Wajax Income Fund
TSX : WJX.UN

Wajax Income Fund

August 09, 2006 10:47 ET

Wajax Announces Second Quarter 2006 Results and its Fifth Increase in Distributions

TORONTO, ONTARIO--(CCNMatthews - Aug. 9, 2006) - Wajax Income Fund (TSX:WJX.UN) -



Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
(Dollars in millions, except per unit data) 2006 2005 2006 2005
---------------------------------------------------------------------
Revenue $314.1 $275.4 $617.3 $514.6

Net earnings $ 18.5 $ 3.0 $ 35.4 $ 8.0

Distributable Cash(1) $ 17.5 $ 3.8 $ 36.0 $ 3.8

Basic earnings per unit $ 1.11 $ 0.19 $ 2.13 $ 0.50

Basic distributable cash per unit(1) $ 1.05 $ 0.23 $ 2.17 $ 0.23

Cash distributions declared per unit $ 0.79 N/A $ 1.50 N/A

(1) Denotes non-GAAP measure. See Non-GAAP Measures section in the
attached Management's Discussion and Analysis (MD&A). 2005
amounts are for the June 15th to June 30th period since
conversion.


Wajax Income Fund (TSX:WJX.UN) today announced second quarter 2006 results.

Second Quarter Highlights

- Revenues increased $38.7 million, or 14% (18% after adjusting for the decline in the value of the U.S. dollar) compared to last year. Mobile Equipment revenues increased 14%, Industrial Components 12% and Power Systems were up 16% primarily as a result of continuing strength in the Alberta energy sector.

- Net earnings for the quarter of $18.5 million, or $1.11 per unit, compared to $3.0 million, or $0.19 per unit recorded in 2005. Stronger sales and certain cost reduction and recovery and margin improvement initiatives led to significantly improved earnings in all three segments. Compared to the previous year, Mobile Equipment earnings were up 42% to $11.4 million, Industrial Components increased 85% to $6.0 million and Power Systems improved by 16% to $5.5 million. In addition, last year's earnings included costs associated with the income fund conversion effective June 15, 2005, as well as a higher interest expense and tax rate for the time prior to conversion.

- Basic distributable cash (See Non-GAAP Measures section in MD&A) amounted to $1.05 per unit for the quarter compared to cash distributions declared of $0.79 per unit. Basic distributable cash for the previous year of $0.23 per unit was for the June 15, 2005 to June 30, 2005 period since conversion.

- Basic distributable cash (see Non-GAAP Measures section in MD&A) for the twelve-months ended June 30, 2006 was $3.96 per unit, up from an estimated pro-forma basic distributable cash of $3.78 per unit for the twelve months ended March 31, 2006.

- The Fund announced a fifth increase in monthly distributions since conversion of $0.03 per unit to $0.30 per unit ($3.60 per unit annualized) for August, payable on September 20, 2006, to unitholders of record on August 31, 2006.

Commenting on the second quarter results and the outlook for the rest of the year, Neil Manning, President and CEO, stated "The continuation of our strong operating performance relates not only to the robust economy in western Canada, but also to numerous cost reduction and recovery programs implemented across the organization and our margin improvement initiatives in Industrial Components. As such, assuming no significant change in the economic climate, we remain confident that the factors driving our revenues and earnings in the first six months of 2006 will continue to positively impact our results for the balance of the year."

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 100 branches across Canada. Its customer base spans natural resources, construction, transportation, manufacturing, industrial processing and utilities.

Wajax will Webcast its Second Quarter Financial Results Conference Call. You are invited to listen to the live Webcast on Wednesday, August 9, 2006 at 2:00 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. Please refer to the Forward-Looking Statements section in the accompanying Management's Discussion and Analysis.



WAJAX INCOME FUND

Unaudited Consolidated Financial Statements

For the six months ended June 30, 2006



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

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



WAJAX INCOME FUND
CONSOLIDATED BALANCE SHEETS

---------------------------------------------------------------------
---------------------------------------------------------------------
June 30 December 31 June 30
2006 2005 2005
(in thousands of dollars) unaudited audited unaudited
---------------------------------------------------------------------

Current Assets
Cash and cash equivalents $ - $ 4,840 $ 3,178
Accounts receivable 136,605 130,008 119,639
Inventories 223,004 188,570 173,646
Future income taxes 4,661 6,380 7,004
Prepaid expenses and other
recoverable amounts 5,269 3,839 3,609
Discontinued operations (note 5) 595 667 22,372
---------------------------------------------------------------------
370,134 334,304 329,448
---------------------------------------------------------------------

Non-Current Assets
Rental equipment 19,857 17,249 17,072
Property, plant and equipment 31,632 28,983 28,615
Goodwill and other assets 60,692 59,232 55,711
Future income taxes 710 920 2,593
Discontinued operations (note 5) - - 1,398
---------------------------------------------------------------------
112,891 106,384 105,389
---------------------------------------------------------------------
$ 483,025 $ 440,688 $ 434,837
---------------------------------------------------------------------
---------------------------------------------------------------------

Current Liabilities

Bank indebtedness $ 483 $ - $ -
Accounts payable and accrued
liabilities 200,276 179,615 161,417
Distributions payable to
unit holders 4,478 14,261 -
Income taxes payable 1,008 1,510 2,802
Equipment notes payable 1,648 5,719 -
Discontinued operations (note 5) 2,032 2,469 4,438
---------------------------------------------------------------------
209,925 203,574 168,657
---------------------------------------------------------------------

Non-Current Liabilities
Future income taxes 2,075 2,358 2,783
Other liabilities 120 - -
Long-term pension liability 2,976 2,695 2,217
Long-term debt 60,000 35,000 58,000
---------------------------------------------------------------------
65,171 40,053 63,000
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Unitholders' Equity
Trust units (note 1) 104,871 104,818 104,818
Contributed surplus 1,069 764 577
Accumulated earnings 101,989 91,479 97,785
---------------------------------------------------------------------
207,929 197,061 203,180
---------------------------------------------------------------------
$ 483,025 $ 440,688 $ 434,837
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WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF EARNINGS
AND ACCUMULATED EARNINGS

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

Three months ended Six months ended
June 30 June 30
(in thousands of dollars, unaudited unaudited
except per unit data) 2006 2005 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------

Revenue $ 314,082 $ 275,434 $ 617,330 $ 514,600
Cost of sales 246,318 216,922 483,160 401,188
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Gross profit 67,764 58,512 134,170 113,412
Selling and
administrative expenses 47,196 44,007 94,779 89,835
Income fund
conversion-related costs - 2,606 - 2,606
---------------------------------------------------------------------

