Employee Comment on Wajax 2002 Annual Report

April, 2003

Employee letter

Following the publication by Wajax of its abysmal 3rd Quarter financial results last year, I wrote to say how disgusted I was with the Company’s performance. As a shareholder as well as an employee I am even more sickened following receipt of the Wajax Annual Report for 2002.

We now have full admission that the J.D.Edwards’  ERP computer project was a total fiasco – a complete foul-up in concept, a complete foul-up in attempted implementation and finally a complete foul-up that has to be written off almost in its entirety! If you are lucky or should I say unlucky enough to have a copy of the Report, then check page 37, note 16: “During the year the Company decided to abandon the implementation of the ERP computer system. A $25.5 million charge was recorded . . . “ etc.

Now go to page 27 and look under Note 6 : Goodwill and other assets. “ . . .a goodwill write-down of $9,062 (i.e $9 million!) was recorded directly to Retained Earnings . . ”. This means that this $9 million is in addition to the horrendous $26 million after-tax loss for the year – the pre-tax loss was a staggering
$32 million! Looked at another way it’s a reduction of $26 million plus $9 million = $35 million out of the total retained earnings of $103 million – a reduction of almost 35%, bringing the total accumulated earnings of the Company to only $68 million! ! ! ! And no-one can remember the last time this Company paid its shareholders a dividend! These are the people supposedly directing and managing our Company! No wonder I’m sickened. If this Company wasn’t majority-controlled by the Sobeys, there would be a shareholder revolt at the total ineptitude of directors and management.

Do you wonder why the pension plan members were denied the benefit of our $16 million surplus?
Do you wonder why there was such a rush to “convert” our plan to a defined contribution plan?
Do you understand the spin that was used by Wajax management to promote the pension plan “conversion” so that they could keep the surplus out of the plan members’ hands?
Is it coincidental that the C.E.O., Walter Fox is no longer with the Company? That V.P. of Human Resources Doug Ball is no longer with the Company?

Before I finish let me ask you to take a final look at the 2002 Report, page 38, the Eleven-year summary. Under the “per common share” section, look for (shareholders’) equity per share. In 2202 it’s $10.83 – roughly the same as it was in 1996! In other words the Company has made absolutely no headway in 6 years of (mis)management. Hardly surprising that the shares have been trading at less than $4.00 despite having a book value of almost $11.00 .

In my last letter I posed the following questions:

With all the publicity given to the ENRON and WORLDCOM scandals, why has Wajax not disclosed in its financial statements the impending lawsuit against it for the recovery of the $16 million pension fund surplus, believed to be the rightful property of its employees and former employees? This is something the shareholders have a right to know!
Has Wajax notified its auditors of the imminent lawsuit?

Well, in the 2002 Report there is still no mention of this major potential liability to Wajax, although apparently the letter has been seen by both the Wajax chairman and its chief financial officer!
In the Notice of Annual Meeting of Shareholders there is a section that states the purported governance practices of the Company, comparing these “practices” with new guidelines being introduced by the Toronto Stock Exchange. On page 5 of the Notice, guideline 1(d) states “ . . . the corporation to comply with continuous and timely disclosure obligations and to avoid selective disclosure, etc.” The Company’s comments on this are: “The Board has adopted a communications policy . . . which comprehensively addresses communications with external parties (our note: this includes shareholders) and the timely and non-selective disclosure of material information.”

Is the imminent lawsuit for the recovery of $16 million not considered material? Would you call this non-selective disclosure?