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TOROMONT INDUSTRIES LTD.
2018 ANNUAL REPORT
STRONGER TOGETHERPLUS FORTS ENSEMBLE
STRONGER TOGETHER PLUS FORTS ENSEMBLE
Oui to We
In 2018, Toromont employees
answered the call to work together
to integrate the largest acquisition
in our history by saying Oui to We.
Yes to teamwork, yes to making
the whole greater than the sum
of the parts, and yes to bringing
a collective and unwavering focus
to continuous improvement. By
answering in the affirmative, the
people of Toromont demonstrated
that we are Plus forts ensemble –
Stronger Together.
CONTENTS
03
Letter to
Shareholders
18
Corporate
Governance
11
Sustainability
Report
20
Executive
Operating Team
21 Management’s Discussion and Analysis
46 Management’s and Independent
Auditor’s Reports
49 Consolidated Financial Statements
54 Notes to the Consolidated
Financial Statements
82 Corporate Information
1
1
MULTIPLE GROWTH PLATFORMS
One Toromont
Toromont Industries Ltd. (TSX: TIH) is a diversified growth company employing
over 6,000 skilled workers at more than 150 locations. Despite the scope and
scale of our assets and the differences in industries we serve through our
diverse operating units, we are united as One Toromont by our core strategies
and business model.
Multiple Growth Platforms
Toromont Cat
With 53 branches across seven provinces
and one territory, Toromont is one of
the largest Caterpillar dealers in the
world. Through Toromont Cat, it serves
the specialized heavy equipment, power
generation and product support needs
of thousands of public infrastructure,
construction, demolition, paving,
mining, aggregate, waste management,
agriculture, forestry, trucking, shipping,
transit and data centre customers.
SITECH Mid-Canada Ltd.
SITECH specializes in providing
machine control, site positioning, and
asset management technologies backed
by professional support services as a
Trimble and Cat AccuGrade® dealer in
Manitoba, Ontario, Québec, Nova
Scotia, New Brunswick, Prince Edward
Island, and Newfoundland and Labrador.
Battlefield – The Cat Rental Store
From 69 stores in our Cat dealer
territories, supported by a rapid
equipment delivery-to-site system,
Battlefield Equipment Rentals
addresses the rental and purchase
needs of contractors, specialty trades
and do-it-yourself customers through
its line-up of brand-name machines,
tools and supplies.
Toromont Material Handling
From 21 locations across most of
eastern Canada, Toromont Material
Handling rents, sells and provides
after-sales service for leading brand
name lift trucks, container handlers,
industrial batteries, chargers and
racking systems that ports and
terminals, paper producers,
automotive parts manufacturers,
beverage companies, hardware
retailers and other customers rely
on to safely move, store and protect
critical inventories.
CIMCO Refrigeration
CIMCO is a leading supplier of
refrigeration equipment and product
support services to customers in North
America’s food, dairy, cold storage,
beverage, pharmaceutical, automotive,
chemical, petrochemical, mining and
recreational ice-rink markets.
Jobsite Industrial Rental Services
Across eight Ontario locations, Jobsite
Industrial Rental Services meets the
specialized tool crib rental equipment
needs of contractors working in industrial
plants of all kinds, from automotive
to pulp and paper.
AgWest Ltd.
From six facilities, AgWest serves the
year-round equipment and product
support needs of Manitoba’s agriculture
industry as an official dealer of AGCO
and CLAAS, two trusted brands for crop
and livestock applications.
2
LETTER TO SHAREHOLDERS
Fellow
Shareholders
In 2018, Toromont began
to integrate the largest
acquisition in its history by
building the cultural and
structural underpinnings for
long-term success. It did so
without losing focus on the
critical factors that make
Toromont a reliable supplier
for customers, a trusted
employer and a good
investment for shareholders:
safety, teamwork,
empowerment, accountability,
disciplined capital allocation
and alignment to our core
strategies. The result was
another good year for
Toromont – our 50th as
a public company – and a
clear demonstration that
we are Plus forts ensemble –
Stronger Together.
33
LETTER TO SHAREHOLDERS
Customers count on Battlefield to deliver the right equipment, including this hydronic heater, at the right time, to ensure their
construction projects are completed on time.
Toromont earned $3.07 per diluted share in 2018, 40% more
than in 2017, reflecting good operating performance across
the business together with accretion from Toromont QM, our
acquired operations. On higher earnings, return on opening
shareholders’ equity was 22.3%.
Strong cash generation supported debt repayment of
$252 million, the allocation of $199 million to rental fleets,
property and plants to seed future returns, and a 21%
increase in common share dividends. Since Toromont’s public
listing five decades ago, dividends have been paid every year,
making the Company’s addition in early 2018 to the S&P/TSX
Canadian Dividend Aristocrats Index possible. With the recent
17% increase the Board announced at its meeting in February
2019, dividends have now increased for 30 years in a row.
Toromont’s strong financial position provides the fuel for
continued growth.
Realizing Growth Together
Deepening our relationships with existing customers in
construction, mining, power systems and refrigeration was
a critical driver of performance. In addition, we converted
equipment users who were loyal to other brands in the past,
to Toromont, and with new fleet investments, gained access to
large infrastructure projects such as Montréal’s Réseau
express métropolitain light rail transit system and the new
Champlain Bridge. Broader dealership territories with
geographic proximity provided additional opportunities to sell
used equipment. Investments in the fleet and realignment of
the business led to increased rental revenues.
Building On Our Natural Advantages
We developed our integration priorities prior to completing
the acquisition in October 2017 and in 2018 executed the first
stages of our plan to unify our operations and structure the
combined entity to support sustainable growth, workforce
empowerment and improved accountability.
Year one of the business combination was broadly productive
as we leveraged the scope and scale of the combined
business. Bringing together the eastern Canadian Cat
dealerships into one cohesive, contiguous unit, stretching
from St. John’s, Newfoundland to Brandon, Manitoba and
from Windsor, Ontario to Pond Inlet, Nunavut, presents
meaningful opportunities for all of our key stakeholders.
Revenues increased to $3.5 billion with year-over-year growth
of 6% in Legacy Toromont.
The clearest sign of change was the introduction of Toromont
brands on storefronts, service vehicles, rental equipment and
websites across our new Québec and Maritime territories.
Every employee in our new regions received Toromont gear,
identifying them as members of our cohesive, industry-leading
team. We chose to quickly adopt common nomenclature to
build equity in our brands and as a promise to customers that
we would be building a consistent experience for them,
wherever and however they choose to do business with us.
4
LETTER TO SHAREHOLDERS
Net debt to total capitalization
40%
2017
18%
2018
Our
results
22.3%
Return on opening shareholders’
equity, on higher earnings
2018 revenues
Earnings per share (diluted)
$3.07
$2.20
$1.98
$1.86
$1.71
2014
2015
2016
2017
2018
New & used equipment – 43%
Refrigeration equipment – 6%
Rentals – 11%
Product support – 40%
Core strategies
Expand markets
Strengthen product support
Broaden product offerings
Invest in resources
Maintain a strong
financial position
5
5
LETTER TO SHAREHOLDERS
Consistency of service is a key factor that large fleet accounts
use in choosing their suppliers.
In tandem, we addressed succession and appointed leaders to
key positions by drawing on the strength of both predecessor
organizations. Details of the structural changes are found in the
Business Unit Highlights section. Unchanged was the structure
of our Executive Operating Team, which provides the critical
guidance that supports our decentralized approach.
Culturally, we began to ingrain Toromont’s disciplines and
business principles, including our decentralized management
approach, within acquired operations. To Toromont,
decentralization means granting management authority to
our business-unit leaders, matched by accountability for
performance. Fidelity with Toromont’s specialized product
and product-support based business model and core strategies
– expand markets, strengthen product support, broaden
product offerings, invest in resources and our people and
maintain a strong financial position – provides our central
organizing principle. Decentralization is not the fastest way to
achieve results, but over the years and through three previous
Cat dealer acquisitions, it has proven to be the approach that
delivers the best long-term performance, engenders the
highest level of workforce engagement and develops the
strongest, most engaged workforce.
As the year progressed, robust go-to-market strategies were
implemented across our combined territories, assisted by
resourceful marketing and sales groups.
‘‘
Culturally, we
began to ingrain
Toromont’s disciplines
and business
principles, including
our decentralized
management
approach, within
acquired operations.
’’
Toromont provides industry-leading products, such as this Cat MD6290 rotary blasthole drill, and in-field product support to mining
customers throughout its territories.
6
LETTER TO SHAREHOLDERS
In human resources, safety and workforce development
remained at the forefront despite the distractions inherent in
year-one integration. Details are provided in our Sustainability
Report, although two metrics stand out. First, we continued
our safety journey with five-year total recordable injury
frequency rate declining by 46%. Second, we recruited over
290 service technicians – a positive outcome given intense
competition for talent.
Business Unit Highlights
Toromont Cat embraced the addition of new Québec and
Maritimes territories by structuring itself to achieve the benefits
of both decentralized branch operations and a high level of
coordination of services that cut across the entire dealership.
To respect the cultural differences of our diverse territories,
and in recognition of geographic proximity, we overlaid a
senior leadership structure for Central, Québec and Atlantic
Canada with key appointments made in each region. Legacy
Toromont Cat branches in Newfoundland and Labrador joined
with our newly acquired operations in the Maritimes under the
broader Atlantic group.
Our model runs on empowered branch managers with P&L
responsibility. To assist in their development, branch
leaders in our new territories participated in Dealer
Management Simulation training, a Caterpillar program
we tailor to include Toromont return on capital employed
and asset management philosophies. Training programs
are just one of many advantages that we realize from our
partnership with Caterpillar. We marked our 25th
anniversary as a Cat dealer in August, 2018, and our
relationship has been a difference maker every year. We
are particularly grateful for Caterpillar’s support during
this period of change.
Two pan-regional groups for product support were also
created: one specializing in Services and Remanufacturing
and the other addressing Parts and Logistics. This shared
services structure will allow for the development of Centres
of Excellence, and the realization of business synergies and
economies of scale over time. One example of the power of
scale was seen in our component remanufacturing (“Reman”)
operations. Each predecessor organization had two Reman
facilities, each managed regionally. The combined portfolio
of four facilities allows for much more of a product-specific
focus and paves the way to achieving new synergies and
increased throughput.
Mining, Power Systems and Heavy Rents capabilities grew
substantially as a result of the acquisition and in the case of
Heavy Rents, new fleet investments.
Even with the distractions of integration, product support
growth was achieved in both parts and service.
Battlefield Equipment Rentals set new time utilization
records for its rental fleet on the way to another year of positive
performance. Significant investments were made in the fleet,
‘‘
Our model runs on empowered
branch managers with P&L
responsibility.
’’
77
LETTER TO SHAREHOLDERS
including foundational capital allocations in acquired territories
where we installed our rental service model. Our model
depends on a full-cycle of equipment uploading, aging and
disposition to provide hurdle-rate returns. We draw the analogy
that rental is more akin to planting an orchard than sowing a
wheat field: value is created over time but is continuous.
disciplines to improve efficiencies. We believe this business
presents good opportunities for growth, particularly in rental
markets, and we are investing accordingly. The recent
addition of Nilfisk to our product line helped to diversify the
business, while representation of leading lift truck brands and
specialized batteries continued to give Toromont Material
Handling a competitive edge.
Market coverage also improved with new stores in Owen
Sound, Ontario, and Fermont, Québec, a new shared store
(with AgWest) in Morden, Manitoba and conversion of
facilities previously shared with heavy equipment in Québec
and the Maritimes to Battlefield-branded stores. Ground
heaters, along with saleable goods such as boots, rain suits
and shovels were among products added in new territories to
improve our positioning as all-weather service centres. To
improve product availability, the hub and spoke distribution
system, used to good effect in existing markets, was
introduced in acquired territories to improve delivery
efficiencies. As well, more technicians were recruited to
maintain rental fleets for quick turnaround.
Toromont Material Handling was designated a standalone
business due to its unique customer base and equipment
offerings. Prior to the acquisition, we had a relatively small
material handling business representing MCFA products and
Cat-branded forklifts that operated under the auspices of
Toromont Cat’s Manitoba and Newfoundland and Labrador
regions. The addition of Ontario and Québec regions created
a substantial operation across most of eastern Canada. We
transitioned leadership following a retirement to steer
pan-regional growth and entrench new operating and financial
Steady progress was made in our smaller Equipment Group
business units. Jobsite Industrial Rental Services kept busy
in 2018 in chemical and refinery markets during customer
facility maintenance shutdowns. SITECH brought more focus
to professional services and participated in the launch of
next-generation software including concrete curb machine
technology and earthworks grade control systems. AgWest
improved its market position and coverage by partnering with
Battlefield in Morden, Manitoba.
CIMCO grew across its markets in Canada and the U.S. while
innovating and bringing heightened focus to the fundamentals
of execution including service delivery, talent recruitment
and training. Rising demand for both energy efficiency and
natural refrigerants with minimal global warming potential
led more users to our ECO2 CHILL® systems. In 2018, Toronto’s
College Park and Woodsy Park opened the first two outdoor
direct CO2 ice rink systems in North America. Long-standing
partnerships with industry leaders in food, beverage and
cold storage were nurtured, while new industrial customer
relationships were forged. Courtesy of an introduction by
Toromont Cat in the Maritimes, CIMCO gained a customer
relationship that had previously been outside its orb. Product
CIMCO designed this industrial-grade carbon dioxide/ammonia cascade system to provide superior performance using natural refrigerants.
8
LETTER TO SHAREHOLDERS
25
years
We marked our
25th anniversary
as a Cat dealer
in August, 2018,
and this relationship
is a core competitive
advantage.
Toromont customers benefit
from access to next-generation
technology. An example is found
in this model excavator, outfitted
with Cat® Connect PAYLOAD that
provides on-the-go load weighing
for better productivity.
50
years
2018 marked our 50th
anniversary as a
TSX-listed company
with a value creation
mission for customers
and shareholders.
9
LETTER TO SHAREHOLDERS
support operations were heavily utilized in most markets in
North America including U.S. operations, the latter of which
now delivers service under 130 Customer Support
Agreements. The third-quarter installation of Customer
Relationship Management software gave the CIMCO team a
tool that improves customer account visibility and a platform
to access standardized quoting templates that reduce
response time to customer opportunities.
Governance
We were pleased to welcome Richard G. Roy to Toromont’s
Board on November 6, 2018. Mr. Roy is a Montréal-based
business and finance executive with a keen understanding of
the Québec market and decades of relevant experience
earned principally in automotive equipment distribution. Your
Board has been actively managing succession due to
scheduled retirements in recent years with others on the
horizon and, accordingly, has nominated two new candidates
for election at our annual meeting May 3, 2019. Peter J. Blake
is an accomplished public company CEO with highly relevant
and analogous heavy equipment sales, auction and
distribution experience. Sharon L. Hodgson is an
accomplished expert in technology, including digital and
artificial intelligence, with significant North American-level
business leadership experience. With these proposed
additions, the Company’s Board of Directors will consist of 11
members, of whom ten are independent.
Looking Forward
and 2019 will be no different. Detailed planning identified many
opportunities to pursue for profitable growth and challenges
to manage.
Going forward, while running the business for continuous
improvement, we will tackle the priorities that remain on our
integration agenda, including the meaty assignment of
developing common technology platforms. As always, we are
committed to doing things properly and pragmatically with
regards to strategic alignment, workforce capacity and the
creation of long-term value. Our continued focus is on managing
our business across the many stages of the economic cycle, not
just for the vagaries of specific market conditions, for we believe
this creates maximum sustained value for all of our key
stakeholders.
Thanks
Up and down the line, the Toromont team has adapted well
to the responsibilities that come with being a much larger
company and we thank our employees, Directors and
business partners for their many contributions in 2018.
We reserve our utmost thanks to our customers and fellow
shareholders for the opportunity to serve as one team with
many growth platforms.
Yours sincerely,
Although Toromont is a proven business with a long track
record, each year we feel we have something more to accomplish
Robert M. Ogilvie
Scott J. Medhurst
Chairman of the Board
President and Chief Executive Officer
Toromont’s Aaron Wright is part of a team at our Power Systems
operation in Brampton, Ontario, that customized this Cat 3516 diesel
generator for a customer’s mission-critical application.
Toromont Material Handling provides specialized equipment such as
this electric powered Jungheinrich Class II reach truck that is specified
to perform in the narrow confines of warehouses and logistics centres.
10
SUSTAINABILITY REPORT
Sustainability
Report
Much has changed at Toromont over the
past year as we integrated the largest
acquisition in our history and welcomed
over 2,100 people to our team. What has
not changed is our focus on sustainability
– in all its forms – and our commitment
to the safe, responsible and productive
stewardship of our business on behalf of
employees, customers, shareholders and the
communities where we work.
11
SUSTAINABILITY REPORT
Safety
Every year, Toromont makes substantial investments in
training, coaching, recognition and employee engagement
activities to nurture adherence to its safety culture. The
Company’s methodical approach is intended to elevate safety
to the forefront of the activities carried out by all employees,
regardless of rank or role.
Across more than 150 Toromont locations in North America,
each day begins with Safety Talk, an informative daily
reminder of how to avoid injury. From there, employees
working in all shops and at customer sites perform formal
pre-job-hazard assessments to document possible risks
and the measures that they will take to avoid these risks. An
assessment is completed for each job undertaken, and
updated as hazards arise, to reinforce the need for safe
behaviour at every turn. Supervisors review the
assessments daily and provide feedback and coaching to
ensure safe practices. In our shops and in the field,
employees are provided with the right Personal Protective
Equipment (PPE) for each task. Proper PPE use is one of our
Five Cardinal Safety Rules intended to emphasize foundational
safety principles.
help them recognize, avoid and mitigate the risks inherent
in their workspaces. We also make safety policies and
procedures easily accessible through employee intranet sites.
Both CIMCO and Battlefield Equipment Rentals upgraded
their sites during 2018 to improve functionality.
We believe the best results are achieved when everyone at
Toromont is accountable for safety. At the management
level, variable compensation is tied to safe operating
performance and to involvement in promoting safe
behaviours. Managers and supervisors demonstrate their
commitment by being visible and active, with a targeted
‘leaders-on-the-floor’ focus that ensures ongoing coaching
and reinforcement of safe practices.
In 2018, Safety Summits of branch leaders and supervisors
were hosted in five Toromont Cat locations to identify ways
in which we could continuously improve our efforts and our
results. One initiative we centered on was to enhance the
safety training given to our branch leaders so that they could
make a bigger and better contribution to our safety culture.
During 2018, 10 members of our health and safety team were
certified to offer Safety Leadership Training, a program that
rolls out at Toromont Cat in 2019.
In branches and stores, posters are displayed with key safety
messages, providing another reminder of the importance we
place on safeguarding our employees as well as customers
and suppliers who visit our operations.
To ensure employees have access to all the latest safety
techniques and knowledge, Toromont provides formal safety
training. In 2018, employees embraced this training,
completing over 128,000 hours of instruction designed to
Compliance is a key part of the best safety programs.
Throughout Toromont, periodic safety audits are one of
the ways we encourage compliance and isolate issues for
remedial action. In 2018, CIMCO engaged a third-party
specialist to complete a 45-day branch and field safety audit
across its operations. The findings of these audits, which
included interviews with CIMCO staff to gauge their
awareness of safety policies and procedures, were used to
develop continuous improvement initiatives for each location.
Members of our Val-d’Or, Québec, branch gather to hear about the
personal health benefits of a good work environment.
Avinash Narine-Jaikaran, an Apprentice Technician, serves at
Toromont Cat where he is developing his skills for a productive
career in the heavy equipment industry.
12
SUSTAINABILITY REPORT
Compliance is also enforced through our Five Cardinal Safety
Rules policy: be fit for duty, assess all hazards prior to starting
the job, control all hazardous energy, wear the right PPE and
report all incidents promptly. While all of our safety rules are
important, failure to execute these five required foundational
behaviours leads to elevated disciplinary action, up to
employment termination, regardless of role or rank.
To ensure outside contractors are compliant when working
in store locations or customer sites, all divisions maintain a
Contractor Management Program. With our expanded
organization, additional investments were made in 2018 to
transition to a more robust Contractor Management tool in
order to mitigate contractor risk and manage the expanded
breadth and complexity of our operations effectively.
We also celebrate safe performance. Our Safety Bucket
and Maurice De Stephano awards single out Toromont Cat
branches that surpass all others in safety metrics. For 2018,
we were proud to present these coveted awards to our
Voisey’s Bay (NL) and Québec City locations, respectively.
Battlefield Equipment Rentals also provides quarterly and
annual awards for safe driving and clean inspections.
In 2018, we began bringing together the best safety practices
of acquired and legacy operations to ensure everyone is well
protected and well informed. In so doing, we compared,
refined and aligned individual policies and procedures to set
ourselves on a unified path to achieve our goal of zero
workplace injuries.
By providing the right stewardship, continuously investing
in the best training and tools and ensuring that safety is a
workplace characteristic to be admired and aspired to,
Toromont has made progress in its safety journey as evidence
by the five-year decline in total recordable injury frequency
rate of 46%, and an 11% improvement year over year. With an
increased focus on safety leadership and accountability, we
seek to continue to drive towards a zero-injury workplace.
Workforce Development
Sustainable growth at the rate and quality Toromont seeks
does not just happen. It is the product of our skilled,
productive and invested workforce. Each year, we take steps
to advance employee knowledge and engagement and 2018
was no different, although the scope of our activities increased
dramatically with the addition of Toromont QM.
All Toromont Cat employees across our territories participated
in setting individual performance goals based on business
plan objectives. In tandem, employees were encouraged to
set personal skills development goals, taking into account
the key competencies that are necessary for them to excel
in their roles. Toromont’s deep educational resources are
catalogued in a Development Playbook, and customized
training is available for all employees to ensure personal and
professional growth aligned with business needs.
Each month, Toromont Cat provided facilitated workshops
on topics that addressed workforce needs including leading
remotely while managing closely, project management and
change leadership. Managing change in a positive manner is
a key skill for our team, particularly during this time of
integration. In the third quarter, we launched Leaders@Work,
an on-demand platform that provides managers with the
choice of how to learn in classroom, online, or in virtual
classrooms. Formal study without the need to leave one’s
office improves participation and convenience. Over 2,700
hours of additional training was provided through Leaders@
Work and this forum will expand in 2019.
To prepare our Toromont QM managers to excel in their roles, we
ran multiple dealer management workshops. Attended by over
50 managers, these workshops introduced financial concepts,
discussed how to best execute strategies to achieve results, and
honed the leadership skills needed to motivate teams. Utilizing
business simulation to practice and reinforce learned behaviours,
our QM leaders gained the insights needed to manage effectively
in a decentralized organization where authority and
accountability go hand in hand in producing great results.
Succession planning is important because the vast majority of
our leaders are promoted from within. We introduced Toromont’s
method of succession planning at Toromont QM in the fall.
While delivering a record level of training, Toromont Cat’s
human resources team was amalgamated and skills shared.
To expand internal coaching capabilities, several HR team
members from Toromont QM were certified to offer training
in foundational development programs in order to better
identify high-potential candidates and fully understand and
support all employees’ needs and capabilities.
Other Toromont businesses provided skills training and
development to meet the unique needs of their organizations.
As a project-based business, CIMCO offered an intensive
program on the fundamental disciplines of great execution.
During the year, Toromont Cat employees across the
expanded territory completed 189,310 hours of technical
and skills training to prepare them for the opportunities and
challenges ahead.