Earnings from continuing
operations before
interest and income
taxes 20,568 11,899 39,391 20,971
Interest expense 1,071 1,348 1,913 2,876
Early extinguishment
of long-term debt - 7,592 - 7,592
---------------------------------------------------------------------

Earnings from
continuing operations
before income taxes 19,497 2,959 37,478 10,503
Income tax expense
(recovery) - current 212 3,669 445 6,479
- future 823 (3,262) 1,646 (3,102)
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Net earnings from
continuing operations $ 18,462 $ 2,552 $ 35,387 $ 7,126
Earnings from discontinued
operations (note 10) - 418 - 862
---------------------------------------------------------------------
Net earnings 18,462 2,970 35,387 7,988

Accumulated earnings,
beginning of period,
as reported 96,629 96,139 91,479 92,222
Adjustment to future
income tax in
consequence of the
income fund conversion - (216) - (216)
Distributions (13,102) - (24,877) -
Dividends on common shares - (1,108) - (2,209)
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Accumulated earnings,
end of period $ 101,989 $ 97,785 $ 101,989 $ 97,785
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Earnings per unit from
continuing operations
(note 7) - basic $ 1.11 $ 0.16 $ 2.13 $ 0.45
- diluted 1.11 0.16 2.12 0.45
Earnings per unit
(note 7) - basic 1.11 0.19 2.13 0.50
- diluted 1.11 0.19 2.12 0.50

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Number of trust units
outstanding 16,585,206 16,582,530 16,584,314 16,582,530
Number of Trustees'
Deferred Unit Plan
and Wajax Unit
Ownership Plan
rights outstanding 94,865 - 94,865 -
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---------------------------------------------------------------------



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended June 30
(in thousands of dollars) 2006 2005
unaudited unaudited
---------------------------------------------------------------------

OPERATING ACTIVITIES
Net earnings from continuing operations $ 18,462 $ 2,552
Items not affecting cash flows:
Amortization
- Rental equipment 1,073 984
- Property, plant and equipment 1,099 1,265
- Deferred expenses and intangible assets 234 157
Write off deferred charges - 867
Non-cash pension expense 180 157
Non-cash rental expense 31 33
Unit compensation expense (note 3) 181 941
Future income taxes 823 (3,248)
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Cash flows from continuing operations
before changes in non-cash working capital 22,083 3,708
---------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable 2,025 4,182
Inventories (5,460) (7,292)
Prepaid expenses (1,911) 14
Accounts payable and accrued liabilities (4,392) 368
Income taxes payable 87 1,174
---------------------------------------------------------------------
(9,651) (1,554)
---------------------------------------------------------------------
Cash flows from operating activities
from continuing operations 12,432 2,154
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INVESTING ACTIVITIES
Rental equipment additions (4,664) (2,305)
Proceeds on disposal of rental equipment 151 899
Property, plant and equipment additions (3,617) (1,232)
Proceeds on disposal of property,
plant and equipment 82 8
Acquisition of business (note 9) (1,600) -
---------------------------------------------------------------------
(9,648) (2,630)
---------------------------------------------------------------------
Cash flows from (used in) continuing
operations before financing activities 2,784 (476)
---------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common shares on exercise of
stock options - 5,295
Repayment of long-term debt - (77,573)
Income fund conversion costs charged to
trust units - (3,678)
Increase in long-term bank debt 10,000 58,000
Deferred financing costs - (1,762)
Hedging activities - 1,150
Decrease in equipment notes payable (2,740) -
Distributions paid (12,770) -
Dividends paid - (1,108)
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(5,510) (19,676)
---------------------------------------------------------------------
Net change in cash and cash equivalents
before discontinued operations $ (2,726) $ (20,152)
Cash and cash equivalents used in
discontinued operations (note 5) (408) (904)
Cash and cash equivalents - beginning
of period $ 2,651 $ 24,234
---------------------------------------------------------------------
(Bank indebtedness)/Cash and cash
equivalents - end of period $ (483) $ 3,178
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash flows from operating activities
from continuing operations include the
following:
Interest paid $ 942 $ 3,076
Income taxes paid $ 125 $ 2,517
---------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 974 $ 503



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30
(in thousands of dollars) 2006 2005
unaudited unaudited
---------------------------------------------------------------------

OPERATING ACTIVITIES
Net earnings from continuing operations $ 35,387 $ 7,126
Items not affecting cash flows:
Amortization
- Rental equipment 2,037 1,945
- Property, plant and equipment 2,372 2,392
- Deferred expenses and intangible
assets 452 388
Write off deferred charges - 867
Non-cash pension expense 364 327
Non-cash rental expense 61 226
Unit compensation expense (note 3) 358 996
Future income taxes 1,646 (3,088)
---------------------------------------------------------------------
Cash flows from continuing operations
before changes in non-cash working capital 42,677 11,179
---------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable (4,184) (11,011)
Inventories (27,107) (22,666)
Prepaid expenses (1,413) 131
Accounts payable and accrued liabilities 18,179 12,417
Income taxes payable (515) (5,128)
---------------------------------------------------------------------
(15,040) (26,257)
---------------------------------------------------------------------
Cash flows from (used in) operating
activities from continuing operations 27,637 (15,078)
---------------------------------------------------------------------
INVESTING ACTIVITIES
Rental equipment additions (6,822) (4,656)
Proceeds on disposal of rental equipment 873 1,269
Property, plant and equipment additions (4,551) (2,221)
Proceeds on disposal of property, plant
and equipment 154 20
Acquisition of business (note 9) (8,192) -
---------------------------------------------------------------------
(18,538) (5,588)
---------------------------------------------------------------------
Cash flows from (used in) continuing
operations before financing activities 9,099 (20,666)
---------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common shares on exercise of
stock options - 5,314
Repayment of long-term debt - (78,477)
Income fund conversion costs charged to
trust units - (3,678)
Repayment of debt upon acquisition of business
(note 9) (446) -
Increase in long-term bank debt 25,000 58,000
Deferred financing costs - (1,762)
Hedging activities - (2,327)
Decrease in equipment notes payable (4,071) -
Increase in other liabilities 120 -
Distributions paid (34,660) -
Dividends paid - (2,210)
---------------------------------------------------------------------
(14,057) (25,140)
---------------------------------------------------------------------
Net change in cash and cash equivalents
before discontinued operations $ (4,958) $ (45,806)
Cash and cash equivalents used in
discontinued operations (note 5) (365) (425)
Cash and cash equivalents - beginning
of period $ 4,840 $ 49,409
---------------------------------------------------------------------
(Bank indebtedness)/Cash and cash
equivalents - end of period $ (483) $ 3,178
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash flows from operating activities from
continuing operations include the following:
Interest paid $ 1,585 $ 3,876
Income taxes paid $ 928 $ 11,609
---------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 1,305 $ 731
Note receivable transferred from inventory $ - $ 377



WAJAX INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabulated in thousands of dollars)
(unaudited)


Note 1 Structure of the trust and basis of presentation

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

The Fund is considered to be a continuation of Wajax following the continuity of interest method of accounting, which recognizes the Fund as the successor entity to Wajax. Accordingly, these interim consolidated financial statements reflect the financial position, results of operations and cash flows as if the Fund had always carried on the business formerly carried on by Wajax with all assets and liabilities recorded at the carrying values of Wajax.

