Wajax Income Fund
TSX : WJX.UN

Wajax Income Fund

November 10, 2006 11:23 ET

Wajax Announces Third Quarter 2006 Results and Its Sixth Increase in Distributions

TORONTO, ONTARIO--(CCNMatthews - Nov. 10, 2006) - Wajax Income Fund (TSX:WJX.UN) -



Three Months Nine Months
(Dollars in millions, except per Ended September 30 Ended September 30
unit data) -------------------- --------------------
2006 2005 2006 2005

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

Revenue $294.7 $258.0 $912.0 $772.6

Net earnings $18.0 $9.4 $53.4 $17.4

Distributable Cash (1) $19.4 $14.2 $55.4 $18.0

Basic earnings per unit $1.09 $0.56 $3.22 $1.08

Basic distributable cash per
unit (1) $1.17 $0.85 $3.34 $1.08

Cash distributions declared
per unit $0.87 $0.64 $2.37 $0.64

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


Wajax Income Fund today announced third quarter 2006 results.

Third Quarter Highlights

- Revenues increased $36.7 million, or 14%, compared to last year. Mobile Equipment revenues increased 9%, Industrial Components 13% and Power Systems were up 30% primarily as a result of continuing strength in the Alberta energy sector.

- Net earnings for the quarter of $18.0 million, or $1.09 per unit, compared to $9.4 million, or $0.56 per unit recorded in 2005. The quarter last year included a loss from discontinued operations of $3.3 million, or $0.21 per unit as a result of the sale of the Fund's U.S. operation, Spencer Industries. Excluding discontinued operations, higher sales volumes 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 23% to $10.3 million, Industrial Components increased 66% to $5.6 million and Power Systems improved by 39% to $6.1 million.

- It was announced today that Mark Whitman, the current Vice President of the Fund's mobile equipment operations in Ontario and western Canada has been promoted to Senior Vice President, Mobile Equipment with responsibility for the division across Canada. Mark has over thirty years of work experience in the Mobile equipment industry, the last thirteen with Wajax Income Fund.

- Basic distributable cash (See Non-GAAP Measures section in MD&A) amounted to $1.17 per unit for the quarter compared to $0.85 per unit in 2005. Cash distributions declared in the quarter were $0.87 per unit.

- Basic distributable cash (see Non-GAAP Measures section in MD&A) for the twelve-months ended September 30, 2006 was $4.28 per unit, up from $3.96 per unit for the twelve months ended June 30, 2006.

- The Fund announced a sixth increase in monthly distributions since its conversion to a trust in June 2005. The increase of $0.02 per unit to $0.32 per unit ($3.84 per unit annualized) for November, will be payable on December 20, 2006, to unitholders of record on November 30, 2006.

Commenting on the third quarter results and the outlook for the rest of the year, Neil Manning, President and CEO, stated "Our third quarter earnings were once again very strong despite increasing weakness in the central and eastern Canada forestry and manufacturing sectors. As in the second quarter, our earnings improvement was driven not only by a robust economy in western Canada, but also by cost reduction and recovery programs and margin improvement initiatives implemented in a number of our operations. Looking forward, we do not expect the economic challenges in eastern and central Canada and the potential for reduced gas drilling activity in western Canada will have a meaningful impact on our overall fourth quarter results."

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 Third Quarter Financial Results Conference Call. You are invited to listen to the live Webcast on Friday, November 10, 2006 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. Please refer to the "Forward-Looking Information" section in the accompanying Management Discussion and Analysis.

Management's Discussion and Analysis - Q3 2006

The following management's discussion and analysis ("MD&A") discusses the consolidated financial condition and results of operations of Wajax Income Fund (the "Fund" or "Wajax") for the three and nine-month periods ended September 30, 2006 and should be read in conjunction with the information contained in the accompanying unaudited consolidated financial statements and notes thereto for the three and nine month periods ended September 30, 2006 and the annual audited consolidated financial statements and notes thereto of the Fund for the year ended December 31, 2005. Information contained in this MD&A is based on information available to management as of November 10, 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 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 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 Information

This MD&A contains forward-looking statements. These statements relate to future events or future performance and reflect management's current expectations and assumptions. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management of the Fund. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. These factors include and are not restricted to the risks identified in 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 reflect management's expectations as of the date hereof and the Fund does not assume any obligation to update or revise them to reflect new events or circumstances.



Consolidated Results

for the three months ended September 30 2006 2005
---------------------------------------------------------------------------
Revenue $294.7 $258.0

Gross profit $64.9 $55.8
Selling and administrative expenses $45.1 $41.5
Earnings from continuing operations before
interest and income taxes $19.8 $14.3
Interest expense $1.3 $0.9

Income tax expense $0.5 $0.7
Net earnings from continuing operations $18.0 $12.7
Loss from discontinued operations - ($3.3)
Net earnings $18.0 $9.4

Distributable cash (1) $19.4 $14.2
Cash distributions declared (2) $14.4 $10.6
Distributions paid (2) $13.9 $7.6
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Earnings from continuing operations
- Basic $1.09 $0.77
- Diluted $1.08 $0.76
Earnings per unit
- Basic $1.09 $0.56
- Diluted $1.08 $0.56

Distributable cash per unit (1)
- Basic $1.17 $0.85
- Diluted $1.16 $0.85
Cash distributions declared per unit (2) $0.87 $0.64
Distributions paid per unit (2) $0.84 $0.46
---------------------------------------------------------------------------
(1) Non-GAAP measure, see the Non-GAAP Measures section.
(2) Based on actual number of units/shares outstanding on the relevant
record date.