Skills development is just one of the ways we invest in our
workforce. Another is the Toromont Employee Share
Ownership Purchase (ESOP) plan. As share owners,
13
SUSTAINABILITY REPORT
participating employees have another direct stake in their
own success and an alignment of interests with public
shareholders. We will introduce ESOP to Toromont QM in
2019 and over time, hope to see the participation rate grow to
where it was at the rest of Toromont in 2018 – at over 50%.
Broader benefits and a pay-for-performance culture, coupled
with dedicated training and opportunities for advancement,
are integral to building a Toromont workforce that is
motivated, engaged and ready to take on new challenges.
Recruitment
Continued growth fueled the need for continued recruitment
in 2018, particularly to increase the ranks of our highly skilled
service technicians. Over 290 new Toromont Cat technicians
were recruited, including three from Australia and one from
South Africa. Battlefield Equipment Rentals also added over
50 technicians, while CIMCO recruited just over 30. Even with
these increases, there remains a significant need.
Whether they work on heavy equipment, smaller machines
or refrigeration systems, technicians are in high demand.
Competition to attract them is fierce and the pipeline of
young people entering the “trades” is insufficient to meet
long-term demand.
Taking all of this into account, Toromont took some bold steps
to enhance recruitment activities to set itself up for future
success. To build our pipeline of future technicians, changes
were made to encourage Toromont Cat branches to more
aggressively invest in apprenticeship training, budgets were
increased and two dedicated technician recruiters were
added. A Mining Apprenticeship Training Program was
created and the first two apprentices were recruited. We
began to encourage skilled workers in other industries such
as automotive to make the leap to heavy equipment repair.
Overall, 32 apprentices were added.
At CIMCO, we prepared the curriculum for a seven-level
Technician Apprenticeship Program in the United States.
Unlike Canada, the U.S. does not operate an apprenticeship
system to train refrigeration mechanics. With this program,
we plan to train newcomers in multiple different equipment
types and further develop the skills of our existing
field-service personnel in the U.S. so that they can advance to
the position of Master Technician. We believe this training
program will differentiate CIMCO and support the goal of
growing its service technician workforce by 10% per annum.
CIMCO also made headway in recruiting technicians using its
“friends and family” referral program.
Thinking more broadly about resource needs, we continued to
recruit university graduates for our management trainee
program. Every year, management trainees are given meaty
assignments and make a positive contribution. In 2018, five
trainees lent their expertise to a number of important projects
including the centralization of our preventative maintenance
program and the standardization of our service advisor
model. Due to the success of this program, and demand for
management trainees throughout the organization, we intend
to expand it in 2019.
Winning Gold
Kaleb Czyruk, an apprentice from Toromont Cat’s
Peterborough branch, won gold in the Heavy Equipment
Service category at the 2018 Skills Ontario Competition, an
annual event featuring over 2,100 students from secondary
and post-secondary institutions vying for medals in various
skilled trades categories. Toromont Cat and Battlefield
supported the competition by providing three CAT 924K
wheel loaders and three judges. Winning gold qualified Kaleb
to represent Ontario at the 2018 Skills Canada Competition in
Edmonton where he took the bronze medal.
14
14
Toromont’s long-time investment in the management trainee
program has paid dividends for succession planning. Former
trainees now serve in positions such as Vice President, Product
Support, President, Battlefield Equipment Rentals and
President and Chief Executive Officer, Toromont Industries.
Diversity
Toromont sees the advantage of building a diverse and
inclusive team. For this reason, Toromont intentionally seeks
to encourage members of underrepresented groups to
participate in our industry and join our Company.
The first ‘face’ of Toromont that many candidates see is in our
recruiting and customer promotional materials. In 2018, we made
a conscious effort to ensure the faces used in our marketing
campaigns represented the diversity of the communities we
serve. Although a symbolic gesture, we believe this conscious
choice sent a welcoming signal to the broader community.
During 2018, we recruited three technicians from First Nations
communities to serve at Toromont Cat in Québec and one
apprentice technician from the Inuit community to serve in our
Baker Lake, Nunavut operation. We also created an internship
opportunity for a member of the Inuit community at our
Iqaluit, Nunavut branch and provided another internship to a
member of the Cree Nation of Eastmain to develop skills at our
Pointe-Claire, Québec Heavy Equipment shop.
Toromont continued its efforts to increase the proportion of
women in its workforce and in its leadership. Over the past
SUSTAINABILITY REPORT
few years, we have made inroads with female representation
in varied leadership roles including:
• Vice President, Power Systems;
•
Regional Manager, Eastern Ontario, Battlefield
Equipment Rentals;
Heavy Rents Manager, Toromont Cat;
Director, Human Resources, Toromont Cat;
Director, Taxation, Toromont Industries;
Director, Financial Services, Toromont Industries;
General Counsel and Corporate Secretary,
Toromont Industries; and,
Vice President, Finance, Toromont Industries.
•
•
•
•
•
•
We also made a very deliberate choice to improve representation
by recruiting Toromont’s first two female Directors to the
Company’s Board of Directors several years ago.
We continued with this effort across our broader organization
in 2018 by participating in events such as “Jill of All Trades”
at Conestoga College and Diversity Networking at Ryerson
and McMaster universities. Starting the conversation early
with elementary school girls was made possible by our
participation in the “Women in Trades” conference at the
Toronto Congress Centre.
To ensure newcomers to Canada are aware of Toromont, we
continued to recruit with the help of COSTI Immigrant Services.
Overcoming the barriers to diversity and inclusion also requires a
commitment to inform and elevate awareness internally. In 2018,
we introduced several training modules for employees including
Toromont’s Kaleb Czyruk receives his gold medal at the Skills
Ontario Competition in Toronto.
Samantha McGillion, an Apprentice Technician, at work in our tractor
shop in Concord, Ontario.
15
SUSTAINABILITY REPORT
Toromont continues to invest in upgraded wash bays to realize
improved water efficiency.
Toromont is a proud supporter of the annual World Pond Hockey
Championship in Plaster Rock, New Brunswick, which attracts over
100 amateur teams playing on 20 outdoor ice surfaces.
“The Diversity Advantage” that contained insightful information
on how to leverage differences at work for great results.
As a metrics-driven organization, Toromont believes it is
important to measure the outcomes we seek to achieve.
For this reason, diversity metrics are tracked in our quarterly
Toromont CAT HR Scorecard. Our intentional efforts show
measurable year-over-year improvement in the areas of
leadership, gender and ethnic diversity with continued focus
on all underrepresented groups.
Overall, Toromont’s culture values actions over words.
Therefore, the outcome of our diversity and inclusion activities
is what counts. In 2018, we made progress in hiring broadly,
advancing the skills of our team and – as always – promoting
on merit. The outcome is a stronger Toromont.
Environment
Toromont’s environmental sustainability efforts are an
outgrowth of a disciplined approach to capital and operating
management. Simply put, what is good for the environment
can also be good for cost and efficiency.
Energy and Pollution Reduction
In aggregate, Toromont has a relatively small environmental
footprint, but we never use this as an excuse for inaction.
efficiency considerations are part of equipment purchase
decisions. To eliminate needless pollution and energy
consumption, we maintain anti-idling policies and employ GPS
monitoring to assist us with fuel consumption benchmarking.
Toromont facilities are the second largest contributor to
our GHGs, meaning we must continue to make steady
improvements. At Toromont Cat, building energy intensity
continued its downward trend in 2018 as a result of additional
investments in more efficient HVAC systems, lighting,
overhead doors and compressed air tools. Eight branches
replaced fluorescent building signs with LED lighting kits, which
cut energy usage and maintenance costs with a relatively fast
payback. Battlefield Equipment Rentals also continued to
upgrade heating and lighting as part of its capital plan.
Emission abatement was assisted at Power Systems by the use
of selective catalytic reduction equipment that minimizes the
release of nitrogen oxide and sulphur during generator testing.
More generally, facility care and yard maintenance are
priorities because a clean, modern appearance reflects our
brand, builds goodwill with customers and neighbours,
assists in safe performance and compliance, and creates
pride of place. Due to the increase in our footprint with
acquired operations, and in support of our growth strategies,
we increased capital spending by 33% year over year.
Federal and provincial governments are taking various actions to
address Canada’s commitment to the Paris Climate Change
Accord. Such actions will likely increase the cost of fuel to power
our facilities and run our service trucks over time. To counter
this impact and to do our part for the environment, we conserve
energy use and reduce pollution wherever possible.
Small actions can also make a difference. This past year,
we encouraged Toromont Cat branches to purchase
environmentally friendly cleaning supplies that release lower
levels of volatile organic compounds (VOCs), a contributor
to ozone depletion.
In managing our fleet of vehicles, which is the largest contributor
to greenhouse gas (GHG) emissions in our business, fuel
Water Management
Through the use of specialized wash bays for equipment,
Toromont continued to realize improved water efficiency.
16
SUSTAINABILITY REPORT
These systems recycle water, allowing us to hold the line on
consumption, even with higher activity levels. Energy-efficient,
high-temperature steam and pressure washers installed in
these systems also eliminate the use of chemical cleaning
agents. In 2018, Toromont Cat’s Sault Ste. Marie, Ontario
branch was the latest to install such a system.
customers and the broader environment. By using a unique and
patented heat capture and recycling system, the ECO CHILL
installed base has cumulatively offset 851,000 CO2-equivalent
tonnes (the same amount produced by 189,000 cars)
compared to traditional refrigeration and saved 17 billion cubic
feet of natural gas over the past 14 years.
The recent replacement of five washing systems used to clean
equipment parts also contributed to water conservation. Net
water savings were approximately 3.4m3 (900 gallons) for one
cleaning cycle, or 817m3 (216,000 gallons) per annum.
CIMCO’s applied use of natural CO2 refrigerant also provides
customers with another alternative to freon. Customers
responded well to this offering in 2018 as ECO2 CHILL
reached 8% of all orders booked.
Battlefield Equipment Rentals’ water conservation efforts were
assisted by specialized wash bays in 25 standalone locations
and another three shared with Toromont Cat.
Waste Diversion
To bring additional attention to the merits of a zero-waste
ecosystem, and encourage permanent behavioural change,
Zero Waste Champions were appointed at various branches.
Toromont Cat also continued to recycle absorbent cloths used
in cleaning and repairing machines. Since this program started
in 2012, 48,654 kilograms of waste were diverted from landfill
and 33,574 litres of liquid including oil were recovered.
Helping Customers Go Green
Toromont and its business partners produce products that help
customers achieve their sustainability objectives. We are proud
of our home-grown innovations at CIMCO – sold primarily under
the ECO CHILL and ECO2 CHILL brands – that have proven to be
game-changers for recreational and industrial refrigeration
Community
Toromont employees are community minded and as a
company, we applaud and encourage their activities. Our
official designated charity is the United Way/Centraide, which
helps those in need in the communities we serve. In 2018, our
employees contributed $285,000 to this important cause.
These results were earned at early-morning breakfasts, BBQs,
bingo games and through generous pledge donations.
Toromont business units provided support to other worthy
causes. In 2018, Battlefield Equipment Rentals supported
Hope Air, a service connecting residents of remote
communities to medical care hundreds of kilometres away.
The Children’s Wish Foundation in Québec and in the Maritimes
(where we made a rental equipment donation in concert with
New Brunswick Road Builder’s Association) and Habitat for
Humanity were also worthy recipients of our support.
With a larger workforce and facility footprint, Toromont has more
corporate social responsibilities than ever and great opportunities to
support the communities where we work and live. We take these
responsibilities seriously and our focus up and down the organization
is on long-term results and on the pragmatic actions that will achieve
those results. Overall, our sustainability initiatives form part of the
fabric of values that weave together for the Toromont tapestry,
executed by the passion and commitment of the Toromont team.
17
17
CORPORATE GOVERNANCE
Corporate
Governance
The Company’s corporate governance structure and
procedures are founded on our Code of Business Conduct
that applies to all Directors, officers and employees.
Our governance program includes the activities of the Board
of Directors, who are elected by and are accountable to the
shareholders, and the activities of management, who are
appointed by the Board and are charged with the day-to-day
management of the Company.
Toromont regularly reviews and enhances its governance
practices in response to evolving regulatory developments
and other applicable legislation.
The Company’s corporate governance program is in
compliance with National Policy 58-201 – Corporate
Governance Guidelines and Multilateral Instrument 52-110 –
Audit Committees.
The Lead Director is an independent Director, appointed
annually by the Board to facilitate the Board’s functioning.
The Lead Director serves as a non-partisan contact for other
Directors on matters not deemed appropriate to be discussed
initially with the Chairman or in situations where the Chairman
is not available. The Lead Director is available to counsel the
Chairman on matters appropriate for review in advance of
discussion with the full Board of Directors.
Board of Directors
The role of the Board of Directors, its activities and
responsibilities are documented and are assessed at least
annually, as are the terms of reference for each of the
committees of the Board, the Chairs of the committees, the
Lead Director and the Chairman, inclusive of scope and limits
of authority of management. The Board acts in a supervisory
role and any responsibilities not delegated to management
remain with the Board. The Board’s supervisory role includes
such matters as strategic planning, identification and
management of risks, succession planning, communication
policy, internal controls and governance.
For more information on the Board of Directors, please refer
to the Management Information Circular dated February 28,
2019, prepared in connection with the Corporation’s 2019
Annual Meeting of Shareholders and available on our website
at www.toromont.com.
Committee Structure and Mandates
Committees of the Board are an integral part of the
Company’s governance structure. Three committees have
been established with a view toward allocating expertise and
resources to particular areas, and to enhance the quality of
discussion at Board meetings. The committees facilitate
Board decision-making by providing recommendations to
18
CORPORATE GOVERNANCE
L to R: James W. Gill, Robert M. Franklin, Scott J. Medhurst, Robert M. Ogilvie, Cathryn E. Cranston, Jeffrey S. Chisholm, Richard G. Roy,
Katherine A. Rethy, Wayne S. Hill
the Board on matters within their respective responsibilities.
All committees are comprised solely of Directors who are
independent of management. A summary of the
responsibilities of the committees follows.
The Nominating and Corporate
Governance Committee
appropriate financial policies, the integrity of accounting
systems and internal controls, legal compliance on ethics
programs established by management, the approval of all
audit and non-audit services provided by the independent
auditors and consultation with the auditors independent of
management and overseeing the work of the auditors and the
Internal Audit department.
Principal responsibilities are reviewing and making
recommendations as to all matters relating to effective
corporate governance. The committee is responsible for
assessing effectiveness of the Board, its size and composition,
its committees, Director compensation, the Board’s
relationship to management, and individual performance and
contribution of its Directors. The committee is responsible
for identification and recruitment of new Directors and new
Director orientation.
The Audit Committee
Principal duties include oversight responsibility for financial
statements and related disclosures, reports to shareholders
and other related communications, establishment of
The Human Resources and
Compensation Committee
Principal responsibilities are compensation of executive
officers and other senior management, short- and long-term
incentive programs, pension and other benefit plans,
executive officer appointments, evaluation of performance
of the Chief Executive Officer, succession planning and
executive development. The committee also oversees
compliance with the Company’s Code of Business Conduct
and the health, safety and environment program.
19
EXECUTIVE OPERATING TEAM
Executive
Operating Team
L to R:
Lynn M. Korbak,
Paul R. Jewer,
David A. Malinauskas,
Michael P. Cuddy,
Jennifer J. Cochrane,
Scott J. Medhurst,
Randall B. Casson
Randall B. Casson
President, Battlefield
Equipment Rentals
Mr. Casson joined Toromont
in 1977. He was appointed
Vice President and General
Manager, Toromont Cat
Northern Region
in 1997 and became President
of Battlefield in 2001. He is
a graduate of Toromont’s
Management Trainee Program.
Jennifer J. Cochrane
Vice President, Finance
Ms. Cochrane joined
Toromont in 2003 and has
held increasingly senior
management positions
within the finance area. She
is a CPA, CA. Ms. Cochrane
was appointed to her current
position in 2013.
20
Michael P. Cuddy
Vice President and Chief
Information Officer
Mr. Cuddy joined Toromont as
General Manager, Information
Technology and Chief
Information Officer in 1995
and became Vice President
and Chief Information Officer
in 2004. He held various
positions previously with
Ontario Hydro, Imperial Oil
and Bell Mobility, and holds a
BSc and an MBA, both from
the University of Toronto.
Paul R. Jewer
Executive Vice President and
Chief Financial Officer
Mr. Jewer joined Toromont
in 2005 as Chief Financial
Officer. Prior to joining
Toromont, he served for
five years as Chief Financial
Officer for another Canadian
publicly listed company. He
is a Fellow of CPA Ontario
(FCPA, FCA), a member
of CPA Newfoundland and
Labrador and holds the ICD.D
designation as a member of the
Institute of Corporate Directors.
Lynn M. Korbak
General Counsel and
Corporate Secretary
Ms. Korbak joined Toromont
in 2018 as General Counsel
and Corporate Secretary. She
previously served in the same
capacity at another Canadian
publicly listed company for
more than 13 years. She
has also acted as in-house
and external corporate
counsel and secretary for a
number of other national and
international companies. She
is a member of the Ontario
Bar, and holds an LLB from
Osgoode Hall Law School.
David A. Malinauskas
President, CIMCO Refrigeration
Mr. Malinauskas was
appointed President of
CIMCO in 2015 following a
successful 16-year career
with the business. He had
held various positions of
increasing responsibility,
including Director of
Engineering. He is a
Professional Engineer and
received his MBA in 2001.
Scott J. Medhurst
President and Chief
Executive Officer
Mr. Medhurst joined Toromont
in 1988. He was appointed
President of Toromont Cat in
2004 and became President
and CEO of Toromont
Industries Ltd. in 2012.
Mr. Medhurst is a graduate
of Toromont’s Management
Trainee Program. He is
currently an active member
of the World Presidents’
Organization and Caterpillar
Global Mining Council.
Management’s
Discussion
& Analysis
21
This Management’s Discussion and Analysis (“MD&A”) comments on the operations, performance and financial condition of Toromont
Industries Ltd. (“Toromont” or the “Company”) as at and for the year ended December 31, 2018, compared to the preceding year.
This MD&A should be read in conjunction with the attached audited consolidated financial statements and related notes for the year
ended December 31, 2018.
The consolidated financial statements reported herein have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) and are reported in Canadian dollars. The information in this MD&A is current to February 14, 2019.
Additional information is contained in the Company’s filings with Canadian securities regulators, including the Company’s 2018
Annual Report and 2019 Annual Information Form. These filings are available on SEDAR at www.sedar.com and on the Company’s
website at www.toromont.com.
Advisory
distribution or original equipment
risks related to integration of the acquired
Information in this MD&A that is not a
manufacturer agreements; equipment
operations with those of Toromont including
historical fact is “forward-looking
product acceptance and availability of
cost of integration and ability to achieve the
information”. Words such as “plans”,
supply; increased competition; credit of
expected benefits. Readers are cautioned
“intends”, “outlook”, “expects”,
third parties; additional costs associated
that the foregoing list of factors is not
“anticipates”, “estimates”, “believes”,
with warranties and maintenance contracts;
exhaustive.
“likely”, “should”, “could”, “will”, “may” and
changes in interest rates; the availability of
Any of the above mentioned risks and
similar expressions are intended to identify
financing; potential environmental liabilities
uncertainties could cause or contribute to
statements containing forward-looking
of the acquired businesses and changes to
actual results that are materially different
information. Forward-looking information
environmental regulation; failure to attract
from those expressed or implied in the
in this MD&A reflect current estimates,
and retain key employees; damage to the
forward-looking information and statements
beliefs, and assumptions, which are based
reputation of Caterpillar, product quality
included in this MD&A. For a further
on Toromont’s perception of historical
and product safety risks which could expose
description of certain risks and
trends, current conditions and expected
Toromont to product liability claims and
uncertainties and other factors that could
future developments, as well as other
negative publicity; new, or changes to
cause or contribute to actual results that are
factors management believes are
current, federal and provincial laws, rules
materially different, see the risks and
appropriate in the circumstances.
and regulations including changes in
uncertainties set out in the “Risks and Risk
Toromont’s estimates, beliefs and
infrastructure spending; and any
Management” and “Outlook” sections
assumptions are inherently subject to
requirement of Toromont to make
herein. Other factors, risks and
significant business, economic,
contributions to the registered funded
uncertainties not presently known to
competitive and other uncertainties and
defined benefit pension plans, post-
Toromont or that Toromont currently
contingencies regarding future events and
employment benefits plan or the multi-
believes are not material could also cause
as such, are subject to change. Toromont
employer pension plan obligations in which
actual results or events to differ materially
can give no assurance that such estimates,
it participates and acquired in excess of
from those expressed or implied by
beliefs and assumptions will prove to be
those currently contemplated. Risks and
statements containing forward-looking
correct. This MD&A also contains forward-
uncertainties related to the 2017 significant
information.
looking statements about the recently
acquisition could also cause the actual
Readers are cautioned not to place
acquired businesses.
results to differ materially from the
undue reliance on statements containing
Numerous risks and uncertainties could
estimates beliefs and assumptions
forward-looking information, which reflect
cause the actual results to differ materially
expressed or implied in the forward-looking
Toromont’s expectations only as of the date
from the estimates, beliefs and assumptions
statements, including but not limited to:
of this MD&A, and not to use such
expressed or implied in the forward-looking
changes in consumer and business
information for anything other than their
statements, including, but not limited to:
confidence as a result of the change in
intended purpose. Toromont disclaims any
business cycles, including general economic
ownership; the potential for liabilities
obligation to update or revise any forward-
conditions in the countries in which
assumed in the acquisition to exceed our
looking information, whether as a result of
Toromont operates; commodity price
estimates or for material undiscovered
new information, future events or otherwise,
changes, including changes in the price of
liabilities in the 2017 acquisition; the
except as required by law.
precious and base metals; changes in
potential for third parties to terminate or
foreign exchange rates, including the Cdn$/
alter their agreements or relationships with
US$ exchange rate; the termination of
Toromont as a result of the acquisition; and
22
Management’s Discussion and Analysis Corporate Recap
2017 Acquisition
Toromont completed a significant
Seaboard of the United States, from Maine
large contiguous operating platform
acquisition on October 27, 2017, and as a
to Virginia. Additional distribution rights
extending across all of Eastern and Central
consequence became the authorized
were also acquired. Collectively, the
Canada and into the Far North.
Caterpillar dealer for the province of
businesses acquired are referenced as
For further information on the
Québec, Western Labrador and the
Toromont Québec/Maritimes (“Toromont
accounting for the acquisition, refer to
Maritimes, as well as the MCFA lift truck
QM or TQM”) throughout this report.
note 25 of the notes to the consolidated
dealer for Québec and most of Ontario, in
This important transaction provides a
financial statements.
addition to the MaK engine dealer for
substantial growth platform and
Québec, the Maritimes and the Eastern
strengthens our Company by providing a
Corporate Profile and Business Segmentation
As at December 31, 2018, Toromont
dealer for a contiguous geographical
including industrial, commercial, marine,
employed over 6,000 people in more than
territory in Canada that covers Manitoba,
on-highway trucks and power generation;
150 locations across Canada and the United
Ontario, Québec, Newfoundland, New
and sale of complementary and related
States. Toromont is listed on the Toronto
Brunswick, Nova Scotia, Prince Edward
products, parts and service.
Stock Exchange under the symbol TIH.
Island and most of Nunavut. Additionally,
CIMCO is a market leader in the design,
Toromont has two reportable operating
the Company is the MaK engine dealer for
engineering, fabrication, installation and
segments: the Equipment Group and CIMCO.
the Eastern Seaboard of the United States,
after-sale support of refrigeration systems
The Equipment Group includes
from Maine to Virginia. Performance in the
in industrial and recreational markets.