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, 2005. The significant accounting policies follow those disclosed in the most recently reported annual financial statements.

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

Note 2 Earnings per unit

The following table sets forth the computation of basic and diluted earnings per unit (in thousands, except unit and per unit information):



Three months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------

Numerator for basic and diluted earnings
per unit:
- net earnings from continuing operations $ 18,462 $ 2,552

- net earnings 18,462 2,970

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Denominator for basic earnings per unit :
- weighted average units 16,585,206 15,990,853

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Denominator for diluted earnings per unit:
- weighted average units 16,585,206 15,990,853

- effect of dilutive unit rights 92,718 7,354



Three months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------

Denominator for diluted earnings per unit 16,677,924 15,998,207

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Basic earnings per unit from continuing
operations $ 1.11 $ 0.16

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Diluted earnings per unit from continuing
operations $ 1.11 $ 0.16

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Basic earnings per unit $ 1.11 $ 0.19

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Diluted earnings per unit $ 1.11 $ 0.19

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Six months ended June 30 2006 2005
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---------------------------------------------------------------------

Numerator for basic and diluted earnings
per unit:
- net earnings from continuing operations $ 35,387 $ 7,126

- net earnings 35,387 7,988

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Denominator for basic earnings per unit :
- weighted average units 16,584,314 15,865,212

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Denominator for diluted earnings per unit:
- weighted average units 16,584,314 15,865,212

- effect of dilutive unit rights 92,040 3,677
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Denominator for diluted earnings per unit 16,676,354 15,868,889

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

Basic earnings per unit from continuing
operations $ 2.13 $ 0.45

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Diluted earnings per unit from continuing
operations $ 2.12 $ 0.45

---------------------------------------------------------------------
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Basic earnings per unit $ 2.13 $ 0.50

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Diluted earnings per unit $ 2.12 $ 0.50

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


At the end of the quarter 66,867 rights were outstanding under the Wajax Unit Ownership Plan (2005 - nil) and 27,998 rights were outstanding under the Trustees' Deferred Unit Plan (2005 - nil). No stock options were outstanding at the end of the quarter (2005 - 838,070). No options or unit rights were excluded from the above calculations as none were anti-dilutive.

Note 3 Unit-based compensation plans

During the quarter 1,229 rights were granted under the Wajax Unit Ownership Plan and 1,691 rights were granted under the Trustees' Deferred Unit Plan. In the 2005 quarter, 838,070 stock options were exercised with a weighted average exercise price of $6.32 per share.

Year to date, 3,827 rights were granted under the Wajax Unit Ownership Plan and 3,735 rights were granted under the Trustees' Deferred Unit Plan. Also during the year 2,676 rights were exercised under the Trustees' Deferred Unit Plan which were settled by issuing Wajax Income Fund Units. In 2005, 843,070 stock options were exercised with a weighted average exercise price of $6.30.

During the year the Fund made its annual grant under the Mid-Term Incentive Plan for Senior Executives ("MTIP"). This grant vests over three years and is based upon performance vesting criteria. A portion of this grant is determined by the price of Fund units. Compensation expense varies with the price of Fund units and is recognized over the 3 year vesting period.

The Fund recorded compensation cost of $181 for the quarter (2005 - $364) and $358 for the year to date (2005 - $419) in respect of unit rights plans and $75 for the quarter (2005 - nil) and $100 for the year to date in respect of the unit based MTIP. Wajax had accounted for employee stock options using the intrinsic value method prior to 2003 and accordingly has not recorded compensation cost for grants prior to that year. There would have been a nominal reduction in both net earnings and earnings per share in 2005 if Wajax had accounted for employee stock options issued in 2002 under the fair value method.

Note 4 Financial instruments

The Fund has entered into interest-rate swap contracts with two of its lenders, such that in total the interest rate on $30 million of its non-revolving term facility is effectively fixed at 3.47% plus applicable margins until expiry of the facility on June 7, 2008. The differential the Fund would receive to hypothetically terminate or exchange the swap agreement in the prevailing market conditions is estimated at $0.7 million.

The Fund enters into short-term foreign currency contracts to fix the cost of certain inbound inventory and to hedge certain foreign currency-denominated sales to customers as part of its normal course of business. As at June 30, 2006, the Fund had contracts outstanding to buy $8.1 million U.S. dollars and 0.8 million Euros (June 30, 2005 - to buy $13.8 million U.S. dollars and 0.9 million Euros). The differential the Fund would pay to hypothetically terminate or exchange the currency forward contracts in the prevailing market conditions is estimated to be $0.1 million.

Note 5 Discontinued operations

On September 30, 2005 the assets of Spencer Industries Inc. ("Spencer"), the U.S. based operation of Industrial Components, were sold for cash proceeds of $19.2 million. The results of operations, cash flows, and financial position of Spencer have been reported as discontinued operations in the consolidated financial statements since the Fund will not have a continuing involvement in the ongoing operations of the Spencer.




Three months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Sales $ - $ 16,430
Earnings, net of future taxes of 2006 - $Nil;
2005 - $225 - 418
---------------------------------------------------------------------
Earnings from discontinued operations $ - $ 418
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---------------------------------------------------------------------


Six months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Sales $ - $ 31,363
Earnings, net of future taxes of 2006 - $Nil;
2005 - $ 464 - 862
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Earnings from discontinued operations $ - $ 862
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---------------------------------------------------------------------


The assets and liabilities of the discontinued operations are as
follows:

June June
2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Current assets $ 595 $ 22,372
Non-current assets - 1,398
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Total assets 595 23,770
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Current liabilities $ 2,032 $ 4,438
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---------------------------------------------------------------------


Cash flows from discontinued operations consist of cash and cash
equivalents used in:

Three months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating activities $ - $ (2,560)
Investing activities (389) (64)
Financing activities - -
Effect of foreign exchange on translation
adjustment (19) 1,720
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Cash and cash equivalents used in discontinued
operations $ (408) $ (904)
---------------------------------------------------------------------
---------------------------------------------------------------------