for the nine months ended September 30 2006 2005
---------------------------------------------------------------------------
Revenue $912.0 $772.6

Gross profit $199.0 $169.2
Selling and administrative expenses $139.8 $131.3
Income fund conversion-related costs (1) - $2.6
Earnings from continuing operations before interest
and income taxes $59.2 $35.3
Interest expense $3.2 $3.8
Income tax expense $2.6 $4.0
Early extinguishment of debt (2) - $7.6
Net earnings from continuing operations $53.4 $19.9
Loss from discontinued operations - $2.5
Net earnings $53.4 $17.4

Distributable cash (3) $55.4 $18.0
Cash distributions declared (4) $39.3 $10.6
Distributions paid (4) $48.6 $7.6
Dividends paid (4)(5) - $2.2
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Earnings from continuing operations
- Basic $3.22 $1.23
- Diluted $3.20 $1.23

Earnings per unit
- Basic $3.22 $1.08
- Diluted $3.20 $1.07

Distributable cash per unit (3)
- Basic $3.34 $1.08
- Diluted $3.32 $1.07
Cash distributions declared per unit (4) $2.37 $0.64
Distributions paid per unit (4) $2.93 $0.46
Dividends paid per share (5) - $0.14
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(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 includes pro-rata results for the month of June 2005 based upon
the 15 days ended June 30, 2005.
(4) Based on actual number of units/shares outstanding on the relevant
record date.
(5) Dividends paid prior to conversion of Wajax Limited into Wajax Income
Fund.


Revenue

Revenue in the third quarter of 2006 increased $36.7 million, or 14%, to $294.7 million from $258.0 million in 2005. Segment revenue increased 9% in Mobile Equipment, 13% in Industrial Components and 30% in Power Systems. For the nine months ended September 30, 2006, revenue increased $139.4 million, or 18%.

Gross profit

Gross profit in the third quarter of 2006 increased $9.1 million, or 16%, due mainly to higher sales volumes. The gross profit percentage for the quarter increased marginally to 22.0% in 2006 from 21.6% in 2005 due principally to higher parts and service margins compared to last year. For the nine months ended September 30, 2006, gross profit increased $29.8 million due mainly to higher volumes as the gross profit percentage declined slightly to 21.8% from 21.9% for the same period last year.

Selling and administrative expenses

Selling and administrative expenses increased $3.6 million in the quarter as a result of increased costs related to higher sales activity and higher corporate costs due to an increase in accruals for executive incentives and other personnel costs compared to last year. Selling and administrative expenses as a percentage of revenue declined to 15.3% from 16.1%. For the nine months ended September 30, 2006 selling and administrative expenses increased $8.5 million compared to 2005 but decreased as a percentage of sales to 15.3% from 17.0%.

Interest expense

Quarterly interest expense of $1.3 million increased $0.4 million from the previous year. The higher interest expense was mainly a result of higher funded debt net of cash ("funded net debt") outstanding and higher interest rates compared to last year. This was partially offset by the Fund's lower cost of borrowing under the new financing arrangements entered into on June 8, 2005. For the nine months ended September 30, 2006, interest expense decreased $0.6 million compared to last year due to the Fund's lower cost of borrowing under the new financing arrangements, offset by higher average funded net debt outstanding and higher deferred financing expenses.

Income tax expense

The effective income tax rate of 2.7% for the quarter, and 4.6% 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. In addition, an increase in the amount of subordinated indebtedness provided by the Fund to its subsidiary Wajax Limited in the amount of $29 million and the resulting additional interest expense in Wajax Limited led to a lower effective tax rate for the quarter as compared to the year-to-date rate.

Net earnings from continuing operations

Quarterly net earnings from continuing operations of $18.0 million, or $1.09 per unit, increased $5.3 million compared to $12.7 million, or $0.77 per unit. For the nine months ended September 30, 2006, net earnings from continuing operations of $53.4 million, or $3.22 per unit, increased $33.5 million from $19.9 million, or $1.23 per unit in 2005. Included in the 2005 earnings from continuing operations for the nine months ended September 30, 2005 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 from continuing operations for the nine months ended September 30, 2006 increased $26.8 million.

Net earnings

Quarterly net earnings of $18.0 million, or $1.09 per unit, increased $8.6 million compared to $9.4 million, or $0.56 per unit, in 2005. For the nine months ended September 30, 2006, net earnings of $53.4 million, or $3.22 per unit, increased $36.0 million from $17.4 million, or $1.08 per unit in 2005.

Funded net debt

Funded net debt of $71.9 million increased $9.8 million compared to June 30, 2006 as cash flow from earnings of $21.2 million was more than offset by $13.9 million of cash distributions, a $15.0 million increase in working capital and $2.0 million of capital spending. Compared to September 30, 2005, funded net debt increased $31.3 million. As a result, the Fund's quarter-end debt-to-equity ratio of 0.34:1 at September 30, 2006 increased from last quarter's ratio of 0.30:1 and from last years ratio of 0.20:1.

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

For the quarter ending September 30, 2006 distributable cash was $19.4 million, or $1.17 per unit, and cash distributions declared were $14.4 million, or $0.87 per unit. For the nine months ended September 30, 2006, distributable cash was $55.4 million, or $3.34 per unit, and cash distributions declared were $2.37 per unit.

