net of tax) being recorded in other comprehensive income. There was no ineffective portion of the outstanding contracts recognized in earnings and the remaining effective portion, a loss of $2,251 net of tax, was recorded in accumulated other comprehensive income.

Year to date, $259 ($234 - net of tax) of losses on derivative contracts designated as cash flow hedges in prior periods were reclassified out of comprehensive income into earnings, while the change in the fair value of the outstanding contracts at December 31, 2008 resulted in a loss of $2,336 ($1,910 - net of tax) being recorded in other comprehensive income.

During the prior quarter ending December 31, 2007, $126 ($113 - net of tax) of losses on derivative contracts designated as cash flow hedges in prior periods were reclassified out of comprehensive income into earnings, while the change in the fair value of the outstanding contracts at December 31, 2007 resulted in a loss of $397 ($307 - net of tax) being recorded in other comprehensive income. The ineffective portion of the outstanding contracts was recognized as a $2 loss in earnings and the remaining effective portion, a loss of $107 net of tax, was recorded in accumulated other comprehensive income.

Prior year to date, $169 ($152 - net of tax) of gains on derivative contracts designated as cash flow hedges in prior periods were reclassified out of comprehensive income into earnings, while the change in the fair value of the outstanding contracts at December 31, 2007 resulted in a loss of $956 ($812 - net of tax) being recorded in other comprehensive income. The prior year to date ineffective portion of the outstanding contracts was recognized as a $14 loss in earnings.

As at December 31, 2008, the differential the Fund would pay to hypothetically terminate or exchange the swap agreement in the prevailing market conditions is estimated to be $3,830 (2007 - receive $104), and the currency forward contracts, receive $1,060 (2007 - $71).




Three months ended Twelve months ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Balance beginning of period $ (643) $ 87 $ (107) $ -

Transitional amount for new
accounting guidelines
January 1, 2007, net
of tax of $59 - - - 553

Gains (losses) on derivatives
designated as cash flow
hedges in prior periods
transferred to net income
in the current period,
net of tax of $nil
(2007 - $13), year to date,
$25 (2007 - $17) (2) 113 (234) 152

Losses on derivatives designated
as cash flow hedges in
the current period, net of
tax of $191 (2007 - $90),
year to date, $426
(2007 - $144) (1,606) (307) (1,910) (812)

----------------------------------------------------------------------------
Accumulated other
comprehensive loss $ (2,251) $ (107) $ (2,251) $ (107)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note 5 Earnings per unit

At the end of the quarter the number of trust units outstanding was 16,585,206 (2007 - 16,585,206). There were 109,559 rights outstanding under the Wajax Unit Ownership Plan ("UOP") (2007 - 83,229), 18,722 rights outstanding under the Deferred Unit Program ("DUP") (2007 - nil) and 83,780 rights outstanding under the Trustees' Deferred Unit Plan ("TDUP") (2007 - 53,068). No options or unit rights were excluded from the earnings per unit calculations as none were anti-dilutive.


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




Three months ended Twelve months ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Numerator for basic and
diluted earnings per unit:
- net earnings $ 19,350 $ 18,588 $ 75,822 $ 71,970
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Denominator for basic
earnings per unit:
- weighted average units 16,585,206 16,585,206 16,585,206 16,585,206
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Denominator for diluted
earnings per unit:

- weighted average units 16,585,206 16,585,206 16,585,206 16,585,206

- effect of dilutive
unit rights 189,185 129,068 160,124 120,359
----------------------------------------------------------------------------
Denominator for diluted
earnings per unit 16,774,391 16,714,274 16,745,330 16,705,565
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per unit $ 1.17 $ 1.12 $ 4.57 $ 4.34
----------------------------------------------------------------------------
Diluted earnings per unit $ 1.15 $ 1.11 $ 4.53 $ 4.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note 6 Unit-based compensation plans

The Fund has four unit-based compensation plans: the UOP, the DUP, the TDUP and the Mid-Term Incentive Plan ("MTIP"). UOP, DUP and TDUP rights are issued to the participants and are settled by issuing Wajax Income Fund units. The UOP and DUP are subject to certain time and performance vesting criteria. The MTIP consists of an annual grant that is settled in cash, 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, the DUP 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 16,024 rights (2007 - 2,680) were granted under the UOP, 1,018 rights (2007 - nil) were granted under the DUP and 12,350 rights (2007 - 5,059) were granted under the TDUP.