Six months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating activities $ - $ (2,052)
Investing activities (346) (99)
Financing activities - -
Effect of foreign exchange on translation
adjustment (19) 1726
---------------------------------------------------------------------
Cash and cash equivalents used in discontinued
operations $ (365) $ (425)
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 6 Employees' pension plans

Net pension plan expenses are as follows:

For the three months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Net pension plan expense - defined benefit plans $ 273 $ 215
Net pension plan expense - defined contribution
plans 982 848
---------------------------------------------------------------------
$ 1,255 $ 1,063
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---------------------------------------------------------------------


For the six months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Net pension plan expense - defined benefit plans $ 542 $ 429
Net pension plan expense - defined contribution
plans 2,183 1,906
---------------------------------------------------------------------
$ 2,725 $ 2,335
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Note 7 Segmented information

For the three months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue
Mobile Equipment $ 168,409 $ 147,562
Industrial Components 83,502 74,477
Power Systems 62,932 54,053
Segment eliminations (761) (658)
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Revenue from continuing operations 314,082 275,434
---------------------------------------------------------------------
---------------------------------------------------------------------

Segment Earnings
Mobile Equipment $ 11,361 $ 8,006
Industrial Components 5,995 3,233
Power Systems 5,542 4,774
Corporate costs and eliminations (2,330) (1,508)
Income fund conversion-related costs - (2,606)
---------------------------------------------------------------------
Earnings from continuing operations 20,568 11,899
---------------------------------------------------------------------
---------------------------------------------------------------------
Interest expense, income taxes and corporate costs are not allocated
to business segments.


For the six months ended June 30 2006 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue
Mobile Equipment $ 328,246 $ 272,460
Industrial Components 160,884 143,358
Power Systems 129,557 100,091
Segment eliminations (1,357) (1,309)
---------------------------------------------------------------------
Revenue from continuing operations 617,330 514,600
---------------------------------------------------------------------
---------------------------------------------------------------------

Segment Earnings
Mobile Equipment $ 21,344 $ 13,763
Industrial Components 10,697 5,639
Power Systems 12,282 8,772
Corporate costs and eliminations (4,932) (4,597)
Income fund conversion-related costs - (2,606)
---------------------------------------------------------------------
Earnings from continuing operations 39,391 20,971
---------------------------------------------------------------------
---------------------------------------------------------------------
Interest expense, income taxes and corporate costs are not allocated
to business segments.


Note 8 Contingencies

In August 2004, a statement of claim was served naming the Fund's subsidiary, Wajax Limited, and a subsidiary, since amalgamated into Wajax Limited, as defendants in proceedings under the Class Proceedings Act of British Columbia. The action arises out of the conversion on January 1, 2001 of the Employee Pension Plan from defined benefit to defined contribution, the taking of contribution holidays and the payment of pension administration expenses from the pension fund. Management has assessed the facts and arguments pleaded and believes the claims are unlikely to succeed. A statement of defence has been filed.

Note 9 Acquisitions

On March 17, 2006, the Fund's Mobile Equipment segment acquired the assets of Conley Equipment Limited ("Conley"), the JCB dealer for most of the Greater Toronto Area and eastern Ontario, including Ottawa, for approximately $6.2 million, which is subject to post closing adjustments.

On March 22, 2006 the Fund's Industrial Components segment acquired the shares of Baytec Fluid Power Limited ("Baytec") for approximately $1.7 million, which is subject to post closing adjustments. Pursuant to the Agreement of Purchase and sale, depending on Baytec's earnings before interest and taxes during the 24 month period following the transaction, the purchase price may be increased by up to $0.6 million with the additional amount being paid to goodwill.

On April 28, 2006, the Fund's Industrial Components segment acquired the shares of Intek Automation Inc. ("Intek"), a power transmission product distribution business located in Mississauga, Ontario for approximately $1.9 million.

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



The following is a summary of the purchase price allocation:

Conley Baytec Intek Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Working capital $ 5,883 $ 638 $ 592 $ 7,113
Property, plant and equipment 128 456 41 624
Goodwill and intangibles 200 645 1,267 2,112
---------------------------------------------------------------------
Purchase price 6,211 1,739 1,900 9,849
Assumed Debt - (446) - (446)
---------------------------------------------------------------------
Total consideration given 6,211 1,293 1,900 9,403
Less: Holdbacks (529) (383) (300) (1,211)
---------------------------------------------------------------------
Total cash paid 5,682 910 1,600 8,192
---------------------------------------------------------------------
---------------------------------------------------------------------


Note 10 Comparative information

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

Management's Discussion and Analysis - Q2 2006

The following management discussion and analysis ("MD&A") provides a review of the consolidated financial condition and results of operations of Wajax Income Fund (the "Fund" or "Wajax") for the quarter ended June 30, 2006. The following discussion should be read in conjunction with the information contained in the accompanying financial statements and notes thereto for the quarter ended June 30, 2006. For additional information and details, readers are referred to the Fund's financial statements and MD&A for the first quarter of 2006 and for the year ended December 31, 2005, as well as the Fund's Annual Information Form, all of which are published separately and are available on SEDAR at www.sedar.com. Information contained in this MD&A is based on information available to management as of August 9, 2006.

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

Wajax Income Fund Overview

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

The Fund is considered to be a continuation of Wajax Limited following the continuity of interest method of accounting, which recognizes the Fund as the successor entity to Wajax Limited. Accordingly, these interim consolidated financial statements reflect the financial position, results of operations and cash flows as if the Fund has always carried on the business formerly carried on by Wajax Limited with all assets and liabilities recorded at the carrying values of Wajax Limited.

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

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

Forward-Looking Statements

This MD&A contains forward-looking statements. These statements relate to future events or future performance and reflect management's current expectations and assumptions. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management of the Fund. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. These factors include and are not restricted to the risks identified in the MD&A section of the 2005 Annual Report which can be found on SEDAR at www.sedar.com. In addition these factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. These forward-looking statements are made as of the date hereof and the Fund does not assume any obligation to update or revise them to reflect new events or circumstances.