Distributable cash in excess of cash distributions declared for the nine months ended September 30, 2006 of $16.1 million, or $0.97 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 September 30 2006 2005
---------------------------------------------------------------------------
Equipment $111.6 $97.7
Parts and service $39.7 $41.0
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Gross revenue $151.3 $138.7
Segment earnings $10.3 $8.4
Segment earnings margin 6.8% 6.1%
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for the nine months ended September 30 2006 2005
---------------------------------------------------------------------------
Equipment $354.8 $286.3
Parts and service $124.8 $124.9
---------------------------------------------------------------------------
Gross revenue $479.6 $411.2
Segment earnings $31.6 $22.2
Segment earnings margin 6.6% 5.4%
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Revenue in the third quarter of 2006 increased 9%, or $12.6 million, to $151.3 million from $138.7 million in 2005. Segment earnings increased $1.9 million to $10.3 million compared to the previous year. For the nine months ended September 30, 2006, revenue increased 17% to $479.6 million, while segment earnings increased $9.4 million to $31.6 million. The following factors contributed to the Mobile Equipment segment's third quarter results:

- Revenue in western Canada and Ontario increased 14%, or $14.6 million, as equipment sales increased $14.9 million and parts and service sales decreased $0.3 million.

Forestry and construction equipment revenues increased $10.1 million including a $12.4 million increase in new Hitachi excavator sales and a $1.8 million increase in JCB equipment sales, primarily due to the strong western economy and the acquisition of the Ontario based JCB distributor, Conley Equipment, in March 2006. These increases were somewhat offset by a $3.2 million reduction in new forestry equipment sales mainly as a result of weaker demand compared to last year and the transition from Timberjack to the Direct Technologies and Logset product lines. In addition, crane and utility equipment volumes increased $4.1 million due to increased market demand and deliveries to a major hydro utility, material handling equipment revenues increased $0.6 million and mining equipment revenues increased $0.1 million as the increase in revenue from the delivery of an 800 ton Hitachi shovel during the quarter was offset by declines from mining equipment deliveries made last year.

The $0.3 million decline in parts and service revenue was mainly attributable to a decline in the Ontario forestry sector offset, in part, by increased demand in western Canada.

Earnings increased $2.2 million compared to last year as the positive impact of higher volumes and lower selling and administrative expenses more than compensated for lower margins due mainly to a higher proportion of lower margin equipment sales compared to last year. Selling and administrative expenses declined $0.5 million due to cost recovery initiatives introduced in 2005.

- In eastern Canada revenue decreased 6%, or $2.0 million, compared to last year as equipment revenue declined $1.1 million and parts and service revenues declined by $0.9 million.

Construction and forestry equipment sales increased $4.4 million including increases in new Hitachi excavator and JCB construction equipment of $4.6 million, due to strong demand, and the sale of two large construction trucks during the quarter. A $3.2 million decline in new forestry equipment sales resulting from the slow-down in the forestry sector and the transition from the Timberjack to the Direct Technologies and Logset product lines detracted from these gains. In addition, mining equipment sales declined $4.0 million, due primarily to the delivery of a LeTourneau loader in 2005. Material handling equipment sales decreased $1.9 million, as large container handler sales in 2005 were not repeated in 2006, and crane and utility equipment revenue increased by $0.4 million compared to last year.

The reduction in parts and service revenues of $0.9 million was mainly attributable to several mining equipment overhauls in 2005 and a slow-down in the forestry sector.

Earnings decreased $0.3 million as the negative impact of lower volumes and a slight reduction in margins was offset in part by a $0.2 million decline in selling and administrative expenses. Gross margins declined as an increase in parts and service margins, due mainly from improved freight recovery costs, was more than offset by a decline in new equipment margins resulting from competitive pricing pressures, particularly in lift trucks.

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 third quarter, one shovel was delivered, bringing the total deliveries as of September 30, 2006 to six trucks and two shovels. It is expected that the majority of the remaining truck deliveries will occur in 2007 and 2008.

Effective November 10, 2006, Mark Whitman, the current Vice President of Wajax's mobile equipment operations in Ontario and western Canada, was promoted to Senior Vice President, Mobile Equipment with responsibility for the division across Canada. Mark has over thirty years of work experience in the Mobile equipment industry, the last thirteen with Wajax.



Industrial Components - Kinecor

for the three months ended September 30 2006 2005
---------------------------------------------------------------------------
Gross revenue $78.2 $69.1
Segment earnings $5.6 $3.4
Segment earnings margin 7.2% 4.9%
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for the nine months ended September 30 2006 2005
---------------------------------------------------------------------------
Gross revenue $239.1 $212.5
Segment earnings $16.3 $9.0
Segment earnings margin 6.8% 4.2%
---------------------------------------------------------------------------


Revenue at Kinecor in the third quarter of 2006 increased 13%, or $9.1 million, to $78.2 million from $69.1 million in 2005 as all regions reported revenue improvements in both bearings and power transmission parts and fluid power parts and service. Segment earnings increased $2.2 million to $5.6 million, compared to $3.4 million the previous year. For the nine months ended September 30, 2006, revenue increased 13%, or $26.6 million, and segment earnings increased $7.3 million to $16.3 million compared to the same period last year. The following factors contributed to the segment's quarterly results:

- Bearings and power transmission parts sales increased 4%, or $1.9 million, compared to last year due mainly to increased mining and steel processors' sales, particularly in eastern Canada, and increased industrial revenues due primarily to the acquisition of Ontario based Intek Automation Inc. ("Intek") in April 2006. These revenue gains were partially offset by a $2.2 million decline in forestry sector revenues compared to last year due to the shut-down of several mills in eastern and central Canada.

- Fluid power parts and service revenue increased 29%, or $7.2 million, due to the continued strength of the oil and gas sector in western Canada, improved industrial market sales across all regions, strong revenue growth in sales of imported hydraulic products and revenues from the acquisition of Ontario based Baytec Fluid Power ("Baytec") in March 2006.