Year to date 26,330 rights (2007 - 13,012) were granted under the UOP, 18,722 rights (2007 - nil) were granted under the DUP and 30,712 rights (2007 - 18,082) were granted under the TDUP.

The Fund recorded compensation cost of $405 for the quarter (2007 - $372) and $1,759 for the year to date (2007 - $1,342) in respect of unit rights plans and $(5) for the quarter (2007 - $(424)) and $339 for the year to date (2007 - $354) in respect of the unit based MTIP.

Note 7 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.

Under legislation enacted on June 22, 2007, the Fund as a publicly traded income trust will pay tax on its income distributed commencing in 2011 at a rate that is substantially equivalent to the general corporate income tax rate. The Fund has recognized future income tax liability for the temporary differences between the carrying amount and tax values of assets and liabilities in respect of the proportion of Fund income taxed directly to the unitholders that is expected to reverse in or after 2011.

Note 8 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 9 Financial instruments

The Fund categorizes its financial assets and financial liabilities as follows:



December 31 December 31
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Held for trading:
Bank indebtedness $ (4,320) $ (6,830)

Loans and receivables:
Accounts receivable 162,696 143,669

Other financial liabilities:
Accounts payable and accrued liabilities (185,443) (188,735)
Distributions payable to unitholders (5,972) (13,268)
Equipment notes payable - (70)
Other liabilities (818) (1,716)
Long-term debt (116,160) (53,879)

Derivatives designated as effective hedges:
Derivative instrument liability (2,770) (175)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Fund measures financial instruments held for trading at fair value with subsequent changes in fair value being charged to earnings. Loans and receivables and other financial liabilities are measured at amortized cost. Derivatives designated as effective hedges are measured at fair value with subsequent changes in fair value being charged to other comprehensive income. All held for trading assets and liabilities were designated as such upon initial recognition. The fair value of derivative instruments is estimated based upon market conditions using appropriate valuation models. The carrying values reported in the balance sheet for financial instruments are not significantly different from their fair values.

Credit risk

The Fund is exposed to non-performance by counterparties to interest rate swaps and short-term currency forward contracts. These counterparties are large financial institutions with "Stable" outlook and high short-term and long-term credit ratings from Standard and Poor's. To date, no such counterparty has failed to meet its financial obligations to the Fund. Management does not believe there is a significant risk of non-performance by these counterparties and will continue to monitor the credit risk of these counterparties.

The Fund is also exposed to credit risk with respect to its accounts receivable. This risk is somewhat minimized by the Fund's large customer base which covers many business sectors across Canada. The Fund follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Fund's accounts receivables are made up of trade accounts receivable from customers and other accounts receivable generally from suppliers for warranty and rebates. The aging of the trade accounts receivable is as follows:




December 31 December 31
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Current $ 91,332 $ 70,268
Less than 60 days overdue 48,756 46,793
More than 60 days overdue 5,887 5,040
----------------------------------------------------------------------------
Total trade accounts receivable $ 145,975 $ 122,101
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The carrying amounts of accounts receivable represent the maximum credit exposure.

The Fund maintains provisions for possible credit losses by performing an analysis of specific accounts. Any such losses to date have been within management's expectations. Movement of the allowance for credit losses is as follows:




Three months ended Twelve months ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Opening balance $ 2,029 $ 2,364 $ 2,388 $ 2,030
Increase (decrease)
during the period 32 24 (327) 358
----------------------------------------------------------------------------
Closing balance $ 2,061 $ 2,388 $ 2,061 $ 2,388
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with its financial liabilities. The contractual maturity of long term debt is December 31, 2011. At December 31, 2008 the Fund had borrowed $117,000 and issued $4,185 of letters of credit for a total utilization of $121,185 of its $175,000 bank credit facility and had not utilized any of its $15,000 equipment financing facility.