Toromont CAT, one of the world’s larger
Equipment Group is driven by activity in
Results of CIMCO are influenced by
Caterpillar dealerships, Battlefield
several industries: road building and other
conditions in the primary market segments
Equipment Rentals, an industry-leading
infrastructure-related activities; mining;
served: beverage and food processing; cold
rental operation, SITECH, providing Trimble
residential and commercial construction;
storage; food distribution; mining; and
technology products and services, AgWest,
power generation; aggregates; waste
recreational ice rinks. CIMCO offers
an agricultural equipment and solutions
management; steel; forestry; and
systems designed to optimize energy
dealer representing AGCO, CLAAS and
agriculture. Significant activities include
usage through proprietary products such
other manufacturers’ products, in addition
the sale, rental and service of mobile
as ECO CHILL®. CIMCO has manufacturing
to the acquired businesses noted above,
equipment for Caterpillar and other
facilities in Canada and the United States
which are in varying stages of integration.
manufacturers; sale, rental and service of
and sells its solutions globally.
The Company is the exclusive Caterpillar
engines used in a variety of applications
23
Primary Objective and Major Strategies
The primary objective of the Company is to
activities also represent opportunities to
advantage. Growth is dependent on
build shareholder value through sustainable
develop closer relationships with customers
attracting, retaining and developing
and profitable growth, supported by a
and differentiate the Company’s product and
employees with values that are consistent
strong financial foundation. To guide its
service offering. The ability to consistently
with Toromont’s. A highly principled
activities in pursuit of this objective,
meet or exceed customers’ expectations for
culture, share ownership and profitability-
Toromont works toward specific, long-term
service efficiency and quality is critical, as
based incentive programs result in a close
financial goals (see section heading “Key
after-market support is an integral part of
alignment of employee and shareholder
Performance Measures” in this MD&A) and
the customer’s decision-making process
interests. By investing in employee training
each of its operating groups consistently
when purchasing equipment.
and development, the capabilities and
employs the following broad strategies:
productivity of employees continually
Broaden Product Offerings
improve to better serve shareholders,
Expand Markets
Toromont delivers specialized capital
customers and business partners.
Toromont serves diverse markets that offer
equipment to a diverse range of customers
Toromont’s information technology
significant long-term potential for
and industries. Collectively, hundreds of
represents another competitive
profitable expansion. Each operating group
thousands of different parts are offered
differentiator in the marketplace. The
strives to achieve or maintain leading
through the Company’s distribution channels.
Company’s selective investments in
positions in markets served. Incremental
The Company expands its customer base
technology, inclusive of e-commerce
revenues are derived from improved
through selectively extending product lines
initiatives, strengthen customer service
coverage, market share gains and
and capabilities. In support of this strategy,
capabilities, generate new opportunities for
geographic expansion. Expansion of the
Toromont represents product lines that are
growth, drive efficiency and increase
installed base of equipment provides the
considered leading and generally best-in-
returns to shareholders.
foundation for product support growth and
class from suppliers and business partners
leverages the fixed costs associated with
who continually expand and develop their
Maintain a Strong Financial Position
the Company’s infrastructure.
offerings. Strong relationships with suppliers
A strong, well-capitalized balance sheet
Strengthen Product Support
achieving growth objectives.
has contributed to the Company’s
Toromont’s parts and service business is a
long-term track record of profitable growth.
significant contributor to overall profitability
Invest in Resources
It is also fundamental to the Company’s
and business partners are critical in
creates stability and financial flexibility, and
and serves to stabilize results through
The combined knowledge and experience
future success.
economic downturns. Product support
of Toromont’s people is a key competitive
24
Consolidated Annual Operating Results
($ thousands, except per share amounts)
2018
2017
$ change
% change
Revenues
Cost of goods sold
$ 3,504,236
2,640,835
$ 2,350,162
1,794,213
Gross profit (1)
Selling and administrative expenses
Operating income (1)
Interest expense
Interest and investment income
Income before income taxes
Income taxes
863,401
493,827
369,574
30,643
(8,918)
347,849
95,865
555,949
306,367
249,582
12,277
(4,659)
241,964
65,994
$ 1,154,074
846,622
307,452
187,460
119,992
18,366
(4,259)
105,885
29,871
Net earnings
$ 251,984
$ 175,970
$ 76,014
Basic earnings per share
$
3.10
$
2.22
$
0.88
49%
47%
55%
61%
48%
150%
91%
44%
45%
43%
39%
Key ratios:
Gross profit margin (1)
Selling and administrative expenses as a % of revenues
Operating income margin (1)
Income taxes as a % of income before income taxes
Return on capital employed (1)
Return on equity (1)
24.6%
14.1%
10.5%
27.6%
21.7%
22.3%
(1) Described in the sections titled “Additional GAAP Measures and Non-GAAP Measures.”
23.7%
13.0%
10.6%
27.3%
21.5%
19.3%
The Company delivered solid results in the
were $4.9 million lower than last year, while
CIMCO. Operating income margin for the
year, the first across the expanded territories
mark-to-market adjustments on Deferred
legacy businesses increased 80 bps to 12.5%.
in its Equipment Group. Results at CIMCO
Share Units (“DSUs”) favorably impacted
Interest expense increased $18.4 million
were weaker, mainly due to specific items.
expenses by $5.6 million, given the relative
as a result of the additional debt incurred to
The legacy businesses reported
share prices. Compensation costs
partially fund the acquisition.
revenue growth of $127.5 million or 6% for
accounted for approximately 60% of the
Interest income increased $4.3 million
the year with increases across most
remaining increase on additional headcount,
on higher investment income resulting
revenue streams in the Equipment Group
regular annual increases and higher profit
from higher average cash balances held
and higher package sales and product
sharing accrual on the increased earnings.
throughout the year and higher interest
support revenues at CIMCO. Toromont QM
Allowance for doubtful accounts were $2.0
from conversions of equipment on rent
contributed $1.3 billion in the year versus
million higher reflecting the relative aging
with a purchase option (“RPO”).
$242.6 million generated for the two
profiles of accounts receivables. Certain
The effective income tax rate for 2018
months of ownership in 2017.
other expenses categories such as customer
was 27.6% compared to 27.3% in 2017. The
Gross profit margin increased 90 basis
support costs, insurance, travel, training and
increase is substantially due to the higher
points (“bps”) to 24.6% versus last year.
information technology costs, were higher in
proportion of income earned in the higher
The legacy Equipment Group reported
support of the growth and integration and
tax jurisdictions, although this is expected
higher margins across most revenue
transition efforts. As a percentage of
to be mitigated in coming years as Québec
streams, partially offset by lower package
revenues, expenses net of Toromont QM and
continues to phase in reductions in the
margins at CIMCO. Both Groups benefitted
acquisition-related expenses were 20 bps
corporate tax rates.
from a favorable sales mix of higher product
higher than last year at 12.6%.
Net earnings in 2018 were $252.0
support revenues to total revenues.
Operating income increased $120.0 million
Selling and administrative expenses
reflecting the incremental contribution at
million, up 43% from 2017, while basic
earnings per share (“EPS”) increased
increased $187.5 million, largely reflecting
Toromont QM, net of acquisition-related costs,
$0.88 or 39% to $3.10. The following table
the incremental expenses at Toromont QM
and solid growth in the legacy Equipment
identifies the components of contributions
($172.7 million). Acquisition-related costs
Group, partially offset by weaker results at
to the 2018 results versus last year:
25
Net earnings
Basic EPS(a)
Years ended December 31
($ millions, except per share amounts)
2018
2017
% change
2018
2017
% change
Legacy Toromont (b)
Toromont QM (c)
Acquisition-related interest expense
and integration-related costs (e)
Dilutive impact of acquisition shares (d)
$ 205.9
64.1
$ 175.6
8.3
(18.0)
—
(7.9)
—
17%
nm
nm
—
$
2.61
0.81
$
2.29
0.11
(0.23)
(0.09)
(0.10)
(0.08)
14%
nm
nm
nm
As reported
$ 252.0
$ 176.0
43%
$
3.10
$
2.22
39%
(a) Separately identifies impact of shares issued at acquisition for year-over-year comparability.
(b) Defined as all businesses continuing from prior to the acquisition.
(c) Defined as all businesses acquired October 27, 2017.
(d) EPS impact of 2.2 million shares issued on acquisition to total net earnings.
(e) Expenses shown net of taxes.
Legacy Toromont net earnings increased 17% in the year while EPS increased $0.32 or 14%.
Comprehensive income in 2018 was $273.0 million (2017 - $168.2 million), comprised mainly of net earnings and other comprehensive
income resulting from actuarial gains on defined benefit pension and other post-employment benefit plans and a favorable change in the
fair value of cash flow hedges.
Business Segment Annual Operating Results
The accounting policies of the segments are the same as those of the consolidated entity. Management evaluates overall business
segment performance based on revenue growth, operating income relative to revenues and return on capital employed. Corporate
expenses are allocated based on each segment’s revenue. Interest expense and interest and investment income are not allocated.
Equipment Group
($ thousands)
Equipment sales and rentals
New
Used
Rentals
Total equipment sales and rentals
Product support
Power generation
Total revenues
Operating income
Capital expenditures (net)
Rental
Other
2018
2017
$ change
% change
$ 1,197,739
310,381
378,027
1,886,147
1,264,295
10,645
$ 784,915
227,293
261,641
1,273,849
746,832
11,270
$ 412,824
83,088
116,386
612,298
517,463
(625)
$ 3,161,087
$ 2,031,951
$ 1,129,136
$ 348,876
$ 219,814
$ 129,062
$ 125,148
37,546
$
66,822
32,710
$
58,326
4,836
53%
37%
44%
48%
69%
(6%)
56%
59%
87%
15%
63%
Total
$ 162,694
$
99,532
$
63,162
Key ratios:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
Return on capital employed
40.0%
11.0%
90.2%
21.4%
36.8%
10.8%
86.5%
21.1%
26
Total Equipment Group results
Sales into mining markets were lower coming
higher parts (up 9%) and service revenues
demonstrated significant increases in
off a strong year. Material handling or lift
(up 15%). Both legacy and Toromont QM’s
revenues and earnings on continued
truck sales increased with an expanding
product support revenues benefitted from
year-over-year growth in the legacy
product portfolio, together with higher
good rebuild activity and a growing
operations and an accretive full year of
activity levels with the larger customers.
technician base.
operations in the expanded territories
Legacy rental revenues increased $30.2
Power generation revenues were $10.6
(versus two months in 2017).
million or 12% versus last year, mainly on
million versus $11.3 million last year,
The legacy Equipment Group revenues
higher utilization and larger fleets. Rental
reflecting lower electricity output at the
grew 6% to $1.9 billion on increases across
rates have remained relatively constant to
Waterloo landfill plant and lower thermal
most revenue streams. Toromont QM
2017, while the average cost for machines
revenues at the Sudbury Hospital plant.
contributed $1.3 billion in its first full year of
added to the fleets has increased. Heavy
Gross margins increased 160 bps
operations under Toromont’s ownership,
equipment rentals were up 4% with strong
versus last year. For the legacy operations,
representing a 13% increase over those
activity levels reported in Ontario, especially
product support, equipment and rental
generated in 2017, ten months of which were
in the north and southwestern corridor,
margins were higher, further buoyed by a
at the predecessor organization. To provide a
offsetting lower activity in Newfoundland.
favorable sales mix of product support
more complete understanding of the
Light equipment rentals increased 10% with
revenues to total revenues.
business trends at TQM, year-over-year
all regions reporting growth except
Selling and administrative expenses
revenue comparisons will be against pro
Newfoundland. Power rentals increased
were up $187.3 million, mainly due to the
forma 2017 revenues (i.e. Toromont +
67%, closing out a record year, on strong
incremental expenses at Toromont QM, net
predecessor organization).
growth in the prime power segment. Market
of acquisition-related costs. At the legacy
At the legacy businesses, total equipment
penetration was also good across most other
businesses, expenses increased $19.6
sales (new and used) increased $21.6 million
industries, reflecting the continued focus on
million or 9% and were 40 bps higher as a
or 2%. New equipment sales were up 6%.
growing and diversifying the fleet to address
percentage of revenues, mainly due to higher
Growth in construction and agriculture
demand signals across the wider market
compensation costs, allowance for doubtful
followed positive markets, which more than
base. Rental revenues from equipment on
accounts and general increases across most
offset lower sales in mining and power
rent with a purchase option (“RPO”) were up
other categories in support of growth and
systems, following significant orders and
10% on a larger average fleet versus 2017. At
integration and transition efforts.
record performance in the prior year. Used
Toromont QM, rental revenues of $104.8
Operating income was up $129.1 million.
equipment sales were down 7%, significantly
million represented a 6% increase over 2017.
The operating income of the legacy
due to tighter availability, together with the
Higher investments in the fleets, together
businesses increased $42.3 million or 20%
strategic curtailment of rental fleet
with a diversified portfolio aligning to the
and was 160 bps higher as a percentage of
dispositions, due to growth focus in rental,
legacy operations mix yielded higher
revenues (13.7% versus 12.1% last year).
together with a view to product availability.
revenues. At December 31, 2018, the RPO
Capital expenditures, net of
At Toromont QM, total new and used
fleet across the business was $74.6 million,
dispositions, increased $63.2 million,
equipment sales of $611.7 million
up $3.0 million from a year ago.
largely due to investments at Toromont QM
represented a 16% increase over total new
Product support revenues at the legacy
(up $65.1 million). At the legacy businesses,
and used revenues generated in 2017 at
businesses increased $51.3 million or 8%.
replacement and expansion of the rental
Toromont and the predecessor organization
Parts sales grew 6%, mainly reflecting
fleet were up $7.3 million to $68.3 million
combined. Sales into construction markets
good activity into mining markets. Service
while other capital expenditures were
were up on good penetration of robust
revenues were up 13% with growth across
lower by $9.2 million, mainly due to lower
markets, and power systems increased on
most market segments. At Toromont QM,
investments in land and buildings. At
higher sales into electric power markets,
product support revenues of $552.8 million
Toromont QM, $51.1 million of the increase
somewhat offset by lower marine activity.
represented a 10% increase over 2017 on
related to growing the rental fleet.
Bookings and Backlogs
($ millions)
2018
Bookings – year ended December 31
Backlogs – as at December 31
$
$
1,537
342
$
$
2017
1,013
327
$ change
% change
$
$
524
15
52%
5%
27
The legacy businesses bookings increased
at the predecessor organization.
(26%), mining (19%), agriculture (7%) and
$16.0 million or 2%. A large power systems
Approximately 60% of the orders in 2018
lift trucks (6%), most of which is expected to
order, together with higher construction (up
were construction related, with the
be delivered in 2019. Backlogs can vary
5%) and agriculture orders (up 14%), served
remainder split somewhat evenly between
significantly from period to period on large
to offset the impact of the large mining
mining, power systems and lift truck orders.
project activities, especially in mining and
package delivered last year.
Backlogs, which would be on a
power systems, the timing of orders and
Toromont QM bookings were $594.0
comparable basis year-over-year, increased
deliveries and the availability of equipment
million for 2018 versus $86.0 million for the
$15.0 million or 5% to $342.0 million. At
from either inventory or suppliers.
two months of operations in 2017. Prior to
December 31, 2018, the total backlog related
the acquisition, bookings were not tracked
to power systems (42%), construction
CIMCO
($ thousands)
Package sales
Product support
Total revenues
Operating income
Capital expenditures (net)
2018
2017
$ change
% change
$ 202,367
140,782
$ 189,212
128,999
$ 343,149
$ 318,211
$
$
20,698
2,452
$
$
29,768
1,422
$
$
$
$
13,155
11,783
24,938
(9,070)
1,030
7%
9%
8%
(30%)
72%
Key ratios:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
Return on capital employed
41.0%
6.0%
9.8%
64.1%
40.5%
9.4%
13.5%
99.9%
CIMCO delivered record revenues for
continues to provide a solid growth
down 100 bps as a percentage of revenues
the year, mainly on continued growth
platform as product support revenues
(14.0% versus 15.0%). Higher compensation
in Canada as the US contracted slightly
have increased every year since 2009.
costs were offset by reductions in most
following a very strong 2017. The translation
Focus remains on growing the technician
other expense categories as the Group
of financial results at the US operations did
base to address demand signals.
continues to focus on expense management
not have a significant impact on results.
Gross margins decreased 440 bps,
to mitigate the margin pressures.
Lower operating income reflects a specific
largely attributable to an inventory
Operating income was lower by $9.1
one-time inventory adjustment recorded in
write-down recorded in the fourth quarter
million or 30% in 2018, principally due to
the fourth quarter.
($6.0 million), together with execution
the lower margins described above. As a
In Canada, package revenues were up
problems encountered in the first half of
percentage of revenues, operating income
$19.2 million or 14%, reflecting strong sales
the year on one US project resulting in a
was 6.0%.
into industrial markets (up 32%), partially
charge of $2.9 million for the year. The
Capital expenditures, net of
offset by lower recreational sales (down
inventory charge stemmed from a review of
dispositions, were up $1.0 million or 72%
19%). Québec and Western Canada revenues
work-in-process costing and aging. Apart
to $2.5 million with the majority of
increased to record levels while Ontario and
from this, project margins continued to
expenditures in 2018 related to additional
Atlantic Canada returned to more normal
face pressures in both Canada and the US,
service vehicles ($1.2 million), information
levels following the record 2017. In the US,
mainly on a very competitive pricing
technology infrastructure enhancements
package revenues decreased $6.0 million or
environment. The growing proportion of
and upgrades ($0.7 million) and machinery
13% as strong sales into industrial markets
product support revenues to total revenues
and equipment ($0.5 million).
(up 134%) were partially offset by lower sales
continues to somewhat mitigate this
into recreational markets (down 61%).
Product support revenues increased
impact. Product support revenues were
41.0% as a percentage of total revenues
$11.8 million or 9% versus last year on
compared to 40.5% in 2017.
growth in both Canada (up 10%) and the
Selling and administrative expenses
US (up 8%). The increased installed base
were relatively in line with last year but
28
Bookings and Backlogs
($ millions)
Bookings – year ended December 31
Backlogs – as at December 31
2018
185
113
$
$
2017
$ change
% change
$
$
233
134
$
$
(48)
(21)
(21%)
(16%)
Bookings of $185.0 million were lower by
Backlogs of $113.0 million were also
lower US activity. The backlog levels for this
$48.0 million versus the all-time high
lower against the record 2017 levels, but
time of year provide a good base entering
achieved last year. Industrial orders were
still higher than the previous five-year
2019, with substantially all expected to be
lower in both Canada (down 21%) and the
average. Industrial backlogs were down
realized as revenue in 2019.
US (down 61%) while recreational orders
19%, mainly in Canada. Recreational
were lower in Canada (down 10%) and
backlogs were down 11% with higher
relatively unchanged in the US.
Canadian activity more than offset by
Consolidated Financial Condition
The Company has maintained a strong financial position for many years, and continues to do so, even after raising financing for the
substantial acquisition of TQM in October 2017.
At December 31, 2018, the ratio of net debt to total capitalization decreased to 18% versus 40% at December 31, 2017.
Non-cash Working Capital
The Company’s investment in non-cash working capital was $309.5 million at December 31, 2018. The major components, along with
the changes from December 31, 2017, are identified in the following table.
($ thousands)
2018
2017
$ change
% change
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued liabilities
Provisions
Income taxes payable
Derivative financial instruments
Dividends payable
Deferred revenues and contract liabilities
$ 522,462
873,507
9,932
(916,300)
(24,382)
(28,368)
27,624
(18,737)
(136,244)
$ 528,748
777,524
8,386
(525,166)
(22,436)
(204)
(5,260)
(15,655)
(137,129)
$
(6,286)
95,983
1,546
(391,134)
(1,946)
(28,164)
32,884
(3,082)
885
(1%)
12%
18%
74%
9%
nm
nm
20%
(1%)
Total non-cash working capital
$ 309,494
$ 608,808
$ (299,314)
(49%)
Accounts receivable at December 31, 2017,
Inventories increased $96.0 million or
customer specified delivery dates later
included $42.7 million related to amounts
12% with increases in both Groups:
in 2019 together with higher parts
owing to the Company stemming from the
• Equipment Group inventories were
inventory at remote mine sites to
acquisition which was subsequently
$95.7 million or 13% higher with
support higher activity levels. The
collected in the first quarter of 2018.
increases in equipment (up $51.9 million
higher service work-in-process levels
Excluding this, accounts receivables
or 10%), parts (up $40.9 million or 21%)
reflects good activity levels across our
increased $36.4 million or 7%, largely
and service work-in-process (up $2.9
service operations.
reflecting higher revenues at the legacy
million or 5%). With increased business
• CIMCO inventories were up $0.3 million
businesses in the fourth quarter (up 5%),
opportunities following the expansion,
or 2% on higher work-in-process levels.
the impact of Toromont QM in the fourth
the Company built up both the
The increase in other current assets
quarter year-over-year (three months of
equipment and parts inventory levels
relates to higher prepaid expenses at
activity in 2018 versus two months in 2017)
throughout the year. Additionally,
Toromont QM.
and slower collections.
certain inventory was held in advance of
29
Accounts payable and accrued liabilities
Employee Share Ownership
compensation expense in selling and
increased $391.1 million or 74%, principally
The Company employs a variety of stock-
administrative expenses. As at December 31,
due to the transitional terms from suppliers
based compensation plans to align
2018, 358,151 DSUs were outstanding with a
related to inventory purchases.
employees’ interests with corporate
total value of $19.0 million (2017 – 426,279
Income taxes payable reflects the
objectives.
units at a value of $23.4 million). The liability
difference between tax installments and
The Company maintains an Executive
for DSUs is included in accounts payable and
current tax expense.
Stock Option Plan for its senior employees.
accrued liabilities on the consolidated
Derivative financial instruments
Stock options vest 20% per year on each
statements of financial position.
represent the fair value of foreign exchange
anniversary date of the grant and are
contracts. Fluctuations in the value of the
exercisable at the designated common share
Employee Future Benefits
Canadian dollar have led to a cumulative
price, which is fixed at prevailing market
The Company sponsors pension
net gain of $27.6 million as at December 31,
prices at the date the option is granted.
arrangements for substantially all of its
2018. This is not expected to affect net
Stock options granted in 2013 and after have
employees. These include:
earnings as the unrealized gains will offset
a 10-year term while those granted prior to
• Defined contribution plans, which cover
future losses on the related hedged items.
2013 have a seven-year term. At December
the largest segment of employees,
Higher dividends payable year-over-year
31, 2018, 2.6 million options to purchase
including all newly hired employees;
reflect the higher dividend rate. Early in
common shares were outstanding, of which
2018, the quarterly dividend rate was
1.1 million were exercisable.
• Defined benefit plans, which are largely
associated with acquired businesses
increased from $0.19 per share to $0.23
The Company offers an Employee Share
and some historic agreements;
per share, a 21% increase.
Purchase Plan whereby employees can
• 401(k) matched savings plans for
Deferred revenues and contract
purchase shares by way of payroll
employees in the US; and
liabilities, which were down $0.9 million or
deductions. Under the terms of this plan,
• Other post-employment benefit plans
1%, represent billings to customers in
eligible employees may purchase common
for certain grand-fathered employees in
excess of revenue recognized.
shares of the Company in the open market
the acquired businesses.