- Segment earnings increased $2.2 million to $5.6 million as improved volumes and higher margins in all regions more than offset a $1.3 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 1.3 percentage points compared to 2005 due mainly to an increased proportion of higher margin fluid power sales and the positive impact of margin improvement initiatives introduced in previous years, including the use of regional price matricies and the sourcing of certain products offshore.



Power Systems

for the three months ended September 30 2006 2005
---------------------------------------------------------------------------
Equipment $36.5 $25.9
Parts and service $29.5 $24.8
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Gross revenue $66.0 $50.7
Segment earnings $6.1 $4.4
Segment earnings margin 9.2% 8.7%
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for the nine months ended September 30 2006 2005
---------------------------------------------------------------------------
Equipment $100.7 $75.0
Parts and service $94.9 $75.8
---------------------------------------------------------------------------
Gross revenue $195.6 $150.8
Segment earnings $18.4 $13.2
Segment earnings margin 9.4% 8.7%
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Revenue in the third quarter increased 30%, or $15.3 million, to $66.0 million compared to $50.7 million in 2005. Segment earnings increased $1.7 million in the quarter to $6.1 million from $4.4 million the previous year. For the nine months ended September 30, 2006, revenue increased $44.8 million, or 30%, to $195.6 million, and earnings increased $5.2 million to $18.4 million. The following factors impacted quarterly revenues and earnings:

- Revenue at Waterous Power Systems ("Waterous") in western Canada was 42%, or $14.3 million, higher compared to last year as equipment sales increased $10.0 million and parts and service revenues increased $4.3 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 $3.0 million of equipment revenue during the quarter including the sale of a large EMD engine. Parts and service revenue increased $4.3 million compared to last year as a result of $3.7 million of Midwest volumes, an increase in large engine repairs and additional field service mechanics.

- Revenue at the Quebec and Maritimes operation, Detroit Diesel-Allison Canada East ("DD-ACE"), increased $1.0 million. Equipment sales increased $0.6 million as a $2.0 million increase in generator set deliveries was partially offset by a $1.4 million decline in marine and industrial OEM sales due to lower economic activity in these markets compared to last year. Parts and service revenues increased $0.4 million compared to last year due mainly to increased automotive sector service revenues.

- Segment earnings increased $1.7 million due mainly to the positive impact of higher overall volumes reduced by a $2.9 million increase in selling and administrative expenses. Selling and administrative expenses increased primarily as a result of increased sales activity at Waterous, costs associated with the Midwest operation and higher personnel costs at DD-ACE.

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. 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
---------------------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2(2) Q1 Q4
---------------------------------------------------------------------------
Revenue $294.7 $314.1 $303.2 $276.8 $258.0 $275.4 $239.2 $236.7
---------------------------------------------------------------------------
Net earnings
from
continuing
operations $18.0 $18.5 $16.9 $15.8 $12.7 $2.6 $4.6 $5.8
---------------------------------------------------------------------------
Net earnings
from
continuing
operations
per unit
- Basic $1.09 $1.11 $1.02 $0.95 $0.77 $0.16 $0.29 $0.37
---------------------------------------------------------------------------
- Diluted $1.08 $1.11 $1.02 $0.94 $0.76 $0.16 $0.28 $0.36
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Net earnings $18.0 $18.5 $16.9 $15.8 $9.4 $3.0 $5.0 $6.0
---------------------------------------------------------------------------
Earnings per
unit
- Basic $1.09 $1.11 $1.02 $0.95 $0.56 $0.19 $0.32 $0.38
---------------------------------------------------------------------------
- Diluted $1.08 $1.11 $1.02 $0.94 $0.56 $0.19 $0.31 $0.37
---------------------------------------------------------------------------
Distributable
cash (1) $19.4 $17.5 $18.5 $15.5 $14.2 $3.8 - -
---------------------------------------------------------------------------
Distributable
cash per unit(1)
- Basic $1.17 $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)


Historically the first and fourth quarter results reflect some seasonality of the Fund's business. The first quarter of each year is typically the weakest due to decreased activity in many of the sectors serviced by the Fund and the fourth quarter has historically been the strongest.

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 $4.2 million of cash from continuing operations before financing activities in the third quarter of 2006 compared to $2.0 million in the third quarter of 2005. The $2.2 million increase in cash flows from continuing operations before financing activities was due primarily to higher earnings and lower investing activities which were partially offset by increases in non-cash working capital.

Cash generated by continuing operating activities amounted to $6.2 million in the third quarter of 2006, with $21.2 million of cash generated from operating earnings reduced by $15.0 million of cash used for non-cash working capital. Significant components of the increase in non-cash working capital included the following:

- Accounts receivable increased by $7.6 million due mainly to the higher volumes and a decrease in the volume of cash sales in Waterous compared to last quarter.

- Inventory increased by $7.2 million due mainly to higher stocking levels, in all segments, to support higher sales activities.

During the quarter the Fund invested a net amount of $2.0 million of the cash provided from operating activities. The investing activities included $0.7 million of lift truck equipment rental fleet additions, net of disposals, and $1.3 million of other various capital asset additions, net of disposals.

Funded net debt of $71.9 million, increased $9.8 million compared to June 30, 2006 as cash flow from continuing operating activities before changes in non-cash working capital of $21.2 million was more than offset by distributions paid of $13.9 million and the increases in non-cash working capital and investing activities described above. As a result, the Fund's debt-to-equity ratio increased to 0.34:1 at September 30, 2006 compared to 0.30:1 at June 30, 2006 and 0.20:1 at September 30, 2005.