Consolidated Results

for the three months ended June 30 2006 2005
---------------------------------------------------------------------
Revenue $314.1 $275.4

Gross profit $67.8 $58.5
Selling and administrative expenses $47.2 $44.0
Income fund conversion-related costs (1) - $2.6
Earnings from continuing operations before interest
and income taxes $20.6 $11.9
Interest expense $1.1 $1.3
Income tax expense $1.0 $0.4
Early extinguishment of debt (2) - $7.6
Net earnings from continuing operations $18.5 $2.6
Earnings from discontinued operations - $0.4
Net earnings $18.5 $3.0

Distributable cash (3) $17.5 $3.8
Cash distributions declared (4) $13.1 -
Distributions paid (4) $12.8 -
Dividends paid (4)(5) - $1.1
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Net earnings per unit - Basic $1.11 $0.19
- Diluted $1.11 $0.19
Distributable cash per unit (3) - Basic $1.05 $0.23
Cash distributions declared per unit (4) $0.79 -
Distributions paid per unit (4) $0.77 -
Dividends paid per share (5) - $0.07
---------------------------------------------------------------------
(1) Income fund conversion-related costs of $2.6 million include
certain accelerated executive and director long-term incentive
payments including stock based compensation.
(2) Charges associated with the early extinguishment of long-term
debt.
(3) Non-GAAP measure, see the Non-GAAP Measures section. 2005
distributable cash, for the 15 days ended June 30, 2005, is
based on pro-rata results for the month of June 2005.
(4) Based on actual number of units/shares outstanding on record
date.
(5) Dividends paid prior to conversion of Wajax Limited into Wajax
Income Fund.



for the six months ended June 30 2006 2005
---------------------------------------------------------------------
Revenue $617.3 $514.6

Gross profit $134.2 $113.4
Selling and administrative expenses $94.8 $89.8
Income fund conversion-related costs (1) - $2.6
Earnings from continuing operations before
interest and income taxes $39.4 $21.0
Interest expense $1.9 $2.9
Income tax expense $2.1 $3.4
Early extinguishment of debt (2) - $7.6
Net earnings from continuing operations $35.4 $7.1
Earnings from discontinued operations - $0.9
Net earnings $35.4 $8.0

Distributable cash (3) $36.0 $3.8
Cash distributions declared (4) $24.9 -
Distributions paid (4) $34.7 -
Dividends paid (4)(5) - $2.2
---------------------------------------------------------------------

Net earnings per unit - Basic $2.13 $0.50
- Diluted $2.12 $0.50
Distributable cash per unit (3) - Basic $2.17 $0.23
Cash distributions declared per unit (4) $1.50 -
Distributions paid per unit (4) $2.09 -
Dividends paid per share (5) - $0.14
---------------------------------------------------------------------
(1) Income fund conversion-related costs of $2.6 million include
certain accelerated executive and director long-term incentive
payments including stock based compensation.
(2) Charges associated with the early extinguishment of long-term
debt.
(3) Non-GAAP measure, see the Non-GAAP Measures section. 2005
distributable cash, for the 15 days ended June 30, 2005, is
based on pro-rata results for the month of June 2005.
(4) Based on actual number of units/shares outstanding on record
date.
(5) Dividends paid prior to conversion of Wajax Limited into Wajax
Income Fund.


Revenue

Revenue in the second quarter of 2006 increased $38.7 million, or 14%, to $314.1 million from $275.4 million in 2005. The strengthening Canadian dollar relative to the U.S. dollar had the effect of decreasing 2006 consolidated quarterly revenue by approximately $10.9 million, or 4%, as the Fund realized lower sales dollars per unit on U.S. sourced products. Segment revenue increased 14% in Mobile Equipment, 12% in Industrial Components and 16% in Power Systems. For the six months ended June 30, 2006, revenue increased $102.7 million, or 20%.

Gross profit

Gross profit in the second quarter of 2006 increased $9.3 million, or 16%, due mainly to higher sales volumes. The gross profit percentage for the quarter increased marginally to 21.6% in 2006 from 21.2% in 2005 due principally to higher parts and service margins compared to last year. For the six months ended June 30, 2006, gross profit increased $20.8 million while margins declined slightly to 21.7% from 22.0% for the same period last year.

Selling and administrative expenses

Selling and administrative expenses increased $3.2 million in the quarter as a result of increased costs related to the higher sales activity and higher corporate costs mainly due to increased professional fees and higher accruals for executive incentives compared to last year. Selling and administrative expenses as a percentage of revenue declined to 15.0% from 16.0%. For the six months ended June 30, 2006 selling and administrative expenses increased $5.0 million compared to 2005 but decreased as a percentage of sales to 15.4% from 17.5%.

Interest expense

Quarterly interest expense of $1.1 million decreased $0.2 million from the previous year. The lower interest expense was a result of the Fund's lower cost of borrowing, under the new financing arrangements entered into on June 8, 2005, offset in part by higher average debt outstanding, net of cash, and higher deferred expenses related to the new financing arrangements. For the six months ended June 30, 2006, interest expense decreased $1.0 million compared to last year due for the same reasons noted above.

Income tax expense

The effective income tax rate of 5.3% for the quarter, and 5.6% year-to-date, was lower than the Fund's statutory income tax rate of 34.2% as the majority of the Fund's income is not subject to tax in the Fund.

Net earnings

Quarterly net earnings of $18.5 million, or $1.11 per unit, increased $15.5 million compared to $3.0 million, or $0.19 per unit, in 2005. Included in the 2005 second quarter earnings are income fund conversion-related items totaling $10.2 million ($6.7 million after tax or $0.42 per unit) which include conversion-related costs of $2.6 million ($1.7 million after tax or $0.11 per unit) and charges associated with the early extinguishment of long-term debt of $7.6 million ($5.0 million after tax or $0.31 per unit). Excluding these income fund conversion-related items, net earnings for the second quarter of 2006 increased $8.8 million. For the six months ended June 30, 2006, net earnings of $35.4 million, or $2.13 per unit, increased $27.4 million from $8.0 million, or $0.50 per unit in 2005. Excluding the income fund conversion-related items, net earnings for the six months ended June 30, 2006 increased $20.7 million.

Funded debt

Funded debt, net of cash, of $62.1 million increased $10.4 million compared to March 31, 2006 as cash flow from earnings of $22.1 million was more than offset by $12.8 million of cash distributions, a $9.7 million increase in working capital and $9.6 million of capital spending. Capital spending included the $1.6 million Industrial Components' acquisition of Intek Automation Inc. ("Intek") and the $2.3 million purchase of land in Edmonton by the Power Systems segment. Compared to June 30, 2005, funded debt, net of cash increased $7.3 million. As a result, the Fund's quarter-end debt-to-equity ratio of 0.30:1 at June 30, 2006 increased from last quarter's ratio of 0.26:1 and from last years ratio of 0.27:1.

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

For the quarter ending June 30, 2006 distributable cash was $17.5 million, or $1.05 per unit, and cash distributions declared were $13.1 million, or $0.79 per unit. For the six months ended June 30, 2006, distributable cash was $36.0 million, or $2.17 per unit, and cash distributions declared were $1.50 per unit.