•
In the Equipment Group, these arise
at the then-current market price. The
Certain unionized employees do not
mainly due to progress billings from the
Company pays a portion of the purchase
participate in Company-sponsored plans,
sale of power and energy systems and
price, matching contributions at a rate of $1
and contributions are made to their
long-term product support maintenance
for every $3 contributed, to a maximum of
retirement programs in accordance with the
contracts, as well as on sales of equipment
the greater of 2.5% of an employee’s base
respective collective bargaining agreements.
with residual value guarantees and
salary or $1,000 per annum. Company
customer deposits for machinery to be
contributions vest to the employee
delivered in the future. In 2018, these
immediately. Company contributions
Defined Contribution Plans
In the case of defined contribution plans,
increased $8.1 million or 7% largely
amounting to $2.4 million in 2018 (2017
regular contributions are made to the
related to progress billings and
– $2.0 million) were charged to selling and
individual employee accounts, which are
customer deposits for deliveries in 2019.
administrative expense when paid.
administered by a plan trustee in
• At CIMCO, these arise on progress billings
Approximately 53% (2017 – 52%) of eligible
accordance with the plan documents. At
from the sale of refrigeration packages
employees participate in the plan, which is
December 31, 2018, 3,647 employees
and were down $9.0 million or 31%,
administered by an independent third party.
participated in Company-sponsored
correlating to the lower backlog levels.
The Company also offers a deferred share
defined contribution plans.
unit (“DSU”) plan for executives, certain
Goodwill and Intangibles
senior managers and non-employee
The Company performs impairment tests
directors, whereby they may elect, on an
Defined Benefit Plans
The Company sponsors defined benefit
on its goodwill and intangibles with
annual basis, to receive all or a portion of
pension plans which provide pension and
indefinite lives on an annual basis or as
their performance incentive bonus (in the
other post-retirement benefits for
warranted by events or circumstances. The
case of employees) or fees (in the case of
approximately 2,181 qualifying employees.
assessment entails estimating the fair
directors) in DSUs. A DSU is a notional unit
All Plans are administered by a separate
value of operations to which the goodwill
that reflects the market value of a single
Fund that is legally separated from the
and intangibles relate, using the present
Toromont common share and generally
Company, with the exception of the
value of expected discounted future cash
vests immediately. DSUs will be redeemed
Executive Plan described below.
flows. This assessment affirmed goodwill
on cessation of employment or directorship.
The funded status of these plans changed
and intangibles values as at December 31,
DSUs have dividend equivalent rights, which
by $17.0 million (a decrease in the accrued
2018 as outlined in note 7 of the notes to
are expensed as earned. The Company
pension liability) as at December 31, 2018.
the consolidated financial statements.
records the cost of the DSU plan as
30
The Executive Plan is a supplemental
insurance coverage considered appropriate
Outstanding Share Data
plan and is solely the obligation of the
by management and by active
As at the date of this MD&A, the Company
Company. All members of the plan are
management of these matters. In the
had 81,229,723 common shares and
retired. The Company is not obligated to
opinion of management, none of these
2,632,730 share options outstanding.
fund the plan but is obligated to pay
matters will have a material effect on the
benefits under the terms of the plan as they
Company’s consolidated financial position
come due. The Company has posted letters
or results of operations.
of credit to secure the obligations under
Dividends
Toromont pays a quarterly dividend on its
outstanding common shares and has
this plan, which were $17.1 million as at
Normal Course Issuer Bid (“NCIB”)
historically targeted a dividend rate that
December 31, 2018.
Toromont believes that, from time to time,
approximates 30 - 40% of trailing earnings
A key assumption in pension accounting
the purchase of its common shares at
from continuing operations.
is the discount rate. This rate is set with
prevailing market prices may be a worthwhile
During 2018, the Company declared
regard to the yield on high-quality
investment and in the best interests of both
dividends of $0.92 per common share,
corporate bonds of similar average
Toromont and its shareholders. As such, the
$0.23 per quarter (2017 - $0.76 per
duration to the cash flow liabilities of the
normal course issuer bid with the TSX was
common share or $0.19 per quarter).
Plans. Yields are volatile and can deviate
renewed in 2018. This issuer bid allows the
Considering the Company’s solid financial
significantly from period to period.
Company to purchase up to approximately
position and positive long-term outlook, the
7.0 million of its common shares,
Board of Directors announced an increase to
Off-balance Sheet Arrangements
representing 10.0% of common shares in the
the quarterly dividend to 27 cents per share
Other than the Company’s operating
public float, in the twelve-month period
effective with the dividend payable on April 3,
leases, the Company does not have any
ending August 30, 2019. The actual number
2019. This represents a 17.4% increase in
off-balance sheet arrangements that have,
of shares purchased and the timing of any
Toromont’s regular quarterly cash
or are reasonably likely to have, a current or
such purchases will be determined by
dividend. The Company has paid dividends
future effect on its results of operations or
Toromont. All shares purchased under the
every year since going public in 1968 and
financial condition.
bid will be cancelled.
this represents the 30th consecutive year it
During the year ended December 31, 2018,
has announced an increase.
Legal and Other Contingencies
the Company purchased and cancelled
Due to the size, complexity and nature of
237,952 common shares for $12.8 million
the Company’s operations, various legal
(average cost of $53.83 per share, including
matters are pending. Exposure to these
transaction costs). No shares were
claims is mitigated through levels of
purchased and cancelled in 2017.
Liquidity and Capital Resources
Sources of Liquidity
Toromont’s liquidity requirements can be
maturing in October 2022. The $250.0
encumbrances. The Company was in
million drawn on the term facility in 2017
compliance with all covenants at December
met through a variety of sources, including
was repaid in full during 2018. Standby
31, 2018 and 2017.
cash generated from operations, long- and
letters of credit utilized $29.9 million of the
Cash at December 31, 2018, was $345.4
short-term borrowings and the issuance of
revolving facility (2017 - $26.7 million).
million, compared to $160.5 million at
common shares. Borrowings are obtained
Also in October 2017, the Company
December 31, 2017.
through a variety of senior debentures,
issued senior unsecured debentures
The Company expects that continued
notes payable and committed long-term
(“Debentures”) in the principal amount of
cash flows from combined operations in
credit facilities.
$500.0 million which mature in 2027 and
2019, cash on hand and currently available
Toromont’s debt portfolio is unsecured,
bear interest at a rate of 3.842% per
credit facilities will be more than sufficient
unsubordinated and ranks pari passu.
annum, payable semi-annually.
to fund requirements for investments in
To partially fund the aforementioned
These credit arrangements include
working capital and capital assets.
acquisition on October 27, 2017, the
covenants, restrictions and events of
Company expanded and extended its
default usually present in credit facilities of
committed unsecured credit facility to
this nature, including requirements to meet
include a term facility of $250.0 million and
certain financial tests periodically and
a revolving facility of $500.0 million,
restrictions on additional indebtedness and
31
Principal Components of Cash Flow
Cash from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows, are summarized in
the following table:
($ thousands)
Cash, beginning of year
Cash, provided by (used in):
Operating activities
Operations
Change in non-cash working capital and other
Net rental fleet additions
Investing activities
Financing activities
Effect of foreign exchange on cash balances
Increase (decrease) in cash in the year
Cash, end of year
2018
2017
$ 160,507
$
188,735
395,281
236,050
(125,148)
506,183
258,322
70,010
(66,822)
261,510
2,475
(979,978)
(323,985)
690,492
254
184,927
(252)
(28,228)
$ 345,434
$
160,507
Cash Flows from Operating Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Operating activities provided significantly
Investing activities provided $2.5 million
Financing activities used $324.0 million in
higher cash flow in 2018 compared to 2017.
in 2018 compared to $980.0 million used
2018 versus $690.5 million provided in 2017.
The higher cash generated from
in 2017.
To partially fund the acquisition of
operations reflect the increased cash
The majority of the cash invested in
Toromont QM in 2017, the Company issued
earnings generated by both Toromont QM
2017 was to fund the acquisition of
senior debentures of $500.0 million and
and at the legacy businesses.
Toromont QM, including a final working
drew $250.0 million against its term credit
Non-cash working capital and other
capital adjustment of $42.7 million which
facility. Debt issuance costs of $5.6 million
provided significantly higher cash in 2018,
was collected from the vendor in 2018
were also incurred. During 2018, the
mainly as a result of higher accounts
(refer to note 25 of the notes to the
Company repaid the $250.0 million drawn
payable and accrued liabilities, higher
consolidated financial statements for
on the term credit facility.
income taxes payable and lower accounts
further information).
Other significant sources and uses of
receivables, partially offset by higher
Investments in property, plant and
cash in 2018 included:
inventories, lower deferred revenues and
equipment, net of disposition proceeds,
• Dividends paid to common shareholders
contract liabilities and the unfavorable
were $40.0 million in 2018 versus $34.1
of $71.4 million or $0.88 per share
impact of the fair value on derivative
million in 2017 as follows:
(2017 - $58.9 million or $0.75 per share);
financial instruments.
• $18.5 million for service vehicles
• Cash received on exercise of share
Net rental fleet additions (purchases less
(2017 - $12.5 million);
proceeds of dispositions) were higher mainly
• $11.4 million for machinery and
options of $12.2 million
(2017 - $6.8 million); and
due to investments at Toromont QM to grow
equipment (2017 - $2.7 million);
• Normal course purchases and
the fleet (up $51.1 million). At Legacy
• $5.2 million for land and buildings
cancellations of 237,952 common
Toromont, net additions were $7.3 million
for new and expanded branches
shares at an average cost of $53.83,
higher. The Company continues to invest
(2017 - $15.5 million); and
including transaction costs, for
heavily in this very important rental segment
• $4.9 million for upgrades and
$12.8 million (2017 – $nil).
to address strong retail demand signals.
enhancements to information
The components and changes in
technology infrastructure and furniture
non-cash working capital are discussed in
and fixtures (2017 - $3.4 million).
more detail in this MD&A under the heading
Included in the net property, plant and
“Consolidated Financial Condition”.
equipment additions above were $16.7
million at Toromont QM versus $2.7 million
for the two months of ownership last year.
32
Outlook
The expansion of our territories to include
momentum driven by the larger installed
substantially increased base of installed
Québec and Atlantic Canada is proving to
base of equipment working in the field,
equipment bodes well for future product
be transformative to the long-term
providing a measure of stability in a
support activity.
performance of Toromont. It provides a
variable business environment. The
CIMCO’s increasing installed base and
substantial growth platform and
Company continues to hire technicians in
long-term product support levels are
strengthens our Company by providing a
anticipation of an increase in demand,
positive signals for future growth trends.
large contiguous operating platform
including the opportunity for increased
CIMCO has a wide product offering using
extending across all of Eastern and Central
equipment rebuilds and readying used iron.
natural refrigerants including innovative
Canada and into the Far North. Effective
Broader product lines, investment in rental
CO2 solutions, which remains a
execution will be required to realize on this
equipment and developing product support
differentiator in recreational markets. In
significant potential for a greater combined
technologies supporting remote
industrial markets, CIMCO’s proven track
presence in key Canadian economic
diagnostics and telematics are expected to
record and strong geographical coverage
sectors such as mining, construction and
contribute to longer-term growth.
provides continued growth opportunities.
power systems, combined with the growing
The long-term outlook for infrastructure
Tariffs implemented this year have not
rental services and material handling
projects and other construction activity
had a material, direct impact to Toromont’s
markets. Focus is currently on safety of our
remains positive across most territories.
businesses.
people, customer deliverables, business
The Company has experienced good
The diversity of the markets served,
integration, operational excellence
growth in mining product support this year.
expanding product offering and services,
initiatives and transition to generate
Production continues at existing mine sites,
financial strength and disciplined operating
favorable long-term returns.
generating meaningful product support
culture position the Company for continued
The Equipment Group’s parts and
opportunities and incremental equipment
growth in the long term.
service business continues to provide
sales to facilitate mine expansion. The
Contractual Obligations
Contractual obligations are set out in the following table. Management believes that these obligations will be met comfortably through
cash on hand, cash generated from operations and existing long-term financing facilities.
Payments due by period
($ thousands)
Long-term debt
Principal
Interest
Accounts payable
and accrued liabilities
Operating leases
2019
2020
2021
2022
2023
Thereafter
Total
$
1,022
24,811
$
—
24,775
$
—
24,775
$
—
24,775
$
—
24,775
$ 650,000 $ 651,022
207,057
83,146
935,037
12,895
—
8,764
—
5,325
—
3,115
—
4,285
—
1,166
935,037
35,550
$ 973,765
$ 33,539
$ 30,100
$ 27,890
$ 29,060
$ 734,312 $ 1,828,666
33
Key Performance Measures
Management reviews and monitors its activities and the performance indicators it believes are critical to measuring success. Some of
the key financial performance measures are summarized in the following table. Others include, but are not limited to, measures such as
market share, fleet utilization, customer and employee satisfaction, and employee health and safety.
Years ended December 31
2018
2017
2016
2015
2014
Expanding markets and broadening product offerings
Revenue growth
Revenue per employee (thousands)
49.1%
$
578 $
22.9%
487
3.5%
$
533 $
11.2%
537
$
4.2%
501
Strengthening product support
Product support revenue growth
Investing in our resources
Investment in information technology (millions)
Return on capital employed (1)
Strong financial position
Non-cash working capital (millions) (1)
Net debt to total capitalization (1)
Book value (shareholders’ equity) per share
Build shareholder value
Basic earnings per share growth
Dividends per share growth
Return on equity (1)
60.4%
16.3%
7.6%
24.2%
12.4%
$
27.4 $
21.7%
15.0
21.5%
$
15.2 $
24.5%
14.0
24.3%
$
$
309.5 $
18%
16.35 $
608.8
40%
13.89
$
$
388.5 $
-4%
11.29 $
421.3
10%
9.95
39.4%
21.1%
22.3%
11.6%
5.6%
19.3%
6.3%
5.9%
20.0%
8.5%
13.3%
21.6%
$
$
$
13.4
26.0%
335.4
6%
8.65
7.6%
15.4%
23.0%
(1) Defined in the sections titled “Additional GAAP Measures and Non-GAAP Measures.”
Measuring Toromont’s results against these
strategies over the past five years illustrates
that the Company has delivered consistent,
steady growth. The addition of Toromont
QM bolstered these key performance
measures in 2018, a trend that is expected
to continue in the near and long term.
Included in the table above were two
months of operations at Toromont QM in
2017 which increased the income
statement metrics presented for that year
and conversely diluted the balance sheet
metrics. The Company estimated that
most metrics in 2017 improved versus 2016
for the legacy businesses.
The 2018 amounts shown above include
one full year of results at Toromont QM and
would affect the comparability of results
versus the prior years.
In relation to the legacy businesses only,
since 2014, revenues increased at an average
annual rate of 7.0%, with product support
growing at 11.4% annually. Over this period,
revenue growth has been mainly a result of:
Increased customer demand in certain
•
market segments, most notably
construction and mining;
• Additional product offerings over the
years from Caterpillar and other suppliers;
• Organic growth through increased
•
rental fleet size and additional branches;
Increased customer demand for formal
product support agreements;
• Governmental funding programs such
as the RinC program which provided
support for recreational spending; and
• Acquisitions, primarily within the
Equipment Group’s rental operations
and through business combinations in
the agricultural space.
Over the same five-year period, revenue
growth has been constrained at times by a
number of factors including:
• General economic weakness and
uncertainty in specific sectors;
• Competitive conditions;
•
Inability to source equipment from
suppliers to meet customer demand or
delivery schedules; and
• Declines in underlying market conditions
such as depressed US industrial markets
and Manitoba agricultural markets.
Changes in the Canadian/US exchange
rate also affect reported revenues as the
exchange rate impacts the purchase price
of equipment that, in turn, is reflected in
selling prices. Since 2014 there have been
fluctuations in the average yearly exchange
rate of Canadian dollar against the US
dollar – 2014 - US$0.91, 2015 - US$0.78,
2016 - US$0.75, 2017 - US$0.77 and 2018
- US$0.77.
Toromont has generated a significant
competitive advantage over the past years
by investing in its resources, in part to
increase productivity levels. We will
continue this into the future as it is a crucial
element to our success in the marketplace.
Toromont continues to maintain a
strong balance sheet. Leverage, as
represented by the ratio of net debt to total
capitalization was 18% at the end of 2018
versus 40% at the end of 2017.
Toromont has paid dividends
consistently since 1968 and has increased
the dividend in each of the last 30 years. The
regular quarterly dividend rate was
increased 21.1% from $0.19 per share to
$0.23 per share in 2018 and a further 17.4%
to $0.27 per share in 2019, evidencing our
commitment to delivering exceptional
shareholder value.
34
Consolidated Fourth Quarter Operating Results
Three months ended December 31
($ thousands, except per share amounts)
2018
2017
$ change
% change
Revenues
Cost of goods sold
$ 966,047
722,581
$ 822,766
630,652
$ 143,281
91,929
17%
15%
Gross profit
Selling and administrative expenses
Operating income
Interest expense
Interest and investment income
Income before income taxes
Income taxes
Net earnings
Basic earnings per share
243,466
121,837
121,629
6,550
(2,488)
117,567
32,669
$
$
84,898
1.04
$
$
Key ratios:
Gross profit margin
Selling and administrative expenses as a % of revenues
Operating income margin
Income taxes as a % of income before income taxes
25.2%
12.6%
12.6%
27.8%
192,114
105,533
86,581
6,788
(1,637)
81,430
22,294
59,136
0.73
23.3%
12.8%
10.5%
27.4%
51,352
16,304
35,048
(238)
(851)
36,137
10,375
25,762
0.31
$
$
27%
15%
40%
(4%)
52%
44%
47%
44%
43%
Results in the fourth quarter reflect solid
package sales margins as a consequence
in the Equipment Group. Operating income
execution in the legacy Equipment Group
of a specific adjustment.
margin for the legacy businesses increased
together with the contribution at Toromont
Selling and administrative expenses
70 bps to 14.2%.
QM. Results at CIMCO were lower on
increased $16.3 million. Incremental
Interest expense decreased $0.2 million
an inventory adjustment recorded in
expenses at Toromont QM were $11.1
or 4% in the quarter and benefitted from
the quarter.
million. Acquisition-related costs were $3.1
the lower average debt balances resulting
Revenues grew $143.3 million or 17%.
million lower while mark-to-market
from the repayment of the $250.0 million
Toromont QM’s fourth quarter revenues
adjustments on DSUs represented a $3.9
term credit facility in 2018.
were $356.7 million versus $242.6 million
million reduction to expenses.
Interest income increased $0.9 million
for the two months last year and $361.7
Compensation costs accounted for the
on higher investment income resulting
million, pro forma for the full fourth quarter
majority of the remaining increase together
from higher average cash balances held
of 2017, including revenues generated at the
with an increase in the allowance for
throughout the year and higher interest
predecessor organization. The legacy
doubtful accounts (up $1.6 million). As a
from conversions of RPOs.
businesses were up $29.2 million or 5%,
percentage of revenues, expenses net of
The effective income tax rate for the
with growth in the Equipment Group (up 7%)
Toromont QM and acquisition-related
fourth quarter was 27.8% compared to
offsetting softness at CIMCO (down 5%).
expenses were 90 bps higher than last year
27.4% in 2017. The increase is substantially
Gross profit margin increased 190 bps
at 11.5%.
due to the higher proportion of income
to 25.2% in the quarter. Legacy Equipment
Operating income increased $35.0
earned in the higher tax jurisdictions,
Group reported higher equipment and
million reflecting the incremental
although this is expected to be mitigated in
product support margins across the
contribution at Toromont QM, net of
coming years as Québec continues to phase
business while CIMCO recorded lower
acquisition-related costs, and solid growth
in reductions in the corporate tax rates.
35
Net earnings in the quarter were up 44% to $84.9 million with EPS tracking the increase at $0.31 to $1.04. The following table
identifies the components of contributions to the fourth results versus last year:
Three months ended December 31
Net earnings
Basic EPS(a)
($ millions, except per share amounts)
2018
2017
% change
2018
2017
% change
Legacy Toromont (b)
Toromont QM (c)
Acquisition-related interest expense
and integration-related costs (e)
Dilutive impact of acquisition shares (d)
$
67.2
21.4
$
56.8
8.3
(3.7)
–
(6.0)
–
18%
nm
nm
–
$
0.85
0.27
$
0.72
0.11
(0.05)
(0.03)
(0.07)
(0.03)
18%
nm
nm
–
As reported
$
84.9
$
59.1
44%
$
1.04
$
0.73
43%
(a) Separately identifies impact of shares issued at acquisition for year-over-year comparability.
(b) Defined as all businesses continuing from prior to the acquisition.
(c) Defined as all businesses acquired October 27, 2017.
(d) EPS impact of 2.2 million shares issued on acquisition to total net earnings.
(e) Expenses shown net of taxes.
Legacy Toromont net earnings and EPS grew 18%.
Business Segment Fourth Quarter Operating Results
Equipment Group
Three months ended December 31
($ thousands)
Equipment sales and rentals
New
Used
Rentals
Total equipment sales and rentals
Product support
Power generation
Total revenues
Operating income
Bookings ($ millions)
2018
2017
$ change
% change
$ 341,497
101,773
103,093
546,363
324,641
2,864
$ 308,528
69,219
90,039
467,786
255,763
2,462
$
32,969
32,554
13,054
78,577
68,878
402
$ 873,868
$ 726,011
$ 147,857
$ 115,741
$
423
$
$
75,434
328
$
$
40,307
95
11%
47%
14%
17%
27%
16%
20%
53%
29%
Key ratios:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
37.1%
13.2%
90.5%
35.2%
10.4%
88.2%
The legacy operations revenues increased
$361.7 million pro forma for the full fourth
at the predecessor organization.
$33.8 million or 7% with growth across all
quarter of 2017, including one month from
Total legacy equipment sales (new and
revenue streams. Toromont QM
the predecessor organization. Similar to
used) increased $14.8 million or 6%. Higher
contributed $356.7 million, versus $242.6
the comments for the full year above, focus
sales into construction (up 15%), power
million generated at Toromont for the two
in this section will be on comparable basis
systems (up 35%) and agriculture markets
months of operations post-acquisition, and
which will include the one month of overlap
(up 79%) were partially offset by lower
36
mining sales (down 51%). At Toromont QM,
total equipment sales of $188.1 million
represented a decrease of $8.2 million or 4%
versus the pro forma total equipment sales
for the fourth quarter revenues last year,
mainly as a result of lower mining sales,
which were partially offset by increases
across the other segments. Mining sales can
vary substantially from period to period due
to the timing of deliveries.
Rental revenues at the legacy businesses
increased $6.3 million or 9%. All rental
segments reported growth, led by light
equipment (up 8%), power (up 33%), heavy
rentals (up 6%) and equipment on rent with
a purchase option (up 3%). Toromont QM
rental revenues of $25.4 million represented
a decrease of $4.8 million or 16% versus the
pro forma revenues in 2017.
Product support revenues at the legacy
businesses increased $12.3 million or 7%
on higher parts (up 4%) and service (up
15%). Activity levels were good across most
segments, notably in mining and
construction. Toromont QM product
support revenues of $143.1 million
represented an increase of 6% versus the
pro forma revenues 2017 with higher parts
(up 3%) and service (up 17%).
Power generation revenues were $2.9
million versus $2.5 million last year on
higher electricity output at the Sudbury
Hospital plant.
Gross margins increased 250 bps in the
quarter versus last year, principally due to
higher equipment and product support
margins at the legacy businesses.
Selling and administrative expenses
increased by $16.1 million, largely reflecting
the incremental expenses at Toromont QM
(up $11.1 million). At the legacy businesses,
higher compensation costs and allowance for
doubtful accounts accounted for the majority
of the increase. As a percentage of revenues,
selling and administrative expenses at the
legacy businesses were up 90 bps.
Operating income was up $40.3 million
in the quarter. Operating income in the
legacy businesses increased $13.5 million
or 20% and was 170 bps higher as a
percentage of revenues at 15.6%, largely
reflecting the higher margins and revenues,
partially offset by the higher expense ratio.