At September 30, 2006 the Fund had borrowed $70.0 million, and issued $0.4 million of letters of credit for a total utilization of $70.4 million of its $130 million bank credit facility and $5.1 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.

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 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 $0.3 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 September 30, 2006, the Fund had contracts outstanding to buy $25.9 million U.S. dollars and EUR 0.6 million Euros, and to sell $1.2 million U.S. dollars (September 30, 2005 - to buy $2.7 million U.S. dollars and EUR 1.6 million Euros). The differential the Fund would receive to hypothetically terminate or exchange the currency forward contracts in the prevailing market conditions is estimated to be $0.1 million.

Off-Balance Sheet Arrangements

The Mobile Equipment segment had $63.7 million of consigned inventory on-hand from a major manufacturer at September 30, 2006 compared to $52.3 million the previous year. In the normal course of business, Wajax receives inventory on consignment from this manufacturer which is generally sold to a third party or purchased by Wajax. This consigned inventory is not included in the Fund's inventory as the manufacturer retains title to the goods.

The Fund's off balance sheet financing arrangements with Wajax Finance (a "private label" financing operation of CIT Financial Ltd.) include operating lease contracts in relation to the Fund's long-term lift truck rental fleet in the Mobile Equipment segment. At September 30, 2006, the non-discounted operating lease commitment for the rental fleet was $22.2 million (September 30, 2005 - $25.5 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. Changes in non-cash working capital are excluded from distributable cash as the Fund currently has a $130 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 accounts trade 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 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 are dependent on, among other things, the cash flow of the Fund.

Cash distributions to unitholders were declared as follows:



---------------------------------------------------------------------------
Record Date Payment Date Per Unit Amount
---------------------------------------------------------------------------
July 31, 2006 August 21, 2006 $0.27 $ 4.5
---------------------------------------------------------------------------
August 31, 2006 September 20, 2006 0.30 5.0
---------------------------------------------------------------------------
September 29, 2006 October 20, 2006 0.30 5.0
---------------------------------------------------------------------------
Three months ended September 30, 2006 $0.87 $14.4
---------------------------------------------------------------------------
January 1, 2006 to June 30, 2006 1.50 24.9
---------------------------------------------------------------------------
Nine months ended September 30, 2006 $2.37 $39.3
---------------------------------------------------------------------------


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.

During the quarter, the Fund increased its regular monthly distribution from $0.27 per unit to $0.30 per unit ($3.60 per unit annualized) effective August 2006 to reflect the growth in the Fund's distributable cash. On November 10, 2006, the Fund announced a further increase in its monthly distribution to $0.32 per unit ($3.84 per unit annualized) for November 2006, payable on December 20, 2006, to unitholders of record on November 30, 2006.

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

For the nine months ended September 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 nine months twelve months
Distributable cash for ending ending ending
the period(3) September September September
30, 2006 30, 2006 30, 2006
---------------------------------------------------------------------------
Cash flows from operating
activities from continuing
operations $ 6.2 $33.8 $58.2
---------------------------------------------------------------------------
Changes in non-cash working
capital 15.0 30.1 24.1
---------------------------------------------------------------------------
Cash flows from continuing
operations before changes in
non-cash working capital $21.2 $63.9 $82.3
---------------------------------------------------------------------------
Maintenance capital
expenditures (1)(3) (1.6) (8.0) (10.6)
Amortization of deferred
financing costs (2) (0.2) (0.5) (0.7)
---------------------------------------------------------------------------
Distributable cash (3) $19.4 $55.4 $71.0
---------------------------------------------------------------------------
Distributable cash per unit (3)
- Basic $1.17 $3.34 $4.28
- Diluted $1.16 $3.32 $4.26
---------------------------------------------------------------------------
Distributions declared per unit
- Cash $0.87 $2.37 $2.97
- Special cash - - $0.65
- Non-cash - - $0.14
- Total $0.87 $2.37 $3.76
---------------------------------------------------------------------------
(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 September 30, 2006 distributable cash was $19.4 million or $1.17 per unit and cash distributions declared were $14.4 million, or $0.87 per unit. For the nine months ended September 30, 2006, distributable cash was $55.4 million, or $3.34 per unit and cash distributions declared were $2.37 per unit.

Distributable cash in excess of cash distributions declared for the nine months ended September 30, 2006 of $16.1 million, or $0.97 per unit, provides the Fund an additional reserve for fluctuations in working capital requirements, growth capital expenditure requirements or future distributions.

Unit Capital

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



Issued and fully paid Trust Units as at
September 30, 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
---------------------------------------------------------------------------


The Fund has two 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 $238 thousand for the quarter (2005 - $49 thousand) and $595 thousand for the year to date (2005 - $627 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 November 10, 2006, except as noted below, 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.

Tax Related Risk

On November 7, 2006, the Federal Government passed a motion approving proposals to enact legislation that will amend the taxation of "specified investment flow-throughs". Wajax is currently evaluating the impact of the new rules which may subject Wajax to tax on distributions beginning in 2011.

Outlook

Third quarter earnings were once again very strong despite increasing weakness in the central and eastern Canada forestry and manufacturing sectors. As in the second quarter, the earnings improvement was driven not only by a robust economy in western Canada, but also by cost reduction and recovery programs and margin improvement initiatives implemented in a number of our operations. Looking forward, management does not expect the economic challenges in eastern and central Canada and the potential for reduced gas drilling activity in western Canada will have a meaningful impact on the overall fourth quarter results.