The Fund's $175,000 bank credit facility along with the $15,000 demand inventory equipment financing facility should be sufficient to meet the Fund's short-term normal course working capital, maintenance capital and growth capital requirements. However, the recent economic downturn and global financial crisis has resulted in limited credit availability from traditional sources. In particular, management is concerned about the potential increase in working capital due to order cancellations, deferrals, or delays in payment of certain large mining equipment orders as a result of customers experiencing difficulties in obtaining financing. This issue negatively impacted the Fund's year end working capital by approximately $8,000. Although management currently believes the Fund has adequate debt capacity to work through this issue, the Fund may have to access the equity or debt markets, or temporarily reduce distributions to accommodate any shortfalls in the Fund's credit facilities.

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 expenditures.

Financial risk management policy

The Fund has in place a financial risk management policy that addresses the Fund's financial exposure to currency risk and interest rate risk. The Fund's tolerance to interest rate risk decreases as the percentage of debt to tangible net worth increases. To manage this risk prudently, guideline percentages of floating interest rate debt decrease as the percentage of debt to tangible net worth increases. The policy also defines acceptable levels of exposure to transactional currency risk. The exposure to currency and interest rate risk is managed through the use of various derivative instruments. Derivative instruments are used only to hedge risks as determined within these policy guidelines.

Currency risk

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 December 31, 2008, the Fund had contracts outstanding to buy U.S.$13,231 and EUR 36 and to sell U.S. $10,034 (December 31, 2007 - to buy U.S.$10,674 and EUR 1,168). These include contracts expiring between January 2009 and March 2010, with a weighted average U.S. dollar rate of 1.1711 and a weighted average Euro dollar rate of 1.6594. The impact of a change in foreign currency relative to the Canadian dollar on the Fund's financial statements of unhedged foreign currency-denominated sales to (receivables from) customers and purchases from (payables to) vendors would be insignificant.

The Fund maintains a hedging policy whereby significant transactional currency risks are identified and hedged.

Interest rate risk

The Fund's borrowing costs are impacted by changes in interest rates. In order to manage this risk to an acceptable level, the Fund has entered into the following interest rate swaps with its lenders that have effectively fixed the interest rate on $80,000 of the Fund's debt at the combined rate of 2.925%, plus applicable margins, until December 31, 2011:

- On June 7, 2008 the delayed interest rate swap the Fund entered into on May 9, 2007 with two of its lenders became effective. As a result, the interest rate on the $30,000 non-revolving term portion of the bank credit facility was effectively fixed at 4.60% plus applicable margins until expiry of the facility on December 31, 2011.

- On December 18, 2008, the Fund entered into a delayed start interest rate swap with two of its lenders such that in total the interest rate on $50,000 of the revolving term portion of the bank credit facility is effectively fixed at 1.92% plus applicable margins. The delayed interest rate swap commences on January 23, 2009 until expiry of the facility on December 31, 2011.

- Margins on the swaps depend on the Fund's Leverage Ratio and range between 0.75% and 2.5%.

A 2.50 percentage point change in interest rates, which is indicative of the change in the prime lending rate over the preceding twelve-month period would, all things being equal, have resulted in an insignificant change to earnings before income taxes and a change to other comprehensive income of approximately $2,700 for the period as a result of the change in fair values of the interest rate swaps. The magnitude of the impact on earnings before income taxes and other comprehensive income is the same whether interest rates increase or decrease.

Note 10 Acquisition of business

On September 5, 2008 the Fund's Industrial Components segment acquired certain assets of Weir Process Equipment, a division of Weir Canada Inc. for $25,727 subject to post-closing adjustments. Weir, which was previously known as Peacock, is a leading Canadian distributor of high performance industrial, instrumentation and process control equipment to the oil & gas, power generation, mining and infrastructure sectors across Canada.

During the year, the Fund paid out $323 to complete the acquisition of Baytec Fluid Power Limited as per the Agreement of Purchase and Sale. This additional amount has been recorded as goodwill.

On March 17, 2008 the Fund's Mobile Equipment segment acquired certain assets of Dan Greer Enterprises Limited ("Greer"), the dealer of JCB construction equipment in the Ontario area from Mississauga to Niagara Falls, including Hamilton, for approximately $1,824.