Distributable cash in excess of cash distributions declared for the six months ended June 30, 2006 of $11.1 million, or $0.67 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.



Quarterly Results of Operations

Mobile Equipment

for the three months ended June 30 2006 2005
---------------------------------------------------------------------
Equipment $126.1 $106.3
Parts and service $42.3 $41.3
---------------------------------------------------------------------
Gross revenue $168.4 $147.6
Segment earnings $11.4 $8.0
Segment earnings margin 6.8% 5.4%
---------------------------------------------------------------------

for the six months ended June 30 2006 2005
---------------------------------------------------------------------
Equipment $243.1 $188.6
Parts and service $85.1 $83.9
---------------------------------------------------------------------
Gross revenue $328.2 $272.5
Segment earnings $21.3 $13.8
Segment earnings margin 6.5% 5.1%
---------------------------------------------------------------------


Revenue in the second quarter of 2006 increased 14%, or $20.8 million, to $168.4 million from $147.6 million in 2005. The strengthening Canadian dollar relative to the U.S. dollar had the effect of decreasing 2006 quarterly revenues by approximately $7.6 million compared to last year. Segment earnings increased $3.4 million to $11.4 million compared to the previous year. For the six months ended June 30, 2006, revenue increased 20% to $328.2 million, while segment earnings increased $7.5 million to $21.3 million. The following factors contributed to the Mobile Equipment segment's second quarter results:

- Revenue in western Canada and Ontario increased 14%, or $15.6 million as equipment sales increased $14.1 million and parts and service sales increased $1.5 million. Forestry and construction equipment revenues increased $7.2 million including a $9.0 million increase in new Hitachi excavator sales and a $3.4 million increase in JCB equipment sales which were partially offset by a $2.5 million reduction in forestry equipment sales as a result of the transition from the Timberjack product line to the Direct Technologies and Logset product lines. In addition, material handling equipment sales increased $5.4 million due to stronger demand, crane and utility equipment sales increased $1.0 million and mining equipment revenues increased $0.5 million. Parts and service revenue increased $1.5 million as increases in the mining and construction and forestry sectors were offset, in part, by declines in the crane and utility and material handling sectors. Earnings increased $2.7 million compared to last year as higher volumes and lower selling and administrative expenses were offset by a slightly lower gross margin percentage. Selling and administrative expenses declined $1.0 million as the benefit of personnel cost reduction and recovery initiatives implemented in 2005 more than offset volume related cost increases.

- In eastern Canada revenue increased 15%, or $5.2 million, compared to last year as a $5.7 million increase in equipment revenue offset a $0.5 million decrease in parts and service revenue. Mining equipment sales increased $5.2 million largely from the delivery of a LeTourneau loader, construction equipment sales increased $3.1 million due to increased market share in Hitachi excavators and JCB equipment and crane and utility equipment revenue increased by $0.5 million compared to last year. These increases were partially offset by a $2.0 million reduction in forestry equipment sales, resulting from a decline in market demand and the transition from Timberjack to the Direct Technologies and Logset product lines, and a $1.1 million decline in material handling equipment revenue. The $0.5 million decline in parts and service revenue was attributable to a slow-down in the construction and forestry and material handling sectors, mitigated somewhat by increased mining sector sales. Earnings increased $0.7 million as higher volumes and lower selling and administrative expenses, as a result of cost reduction and recovery initiatives, more than compensated for reduced margins compared to last year. The gross margin percentage for the quarter decreased 1.8 percentage points compared to 2005 as the negative impact of the increase in lower margin equipment sales was only partially offset by higher parts and service margins.

As previously reported, the Mobile Equipment segment received an order from North American Construction Group for sixteen 320 ton Hitachi mining trucks and two 800 ton Hitachi hydraulic shovels, with deliveries commencing in 2005 and extending into 2008. During the second quarter of 2006, one truck and one shovel were delivered, bringing the total number deliveries as of June 30, 2006 to six trucks and one shovel. It is expected that the majority of the remaining deliveries will occur in 2007 and 2008.



Industrial Components - Kinecor

for the three months ended June 30 2006 2005
---------------------------------------------------------------------
Gross revenue $83.5 $74.5
Segment earnings $6.0 $3.2
Segment earnings margin 7.2% 4.3%
---------------------------------------------------------------------


for the six months ended June 30 2006 2005
---------------------------------------------------------------------
Gross revenue $160.9 $143.4
Segment earnings $10.7 $5.6
Segment earnings margin 6.6% 3.9%
---------------------------------------------------------------------


Revenue at Kinecor in the second quarter of 2006 increased 12%, or $9.0 million, to $83.5 million from $74.5 million in 2005. Segment earnings increased $2.8 million to $6.0 million compared to $3.2 million the previous year. The strengthening Canadian dollar relative to the U.S. dollar had the effect of decreasing 2006 quarterly revenue by approximately $2.3 million. For the six months ended June 30, 2006, revenue increased 12%, or $17.5 million and segment earnings increased $5.1 million to $10.7 million compared to the same period last year. The following factors contributed to the segment's quarterly results:

- Bearings and power transmission sales increased 4%, or $1.9 million, compared to last year as a result of stronger sales in all regions due to improvements in the mining and steel sectors, strength in western Canada's oil and gas sector and the acquisition of Intek Automation Inc. ("Intek") in April 2006. These improvements more than offset declines experienced in the forestry sector and the Ontario and eastern Canada industrial sectors compared to last year.

- Fluid power parts and service revenue increased 28%, or $7.1 million primarily due to significant increases in western Canada as a result of the continued strength in the oil and gas, mining and industrial markets, and higher sales of imported hydraulic parts. In addition, sales in eastern Canada increased as a result of higher industrial and forestry volumes, and sales in Ontario increased from the acquisition of Baytec Fluid Power ("Baytec") in March 2006.

- Segment earnings increased $2.8 million to $6.0 million as improved volumes and higher margins in all regions more than offset a $1.5 million increase in selling and administrative expenses due to costs related to the higher sales activity and the acquisitions of Baytec and Intek. Gross margins for the quarter increased 2.6 percentage points compared to 2005 due to a higher proportion of higher margin fluid power sales compared to last year and the positive impact of margin improvement initiatives introduced in previous years including the use of regional price matricies, sourcing of products offshore and freight cost reduction initiatives.

On April 28, 2006 the Fund completed the $1.9 million acquisition of Intek, a Mississauga based power transmission products distributor with annual sales of approximately $6.0 million.