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 nine months ended September 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

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

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

Current Assets
Cash and cash equivalents $ 3,140 $ 4,840 $ 23,378
Accounts receivable 144,243 130,008 131,544
Inventories 230,527 188,570 185,528
Future income taxes 4,214 6,380 6,353
Prepaid expenses and other
recoverable amounts 5,501 3,839 3,192
Discontinued operations (note 5) 540 667 1,453
---------------------------------------------------------------------------
388,165 334,304 351,448
---------------------------------------------------------------------------

Non-Current Assets
Rental equipment 19,070 17,249 16,987
Property, plant and equipment 31,807 28,983 28,411
Goodwill and other assets 60,337 59,232 55,428
Future income taxes 552 920 900
---------------------------------------------------------------------------
111,766 106,384 101,726
---------------------------------------------------------------------------
$ 499,931 $ 440,688 $ 453,174
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Current Liabilities
Accounts payable and accrued
liabilities $ 200,509 179,615 175,849
Distributions payable to
unitholders 4,976 14,261 3,040
Income taxes payable 905 1,510 846
Equipment notes payable 5,075 5,719 -
Discontinued operations (note 5) 1,916 2,469 2,525
---------------------------------------------------------------------------
213,381 203,574 182,260
---------------------------------------------------------------------------

Non-Current Liabilities
Future income taxes 1,876 2,358 2,586
Other liabilities 120 - -
Long-term pension liability 2,803 2,695 2,280
Long-term debt 70,000 35,000 64,000
---------------------------------------------------------------------------
74,799 40,053 68,866
---------------------------------------------------------------------------

Unitholders' Equity
Trust units (note 1) 104,871 104,818 104,818
Contributed surplus 1,306 764 720
Accumulated earnings 105,574 91,479 96,510
---------------------------------------------------------------------------
211,751 197,061 202,048
---------------------------------------------------------------------------
$ 499,931 $ 440,688 $ 453,174
---------------------------------------------------------------------------
---------------------------------------------------------------------------



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF EARNINGS
AND ACCUMULATED EARNINGS

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

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

Revenue $ 294,685 $ 258,030 $ 912,016 772,586
Cost of sales 229,811 202,237 712,971 603,383
---------------------------------------------------------------------------

Gross profit 64,874 55,793 199,045 169,203
Selling and administrative
expenses 45,094 41,505 139,873 131,340
Income fund conversion-related
costs - - - 2,606
---------------------------------------------------------------------------

Earnings from continuing
operations before
interest and income taxes 19,780 14,288 59,172 35,257
Interest expense 1,274 908 3,188 3,782
Early extinguishment of
long-term debt - - - 7,592
---------------------------------------------------------------------------

Earnings from continuing
operations before
income taxes 18,506 13,380 55,984 23,883
Income tax expense (recovery)
- current 86 (189) 531 6,290
- future 406 870 2,052 (2,233)
---------------------------------------------------------------------------
Net earnings from continuing
operations $ 18,014 $ 12,699 $ 53,401 $ 19,826
Loss from discontinued
operations (note 5) - (3,335) - (2,474)
---------------------------------------------------------------------------
Net earnings 18,014 9,364 53,401 17,352

Accumulated earnings,
beginning of period,
as reported 101,989 97,785 91,479 92,222
Adjustment to future
income tax in
consequence of the
income fund conversion - - - (216)
Distributions (14,429) (10,639) (39,306) (10,639)
Dividends on common shares - - - (2,209)
---------------------------------------------------------------------------

Accumulated earnings, end
of period $ 105,574 $ 96,510 $ 105,574 $ 96,510
---------------------------------------------------------------------------

Earnings per unit from
continuing operations
(note 2) - basic $ 1.09 $ 0.77 $ 3.22 $ 1.23
- diluted 1.08 0.76 3.20 1.23
Earnings per unit
(note 2) - basic 1.09 0.56 3.22 1.08
- diluted 1.08 0.56 3.20 1.07

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Number of trust units
outstanding 16,585,206 16,582,530 16,585,206 16,582,530
Number of Trustees'
Deferred Unit Plan and
Wajax Unit Ownership Plan
rights outstanding 99,406 93,135 99,406 93,135
---------------------------------------------------------------------------
---------------------------------------------------------------------------



WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

OPERATING ACTIVITIES
Net earnings from continuing operations $ 18,014 $ 12,699
Items not affecting cash flows:
Amortization
- Rental equipment 1,115 1,082
- Property, plant and equipment 1,150 1,387
- Deferred expenses and intangible assets 290 188
Employees' pension plans, net of
contributions made (38) 158
Non-cash rental expense 31 33
Unit compensation expense (note 3) 237 143
Future income taxes 406 870
---------------------------------------------------------------------------
Cash flows from continuing operations before
changes in non-cash working capital 21,205 16,560
---------------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable (7,638) (11,905)
Inventories (7,203) (11,553)
Prepaid expenses (232) 417
Accounts payable and accrued liabilities 167 12,993
Income taxes payable (102) (1,943)
---------------------------------------------------------------------------
(15,008) (11,991)
---------------------------------------------------------------------------
Cash flows from operating activities from
continuing operations 6,197 4,569
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Rental equipment additions (851) (1,669)
Proceeds on disposal of rental equipment 202 342
Property, plant and equipment additions (1,369) (1,222)
Proceeds on disposal of property, plant
and equipment 44 18
---------------------------------------------------------------------------
(1,974) (2,531)
---------------------------------------------------------------------------
Cash flows from continuing operations before
financing activities 4,223 2,038
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term bank debt 10,000 6,000
Deferred financing costs (35) (43)
Hedging activities - 1,418
Increase in equipment notes payable 3,427 -
Distributions paid (13,932) (7,599)
---------------------------------------------------------------------------
(540) (224)
---------------------------------------------------------------------------
Net change in cash and cash equivalents
before discontinued operations $ 3,683 $ 1,814
Cash and cash equivalents (used in) from
discontinued operations (note 5) (60) 18,386
(Bank indebtedness) cash and cash
equivalents - beginning of period $ (483) $ 3,178
---------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 3,140 $ 23,378
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash flows from operating activities from
continuing operations include the following:
Interest paid $ 1,006 $ 673
Income taxes paid $ 197 $ 1,821
---------------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 320 $ 330