Bookings at the legacy businesses
increased $15.0 million or 6% to $257.0
million, reflecting higher mining,
construction and agriculture orders,
partially offset by lower power systems
orders. Toromont QM bookings were $166.0
million for the three months in 2018 versus
$86.0 million for the two months in 2017.
CIMCO
Three months ended December 31
($ thousands)
Package sales
Product support
Total revenues
Operating income
Bookings ($ millions)
Key ratios:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
$
$
$
$
2018
50,931
41,248
92,179
5,888
37
44.7%
6.4%
9.5%
2017
$ change
% change
$
$
$
$
(13,710)
9,134
(4,576)
(5,259)
11
(21%)
28%
(5%)
(47%)
44%
$
$
$
$
64,641
32,114
96,755
11,147
26
33.2%
11.5%
11.8%
CIMCO results were dampened in the
fourth quarter by an inventory write-down.
Translation of US operations did not have a
significant impact on results.
Package revenues were down $13.7
million or 21% versus the record levels last
year, approximately two-thirds of which
related to lower US sales. Canadian
revenues were lower by 10% as higher
industrial sales (up 9%) were more than
offset by lower recreational sales (down
35%). In the US, both market segments
experienced significant growth in the
fourth quarter last year which were not
repeated. Despite this however, fourth
quarter revenues in the US were relatively
in line with the previous five-year average.
Product support revenues grew $9.1
million or 28% to record levels for a fourth
quarter in both Canada (up 28%) and the
US (up 29%).
Gross margins decreased 440 bps in
the quarter. The inventory write-down of
$6.0 million recorded in the fourth quarter
largely accounted for the erosion, partially
offset by a favorable sales mix of product
support revenues to total revenues (44.7%
versus 33.2% in 2017).
Selling and administrative expenses
were relatively in line with last year for
similar reasons outlined earlier for the
year-to-date commentary. As a percentage
of revenues, selling and administrative
expenses were up 80 bps as a percentage
of revenues (11.9% versus 11.1% last year).
Operating income was lower by $5.3
million or 47% in 2018, mainly due to the
inventory write-down. Despite this however,
operating income was relatively in line with
the previous five-year average which
included the record last year. As a
percentage of revenues, operating income
was 6.4%.
Bookings increased $11.0 million or 44%
to $37.0 million on strong orders in both
Canada and the US. Recreational orders
were up in both Canada and the US, while
industrial orders increased only in the US.
37
Quarterly Results
The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters. This
quarterly information is unaudited but has been prepared on the same basis as the 2018 annual audited consolidated financial statements.
($ thousands, except per share amounts)
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Revenues
Equipment Group
CIMCO
Total revenues
Net earnings
$ 612,971
63,857
$ 874,120
87,147
$ 800,128
99,966
$ 873,868
92,179
$ 676,828
$ 961,267
$ 900,094
$ 966,047
$
30,779
$
67,610
$
68,697
$
84,898
Per share information:
Basic earnings per share
Diluted earnings per share
Dividends paid per share
Weighted average common shares outstanding –
basic (in thousands)
$
$
$
0.38
0.38
0.19
$
$
$
0.83
0.83
0.23
$
$
$
0.84
0.84
0.23
$
$
$
1.04
1.03
0.23
80,976
81,131
81,383
81,427
($ thousands, except per share amounts)
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Revenues
Equipment Group
CIMCO
Total revenues
Net earnings
$ 359,763
52,545
$ 458,158
72,772
$ 488,020
96,138
$ 726,011
96,755
$ 412,308
$ 530,930
$ 584,158
$ 822,766
$
27,024
$
40,455
$
49,355
$
59,136
Per share information:
Basic earnings per share
Diluted earnings per share
Dividends paid per share
Weighted average common shares outstanding –
basic (in thousands)
$
$
$
0.34
0.34
0.18
$
$
$
0.52
0.51
0.19
$
$
$
0.63
0.62
0.19
$
$
$
0.73
0.72
0.19
78,434
78,474
78,522
80,916
Interim period revenues and earnings
This pattern is impacted by the timing of
construction schedules due to winter
historically reflect variability from quarter to
significant sales to mining and other
weather. Revenues increase in subsequent
quarter due to seasonality. The acquisition
customers, resulting from the timing of
quarters as construction schedules ramp
in the fourth quarter of 2017 also affects
mine site development and access, and
up. This trend can be, and has been,
comparability on a year-over-year basis.
construction project schedules. The
impacted somewhat by significant
The Equipment Group has historically
Company is still in the process of gathering
governmental funding initiatives and
had a distinct seasonal trend in activity
data and analyzing the dynamics of the
significant industrial projects.
levels. Lower revenues are recorded during
customers, industries and economic
Historically, inventories have increased
the first quarter due to winter shutdowns in
climates of the acquired territories and
through the year to meet the expected
the construction industry. The fourth
does not expect the historical trend to be
demand for higher deliveries in the third
quarter had typically been the strongest
impacted; however more analysis is needed
and fourth quarters of the fiscal year. This
due in part to the timing of customers’
before arriving at a conclusion.
capital investment decisions, delivery of
CIMCO has also had a distinct seasonal
seasonal sales trend also leads accounts
receivable to be at their highest level at
equipment from suppliers for customer-
trend in results historically, due to timing of
year end.
specific orders and conversions of
construction activity. Lower revenues are
equipment on rent with a purchase option.
recorded during the first quarter on slower
38
Selected Annual Information
($ thousands, except per share amounts)
2018
2017
2016
Revenues
Net earnings
Earnings per share (“EPS”)
Basic
Diluted
Dividends declared per share
$ 3,504,236
$ 251,984
$ 2,350,162
$ 175,970
$ 1,912,040
$ 155,748
$
$
$
3.10
3.07
0.92
$
$
$
2.22
2.20
0.76
$ 2,866,945
$ 895,747
79.1
$
$
$
1.99
1.98
0.72
$ 1,394,212
$ 152,528
78.1
Total assets
Total long-term debt
Weighted average common shares outstanding – basic (in millions)
$ 3,234,531
$ 645,562
81.2
Revenues grew 49% in 2018. Toromont QM
Toromont QM, the legacy Equipment Group
increase - in 2016 by 5.9% to $0.18 per
contributed $1.3 billion in its first full year
delivered good results, which served to
share, in 2017 by 5.6% to $0.19 per share,
of operations in 2018, versus $242.6 million
offset weaker results at CIMCO and the
in 2018 by 21.1% to $0.23 per share and in
for the two months of ownership in 2017.
higher net interest expense as a result of
2019 by 17.4% to $0.27 per share. The
The legacy businesses revenues increased
the additional debt incurred to partially
Company has paid dividends every year
6% on good growth in the Equipment Group
fund the acquisition in 2017. In 2017, net
since 1968.
and CIMCO, both buoyed by good product
earnings had increased 13%, reflecting
Total assets increased 13% in 2018 after
support growth. In 2017, revenues had
higher revenues and a relatively lower
more than doubling in 2017 (up 106%). The
increased 23%, inclusive of the two months
expense ratio, in addition to the
Company continues to invest in strategic
of operations at Toromont QM noted above,
incremental impact of the acquisition.
opportunities and assets to drive and
with the legacy businesses growing 10% on
EPS have generally tracked earnings
sustain the earnings growth experienced.
good sales execution in the Equipment
with basic EPS increasing 39% in 2018 and
Long-term debt had increased in 2017 to
Group and at CIMCO, underpinned by
12% in 2017.
partially fund the acquisition. The decrease
continued product support growth.
Dividends have generally increased
in 2018 mainly represents repayment of the
Net earnings increased 43% in 2018. In
in proportion to trailing earnings growth.
amounts drawn on the term credit facility
addition to the incremental net earnings at
The quarterly dividend rate continues to
at that time.
Risks and Risk Management
In the normal course of business, Toromont
is exposed to risks that may potentially
impact its financial results in any or all of its
business segments. The Company and each
operating segment employ risk management
strategies with a view to mitigating these
risks on a cost-effective basis.
Acquisition of Toromont QM
Risks and uncertainties exist related to the
acquisition, including but not limited to:
changes in consumer and business
confidence as a result of the change in
ownership; the potential for liabilities
assumed in the acquisition to exceed our
estimates or for material undiscovered
liabilities; the potential for third parties to
terminate or alter their agreements or
relationships with Toromont as a result of
the acquisition.
The anticipated benefits and synergies
from the acquisition will depend in part on
whether the operations, systems,
management and cultures can be
integrated in an efficient and effective
manner. While progress regarding certain
operational and strategic decisions with
respect to the combined organization has
been made, other decisions remain and
some may not have been identified. These
decisions and the integration with the
existing Toromont businesses will present
significant challenges to management. The
integration process may lead to greater
than expected operating costs, customer
loss and business disruption (including,
without limitation, difficulties in
maintaining relationships with employees,
customers or suppliers) for Toromont or
the combined organization that may affect
the ability of the combined organization to
realize the anticipated benefits of the
combination or may otherwise materially
and adversely affect Toromont’s business,
results of operations or financial condition.
Business Cycle
Expenditures on capital goods have
historically been cyclical, reflecting a
variety of factors including interest rates,
foreign exchange rates, consumer and
39
business confidence, commodity prices,
corporate profits, credit conditions and the
availability of capital to finance purchases.
Toromont’s customers are typically
affected, to varying degrees, by these
factors and trends in the general business
cycle within their respective markets. As a
result, Toromont’s financial performance is
affected by the impact of such business
cycles on the Company’s customer base.
Commodity prices, and, in particular,
changes in the view on long-term trends,
affect demand for the Company’s products
and services in the Equipment Group.
Commodity price movements in base and
precious metals sectors in particular can
have an impact on customers’ demands for
equipment and service. With lower
commodity prices, demand is reduced as
development of new projects is often
stopped and existing projects can be
curtailed, both leading to less demand for
heavy equipment.
The business of the Company is
diversified across a wide range of industry
market segments, serving to temper the
effects of business cycles on consolidated
results. Continued diversification
strategies such as expanding the
Company’s customer base, broadening
product offerings and geographic
diversification are designed to moderate
business cycle impacts. The Company has
focused on the sale of specialized
equipment and ongoing support through
parts distribution and skilled service.
Product support growth has been, and will
continue to be, fundamental to the
mitigation of downturns in the business
cycle. The product support business
contributes significantly higher profit
margins and is typically subject to less
volatility than equipment supply activities.
Product and Supply
The Equipment Group purchases most of
its equipment inventories and parts from
Caterpillar under a dealership agreement
that dates back to 1993. As is customary in
distribution arrangements of this type, the
agreement with Caterpillar can be
terminated by either party upon 90 days’
notice. In the event Caterpillar terminates,
it must repurchase substantially all
inventories of new equipment and parts at
cost. Toromont has maintained an excellent
relationship with Caterpillar since inception
and management expects this will continue
going forward.
Toromont is dependent on the
continued market acceptance of
Caterpillar’s products. It is believed that
Caterpillar has a solid reputation as a
high-quality manufacturer, with excellent
brand recognition and customer support as
well as leading market shares in many of
the markets it serves. However, there can
be no assurance that Caterpillar will be able
to maintain its reputation and market
position in the future. Any resulting
decrease in the demand for Caterpillar
products could have a material adverse
impact on the Company’s business, results
of operations and future prospects.
Toromont is also dependent on
Caterpillar for timely supply of equipment
and parts. From time to time during periods
of intense demand, Caterpillar may find
it necessary to allocate its supply of
particular products among its dealers.
Such allocations of supply have not, in the
past, proven to be a significant impediment
in the conduct of business. However,
there can be no assurance that Caterpillar
will continue to supply its products in
the quantities and timeframes required
by customers.
Competition
The Company competes with a large number
of international, national, regional and local
suppliers in each of its markets. Although
price competition can be strong, there are a
number of factors that have enhanced the
Company’s ability to compete throughout its
market areas including the range and quality
of products and services, ability to meet
sophisticated customer requirements,
distribution capabilities including number
and proximity of locations, financing offered
by Caterpillar Finance, e-commerce
solutions, reputation and financial strength.
Increased competitive pressures or the
inability of the Company to maintain the
factors that have enhanced its competitive
position to date could adversely affect the
Company’s business, results of operations
or financial condition.
The Company relies on the skills and
availability of trained and experienced
tradesmen and technicians in order to
provide efficient and appropriate services
to customers. Hiring and retaining such
individuals is critical to the success of these
businesses. Demographic trends are
reducing the number of individuals entering
the trades, making access to skilled
individuals more difficult. The Company
has several remote locations which make
attracting and retaining skilled individuals
more difficult.
Credit Risk
Financial instruments that potentially
subject the Company to concentrations of
credit risk consist of cash equivalents,
accounts receivable and derivative financial
instruments. The carrying amounts on the
statement of financial position represent
the maximum credit exposure.
When the Company has cash on hand it
may be invested in short-term instruments,
such as money-market deposits. The Company
has deposited cash with reputable financial
institutions, from which management
believes the risk of loss to be remote.
The Company has accounts receivable
from a large diversified customer base, and
is not dependent on any single customer or
industry. The Company has accounts
receivable from customers engaged in
various industries including construction,
mining, food and beverage, and governmental
agencies. Management does not believe
that any single customer represents
significant credit risk. These customers are
based predominately in Canada.
The credit risk associated with
derivative financial instruments arises from
the possibility that the counterparties may
default on their obligations. In order to
minimize this risk, the Company enters into
derivative transactions only with highly
rated financial institutions.
Warranties and Maintenance Contracts
Warranties are provided for most of the
equipment sold, typically for a one-year
period following sale. The warranty claim
risk is generally shared jointly with the
equipment manufacturer. Accordingly,
liability is generally limited to the service
component of the warranty claim, while the
manufacturer is responsible for providing
the required parts.
40
The Company also enters into long-term
maintenance and repair contracts, whereby
it is obligated to maintain equipment for its
customers. The length of these contracts
varies generally from two to five years. The
contracts are typically fixed price on either
machine hours or cost per hour, with
provisions for inflationary and exchange
adjustments. Due to the long-term nature of
these contracts, there is a risk that
maintenance costs may exceed the
estimate, thereby resulting in a loss on the
contract. These contracts are closely
monitored for early warning signs of cost
overruns. In addition, the manufacturer
may, in certain circumstances, share in the
cost overruns if profitability falls below a
certain threshold.
Foreign Exchange
The Company transacts business in
multiple currencies, the most significant of
which are the Canadian dollar and the US
dollar. As a result, the Company has foreign
currency exposure with respect to items
denominated in foreign currencies.
The rate of exchange between the
Canadian and US dollar has an impact on
revenue trends. The Canadian dollar
averaged US$0.77 in both 2018 and 2017.
As substantially all of the equipment and
parts sold in the Equipment Group are
sourced in US dollars, and Canadian dollar
sales prices generally reflect changes in the
rate of exchange, a stronger Canadian
dollar can adversely affect revenues. The
impact is not readily estimable as it is
largely dependent on when customers
order the equipment versus when it was
sold. Bookings in a given period would
more closely follow period-over-period
changes in exchange rates. Sales of parts
come from inventories maintained to
service customer requirements. As a
result, constant parts replenishment
means that there is a lagging impact of
changes in exchange rates. In CIMCO, sales
are largely affected by the same factors. In
addition, revenues from CIMCO’s US
subsidiary reflect changes in exchange
rates on the translation of results, although
this is not significant.
Foreign exchange contracts reduce
volatility by fixing landed costs related to
specific customer orders and establishing a
level of price stability for high-volume goods
such as spare parts. The Company does not
enter into foreign exchange forward
contracts for speculative purposes. The
gains and losses on the foreign exchange
forward contracts designated as cash flow
hedges are intended to offset the translation
losses and gains on the hedged foreign
currency transactions when they occur.
As a result, the foreign exchange impact
on earnings with respect to transactional
activity is not significant.
Interest Rate
The Company minimizes its interest rate
risk by managing its portfolio of floating-
and fixed-rate debt, as well as managing
the term to maturity.
At December 31, 2018, the Company’s
outstanding debt of $651.0 million was all
fixed-rate.
Fixed-rate debt amortizes or matures
between 2019 and 2027. Fixed-rate debt
exposes the Company to future interest
rate movements upon refinancing the debt
at maturity. Further, the fair value of the
Company’s fixed-rate debt obligations may
be negatively affected by declines in
interest rates, thereby exposing the
Company to potential losses on early
settlements or refinancing.
The Company’s revolving credit facility of
$500.0 million is a floating-rate debt which
exposes the Company to fluctuations in
short-term interest rates by causing related
interest payments and finance expense to
vary. At December 31, 2018, no amounts
were drawn on this facility while standby
letters of credit utilized $29.9 million.
The Company does not intend to settle
or refinance any existing fixed-rate debt
before maturity.
Financing Arrangements
The Company requires capital to finance its
growth and to refinance its outstanding
debt obligations as they come due for
repayment. If the cash generated from the
Company’s business, together with the
credit available under existing bank
facilities, are not sufficient to fund future
capital requirements, the Company will
require additional debt or equity financing
in the capital markets. The Company’s
ability to access capital markets, on terms
that are acceptable, will be dependent
upon prevailing market conditions, as well
as the Company’s future financial
condition. Further, the Company’s ability to
increase its debt financing may be limited
by its financial covenants or its credit rating
objectives. The Company maintains a
conservative leverage structure and
although it does not anticipate difficulties,
there can be no assurance that capital will
be available on suitable terms and
conditions, or that borrowing costs and
credit ratings will not be adversely affected.
Environmental Regulation
Toromont’s customers are subject to
significant and ever-increasing
environmental legislation and regulation.
This legislation can impact Toromont in two
ways. First, it may increase the technical
difficulty in meeting environmental
requirements in product design, which
could increase the cost of these
businesses’ products. Second, it may
result in a reduction in activity by
Toromont’s customers in environmentally
sensitive areas, in turn reducing the sales
opportunities available to Toromont.
Toromont is also subject to a broad
range of environmental laws and
regulations. These may, in certain
circumstances, impose strict liability for
environmental contamination, which may
render Toromont liable for remediation
costs, natural resource damages and other
damages as a result of conduct that was
lawful at the time it occurred or the
conduct of, or conditions caused by, prior
owners, operators or other third parties. In
addition, where contamination may be
present, it is not uncommon for
neighbouring land owners and other third
parties to file claims for personal injury,
property damage and recovery of response
costs. Remediation costs and other
damages arising as a result of
environmental laws and regulations, and
costs associated with new information,
changes in existing environmental laws and
regulations or the adoption of new
environmental laws and regulations could
be substantial and could negatively impact
Toromont’s business, results of operations
or financial condition.
41
Significant Accounting Policies and Estimates
The preparation of the Company’s
consolidated financial statements in
conformity with IFRS requires management
to make judgments, estimates and
assumptions that affect the reported
amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent
liabilities, at the end of the reporting period.
However, uncertainty about these
assumptions and estimates could result in
outcomes that require a material
adjustment to the carrying amount of the
asset or liability affected in future periods.
In making estimates and judgments,
management relies on external information
and observable conditions where possible,
supplemented by internal analysis as
required. Management reviews its estimates
and judgments on an ongoing basis.
In the process of applying the Company’s
accounting policies, management has made
the following judgments, estimates and
assumptions which have the most
significant effect on the amounts recognized
in the consolidated financial statements.
The critical accounting policies and
estimates affect the operating segments
similarly, and therefore are not discussed on
a segmented basis.
The Company’s significant accounting
policies, estimates and assumptions are
described in notes 1 and 2 of the notes to
the consolidated financial statements.
Changes in Accounting Policies
Effective January 1, 2018, the Company
adopted IFRS 15 - Revenue from Contracts
with Customers, IFRS 9 - Financial
Instruments and amendments to IFRS 2
- Share-based payment.
The impact upon adoption of these
standards and amendments are described
in full in note 1 of the notes to the
consolidated financial statements.
Pending Accounting Changes
A new standard (IFRS 16 – Leases) and an
interpretation (IFRIC 23 - Uncertainty over
Income Tax Treatments) have been issued
but were not yet effective for the financial
year ending December 31, 2018, and
accordingly, have not been applied in
preparing the consolidated financial
statements. The effect of this new standard
and interpretation, together with effective
dates are discussed in note 1 of the notes to
the consolidated financial statements.
Controls and Procedures
Disclosure Controls and Procedures
Management, under the supervision of the
President and Chief Executive Officer
(“CEO”) and Executive Vice President and
Chief Financial Officer (“CFO”), is
responsible for establishing and
maintaining disclosure controls and
procedures, as defined in National
Instrument 52-109 – Certification of
Disclosure in Issuers’ Annual and Interim
Filings, and have designed such disclosure
controls and procedures, or have caused it
to be designed under their supervision, to
provide reasonable assurance that material
information with respect to Toromont is
made known to them.
The CEO and the CFO, together with other
members of management, have evaluated
the effectiveness of the Company’s
disclosure controls and procedures.
Based on that evaluation, the CEO and
CFO concluded that the Company’s
disclosure controls and procedures were
effective as at December 31, 2018.
Internal Control over Financial Reporting
Management, under the supervision of the
CEO and CFO, is responsible for
establishing and maintaining adequate
internal control over financial reporting, as
defined by National Instrument 52-109
– Certification of Disclosure in Issuers’
Annual and Interim Filings, and have
designed such internal control over
financial reporting, or caused it to be
designed under their supervision, to
provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of the consolidated financial
statements in accordance with IFRS.
The CEO and the CFO, together with
other members of management, have
evaluated the effectiveness of the
Company’s internal control over financial
reporting as at December 31, 2018, using
the criteria set forth in Internal Control
- Integrated Framework (2013 edition)
issued by the Committee of Sponsoring
Organizations of the Treadway Commission
(“COSO”).
Based on that evaluation, the CEO and
CFO concluded that the Company’s internal
control over financial reporting was
effective as at December 31, 2018.
There have been no changes in the
design of the Company’s internal control
over financial reporting during 2018 that
would materially affect, or are reasonably
likely to materially affect, the Company’s
internal control over financial reporting.
Due to its inherent limitations, internal
control over financial reporting may not
prevent or detect misstatements on a timely
basis. Also, a projection of the evaluation of
the effectiveness of internal control over
financial reporting to future periods is
subject to the risk that the controls may
become inadequate because of changes in
conditions, or that the degree of compliance
with the policies or procedures may
deteriorate. Therefore, even those systems
determined to be effective can provide only
reasonable assurance with respect to the
financial statement preparation and
presentation. Internal controls over financial
reporting may not prevent all errors and
fraud. A control system, no matter how well
conceived or operated, can only provide
reasonable, not absolute, assurance that
the objectives of the control system are met.
42
Additional GAAP Measures
IFRS mandates certain minimum line items for financial statements and also requires presentation of additional line items, headings and
subtotals when such presentation is relevant to an understanding of the Company’s financial position or performance. IFRS also requires
the notes to the financial statements to provide information that is not presented elsewhere in the financial statements, but is relevant to
understanding them. Such measures outside of the minimum mandated line items are considered additional GAAP measures. The
Company’s consolidated financial statements and notes thereto include certain additional GAAP measures where management considers
such information to be useful to the understanding of the Company’s results.
Gross Profit
Gross Profit is defined as total revenues less cost of goods sold.
Operating Income
Operating income is defined as net earnings before interest expense, interest and investment income and income taxes and is used by
management to assess and evaluate the financial performance of its operating segments. Financing and related interest charges
cannot be attributed to business segments on a meaningful basis that is comparable to other companies. Business segments do not
correspond to income tax jurisdictions, and it is believed that the allocation of income taxes distorts the historical comparability of the
performance of the business segments.