Power Systems

for the three months ended June 30 2006 2005
---------------------------------------------------------------------
Equipment $31.2 $27.9
Parts and service $31.7 $26.2
---------------------------------------------------------------------
Gross revenue $62.9 $54.1
Segment earnings $5.5 $4.8
Segment earnings margin 8.7% 8.9%
---------------------------------------------------------------------


for the six months ended June 30 2006 2005
---------------------------------------------------------------------
Equipment $64.1 $49.1
Parts and service $65.5 $51.0
---------------------------------------------------------------------
Gross revenue $129.6 $100.1
Segment earnings $12.3 $8.8
Segment earnings margin 9.5% 8.8%
---------------------------------------------------------------------


Revenue in the second quarter increased 16%, or $8.8 million, to $62.9 million compared to $54.1 million in 2005. Segment earnings increased $0.7 million in the quarter to $5.5 million from $4.8 million the previous year. The strengthening Canadian dollar relative to the U.S. dollar had the effect of decreasing 2006 quarterly revenue by approximately $1.0 million. For the six months ended June 30, 2006, revenue increased 29% to $129.6 million, and earnings increased $3.5 million to $12.3 million. The following factors impacted quarterly revenues and earnings:

- Revenue at Waterous Power Systems ("Waterous") in western Canada was 32%, or $11.0 million, higher during the second quarter of 2006 compared to last year as equipment sales increased $5.1 million and parts and service revenues increased $5.9 million. Equipment revenues improved as Waterous continued to benefit from the strong Alberta oil and gas sector and the acquisition of Midwest Detroit Diesel-Allison ("Midwest") which generated $1.3 million of equipment revenue during the quarter. Parts and service revenue increased compared to last year as a result of $4.3 million of Midwest volumes, an increase in large engine repairs and additional service trucks in the field.

- Revenue at the Quebec and Maritimes operation, Detroit Diesel-Allison Canada East, decreased $2.2 million, or 11%, primarily as a result of lower economic activity compared to last year. Equipment revenue declined $1.9 million due to lower marine sales, a decline in industrial sales to OEM's and lower generator set deliveries. Parts and service revenue decreased by $0.3 million compared to last year.

- Segment earnings increased $0.7 million due mainly to the positive impact of higher overall volumes offset, in part, by increased selling and administrative expenses at Waterous related to the increased sales activity and costs associated with the Midwest operation compared to last year.

Discontinued Operations

On September 30, 2005, the assets of Spencer Industries Inc., the U.S. based operation of Industrial Components, were sold for cash proceeds of $19.2 million. As a result, the revenues and the results of Spencer have been reported as discontinued activities in the consolidated statement of operations for 2005 comparatives.



Selected Quarterly Information


2006 2005 2004
---------------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2(2) Q1 Q4 Q3
---------------------------------------------------------------------
Revenue $314.1 $303.2 $276.8 $258.0 $275.4 $239.2 $236.7 $215.0
Net earnings
from
continuing
operations $18.5 $ 16.9 $15.8 $12.7 $2.6 $4.6 $5.8 $4.9
Net earnings
from
continuing
operations
per unit
- Basic $1.11 $1.02 $0.95 $0.77 $0.16 $0.29 $0.37 $0.31
- Diluted $1.11 $1.02 $0.94 $0.76 $0.16 $0.28 $0.36 $0.31

Net earnings $18.5 $16.9 $15.8 $9.4 $3.0 $5.0 $6.0 $5.2

Earnings
per unit
- Basic $1.11 $1.02 $0.95 $0.56 $0.19 $0.32 $0.38 $0.33
- Diluted $1.11 $1.02 $0.94 $0.56 $0.19 $0.31 $0.37 $0.33

Distributable
cash (1) $17.5 $18.5 $15.5 $14.2 $3.8 - - -
Distributable
cash per
unit (1)
- Basic $1.05 $1.11 $0.94 $0.85 $0.23 - - -
---------------------------------------------------------------------
(1) Non-GAAP measure, see the Non-GAAP Measures Section.
(2) Q2 2005 net earnings from operations includes income fund
conversion-related items totaling $10.2 million ($6.7 million
after tax or $0.42 per unit)


Revenues and earnings continue to increase steadily quarter-over-quarter as the Fund continues to benefit from the strong Canadian economy, particularly in western Canada.

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 $2.8 million of cash from continuing operations before financing activities in the second quarter of 2006 compared to utilizing cash of $0.5 million in the second quarter of 2005. The $3.3 million increase in cash flows from continuing operations before financing activities was primarily due to higher earnings which were offset by increases in non-cash working capital and investing activities.

Cash generated by continuing operating activities amounted to $12.4 million in the second quarter of 2006, with $22.1 million of cash generated from operating earnings offset, in part, by $9.7 million of cash used for non-cash working capital. A significant component of the increase in non-cash working capital included the following:

- Accounts receivable decreased by $2.0 million due mainly to lower volumes at the end of the quarter and higher cash sales in Waterous compared to last quarter.

- Inventory increased by $5.5 million due to higher inventory levels in all segments.

- Accounts payable and accrued liabilities decreased $4.4 million reflecting a $21.4 million payment for mining equipment sold in the first quarter of 2006, offset by increases in interest-free supplier financing and payables related to higher inventory levels, $6.1 million of payables for equipment sold in the quarter and higher accruals.

- Prepaid expenses increased $1.9 million primarily as a result of higher deposits with suppliers in the Power Systems segment.

During the quarter the Fund invested a net amount of $9.6 million of the cash provided from operating activities. The investing activities included $4.5 million of lift truck and JCB equipment rental fleet additions, net of disposals, $3.5 million of other various capital asset additions, net of disposals, and $1.6 million for the acquisition of Intek. Included in the other capital asset additions was a $2.3 million purchase of land in Edmonton. This land is intended to be sold to a third party and leased back by Waterous in a design build transaction.

Funded debt, net of cash, of $62.1 million, increased $10.4 million compared to March 31, 2006 as cash flow from continuing operating activities before changes in non-cash working capital of $22.1 million was more than offset by distributions paid of $12.8 million, the increases in non-cash working capital and investing activities described above and a $0.4 million cash outflow related to discontinued operations. As a result, the Fund's debt-to-equity ratio increased to 0.30:1 at June 30, 2006 compared to 0.26:1 at March 31, 2006 and 0.27:1 at June 30, 2005.

At June 30, 2006 the Fund had utilized $60.4 million, including letters of credit, of its $130 million bank credit facility and $1.6 million of its $15 million equipment financing facility.

The Fund's $130 million bank credit facility along with its $15 million equipment financing demand facility should be sufficient to meet the Fund's short-term working capital and maintenance capital requirements. In the long-term the Fund may be required to access the equity or debt markets in order to fund significant acquisitions and growth related working capital and capital expenditure requirements.