WAJAX INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30
(in thousands of dollars) 2006 2005
unaudited unaudited
---------------------------------------------------------------------------

OPERATING ACTIVITIES
Net earnings from continuing operations $ 53,401 $ 19,826
Items not affecting cash flows:
Amortization
- Rental equipment 3,152 3,027
- Property, plant and equipment 3,522 3,778
- Deferred expenses and intangible
assets 743 576
Write off deferred charges - 867
Employees' pension plans, net of
contributions made 326 485
Non-cash rental expense 91 259
Unit compensation expense (note 3) 595 1,139
Future income taxes 2,052 (2,233)
---------------------------------------------------------------------------
Cash flows from continuing operations
before changes in non-cash working capital 63,882 27,724
---------------------------------------------------------------------------
Changes in non-cash working capital
Accounts receivable (11,822) (23,070)
Inventories (34,310) (34,448)
Prepaid expenses (1,645) 541
Accounts payable and accrued liabilities 18,346 25,490
Income taxes payable (617) (7,084)
---------------------------------------------------------------------------
(30,048) (38,571)
---------------------------------------------------------------------------
Cash flows from (used in) operating
activities from continuing operations 33,834 (10,847)
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Rental equipment additions (7,672) (6,324)
Proceeds on disposal of rental equipment 1,074 1,611
Property, plant and equipment additions (5,920) (3,444)
Proceeds on disposal of property, plant
and equipment 198 39
Acquisition of business (note 9) (8,192) -
---------------------------------------------------------------------------
(20,512) (8,118)
---------------------------------------------------------------------------
Cash flows from (used in) continuing
operations before financing activities 13,322 (18,965)
---------------------------------------------------------------------------
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 - (3,677)
Repayment of debt upon acquisition of
business (note 9) (446) -
Increase in long-term bank debt 35,000 64,000
Deferred financing costs (35) (1,805)
Hedging activities - (909)
Decrease in equipment notes payable (644) -
Increase in other liabilities 120 -
Distributions paid (48,592) (7,599)
Dividends paid - (2,210)
---------------------------------------------------------------------------
(14,597) (25,363)
---------------------------------------------------------------------------
Net change in cash and cash equivalents
before discontinued operations $ (1,275) $ (44,328)
Cash and cash equivalents (used in) from
discontinued operations (note 5) (425) 18,297
Cash and cash equivalents - beginning
of period $ 4,840 $ 49,409
---------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 3,140 $ 23,378
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash flows from operating activities
from continuing operations include
the following:
Interest paid $ 2,592 $ 5,183
Income taxes paid $ 1,125 $ 13,878
---------------------------------------------------------------------------
Significant non-cash transactions:
Rental equipment transferred to inventory $ 1,625 $ 1,308
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 September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Numerator for basic and diluted earnings per unit:
- net earnings from continuing operations $ 18,014 $ 12,699

- net earnings 18,014 9,364

---------------------------------------------------------------------------
Denominator for basic earnings per unit :
- weighted average units 16,585,206 16,582,530
---------------------------------------------------------------------------



Three months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Denominator for diluted earnings per unit:

- weighted average units 16,585,206 16,582,530

- effect of dilutive unit rights 95,751 90,451
---------------------------------------------------------------------------

Denominator for diluted earnings per unit 16,680,957 16,672,981
---------------------------------------------------------------------------
Basic earnings per unit from continuing
operations $ 1.09 $ 0.77
---------------------------------------------------------------------------
Diluted earnings per unit from continuing
operations $ 1.08 $ 0.76
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic earnings per unit $ 1.09 $ 0.56
---------------------------------------------------------------------------
Diluted earnings per unit $ 1.08 $ 0.56
---------------------------------------------------------------------------
---------------------------------------------------------------------------



Nine months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Numerator for basic and diluted earnings per unit:
- net earnings from continuing operations $ 53,401 $ 19,826

- net earnings 53,401 17,352

---------------------------------------------------------------------------
Denominator for basic earnings per unit :
- weighted average units 16,584,616 16,107,834
---------------------------------------------------------------------------
Denominator for diluted earnings per unit:
- weighted average units 16,584,616 16,107,834
- effect of dilutive unit rights 93,288 33,052
---------------------------------------------------------------------------
Denominator for diluted earnings per unit 16,677,904 16,140,886
---------------------------------------------------------------------------
Basic earnings per unit from continuing
operations $ 3.22 $ 1.23
---------------------------------------------------------------------------
Diluted earnings per unit from continuing
operations $ 3.20 $ 1.23
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic earnings per unit $ 3.22 $ 1.08
---------------------------------------------------------------------------
Diluted earnings per unit $ 3.20 $ 1.07
---------------------------------------------------------------------------
---------------------------------------------------------------------------


At the end of the quarter 68,242 rights were outstanding under the Wajax Unit Ownership Plan (2005 - 61,626) and 31,164 rights were outstanding under the Trustees' Deferred Unit Plan (2005 - 25,085). No options or unit rights were excluded from the above calculations as none were anti-dilutive.