Three months ended December 31
Years ended December 31
($ thousands)
Net earnings
plus: Interest expense
less: Interest and investment income
plus: Income taxes
$
2018
84,898
6,550
(2,488)
32,669
$
2017
59,136
6,788
(1,637)
22,294
2018
2017
$ 251,984
30,643
(8,918)
95,865
$ 175,970
12,277
(4,659)
65,994
Operating income
$ 121,629
$
86,581
$ 369,574
$ 249,582
Net Debt to Total Capitalization and Equity
Net debt to total capitalization and equity are calculated as net debt divided by total capitalization and shareholders’ equity,
respectively, as defined below, and are used by management as measures of the Company’s financial leverage.
Net debt is calculated as long-term debt plus current portion of long-term debt less cash. Total capitalization is calculated as
shareholders’ equity plus net debt.
The calculations are as follows:
($ thousands)
Long-term debt
Current portion of long-term debt
less: Cash
Net debt
Shareholders’ equity
Total capitalization
Net debt to total capitalization
Net debt to equity
2018
2017
$ 644,540
1,022
345,434
$ 893,806
1,941
160,507
300,128
735,240
1,327,679
1,124,727
$ 1,627,807
$ 1,859,967
18%
0.23:1
40%
0.65:1
43
Non-GAAP Measures
Management believes that providing certain non-GAAP measures provides users of the Company’s consolidated financial statements with
important information regarding the operational performance and related trends of the Company’s business. By considering these measures in
combination with the comparable IFRS measures set out below, management believes that users are provided a better overall understanding
of the Company’s business and its financial performance during the relevant period than if they simply considered the IFRS measures alone.
The non-GAAP measures used by management do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other issuers. Accordingly, these measures should not be considered as a substitute or
alternative for net income or cash flow, in each case as determined in accordance with IFRS.
Working Capital
Working capital is defined as total current assets less total current liabilities. Management views working capital as a measure for
assessing overall liquidity.
($ thousands)
Total current assets
less: Total current liabilities
Working capital
2018
2017
$ 1,779,100
1,125,194
$ 1,475,701
708,327
$ 653,906
$ 767,374
Non-cash Working Capital
Non-cash working capital is defined as total current assets (excluding cash) less total current liabilities (excluding current portion of
long-term debt).
($ thousands)
Total current assets
less: Cash
Total current liabilities
less: Current portion of long-term debt
Non-cash working capital
2018
2017
$ 1,779,100
345,434
$ 1,475,701
160,507
1,433,666
1,315,194
1,125,194
1,022
1,124,172
708,327
1,941
706,386
$ 309,494
$ 608,808
Market Capitalization and Total Enterprise Value
Market capitalization represents the total market value of the Company’s equity. It is calculated by multiplying the market price of the
Company’s share by the total outstanding shares.
Total enterprise value represents the total value of the Company and is often used as a more comprehensive alternative to market
capitalization. It is calculated by adding net debt (defined above) to market capitalization.
The calculations are as follows:
($ thousands, except for share price)
Outstanding common shares
times: Ending share price at December 31
Market capitalization
Long-term debt
Current portion of long-term debt
less: Cash
Net debt
2018
2017
81,226
54.26
$
80,950
55.10
$
$ 4,407,344
$ 4,460,335
$ 644,540
1,022
345,434
$ 300,128
893,806
1,941
160,507
735,240
Total enterprise value
$ 4,707,472
$ 5,195,575
44
Key Performance Indicators (“KPIs”)
Management uses key performance indicators to consistently measure performance against the Company’s priorities across the
organization. The Company’s KPIs include gross profit margin, operating income margin, order bookings and backlogs, return on
capital employed and return on equity. Although some of these KPIs are expressed as ratios, they are non-GAAP financial measures
that do not have a standardized meaning under IFRS and may not be comparable to similar measures used by other issuers.
Gross Profit Margin
This measure is defined as gross profit (defined above) divided by total revenues.
Operating Income Margin
This measure is defined as operating income (defined above) divided by total revenues.
Order Bookings and Backlogs
The Company’s order bookings represent equipment unit orders that management believes are firm. Backlogs are defined as the retail
value of equipment unit ordered by customers for future deliveries. Management uses order backlogs as a measure of projecting future
equipment deliveries. There are no directly comparable IFRS measures for order bookings or backlogs.
Return on Capital Employed (“ROCE”)
ROCE is utilized to assess both current operating performance and prospective investments. The adjusted earnings numerator used
for the calculation is income before income taxes, interest expense and interest income (excluding interest on rental conversions).
The denominator in the calculation is the monthly average capital employed, which is defined as net debt plus shareholders’ equity or
total capitalization.
($ thousands)
Net earnings
plus: Interest expense
less: Interest and investment income
plus: Interest income – rental conversions (see note 14)
plus: Income taxes
Average capital employed
Return on capital employed
Return on Equity (“ROE”)
2018
2017
$ 251,984
30,643
(8,918)
3,461
95,865
$ 175,970
12,277
(4,659)
2,308
65,994
$ 373,035
$ 251,890
$ 1,720,921
$ 1,171,449
21.7%
21.5%
ROE is monitored to assess the profitability of the consolidated Company and is calculated by dividing net earnings by opening
shareholders’ equity (adjusted for shares issued and redeemed during the year).
($ thousands)
Net earnings
Opening shareholders’ equity (net of adjustments)
Return on equity
2018
2017
$ 251,984
$ 175,970
$ 1,130,947
$ 909,715
22.3%
19.3%
45
Management’s Report
The preparation and presentation of the
assurance that transactions are appropriately
determining that management fulfils its
Company’s consolidated financial
authorized, assets are safeguarded from
responsibilities in the preparation of the
statements is the responsibility of
loss or unauthorized use and financial
consolidated financial statements and the
management. The financial statements
records are properly maintained to provide
financial control of operations. The Audit
have been prepared in accordance with
reliable information for preparation of the
Committee recommends the independent
International Financial Reporting Standards
consolidated financial statements.
auditors for appointment by the
as issued by the International Accounting
Ernst & Young LLP, an independent firm
shareholders. It meets regularly with
Standards Board and necessarily include
of Chartered Professional Accountants,
financial management and the internal and
estimates. The consolidated financial
were appointed by the shareholders
external auditors to discuss internal
statements reflect amounts which must, of
as external auditors to examine the
controls, auditing matters and financial
necessity, be based on the best estimates
consolidated financial statements in
reporting issues. The independent auditors
and judgment of management. Information
accordance with generally accepted
have unrestricted access to the Audit
contained in the Company’s Management’s
auditing standards in Canada and provide
Committee. The consolidated financial
Discussion and Analysis is consistent,
an independent professional opinion. Their
statements and Management’s Discussion
where applicable, with that contained in the
report is presented with the consolidated
and Analysis have been approved by the
consolidated financial statements.
financial statements.
Board of Directors, based on the review and
Management maintains appropriate
The Board of Directors, acting through
recommendation of the Audit Committee.
systems of internal control. Policies and
an Audit Committee comprised solely of
procedures are designed to give reasonable
independent directors, is responsible for
Scott J. Medhurst
President and
Chief Executive Officer
Paul R. Jewer
Executive Vice President and
Chief Financial Officer
February 14, 2019
Toronto, Canada
46
Independent Auditor’s Report
To the Shareholders of Toromont Industries Ltd.
We have audited the consolidated financial
Our opinion on the consolidated
liquidate the Group or to cease operations,
statements of Toromont Industries Ltd. and
financial statements does not cover the
or has no realistic alternative but to do so.
its subsidiaries (the Group), which comprise
other information and we do not express
Those charged with governance are
the consolidated statements of financial
any form of assurance conclusion thereon.
responsible for overseeing the Group’s
position as at December 31, 2018 and 2017,
In connection with our audit of the
financial reporting process.
the consolidated income statements, the
consolidated financial statements, our
consolidated statements of comprehensive
responsibility is to read the other
Auditor’s Responsibilities for the Audit of
income, consolidated statements of
information, and in doing so, consider
the Consolidated Financial Statements
changes in equity and consolidated
whether the other information is materially
Our objectives are to obtain reasonable
statements of cash flows for the years then
inconsistent with the consolidated financial
assurance about whether the consolidated
ended, and notes to the consolidated
statements or our knowledge obtained in
financial statements as a whole are free
financial statements, including a summary
the audit or otherwise appears to be
from material misstatement, whether due
of significant accounting policies.
materially misstated.
to fraud or error, and to issue an auditor’s
In our opinion, the accompanying
We obtained Management’s Discussion
report that includes our opinion.
consolidated financial statements present
& Analysis prior to the date of this auditor’s
Reasonable assurance is a high level of
fairly, in all material respects the
report. If, based on the work we have
assurance, but is not a guarantee that an
consolidated financial position of the Group
performed, we conclude that there is a
audit conducted in accordance with
as at December 31, 2018 and 2017, and its
material misstatement of this other
Canadian generally accepted auditing
consolidated financial performance and its
information, we are required to report that
standards will always detect a material
consolidated cash flows for the years then
fact in this auditor’s report. We have
misstatement when it exists.
ended in accordance with International
nothing to report in this regard.
Misstatements can arise from fraud or error
Financial Reporting Standards (“IFRS”).
The Annual Report is expected to be
and are considered material if, individually
made available to us after the date of this
or in the aggregate, they could reasonably
Basis for opinion
auditor’s report. If based on the work we
be expected to influence the economic
We conducted our audit in accordance with
will perform on this other information, we
decisions of users taken on the basis of
Canadian generally accepted auditing
conclude there is a material misstatement of
these consolidated financial statements.
standards. Our responsibilities under those
other information, we are required to report
As part of an audit in accordance with
standards are further described in the
Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of
this report. We are independent of the Group
that fact to those charged with governance.
Canadian generally accepted auditing
standards, we exercise professional
Responsibilities of Management and
judgment and maintain professional
Those Charged with Governance for the
skepticism throughout the audit. We also:
in accordance with the ethical requirements
Consolidated Financial Statements
•
Identify and assess the risks of material
that are relevant to our audit of the
Management is responsible for the
misstatement of the consolidated
consolidated financial statements in Canada,
preparation and fair presentation of the
financial statements, whether due to
and we have fulfilled our other ethical
consolidated financial statements in
fraud or error, design and perform audit
responsibilities in accordance with these
accordance with IFRS, and for such internal
procedures responsive to those risks,
requirements. We believe that the audit
control as management determines is
and obtain audit evidence that is
evidence we have obtained is sufficient and
necessary to enable the preparation of
sufficient and appropriate to provide a
appropriate to provide a basis for our opinion.
consolidated financial statements that are
basis for our opinion. The risk of not
free from material misstatement, whether
detecting a material misstatement
Other information
due to fraud or error.
resulting from fraud is higher than for
Management is responsible for the other
In preparing the consolidated financial
one resulting from error, as fraud may
information which comprises:
statements, management is responsible for
involve collusion, forgery, intentional
• Management’s Discussion & Analysis
assessing the Group’s ability to continue as
omissions, misrepresentations, or the
• The information other than the
a going concern, disclosing, as applicable,
override of internal control.
consolidated financial statements and
matters related to going concern and using
• Obtain an understanding of internal
our auditor’s report thereon, in this
the going concern basis of accounting
control relevant to the audit in order to
Annual Report
unless management either intends to
design audit procedures that are
47
appropriate in the circumstances, but
statements or, if such disclosures are
direction, supervision and performance
not for the purpose of expressing an
inadequate, to modify our opinion. Our
of the Group audit. We remain solely
opinion on the effectiveness of the
conclusions are based on the audit
responsible for our audit opinion.
Group’s internal control.
evidence obtained up to the date of our
We communicate with those charged
• Evaluate the appropriateness of
auditor’s report. However, future events
with governance regarding, among other
accounting policies used and the
or conditions may cause the Group to
matters, the planned scope and timing
reasonableness of accounting
cease to continue as a going concern.
of the audit and significant audit findings,
estimates and related disclosures made
• Evaluate the overall presentation,
including any significant deficiencies in
by management.
structure, and content of the
internal control that we identify during
• Conclude on the appropriateness of
consolidated financial statements,
our audit.
management’s use of the going concern
including the disclosures, and whether
We also provide those charged with
basis of accounting and, based on the
the consolidated financial statements
governance with a statement that we have
audit evidence obtained, whether a
represent the underlying transactions
complied with relevant ethical
material uncertainty exists related to
and events in a manner that achieves
requirements regarding independence, and
events or conditions that may cast
fair presentation.
to communicate with them all relationships
significant doubt on the Group’s ability
• Obtain sufficient appropriate audit
and other matters that may reasonably be
to continue as a going concern. If we
evidence regarding the financial
thought to bear on our independence, and
conclude that a material uncertainty
information of the entities or business
where applicable, related safeguards.
exists, we are required to draw attention
activities within the Group to express an
The engagement partner on the audit
in our auditor’s report to the related
opinion on the consolidated financial
resulting in this independent auditor’s
disclosures in the consolidated financial
statements. We are responsible for the
report is Don Linsdell.
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
February 14, 2019
Toronto, Canada
48
Consolidated Statements of
Financial Position
As at December 31 ($ thousands)
Assets
Current assets
Cash
Accounts receivable
Inventories
Income taxes receivable
Derivative financial instruments
Other current assets
Total current assets
Property, plant and equipment
Rental equipment
Other assets
Deferred tax assets
Goodwill and intangible assets
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Provisions
Deferred revenues and contract liabilities
Current portion of long-term debt
Derivative financial instruments
Income taxes payable
Total current liabilities
Deferred revenues and contract liabilities
Long-term debt
Post-employment obligations
Deferred tax liabilities
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Shareholders’ equity
Total liabilities and shareholders’ equity
Commitments - see note 22
See accompanying notes
Approved by the Board:
Note
2018
2017
3
4
12
5
5
6
15
7
8
9
10
12
9
10
19
15
11
$ 345,434
522,462
873,507
118
27,647
9,932
$ 160,507
528,748
777,524
536
—
8,386
1,779,100
1,475,701
412,776
541,530
13,206
1,610
486,309
412,535
469,342
17,206
411
491,750
$ 3,234,531
$ 2,866,945
$ 935,037
24,382
136,244
1,022
23
28,486
1,125,194
17,247
644,540
104,342
15,529
457,800
12,879
851,049
5,951
$ 540,821
22,436
137,129
1,941
5,260
740
708,327
18,750
893,806
121,335
—
444,427
10,290
669,813
197
1,327,679
1,124,727
$ 3,234,531
$ 2,866,945
Robert M. Ogilvie
Director
Wayne S. Hill
Director
49
Consolidated Income
Statements
Years ended December 31 ($ thousands, except share amounts)
Note
2018
2017
Revenues
Cost of goods sold
Gross profit
Selling and administrative expenses
Operating income
Interest expense
Interest and investment income
Income before income taxes
Income taxes
Net earnings
Earnings per share
Basic
Diluted
Weighted average number of shares outstanding
Basic
Diluted
See accompanying notes
23
4,5
$ 3,504,236
2,640,835
$ 2,350,162
1,794,213
863,401
493,827
369,574
30,643
(8,918)
347,849
95,865
555,949
306,367
249,582
12,277
(4,659)
241,964
65,994
$ 251,984
$ 175,970
$
$
3.10
3.07
$
$
2.22
2.20
81,231,282
81,975,310
79,091,706
79,907,470
14
14
15
16
16
16
16
50
Consolidated Statements of
Comprehensive Income
Years ended December 31 ($ thousands)
Net earnings
Other comprehensive income (loss), net of income taxes:
Items that may be reclassified subsequently to net earnings:
2018
2017
$ 251,984
$ 175,970
Foreign currency translation adjustments
789
(716)
Unrealized gains (losses) on derivatives designated as cash flow hedges
Income tax (expense) recovery
Unrealized gains (losses) on cash flow hedges, net of income taxes
Realized (gains) losses on derivatives designated as cash flow hedges
Income tax expense (recovery)
Realized (gains) losses on cash flow hedges, net of income taxes
Items that will not be reclassified subsequently to net earnings:
Actuarial and other gains (losses)
Income tax expense (recovery)
Actuarial and other gains (losses), net of income taxes
Other comprehensive income (loss)
Total comprehensive income
See accompanying notes
8,239
(2,144)
6,095
(1,528)
398
(1,130)
20,652
(5,413)
15,239
(5,946)
1,548
(4,398)
3,211
(836)
2,375
(6,765)
1,758
(5,007)
20,993
(7,746)
$ 272,977
$ 168,224
51
Consolidated Statements
of Cash Flows
Years ended December 31 ($ thousands)
Note
2018
2017
Operating activities
Net earnings
Items not requiring cash:
Depreciation and amortization
Stock-based compensation
Post-employment obligations
Deferred income taxes
Interest accretion on repayment of term credit facility
Gain on sale of rental equipment and property, plant and equipment
Net change in non-cash working capital and other
Additions to rental equipment
Proceeds on disposal of rental equipment
Cash provided by operating activities
Investing activities
Additions to property, plant and equipment
Proceeds on disposal of property, plant and equipment
Decrease (increase) in other assets
Business acquisition
Cash provided by (used in) investing activities
Financing activities
Issue of senior debentures
Drawings on term credit facility
Repayment of term credit facility
Repayment of senior debentures
Debt issuance costs
Dividends
Cash received on exercise of stock options
Shares purchased for cancellation
Cash (used in) provided by financing activities
Effect of currency translation on cash balances
Increase (decrease) in cash
Cash, at beginning of year
Cash, at end of year
Supplemental cash flow information (note 21)
See accompanying notes
5,7,10
18
10
21
5
5
25
10
10
10
11
11
$ 251,984
$ 175,970
141,535
5,101
3,659
7,171
821
(14,990)
395,281
236,050
(149,650)
24,502
89,705
3,502
448
10,287
—
(21,590)
258,322
70,010
(102,343)
35,521
506,183
261,510
(49,504)
9,506
42,473
—
(37,317)
3,185
(42,950)
(902,896)
2,475
(979,978)
—
—
(250,000)
(1,941)
—
(71,434)
12,198
(12,808)
(323,985)
254
184,927
160,507
500,000
250,000
—
(1,811)
(5,597)
(58,858)
6,758
—
690,492
(252)
(28,228)
188,735
$ 345,434
$ 160,507
52
Consolidated Statements
of Changes in Equity
Share Capital
Accumulated other comprehensive income
Foreign
currency
($ thousands, except share numbers)
Number
Contributed
surplus
Amount
Retained
earnings adjustments
translation Cash flow
hedges
Total
Total
At January 1, 2017
78,398,456 $ 315,078 $ 8,166 $ 559,252
$ 2,627
$ 309 $ 2,936 $ 885,432
Net earnings
Other comprehensive loss
Total comprehensive income
—
—
—
—
—
—
—
—
175,970
(5,007)
—
(716)
—
(2,023)
—
(2,739)
175,970
(7,746)
— 170,963
(716)
(2,023)
(2,739)
168,224
Exercise of stock options
Stock-based compensation expense
Stock options exercised
301,885
—
—
8,136
—
—
—
3,502
(1,378)
Effect of stock compensation plans
301,885
8,136
2,124
—
—
—
—
Business acquisition
Dividends
2,249,478 121,213
—
—
—
—
—
(60,402)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,136
3,502
(1,378)
10,260
121,213
(60,402)
At December 31, 2017
80,949,819 $ 444,427 $ 10,290 $ 669,813
$ 1,911
$ (1,714) $
197 $ 1,124,727
Net earnings
Other comprehensive income
Total comprehensive income
—
—
—
—
—
—
—
—
251,984
15,239
—
789
4,965
5,754
251,984
20,993
—
267,223
789
4,965
5,754
272,977
Exercise of stock options
Stock-based compensation expense
Stock options exercised
514,516
—
—
14,710
—
—
—
5,101
(2,512)
Effect of stock compensation plans
514,516
14,710
2,589
—
—
—
—
Shares purchased for cancellation
Dividends
(237,952)
—
(1,337)
—
—
—
(11,471)
(74,516)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14,710
5,101
(2,512)
17,299
(12,808)
(74,516)
At December 31, 2018
81,226,383 $ 457,800 $ 12,879 $ 851,049
$ 2,700
$ 3,251 $ 5,951 $ 1,327,679
See accompanying notes
53
Notes to the Consolidated
Financial Statements
December 31, 2018
($ thousands except where otherwise indicated)
1. Description of Business and Significant Accounting Policies
Corporate Information
except for derivative instruments that
applied to those inputs, which together are
Toromont Industries Ltd. (the “Company”
have been measured at fair value. The
or will be used to create outputs. However, a
or “Toromont”) is a limited company
consolidated financial statements are
business need not include all of the inputs or
incorporated and domiciled in Canada
presented in Canadian dollars and all values
processes that the seller used in operating
whose shares are publicly traded on the
are rounded to the nearest thousand,
that business if the Company is capable of
Toronto Stock Exchange under the symbol
except where otherwise indicated. Certain
acquiring the business and continuing to
TIH. The registered office is located at 3131
balances in the comparative numbers of the
produce outputs, for example, by integrating
Highway 7 West, Concord, Ontario, Canada.
statements of financial position have been
the business with their own inputs and
The Company operates through two
reclassified from statements previously
processes. If the transaction does not meet
business segments: the Equipment Group
presented to conform to the presentation of
the criteria of a business, it is accounted for
and CIMCO. The Equipment Group includes
the 2018 consolidated financial statements.
as an asset acquisition.
one of the larger Caterpillar dealerships by
Business combinations are accounted
revenue and geographic territory - spanning
Basis of Consolidation
for using the acquisition method. The cost of
the Canadian provinces of Newfoundland &
The consolidated financial statements
an acquisition is measured as the aggregate
Labrador, Nova Scotia, New Brunswick,
include the accounts of the Company and
of consideration transferred, measured at
Prince Edward Island, Québec, Ontario and
its wholly owned subsidiaries.
acquisition date fair value. Acquisition costs
Manitoba, in addition to most of the territory
Subsidiaries are fully consolidated from
are expensed as incurred.
of Nunavut. The Group includes industry
the date of acquisition, being the date on
Goodwill is initially measured at cost,
leading rental operations, a complementary
which the Company obtains control, and
being the excess of the cost of the business
material handling business and an
continue to be consolidated until the date
combination over the Company’s share in
agricultural equipment business. CIMCO is a
that such control ceases. The financial
the net fair value of the acquiree’s
market leader in the design, engineering,
statements of the subsidiaries are prepared
identifiable assets, liabilities and contingent
fabrication and installation of industrial and
for the same reporting period as the parent
liabilities. If the cost of acquisition is less
recreational refrigeration systems. Both
company, using consistent accounting
than the fair value of the net assets of the
segments offer comprehensive product
policies. All intra-group balances, income and
subsidiary acquired, the difference is
support capabilities. Toromont employs over
expenses and unrealized gains and losses
recognized directly in the consolidated
6,000 people in more than 150 locations.
resulting from intra-group transactions are
income statement.
eliminated in full upon consolidation.