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 transactions during the quarter are as follows:

- The Fund has entered into interest-rate swap contracts with two of its lenders, such that in total the interest rate on the $30 million non-revolving term portion of the bank credit facility is effectively fixed at 3.47% plus applicable margins until expiry of the facility on June 7, 2008. The differential the Fund would receive to hypothetically terminate or exchange the swap agreement in the prevailing market conditions is estimated at $0.7 million.

- 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/receivables to/from customers as part of its normal course of business. As at June 30, 2006, the Fund had contracts outstanding to buy $8.1 million U.S. dollars and 0.8 million Euros (June 30, 2005 - to buy $13.8 million U.S. dollars and 0.9 million Euros). The differential the Fund would pay to hypothetically terminate or exchange the currency forward contracts in the prevailing market conditions is estimated to be $0.1 million.

The Mobile Equipment segment had $66.8 million of consigned inventory on-hand from a major manufacturer at June 30, 2006 compared to $67.5 million the previous year. This inventory is not included in the Fund's inventory as the manufacturer has title to the inventory.

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 June 30, 2006, the non-discounted operating lease commitment for the rental fleet was $22.5 million (June 30, 2005 - $26.1 million).

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 from continuing operations adjusted for changes in non-cash working capital, less maintenance capital expenditures and amortization of deferred financing costs. 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 acquisitions and land and building additions as they are considered to be expenditures that are not required to maintain normal operations. See the Distributable Cash and Estimated Distributable Cash sections below for the method of calculating "Maintenance capital expenditures".

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.



Cash distributions to unitholders were declared as follows:

Record Date Payment Date Per Unit Amount
---------------------------------------------------------------------
April 28, 2006 May 23, 2006 $0.25 $ 4.1
May 31, 2006 June 20, 2006 0.27 4.5
June 30, 2006 July 20, 2006 0.27 4.5
---------------------------------------------------------------------
Three months ended June 30, 2006 $0.79 $13.1
January 1, 2006 to March 31, 2006 0.71 11.8
---------------------------------------------------------------------
Six months ended June 30, 2006 $1.50 $24.9
---------------------------------------------------------------------


Distributions paid by the Fund during the quarter were funded from cash generated by the Fund's operations.

During the quarter, the Fund increased its regular monthly distribution from $0.25 per unit to $0.27 per unit ($3.24 per unit annualized) effective May 2006 to reflect the growth in the Fund's distributable cash. On August 9, 2006, the Fund announced a further increase in its monthly distribution to $0.30 per unit ($3.60 per unit annualized) for August 2006, payable on September 20, 2006, to unitholders of record on August 31, 2006.

Management expects that substantially all of the distributions paid by the Fund will be taxable to unitholders.

During the second quarter of 2005, Wajax Limited paid a dividend on common shares of $0.07 per share. For the 6 months ended June 30, 2005, Wajax Limited paid dividends on common shares of $0.14 per share.



Distributable Cash(3)

For the For the last For the last
quarter six months twelve months
Distributable cash for ending ending ending
the period(3) June 30, 2006 June 30, 2006 June 30, 2006
---------------------------------------------------------------------
Cash flows from operating
activities from
continuing operations $12.4 $27.6 $56.5
Changes in non-cash
working capital 9.7 15.1 21.0
---------------------------------------------------------------------
Cash flows from continuing
operations before changes
in non-cash working
capital $22.1 $42.7 $77.5
Maintenance capital
expenditures (1)(3) (4.4) (6.4) (11.1)
Amortization of deferred
financing costs (2) (0.2) (0.3) (0.7)
---------------------------------------------------------------------
Distributable cash (3) $17.5 $36.0 $65.7
---------------------------------------------------------------------
Distributable cash per
unit (3) - Basic $1.05 $2.17 $3.96
- Diluted $1.05 $2.16 $3.94
---------------------------------------------------------------------
Distributions declared
per unit - Cash $0.79 $1.50 $2.74
- Special cash - - $0.65
- Non-cash - - $0.14
- Total $0.79 $1.50 $3.53
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(1) Includes plant, equipment and rental equipment additions, net of
disposals and rental equipment transfers to inventory.
Maintenance capital expenditures exclude acquisitions and land
and building additions.
(2) Adjustment required to reflect financing costs, included in
interest expense, over the term of the bank credit facility.
(3) See Non-GAAP Measures section above.


For the quarter ending June 30, 2006 distributable cash was $17.5 million or $1.05 per unit and cash distributions declared were $13.1 million, or $0.79 per unit. For the six months ended June 30, 2006, distributable cash was $36.0 million, or $2.17 per unit and cash distributions declared were $1.50 per unit.

Distributable cash in excess of cash distributions declared for the six months ended June 30, 2006 of $11.1 million, or $0.67 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

Unit Capital

Wajax converted from a share corporation to an income fund trust on June 15, 2005. Under the Arrangement, the former shareholders of Wajax indirectly received trust units of the Fund. 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 June
30, 2006 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
---------------------------------------------------------------------


Effective June 2005, the Fund replaced the former stock option plan with two new unit-based compensation plans: the Wajax Unit Ownership Plan in which certain members of management participate and the Trustees' Deferred Unit Plan. Both plans issue rights to the participants which are settled by issuing Wajax Income Fund units. Compensation expense is determined based upon the fair value of the rights when issued and recognized over the vesting period. The Fund recorded compensation cost of $181 thousand for the quarter (2005 - $364 thousand) and $358 thousand for the year to date (2005 - $419 thousand) in respect of these plans.

Critical Accounting Estimates

Critical accounting estimates used by the Fund's management are discussed in detail in the MD&A section of the 2005 Annual Report which can be found on SEDAR at www.sedar.com.

Changes in Accounting Policy

The Fund is not aware of any accounting pronouncements that would have an impact on the Fund's consolidated financial statements in 2006.

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 section of the 2005 Annual Report which can be found on SEDAR at www.sedar.com. For the period January 1, 2006 to August 9, 2006 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 section of the 2005 Annual Report.

Outlook

The continuation of the Fund's strong operating performance relates not only to the robust economy in western Canada, but also to numerous cost reduction and recovery programs implemented across the organization and margin improvement initiatives in Industrial Components. As such, assuming no significant change in the economic climate, management remains confident that the factors driving our revenues and earnings in the first six months of 2006 will continue to positively impact our results for the balance of the year.

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

Contact Information

  • Wajax Income Fund
    Neil Manning
    President and Chief Executive Officer
    (905) 212-3300
    nmanning@wajax.com
    or
    Wajax Income Fund
    John Hamilton
    Chief Financial Officer
    (905) 212-3300
    jhamilton@wajax.com