Note 3 Unit-based compensation plans

The Fund has 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 at date of grant and charged to operations on a straight line basis over the vesting period, with an offsetting adjustment to unitholders' equity.

During the quarter 1,375 rights were granted under the Wajax Unit Ownership Plan and 3,166 rights were granted under the Trustees' Deferred Unit Plan. During the 2005 quarter no stock options were exercised.

Year to date, 5,202 rights were granted under the Wajax Unit Ownership Plan and 6,901 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 $238 for the quarter (2005 - $49) and $595 for the year to date (2005 - $627) in respect of unit rights plans and $75 for the quarter (2005 - $94) and $175 for the year to date (2005 - $94) in respect of the unit based MTIP. In 2005, the Fund recorded compensation cost of $419 in respect of employee stock options granted after December 31, 2002. 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 $0.3 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 September 30, 2006, the Fund had contracts outstanding to buy $25.9 million U.S. dollars and EUR 0.6 million Euros (September 30, 2005 - to buy $2.7 million U.S. dollars and EUR 1.6 million Euros) and to sell $1.2 million U.S.dollars (September 30, 2005 - Nil). The differential the Fund would receive 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 Spencer.



Three months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sales $ - $ 16,787
Loss, net of future taxes of 2006 - $Nil;
2005 - ($2,272) - (3,335)
---------------------------------------------------------------------------
Loss from discontinued operations $ - $ (3,335)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Nine months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sales $ - $ 48,194
Loss, net of future taxes of 2006 - $Nil;
2005 - ($2,735) - (2,474)
---------------------------------------------------------------------------
Loss from discontinued operations $ - $ (2,474)
---------------------------------------------------------------------------
---------------------------------------------------------------------------



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

September September
2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Current assets $ 540 $ 1,453
Non-current assets - -
---------------------------------------------------------------------------
Total assets $ 540 $ 1,453
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Current liabilities $ 1,916 $ 2,525
---------------------------------------------------------------------------
---------------------------------------------------------------------------




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

Three months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Operating activities $ - $ (572)
Investing activities (61) 18,467
Financing activities - -
Effect of foreign exchange on translation
adjustment 1 491
---------------------------------------------------------------------------
Cash and cash equivalents used in (from)
discontinued operations $ (60) $ 18,386
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Nine months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Operating activities $ - $ (2,304)
Investing activities (407) 18,368
Financing activities - -
Effect of foreign exchange on translation
adjustment (18) 2,233
---------------------------------------------------------------------------
Cash and cash equivalents used in (from)
discontinued operations $ (425) $ 18,297
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Note 6 Employees' pension plans

Net pension plan expenses are as follows:

For the three months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net pension plan expense - defined benefit plans $ 272 $ 215
Net pension plan expense - defined contribution
plans 1,041 898
---------------------------------------------------------------------------
$ 1,313 $ 1,113
---------------------------------------------------------------------------
---------------------------------------------------------------------------


For the nine months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net pension plan expense - defined benefit plans $ 814 $ 644
Net pension plan expense - defined contribution
plans 3,224 2,804
---------------------------------------------------------------------------
$ 4,038 $ 3,448
---------------------------------------------------------------------------
---------------------------------------------------------------------------




Note 7 Segmented information

For the three months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenue
Mobile Equipment $ 151,338 $ 138,716
Industrial Components 78,181 69,101
Power Systems 66,002 50,744
Segment eliminations (836) (531)
---------------------------------------------------------------------------
Revenue from continuing operations $ 294,685 $ 258,030
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Segment Earnings
Mobile Equipment $ 10,282 $ 8,393
Industrial Components 5,564 3,361
Power Systems 6,123 4,406
Corporate costs and eliminations (2,189) (1,872)
---------------------------------------------------------------------------
Earnings from continuing operations $ 19,780 $ 14,288
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Interest expense, income taxes and corporate costs are not allocated to
business segments.



For the nine months ended September 30 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenue
Mobile Equipment $ 479,584 $ 411,176
Industrial Components 239,065 212,459
Power Systems 195,559 150,835
Segment eliminations (2,192) (1,884)
---------------------------------------------------------------------------
Revenue from continuing operations $ 912,016 $ 772,586
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Segment Earnings
Mobile Equipment $ 31,626 $ 22,156
Industrial Components 16,260 9,000
Power Systems 18,405 13,178
Corporate costs and eliminations (7,119) (6,471)
Income fund conversion-related costs - (2,606)
---------------------------------------------------------------------------
Earnings from continuing operations $ 59,172 $ 35,257
---------------------------------------------------------------------------
---------------------------------------------------------------------------
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, which is subject to post closing adjustments.

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:



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Conley Baytec Intek Total
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Working capital $ 5,883 $ 638 $ 592 $ 7,113
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Property, plant and equipment 128 456 41 624
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Goodwill and intangibles 200 645 1,267 2,112
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Purchase price 6,211 1,739 1,900 9,849
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Assumed Debt - (446) - (446)
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Total consideration given 6,211 1,293 1,900 9,403
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Less: Holdbacks (529) (383) (300) (1,211)
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Total cash paid $ 5,682 $ 910 $ 1,600 $ 8,192
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Note 10 Subsequent event

On November 7, 2006, the Federal Government passed a motion approving proposals to enact legislation that will amend the taxation of "specified investment flow-throughs". Wajax is currently evaluating the impact of the proposed rules which may subject Wajax to tax on distributions beginning in 2011.

Note 11 Comparative information

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

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