After initial recognition, goodwill is
Statement of Compliance
measured at cost less any accumulated
These consolidated financial statements
Business Combinations and Goodwill
impairment losses. For the purpose of
are prepared in accordance with
When determining the nature of an
impairment testing, goodwill acquired in a
International Financial Reporting Standards
acquisition, as either a business combination
business combination is, from the
(“IFRS”), as issued by the International
or an asset acquisition, management defines
acquisition date, allocated to each of the
Accounting Standards Board (“IASB”).
a business as ‘an integrated set of activities
Company’s cash-generating units (“CGUs”)
These consolidated financial statements
and assets that is capable of being
that are expected to benefit from the
were authorized for issue by the Audit
conducted and managed for the purpose of
Committee of the Board of Directors on
providing a return in the form of dividends,
synergies of the combination, irrespective of
whether other assets or liabilities of the
February 14, 2019.
lower costs or other economic benefits
acquiree are assigned to those units.
directly to investors or other owners,
Where goodwill forms part of a CGU and
Basis of Preparation
members or participants.’ An integrated set
part of the operation within that unit is
These consolidated financial statements
of activities and assets requires two
disposed of, the goodwill associated with the
were prepared on a historical cost basis,
essential elements - inputs and processes
operation disposed of is included in the
54
carrying amount of the operation when
Cost of work-in-process (contracts) are
amortization and accumulated impairment
determining the gain or loss on disposal of
costs specifically chargeable to customers
losses, as applicable.
the operation. Goodwill disposed of in this
that are deferred in inventories and are
Intangible assets with a finite useful life
circumstance is measured based on the
probable of recovery.
are amortized over their estimated useful
relative fair values of the operation disposed
Cost of inventories includes the transfer
lives and are assessed for impairment
of and the portion of the CGU retained.
of gains and losses on qualifying cash flow
whenever there is an indication that the
hedges, recognized in other comprehensive
intangible assets may be impaired. The
Cash and Cash Equivalents
income, in respect of the purchase
amortization period and the amortization
Cash consists of petty cash and demand
of inventory.
method for intangible assets with finite
deposits. Cash equivalents, when applicable,
Net realizable value is the estimated
useful lives are reviewed at least at the end
consist of short-term deposits with an
selling price in the ordinary course of
of each reporting period.
original maturity of three months or less.
business, less estimated costs of completion
and the estimated costs necessary to make
Accounts Receivable
the sale.
Trade accounts receivable are amounts due
from customers for merchandise sold or
Property, Plant and Equipment
services performed in the ordinary course
Property, plant and equipment are recorded
of business. If collection is expected in one
at cost, net of accumulated depreciation
Amortization is recorded as follows:
• Customer Relationships – 8 years,
straight-line
• ERP System – 5 years, straight-line
• Customer Order Backlog – specific basis
• Patents and Licenses – remaining life,
year or less (or in the normal operating cycle
and accumulated impairment losses, if any.
straight-line
of the business, if longer), they are classified
Depreciation is recognized principally on
as current assets. If not, they are presented
a straight-line basis over the estimated
Intangible assets with indefinite useful lives
as non-current assets. Trade accounts
useful lives of the assets. Estimated useful
are not amortized, but are tested for
receivable are recognized initially at
lives range from 20 to 30 years for buildings,
impairment annually or when indicators of
amounts due, net of impairment for
3 to 10 years for equipment and 20 years for
impairment are present. Distribution
estimated expected credit loss (allowance
power generation assets. Leasehold
networks are considered to have an
for doubtful accounts). The expense relating
improvements and lease inducements are
indefinite life based on the terms of the
to expected credit loss is included within
amortized on a straight-line basis over the
distribution rights contracts. The
“Selling and administrative expenses” in the
term of the lease. Land is not depreciated.
assessment of indefinite life is reviewed
consolidated income statements.
The assets’ residual values, useful lives
annually to determine whether the
Unbilled receivables represent contract
and methods of depreciation are reviewed at
indefinite life continues to be supportable.
assets related to the Company’s rights to
each financial year end and adjusted
consideration for work completed but not
prospectively, if appropriate.
Provisions
billed as at the reporting date on the sale of
power and energy systems and refrigeration
Rental Equipment
Provisions are recognized when the
Company has a present obligation, legal
packages. These are transferred to
Rental equipment is recorded at cost, net
or constructive, as a result of a past event,
receivables when the entitlement to
of accumulated depreciation and any
it is probable that an outflow of resources
payment becomes unconditional.
impairment losses. Cost is determined on a
embodying economic benefits will be
specific-item basis. Rental equipment is
required to settle the obligation and a
Inventories
depreciated to its estimated residual value
reliable estimate can be made of the
Inventories are valued at the lower of cost
over its estimated useful life on a straight-
amount of the obligation.
and net realizable value.
line basis, which ranges from 1 to 10 years.
Provisions for warranty costs are
Cost of equipment, repair and
The assets’ residual values, useful lives
recognized when the product is sold or
distribution parts and direct materials
and methods of depreciation are reviewed
service provided. Initial recognition is
include purchase cost and costs incurred in
at each financial year end and adjusted
based on historical experience.
bringing each product to its present
prospectively, if appropriate.
location and condition. Serialized inventory
is determined on a specific-item basis.
Intangible Assets
Financial Instruments
Financial assets and liabilities are
Non-serialized inventory is determined
Intangible assets acquired separately are
recognized when the entity becomes a
based on a weighted average actual cost.
measured on initial recognition at cost.
party to the contractual provisions of the
Cost of work-in-process includes cost of
Intangible assets acquired as part of a
instrument. The Company determines the
direct materials, labour and an allocation of
business acquisition are initially recorded
classification of its financial assets and
manufacturing overheads, excluding
at the acquisition date fair value. Following
liabilities at initial recognition or when
borrowing costs, based on normal
initial recognition, intangible assets are
reclassified on the consolidated statements
operating capacity.
carried at cost less any accumulated
of financial position. Financial assets and
55
liabilities are classified in the following
remaining amount of change in the fair value
simplified approach does not require the
measurement categories: i) amortized cost;
of liability is recognized in the consolidated
tracking of changes in credit risk, but
ii) fair value through other comprehensive
income statements. Changes in fair value
instead requires the recognition of lifetime
income (“FVTOCI”); or iii) fair value through
attributable to a financial liability’s credit
ECLs at all times. Lifetime ECL represents
profit and loss (“FVTPL”). Initially, all
risk that are recognized in OCI are not
the ECL that would result from all possible
financial assets and liabilities are
subsequently reclassified to the
default events over the expected life of a
recognized at fair value. Regular-way trades
consolidated income statements; instead,
financial instrument.
of financial assets and liabilities are
they are transferred to retained earnings
The Company considers the following
recognized on the trade date. Transaction
upon derecognition of the financial liability.
as constituting an event of a default for
costs are expensed as incurred except for
Financial liabilities that are not: (i)
internal credit risk management purposes,
loans and receivables and loans and
contingent consideration of an acquirer in a
as historical experience indicates that
borrowings, in which case transaction costs
business combination; (ii) held for trading;
receivables that meet either of the following
are included in the initial cost.
or (iii) are designated as FVTPL, are
criteria are generally not recoverable:
subsequently measured at amortized cost
(i) when there is a breach of financial
Financial Assets
using the effective interest method.
covenants by the customer; or
Subsequent measurement of financial
assets depends on the classification.
Derivatives
(ii) information developed internally or
obtained from external sources
The Company has made the following
Derivative assets and liabilities are classified
indicates that the debtor is unlikely to
classifications:
as held for trading and are measured at fair
pay its creditors, including the
• Cash is classified as held for trading and
as such is measured at fair value, with
value with changes in fair value being
Company, in full.
included in profit or loss, unless they are
changes in fair value being included in
designated as hedging instruments, in
A financial asset is credit-impaired when one
profit or loss.
which case changes in fair value are
or more events that have a detrimental
• Accounts receivable are classified as
included in other comprehensive income.
impact on the estimated future cash flows of
loans and receivables and are recorded
that financial asset have occurred. Evidence
at amortized cost using the effective
Fair Value of Financial Instruments
that a financial asset is credit-impaired
interest rate method, less provisions for
The Company uses the following hierarchy
includes observable data about the
doubtful accounts.
for determining and disclosing the
following events:
fair value of financial instruments by
(i) significant financial difficulty of the
The Company assesses, as at each
valuation technique:
customer;
consolidated statement of financial
• Level 1 – unadjusted quoted prices
(ii) a breach of contract, such as a default
position date, whether there is any
in active markets for identical assets
discussed above; or
objective evidence that a financial asset or
or liabilities.
(iii) it is becoming probable that the
a group of financial assets is impaired.
• Level 2 – other techniques for which all
borrower will enter bankruptcy or other
inputs that have a significant effect on
financial reorganization.
Financial Liabilities
the recorded fair value are observable,
All financial liabilities are subsequently
either directly or indirectly.
A financial asset is considered in default
measured at amortized cost using the
• Level 3 – techniques that use inputs
when contractual payments are 90 days
effective interest method or at FVTPL.
that have a significant effect on the
past due. A financial asset may also be
Financial liabilities are classified as FVTPL
recorded fair value that are not based
considered to be in default if internal or
when the financial liability is: (i) contingent
on observable market data.
external information indicates that the
consideration of an acquirer in a business
Company is unlikely to receive the
combination; (ii) held for trading; or (iii) it is
Impairment of Financial Assets
outstanding contractual amounts in full
designated as FVTPL.
An allowance for expected credit losses
before taking into account any credit
For financial liabilities that are
(“ECL”) is recognized for all debt instruments
enhancements held. A financial asset is
designated as FVTPL, the amount of change
not held at fair value through profit or loss.
written off when there is no reasonable
in the fair value of the financial liability that
The amount of ECL is updated at each
expectation of recovering the contractual
is attributable to changes in the credit risk of
reporting period to reflect changes in credit
cash flows.
that liability is recognized in other
risk of the respective financial instrument.
comprehensive income (“OCI”), unless the
As the Company’s financial assets are
Derivative Financial Instruments and
recognition of the effects of changes in the
substantially comprised of trade
liability’s credit risk in OCI would create or
receivables, a simplified approach is used
Hedge Accounting
Derivative financial arrangements are used
enlarge an accounting mismatch in the
for measuring the loss allowance at an
to hedge exposure to fluctuations in
consolidated income statements. The
amount equal to lifetime ECL. The
exchange rates. Such derivative financial
56
instruments are initially recognized at fair
expected to occur, the cumulative gain
recognized impairment losses may no longer
value on the date on which a derivative
or loss that was reported in other
exist or may have decreased. If such
contract is entered into and are subsequently
comprehensive income is immediately
indication exists, the Company estimates
measured at fair value. Derivatives are
recognized in the consolidated
the asset’s recoverable amount. An
carried as financial assets when the fair value
income statements.
is positive and as financial liabilities when the
impairment loss is recognized for the
amount by which the asset’s carrying
fair value is negative.
Impairment of Non-financial Assets
amount exceeds its recoverable amount. A
At inception, the Company designates
The Company assesses whether goodwill
previously recognized impairment loss is
and documents the hedge relationship,
or intangible assets with indefinite lives
reversed only if there has been a change in
including identification of the transaction
may be impaired annually during the fourth
the assumptions used to determine the
and the risk management objectives and
quarter, or when indicators of impairment
asset’s recoverable amount since the last
strategy for undertaking the hedge. The
are present. For the purpose of impairment
impairment loss was recognized. The
Company also documents its assessment,
testing, goodwill arising from acquisitions is
reversal is limited so that the carrying
both at hedge inception and on an ongoing
allocated to each of the Company’s CGUs
amount of the asset does not exceed its
basis, of whether the derivatives that are
or group of CGUs expected to benefit from
recoverable amount, nor exceed the carrying
used in hedging transactions are highly
the acquisition. The level at which goodwill
amount that would have been determined,
effective in offsetting changes in cash flows
is allocated represents the lowest level at
net of depreciation, had no impairment loss
of hedged items.
which goodwill is monitored for internal
been recognized for the asset in prior years.
The Company has designated certain
management purposes, and is not higher
Such reversal is recognized in the
derivatives as cash flow hedges. These are
than an operating segment. Intangible
consolidated income statements.
hedges of firm commitments and highly
assets with indefinite lives that do not have
probable forecast transactions. The
separate identifiable cash flows are also
Revenue from Contracts with Customers
effective portion of changes in the fair
allocated to CGUs or a group of CGUs. Any
Revenue from contracts with customers, is
value of derivatives that are designated as
potential impairment of goodwill or
recognized when control of the goods or
a cash flow hedge is recognized in other
intangible assets is identified by comparing
services are transferred to the customer at
comprehensive income. The gain or loss
the recoverable amount of a CGU or a
an amount that reflects the consideration to
relating to the ineffective portion is
group of CGUs to its carrying value. The
which the Company expects to be entitled
recognized immediately in the consolidated
recoverable amount is the higher of its fair
income statements. Additionally:
value less costs to sell and its value-in-use.
in exchange for those goods or services.
• Sale of Equipment – Revenue is
recognized when control of the
•
If a hedge of a forecast transaction
subsequently results in the recognition
If the recoverable amount is less than the
carrying amount, then the impairment loss
equipment has been transferred to the
of a non-financial asset, the associated
is allocated first to reduce the carrying
customer. This usually occurs when the
gains or losses that were recognized in
amount of any goodwill and then to the
equipment is delivered or picked up by
other comprehensive income are
other assets pro-rata on the basis of the
the customer. The transaction price is
included in the initial cost or other
carrying amount of each asset. In
documented on the sales invoice and
carrying amount of the asset;
determining fair value less costs to sell,
agreed to by the customer. Payment is
• For cash flow hedges other than those
recent market transactions are taken into
generally due at the time of delivery, as
identified above, amounts accumulated
account, if available. In assessing value-in-
such, a receivable is recognized as the
in other comprehensive income are
use, the estimated future cash flows are
consideration is unconditional and only
recycled to the consolidated income
discounted to their present value using a
the passage of time is required before
statements in the period when the
pre-tax discount rate that reflects current
payment is due. In certain situations,
hedged item will affect earnings (for
market assessments of the time value of
control transfers to the customer
instance, when the forecast sale that is
money and the risks specific to the asset.
through a bill and hold arrangement
hedged takes place);
Impairment losses are recognized in the
when the following criteria are met: (i)
• When a hedging instrument expires or is
consolidated income statements.
there is a substantive reason for the
sold, or when a hedge no longer meets
The Company bases its impairment
arrangement; (ii) the equipment is
the criteria for hedge accounting, any
calculation on detailed three-year budgets
separately identified as belonging to the
cumulative gain or loss in other
and extrapolated long-term growth rate for
customer; (iii) Toromont is no longer
comprehensive income remains in other
periods beyond the third year.
able to use the equipment or direct it to
comprehensive income and is recognized
For non-financial assets other than
another customer; and (iv) the
when the forecast transaction is
goodwill and intangible assets with indefinite
equipment is currently ready for
ultimately recognized in the consolidated
lives, an assessment is made at each
income statements; and
reporting date whether there is any
physical transfer to the customer.
• Sale of Equipment with a Guaranteed
• When a forecast transaction is no longer
indication of impairment, or that previously
Residual Value or Repurchase
57
Commitment – The sale of equipment
for which the Company has provided a
• Long-term Maintenance Contracts
Consideration is given whether there are
– Long-term maintenance contracts
other promises in a contract with a customer
guarantee to repurchase the equipment
range from one to five years and are
that are separate performance obligations to
at a predetermined residual value and
customer-specific. These contracts are
which a portion of the transaction price
date is accounted for as an operating
sold either separately or bundled
needs to be allocated. In determining the
lease in accordance with IAS 17
– Leases. Revenue is therefore
recognized over the period extending to
the date of the residual guarantee.
• Sale of Systems – The Company sells
systems, including power and energy
together with the sale of equipment to a
transaction price for the sale of equipment,
customer. These arrangements cover a
variable consideration, the existence of
range of services from regular
significant financing components, non-cash
maintenance to major repairs. The
consideration, and consideration payable to
Company has concluded that these are
the customer (if any) are considered.
two separate performance obligations
facilities and industrial and recreational
as each of the promises to transfer
Foreign Currency Translation
refrigeration systems, which involve the
equipment and provide services is
The functional and presentation currency
design, manufacture, installation and
capable of being distinct and separately
of the Company is the Canadian dollar.
commissioning of longer-term projects
identifiable. If the sales are bundled, the
Each of the Company’s subsidiaries
under the customer’s control and can
Company allocates a portion of the
determines its functional currency.
span from three months to one year.
transaction price based on the relative
Transactions in foreign currencies are
Revenue is recognized progressively
stand-alone selling price to each
initially recorded at the functional currency
based on the percentage-of-completion
performance obligation. Customers are
rate prevailing at the date of the transaction
method. This method is normally
invoiced on a periodic basis reflecting
or at the average rate for the period when
measured by reference to costs incurred
the terms of the agreement, generally
this is a reasonable approximation.
to date as a percentage of the total
based on machine hours, with payment
Monetary assets and liabilities denominated
estimated costs as outlined in the
terms of 30 days from invoicing. These
in foreign currencies are retranslated at the
contract. Payment terms are usually
amounts are recognized as deferred
functional currency spot rate of exchange as
based on set milestones outlined in the
revenue. Revenue is recognized as work
at the reporting date. All differences are
contract. Periodically: (i) amounts are
is performed under the contract based
taken directly to profit or loss. Non-
received in advance of the associated
on standard or contract rates. Revenue
monetary items that are measured in terms
contract work being performed - these
from maintenance services is
of historical cost in a foreign currency are
amounts are recorded as deferred
recognized over time, using an input
translated using the exchange rates as at
revenues; and (ii) revenue is recognized
method to measure progress towards
the dates of the initial transactions.
without issuing an invoice – this
entitlement to consideration is recognized
as unbilled receivables. Any foreseeable
complete satisfaction of the service.
• Extended Warranty – Extended warranty
may be purchased by a customer at time
The assets and liabilities of foreign
operations (having a functional currency
other than the Canadian dollar) are
losses on such projects are recognized
of purchase of a machine to provide
translated into Canadian dollars at the rate
immediately in profit or loss as identified.
additional warranty coverage beyond
of exchange prevailing at the consolidated
• Equipment Rentals – Revenue is
the initial one-year standard warranty
statement of financial position dates and the
accounted for in accordance with IAS 17.
covered by the supplier. Extended
consolidated income statements are
Revenue is recognized on a straight-line
warranty generally covers specified
translated at the average exchange rate for
basis over the term of the agreement.
components for a term from 3 to 5
the period. The exchange differences arising
Payment terms are generally 30 days
years. Extended warranty is normally
on translation are recognized in
from invoicing.
invoiced at time of purchase and
accumulated other comprehensive income
• Product Support Services – Revenue
payment is expected at time of invoicing.
in shareholders’ equity. On disposal of a
from product support services includes
These billings are included in deferred
foreign operation, the deferred cumulative
the sale of parts and performance of
revenue. The Company recognizes
amount recognized in equity is recognized
service work on equipment. For the sale
revenue for extended warranty as work
in the consolidated income statements.
of parts, revenue is recognized when the
is performed under the extended
part is shipped or picked-up by the
customer. For the servicing of
equipment, revenue on both the labour
warranty contract using standard rates.
• Power Generation – The Company owns
and operates power generation plants
Share-based Payment Transactions
The Company maintains both equity-settled
and cash-settled share-based compensation
and parts used in performing the work is
that sell electricity and thermal power.
plans under which the Company receives
recognized when the job is completed.
Revenue is recognized monthly based on
services from employees, including senior
Payment terms are generally 30 days
set rates as power is consumed. Payment
executives and directors, as consideration
from invoicing.
is due within 30 days of invoicing.
for equity instruments of the Company.
58
For equity-settled plans, expense is
Income Taxes
Toromont as Lessor
based on the fair value of the awards granted
determined using the Black-Scholes option
pricing model and the best estimate of the
number of equity instruments that will
ultimately vest. For awards with graded
vesting, each tranche is considered to be a
separate grant based on its respective
vesting period. The fair value of each tranche
is determined separately on the date of the
grant and is recognized as stock-based
compensation expense, net of forfeiture
estimate, over its respective vesting period.
For cash-settled plans, the expense is
determined based on the fair value of the
liability incurred at each award date. The
fair value of the liability is measured by
applying quoted market prices. Changes
in fair value are recognized in the
consolidated income statements in selling
and administrative expenses.
Employee Future Benefits
For defined contribution plans, the pension
expense recorded in the consolidated income
statement is the amount of the contributions
the Company is required to pay in
accordance with the terms of the plans.
For defined benefit pension plans and
other post-employment benefit plans, the
expense is determined separately for each
plan using the following policies:
• The cost of future benefits earned by
employees is actuarially determined
using the projected unit credit method
pro-rated on length of service and
management’s best estimate
assumptions using a measurement date
of December 31;
• Net interest is calculated by applying
the discount rate to the net defined
benefit liability or asset;
• Past service costs from plan
amendments are recognized immediately
in net earnings to the extent that the
benefits have vested; otherwise, they
are amortized on a straight-line basis
over the vesting period; and
• Actuarial gains and losses arising from
experience adjustments and changes
in actuarial assumptions are recognized
in retained earnings and included in
the consolidated statements of
comprehensive income in the period
in which they occur.
Current income tax assets and liabilities
Rental income from operating leases is
are measured at the amount expected to
recognized on a straight-line basis over the
be recovered from or paid to the taxation
term of the relevant lease. Initial direct costs
authorities.
incurred in negotiating and arranging an
Deferred taxes are provided for, using
operating lease are added to the carrying
the liability method on temporary
amount of the leased asset and recognized
differences between the tax bases of assets
on a straight-line basis over the lease term.
and liabilities and their carrying amounts for
financial reporting purposes at the reporting
Borrowing Costs
date. Deferred tax assets and liabilities are
Borrowing costs directly attributable to the
measured using enacted or substantively
acquisition, construction or production of
enacted income tax rates expected to apply
an asset that necessarily takes a
to taxable income in the years in which
substantial period of time to get ready for
those temporary differences are expected
its intended use or sale are capitalized as
to be recovered or settled. The effect on
part of the cost of the respective asset. All
deferred tax assets and liabilities of a
other borrowing costs are expensed in the
change in income tax rates is recognized in
period they occur.
the consolidated income statements in the
period that includes the date of substantive
Standards Adopted in 2018
enactment. The Company assesses
The following standards, amendments and
recoverability of deferred tax assets based
interpretation to standards were adopted
on the Company’s estimates and
on January 1, 2018.
assumptions. Deferred tax assets are
recorded at an amount that the Company
considers probable to be realized.
Current and deferred income taxes,
relating to items recognized directly in
a) Revenue Recognition
IFRS 15 – Revenue from Contracts with
Customers (“IFRS 15”), establishes a single
comprehensive model for entities to use in
shareholders’ equity, are also recognized
accounting for revenue arising from
directly in shareholders’ equity.
contracts with customers. Under IFRS 15,
Leases
revenue is recognized at an amount that
reflects the consideration to which an
The determination of whether an
entity expects to be entitled in exchange for
arrangement is, or contains, a lease is
transferring goods or services to a
based on the substance of the arrangement
customer. The principles in IFRS 15 provide
at inception date. Leases that transfer
a more structured approach to measuring
substantially all of the benefits and risks of
and recognizing revenue.
ownership of the property to the lessee are
The transition to the new standard had
classified as finance leases; all other leases
no material impact on the measurement or
are classified as operating leases.
recognition of revenue of prior periods,
Classification is re-assessed if the terms of
however, additional required disclosures
the lease are changed.
have been added. The Company elected to
Toromont as Lessee
apply the standard on a full retrospective
basis, whereby the cumulative effect of
Operating lease payments are recognized
adoption is applied to the earliest
as an operating expense in the
comparative period presented, which is
consolidated income statements on a
January 1, 2017. The Company applied
straight-line basis over the lease term.
certain practical expedients, as permitted
Benefits received and receivable as an
by the standard in determining the impact
incentive to enter into an operating lease
on transition.
are deferred and amortized on a straight-
The Company’s accounting policy for
line basis over the term of the lease.
revenue recognition is described above in
the section titled “Revenue from Contracts
59
with Customers” and is determined to be in
compliance with the requirements of IFRS 15.