The results of operations from the acquisitions have been included in the consolidated financial statements of the Fund as of the effective dates.

The following is a summary of the purchase price allocations:



Twelve months ended
December 31
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Working capital $ 9,771 $ -
Property, plant and equipment 647 -
Goodwill 11,306 322
Product distribution rights 3,400 -
Customer lists 2,750 -
----------------------------------------------------------------------------
Purchase price 27,874 322
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note 11 Employees' pension plans



Net pension plan expenses are as follows:

Three months ended Twelve months ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net pension plan expense
- defined benefit plans $ 193 $ 191 $ 796 $ 792

Net pension plan expense
- defined contribution plans 1,263 1,070 4,953 4,630
----------------------------------------------------------------------------
$ 1,456 $ 1,260 $ 5,749 $ 5,422
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note 12 Capital Management

Objective

The Fund defines its capital as the total of its unitholders' equity and interest bearing debt. The Fund's objective when managing capital is to have a capital structure and capacity to support the Fund's operations and strategic objectives set by the Board of Trustees.

Management of Capital

The Fund's capital structure is managed such that it maintains a relatively low leverage ratio of interest bearing debt to earnings before interest, taxes, depreciation and amortization ("Leverage Ratio") as the Fund distributes a significant portion of its cash flow from operations before changes in working capital.

The Fund's level of interest bearing debt is determined by a combination of the Fund's cash flow required to meet its strategic objectives and the value of its tangible assets.

The amount of the Fund's unitholders' equity generally remains unchanged as income from the business is expected to equal the amount of distributions paid to unitholders over time.

Although management currently believes the Fund has adequate debt capacity, the Fund may have to access the equity or debt markets, or temporarily reduce distributions to accommodate any shortfalls in the Fund's credit facilities or significant growth capital requirements.

There were no changes in the Fund's approach to capital management during the period.

As well, the Fund will continue to review its capital structure in the context of the limitations on growth in equity imposed under tax legislation enacted on June 22, 2007 (note 7). The Fund has not exceeded its growth limits at December 31, 2008.

Restrictions on Capital

The Fund's interest bearing debt includes a $175,000 bank credit facility which expires December 31, 2011 and a $15,000 demand equipment financing facility. The bank credit facility contains the following covenants:

Borrowing capacity is dependent upon the level of the Fund's inventories on-hand and the outstanding trade accounts receivable ("borrowing base"). The Fund's borrowing base was in excess of the $175,000 at December 31, 2008 and as a result, did not restrict the borrowing capacity under the bank credit facility.

The Fund's ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense (the "Interest Coverage Ratio") must not be lower than four times. As at December 31, 2008 the Fund's Interest Coverage Ratio was 20.4 times.

The Fund will be restricted from the payment of monthly cash distributions in the event the Fund's Leverage Ratio (interest bearing debt to EBITDA) exceeds three times. In addition, monthly cash distributions in each fiscal quarter may not exceed 115% of the distributable cash flow (as defined in the credit facility) for the trailing four fiscal quarters. As at December 31, 2008 the Fund's Leverage Ratio was 1.25 times and there were no restrictions on the payment of monthly cash distributions.

Note 13 Segmented information




Three months ended Twelve months ended
December 31 December 31
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Mobile Equipment $ 147,960 $ 149,931 $ 635,281 $ 627,570
Industrial Components 89,205 75,221 322,778 309,474
Power Systems 80,842 57,311 258,431 258,386
Segment eliminations (722) (968) (3,015) (3,163)
----------------------------------------------------------------------------
$ 317,285 $ 281,495 $1,213,475 $1,192,267
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Segment Earnings
Mobile Equipment $ 11,022 $ 12,138 $ 49,970 $ 45,069
Industrial Components 4,955 5,040 20,219 20,003
Power Systems 7,326 4,486 21,723 22,727
Corporate costs and
eliminations (2,043) (2,250) (9,560) (9,030)
----------------------------------------------------------------------------
$ 21,260 $ 19,414 $ 82,352 $ 78,769
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest expense, income taxes and corporate costs are not allocated to
business segments.


Note 14 Comparative information

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

Contact Information