Disclosures relating to contract
balances are included in note 3 – Accounts
Receivables, note 4 - Inventories and note 9
– Deferred Revenues and Contract
Liabilities, respectively. The disaggregation
of the Company’s revenues for each
reportable segment is disclosed in note 23
– Segmented Information.
b) Share-based Payment
Amendments to IFRS 2 – Share-based
Payment, clarify how to account for certain
types of share-based payment transactions.
The amendments provide requirements on
the accounting for: (i) the effect of vesting
and non-vesting conditions on the
measurement of cash-settled share-based
payments; (ii) share-based payment
transactions with a net settlement feature
for withholding tax obligations; and (iii) a
modification to the terms and conditions of
a share-based payment that changes the
classifications of the transaction from
cash-settled to equity-settled.
Adoption of these amendments had no
impact on the Company’s financial position
or net earnings.
c) Financial Instruments
IFRS 9 - Financial Instruments (“IFRS 9”)
replaces IAS 39 - Financial Instruments:
Recognition and Measurement (“IAS 39”).
IFRS 9 includes classification and
measurement of financial assets and
financial liabilities, a forward-looking
‘expected loss’ impairment model and a
substantially reformed approach to hedge
accounting. The Company applied IFRS 9
retrospectively, with the initial application
date of January 1, 2018. As permitted by the
transitional provisions of IFRS 9, the
Company elected not to restate comparative
figures or note disclosures. Any adjustments
to the carrying amounts of financial assets
and liabilities at the transition date are to be
recognized in the opening retained earnings
of the current period.
higher finance costs under this new
standard, as operating lease expenses are
replaced by higher depreciation expense
and higher interest expense and a reduction
in selling and administrative expenses.
No adjustments to the carrying
Toromont expects to adopt IFRS 16 using
amounts of financial assets and liabilities
were required upon adoption of IFRS 9.
d) Foreign Currency Transactions and
Advance Consideration
IFRIC 22 - Foreign Currency Transactions
and Advance Consideration, clarifies the
appropriate exchange rate to use on initial
recognition of an asset, expense or income
when advance consideration is paid or
received in a foreign currency.
There was no significant impact on the
Company’s financial position.
Standard and Interpretation Issued But
Not Effective
The following standard and interpretation
have been issued but are not effective for
the financial year ended December 31,
2018, and accordingly, have not been
applied in preparing these consolidated
financial statements.
a) Leases
IFRS 16 – Leases, introduces new
requirements for the classification and
measurement of leases. For lessors, there
is little change to the existing accounting in
IAS 17. The new standard is effective for
annual periods beginning on or after
January 1, 2019.
The Company expects to recognize
higher non-current assets and non-current
liabilities recorded on the consolidated
statements of financial position. The
Company also expects to recognize an
increase in depreciation, lower selling,
general, and administrative expenses and
the modified retrospective approach, using
practical expedients, which do not require
the restatement of prior period financial
information. The cumulative financial effect
of the adoption will be recognized as an
adjustment to opening retained earnings,
with the standard applied prospectively.
The Company’s implementation plan is
currently on track having selected a
software tool for calculating and maintaining
lease arrangements, identifying the major
types of operating leases - service vehicles
and branch facilities, and determining the
incremental borrowing rate. The current and
final data quantification and implementation
phases are underway and the Company is
currently in the process of calculating the
transition adjustments.
b) Uncertainty over Income Tax
Treatments
IFRIC 23 - Uncertainty over Income Tax
Treatments, provides guidance when there
is uncertainty over income tax treatments
including (but not limited to) whether
uncertain tax treatments should be
considered separately; assumptions made
about the examination of tax treatments by
tax authorities; the determination of taxable
profit, tax bases, unused tax losses, unused
tax credits, and tax rates; and, the impact of
changes in facts and circumstances.
The new interpretation is effective for
annual periods beginning on or after January
1, 2019. The Company is currently assessing
the impact of the new interpretation on its
consolidated financial statements.
2. Significant Accounting Estimates and Assumptions
The preparation of the Company’s
consolidated financial statements in
conformity with IFRS requires management
to make judgments, estimates and
assumptions that affect the reported
amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent
liabilities at the end of the reporting period.
However, uncertainty about these
assumptions and estimates could result
in outcomes that require a material
adjustment to the carrying amount of the
asset or liability affected in future periods.
In making estimates and judgments,
management relies on external information
and observable conditions where possible,
supplemented by internal analysis as
required. Management reviews its estimates
and judgments on an ongoing basis.
In the process of applying the Company’s
accounting policies, management has made
60
the following judgments, estimates and
assumptions which have the most
significant effect on the amounts recognized
in the consolidated financial statements.
Sale of Power and Energy Systems and
Refrigeration Packages
Revenue is recognized over time for the
sale of power and energy systems and
refrigeration packages. Because of the
control transferring over time, revenue is
recognized based on the extent of progress
towards completion of the performance
obligation. The selection of the method to
measure progress towards completion
requires judgment and is based on the nature
of the products and services to be provided.
The percentage-of-completion method is
used as the measure of progress for these
contracts as it best depicts the transfer of
assets to the customer, which occurs as
costs are incurred on the contracts. Under
the percentage-of-completion method, the
extent of progress towards completion is
measured based on the ratio of costs
incurred to date to the total estimated costs
of completion of the performance
obligation. Revenues are recorded
proportionally as costs are incurred. Costs
to fulfill include labour, materials and
subcontractors’ costs, other direct costs,
and an allocation of indirect costs.
This method requires management
to make a number of estimates and
assumptions about the expected
profitability of the contract. These factors
are routinely reviewed as part of the project
management process.
Long-term Maintenance Contracts
These contracts typically have fixed prices
based on either machine hours or cost per
hour, with provisions for inflationary and
exchange adjustments. Revenue is
recognized as work is performed under the
contract based on standard or contract
rates. Revenue from maintenance services
is recognized over time, using an input
method to measure progress towards
complete satisfaction of the service.
Management makes a number of
estimates and assumptions surrounding
machine usage, machine performance,
future parts and labour pricing,
manufacturers’ warranty coverage and
other detailed factors. These factors are
routinely reviewed as part of the project
management process.
Property, Plant and Equipment and
Rental Equipment
Depreciation is calculated based on the
estimated useful lives of the assets and
estimated residual values. Depreciation
expense is sensitive to the estimated
service lives and residual values determined
for each type of asset. Actual lives and
residual values may vary depending on a
number of factors including technological
innovation, product life cycles and physical
condition of the asset, prospective use, and
maintenance programs.
Impairment of Non-financial Assets
Judgment is used in identifying an
appropriate discount rate and growth rate
for the calculations required in assessing
potential impairment of non-financial
assets. Judgment is also used in identifying
the CGUs to which the intangible assets
should be allocated, and the CGU or group
of CGUs at which goodwill is monitored for
internal management purposes. The
impairment calculations require the use of
estimates related to the future operating
results and cash generating ability of the
assets. The key assumptions used to
determine the recoverable amount for the
different groups of CGUs, including a
sensitivity analysis, are disclosed and
further explained in note 7.
Income Taxes
Estimates and judgments are made for
uncertainties which exist with respect to the
interpretation of complex tax regulations,
changes in tax laws, and the amount and
timing of future taxable income.
Inventories
Management is required to make an
assessment of the net realizable value of
inventory at each reporting period. These
estimates are determined on the basis of
age, stock levels, current market prices,
current economic trends and past
experience in the measurement of net
realizable value.
Allowance for Doubtful Accounts
The Company makes estimates for
allowances that represent its estimate of
potential losses in respect of trade
receivables. The main components of this
allowance are a specific loss component
that relates to individually significant
exposures, and a collective loss component
established for groups of similar assets in
respect of losses that may have been
incurred but not yet specifically identified.
Share-based Compensation
The option pricing model used to determine
the fair value of share-based payments
requires various estimates relating to
volatility, interest rates, dividend yields and
expected life of the options granted. Fair
value inputs are subject to market factors
as well as internal estimates. The Company
considers historic trends together with any
new information to determine the best
estimate of fair value at the date of grant.
Separate from the fair value calculation,
the Company is required to estimate the
expected forfeiture rate of equity-settled
share-based payments.
Post-employment Benefit Plans
The Company has defined benefit pension
plans and other post-employment benefit
plans that provide certain benefits to its
employees. Actuarial valuations of these
plans are based on assumptions which
include discount rates, retail price inflation,
mortality rates, employee turnover and
salary escalation rates. Judgment is
exercised in setting these assumptions.
These assumptions impact the
measurement of the net employee benefit
obligation, funding levels, the net benefit
cost and the actuarial gains and losses
recognized in other comprehensive income.
Acquisitions
In a business combination, the Company
may acquire certain assets and assume
certain liabilities of an acquired entity. The
estimate of fair values for these transactions
involves judgment to determine the fair
values assigned to the tangible and
intangible assets (i.e. customer order
backlog, client relationships, and
distribution networks) acquired and the
liabilities assumed on the acquisition.
Determining fair value involves a variety of
assumptions, including revenue growth
rates, expected operating income, and
discount rates. During a measurement
period, not to exceed one year, adjustments
of the initial estimates may be required to
finalize the fair value of assets acquired and
liabilities assumed. After the measurement
period, a revision of fair value may impact
the Company’s net income.
61
3. Accounts Receivable
Trade receivables
Less: Allowance for doubtful accounts
Trade receivables – net
Unbilled receivables
Other receivables
2018
2017
$ 495,615
(19,484)
$ 460,946
(10,573)
476,131
28,738
17,593
450,373
18,886
59,489
$ 522,462
$ 528,748
Other receivables at December 31, 2017, included $42.7 million related to amounts owing to the Company from the seller with respect to
the purchase price of the acquisition (see note 25) which was subsequently collected in full during the year ended December 31, 2018.
The aging of gross trade receivables were as follows:
Current to 90 days
Over 90 days
Trade receivables
The movement in the Company’s allowance for doubtful accounts were as follows:
Balance, January 1
Provisions and revisions, net
Balance, December 31
The movement in the Company’s unbilled receivables were as follows:
Balance, January 1
Transfer from opening balance to trade receivables
Increase as a result of changes in the measure of progress
Balance, December 31
4. Inventories
Equipment
Repair and distribution parts
Direct materials
Work-in-process
Work-in-process (contracts)
2018
2017
$ 465,183
30,432
$ 429,229
31,717
$ 495,615
$ 460,946
2018
$
10,573
8,911
$
2017
9,700
873
$
19,484
$
10,573
2018
$
18,886
(14,512)
24,364
$
28,738
2018
2017
$ 548,934
237,843
3,931
71,560
11,239
$ 497,033
196,783
4,048
70,139
9,521
$ 873,507
$ 777,524
The amount of inventory recognized as an expense in cost of goods sold (accounted for other than by the percentage-of-completion
method) during 2018 was $2.1 billion (2017 - $1.4 billion). Cost of goods sold included inventory write-downs pertaining to obsolescence
and aging, together with recoveries of past write-downs upon disposition. A net reversal of write-downs of $4.8 million was recorded in
2018 (2017 – $0.8 million).
62
5. Property, Plant and Equipment and Rental Equipment
Land
Buildings
Equipment
Power
Generation
Property,
Plant and
Equipment
Rental
Equipment
Cost
January 1, 2018
Additions
Disposals
Currency translation effects
$ 127,703 $ 283,040 $ 188,801 $
6,330
(3,801)
226
36,661
(9,197)
414
4,094
(2,112)
14
38,922 $ 638,466
47,217
(15,110)
654
132
—
—
$ 697,433
179,052
(40,450)
—
December 31, 2018
$ 129,699 $ 285,795 $ 216,679 $
39,054 $ 671,227
$ 836,035
Accumulated depreciation
January 1, 2018
Depreciation charge
Depreciation of disposals
Currency translation effects
$
— $
—
—
—
77,515 $ 118,857 $
12,388
(278)
30
26,054
(7,553)
288
29,559 $ 225,931
40,034
(7,831)
317
1,592
—
(1)
$ 228,091
95,125
(28,711)
—
December 31, 2018
$
— $
89,655 $ 137,646 $
31,150 $ 258,451
$ 294,505
Net book value –
December 31, 2018
$ 129,699 $ 196,140 $
79,033 $
7,904 $ 412,776
$ 541,530
Land
Buildings
Equipment
Power
Generation
Property,
Plant and
Equipment
Rental
Equipment
Cost
January 1, 2017
Additions
Business acquisition
Disposals
Currency translation effects
$
50,148 $ 150,656 $ 157,407 $
4,493
73,266
(193)
(11)
12,800
123,698
(3,931)
(183)
22,920
19,148
(10,394)
(280)
38,849 $ 397,060
40,286
216,112
(14,518)
(474)
73
—
—
—
$ 479,556
104,996
169,993
(57,112)
—
December 31, 2017
$ 127,703 $ 283,040 $ 188,801 $
38,922 $ 638,466
$ 697,433
Accumulated depreciation
January 1, 2017
Depreciation charge
Depreciation of disposals
Currency translation effects
$
— $
—
—
—
74,344 $ 112,884 $
6,870
(3,681)
(18)
16,529
(10,374)
(182)
28,005 $ 215,233
24,953
(14,055)
(200)
1,554
—
—
$ 207,279
61,334
(40,522)
—
December 31, 2017
$
— $
77,515 $ 118,857 $
29,559 $ 225,931
$ 228,091
Net book value –
December 31, 2017
$ 127,703 $ 205,525 $
69,944 $
9,363 $ 412,535
$ 469,342
During 2018, depreciation expense of $112.6 million was charged to cost of goods sold (2017 - $76.9 million) and $22.6 million was charged
to selling and administrative expenses (2017 - $9.4 million).
Operating income from rental operations for the year ended December 31, 2018, was $50.2 million (2017 - $38.2 million).
6. Other Assets
Equipment sold with guaranteed residual values
Other
2018
2017
$
10,493
2,713
$
12,464
4,742
$
13,206
$
17,206
63
7. Goodwill and Intangible Assets
Patents and
Customer
Licenses Order Backlog
ERP
System Relationships
Customer Distribution
Networks
Goodwill
Total
Cost
January 1, 2017
Business acquisition
December 31, 2017
December 31, 2018
Accumulated amortization
January 1, 2017
Amortization
December 31, 2017
Amortization
December 31, 2018
Net book value –
December 31, 2017
December 31, 2018
$
$
$
$
$
$
$
$
500 $
— $
— $
—
8,691
5,000
— $ 13,669 $ 13,450 $ 27,619
467,040
357,882
80,330
15,137
500 $
8,691 $
5,000 $ 15,137 $ 371,551 $ 93,780 $ 494,659
500 $
8,691 $
5,000 $ 15,137 $ 371,551 $ 93,780 $ 494,659
118 $
29
— $
— $
— $
2,122
333
307
147 $
29
2,122 $
2,520
333 $
307 $
1,000
1,892
176 $
4,642 $
1,333 $
2,199 $
— $
—
— $
—
— $
— $
—
— $
—
118
2,791
2,909
5,441
— $
8,350
353 $
6,569 $
4,667 $ 14,830 $ 371,551 $ 93,780 $ 491,750
324 $
4,049 $
3,667 $ 12,938 $ 371,551 $ 93,780 $ 486,309
Impairment Testing of Goodwill and Intangible Assets with Indefinite Lives
The carrying amount of goodwill and distribution networks has been allocated to the following CGUs and/or group of CGUs:
Equipment Group
Toromont Québec/Maritimes
Toromont Cat dealership
Battlefield Equipment Rentals
CIMCO
Goodwill
Distribution
Networks
2018
2017
2018
2017
$
$
76,270
13,000
4,060
93,330
450
$
$
76,270
13,000
4,060
$ 352,434
13,669
5,448
$ 352,434
13,669
5,448
93,330
450
$ 371,551
—
$ 371,551
—
$
93,780
$
93,780
$ 371,551
$ 371,551
The Company performed the annual
management covering a three-year period.
Key Assumptions to Value-in-Use
impairment test of goodwill and intangible
Cash flows beyond the three-year period
Calculations and Sensitivity Analysis
assets as at December 31, 2018. The test for
were extrapolated using a 2.0% growth rate
The calculation of value-in-use is most
impairment is to compare the recoverable
which represents the expected growth in the
sensitive to the following assumptions:
amount of the CGU or group of CGUs to
Canadian economy. The discount rate
• Discount rates
their carrying value. Goodwill is tested at the
applied to each CGU or group of CGUs to
• Growth rate to extrapolate cash flows
group of CGUs that represent the lowest
determine value-in-use, is a pre-tax rate that
beyond the budget period
level within the entity at which goodwill is
reflects an optimal debt-to-equity ratio and
monitored for internal management
considers the risk-free rate, market equity
Discount rates represent the current
purposes that is not larger than an operating
risk premium, size premium and the risks
market assessment of the risks specific to
segment. Intangible assets are assessed for
specific to each asset or CGU’s cash flow
each CGU, taking into consideration the
impairment at the CGU level to which they
projections. The pre-tax discount rate
time value of money and individual risks of
are allocated. The recoverable amounts
ranged from 5.9 – 6.3%. As a result of the
the underlying assets that have not been
have been determined based on a value-in-
analysis, management determined there
incorporated in the cash flow estimates.
use calculation using cash flow projections
was no impairment of goodwill or indefinite
The discount rate is derived from the CGU’s
from financial budgets approved by senior
lived intangible assets.
weighted average cost of capital, taking
64
into account both debt and equity.
the Company is obliged to service.
management’s best estimate.
The cost of equity is derived from the
Segment-specific risk is incorporated by
Management believes that within
expected return on investment by the
applying different debt to equity ratios.
reasonably possible changes to any of the
Company’s shareholders. The cost of debt
Growth rate estimates are based on
above key assumptions, recoverable
is based on the interest-bearing borrowings
published data, historical experiences and
amounts exceed carrying values.
8. Provisions
Activities related to provisions were as follows:
Balance, January 1, 2017
Business acquisition
New provisions
Charges/credits against provisions
Balance, December 31, 2017
New provisions
Charges/credits against provisions
Warranty
$
$
10,800
1,045
21,940
(20,554)
13,231
24,563
(24,010)
$
$
Other
5,294
5,000
1,145
(2,234)
9,205
1,915
(522)
$
$
Total
16,094
6,045
23,085
(22,788)
22,436
26,478
(24,532)
Balance, December 31, 2018
$
13,784
$
10,598
$
24,382
Warranty
At the time of sale, a provision is recognized for expected warranty claims on products and services, based on past experience and known
issues. It is expected that most of these costs will be incurred in the next financial year.
Other
Other provisions relate largely to open legal, insurance and potential environmental claims, and potential onerous contracts. No one claim
is significant.
9. Deferred Revenues and Contract Liabilities
Deferred revenues or contract liabilities represent billings to customers in excess of revenue recognized and arise as a result of the sale of
equipment with residual guarantees, extended warranty contracts and progress billings on long-term maintenance agreements, sale of power
and energy systems and refrigeration packages.
During the year ended December 31, 2018, the Company recognized as revenues, $137.1 million of the opening deferred revenues and
contract liability balances at January 1, 2018.
The Company elected to use the practical expedient to not disclose the Company’s remaining performance obligations as those obligations
are part of contracts that have an original expected duration of one year or less.
65
10. Long-term Debt
The Company’s debt portfolio is unsecured, unsubordinated and ranks pari passu.
7.06%, $15.0 million, due March 29, 2019 (1)
3.71%, $150.0 million, due September 30, 2025 (2)
3.84%, $500.0 million, due October 27, 2027 (2)
Senior debentures
$250.0 million term credit facility
Debt issuance costs, net of amortization
Total long-term debt
Less: Current portion of long-term debt
Non-current portion of long-term debt
(1) Blended principal and interest payments payable semi-annually through to maturity.
(2) Interest payable semi-annually, principal due on maturity.
2018
2017
$
1,022
150,000
500,000
$
2,963
150,000
500,000
651,022
—
651,022
(5,460)
652,963
250,000
902,963
(7,216)
$ 645,562
(1,022)
$ 895,747
(1,941)
$ 644,540
$ 893,806
The Company has a committed revolving
To partially fund the business acquisition
These credit arrangements include
credit facility of $500.0 million, maturing in
in 2017 (see note 25), the Company drew
covenants, restrictions and events of default
October 2022. Interest is based on a floating
$250.0 million on a term credit facility which
usually present in credit facilities of this
rate, primarily bankers’ acceptances, plus
was subsequently repaid in full during the
nature, including requirements to meet
applicable margins and fees based on the
year ended December 31, 2018. Unamortized
certain financial tests periodically and
terms of the credit facility. No amounts were
deferred financing costs of $0.8 million
restrictions on additional indebtedness
drawn on this facility at December 31, 2018
associated with this debt were expensed and
and encumbrances.
or 2017. Standby letters of credit issued
recorded within interest expense on the
The Company was in compliance with all
utilized $29.9 million (2017 - $26.7 million).
consolidated income statement.
covenants at December 31, 2018 and 2017.
Scheduled principal repayments and interest payments on long-term debt are as follows:
2019
2020
2021
2022
2023
Thereafter
$
Principal
1,022
—
—
—
—
650,000
$
Interest
24,811
24,775
24,775
24,775
24,775
83,146
$ 651,022
$ 207,057
Interest expense includes interest on debt initially incurred for a term greater than one year of $30.6 million (2017 - $11.8 million).
11. Share Capital
Authorized
The Company is authorized to issue an
unlimited number of common shares (no par
value) and preferred shares. No preferred
shares were issued or outstanding for the
years ended December 31, 2018 and 2017.
A continuity of the shares issued
and outstanding for the years ended
December 31, 2018 and 2017, is presented
in the consolidated statements of changes
in equity.
Shareholder Rights Plan
The Shareholder Rights Plan is designed to
encourage the fair treatment of
shareholders in connection with any
takeover offer for the Company. Rights
issued under the plan become exercisable
66
when a person, and any related parties,
acquires or commences a takeover bid to
acquire 20.0% or more of the Company’s
outstanding common shares without
complying with certain provisions set out in
the plan or without approval of the
Company’s Board of Directors. Should
such an acquisition occur, each rights’
holder, other than the acquiring person and
related parties, will have the right to
purchase common shares of the Company
at a 50.0% discount to the market price at
that time. The Plan expires at the end of the
annual meeting of shareholders in 2021.
Normal Course Issuer Bid (“NCIB”)
Toromont renewed its NCIB program in
2018. The current issuer bid allows the
Company to purchase up to approximately
7.0 million of its common shares in the
twelve-month period ending August 30,
2019, representing 10.0% of common
shares in the public float, as estimated at
the time of renewal. The actual number of
shares purchased and the timing of any
such purchases will be determined by
Toromont. All shares purchased under the
bid will be cancelled.
During the year ended December 31,
2018, the Company purchased and
cancelled 237,952 common shares for
$12.8 million (average cost of $53.83 per
share, including transaction costs) under
its NCIB program. No shares were
purchased and cancelled in 2017.
Dividends
The Company paid dividends of
$71.4 million ($0.88 per share) for the year
ended December 31, 2018, and $58.9 million
($0.75 per share) for the year ended
December 31, 2017.
Subsequent to the year ended December
31, 2018, the Board of Directors approved a
quarterly dividend of $0.27 per share payable
on April 3, 2019, to shareholders on record at
the close of business on March 8, 2019.
12. Financial Instruments
Financial Assets and Liabilities – Classification and Measurement
The following table highlights the carrying amounts and classifications of certain financial assets and liabilities:
Other financial liabilities:
Current portion of long-term debt
Long-term debt
Derivative financial instruments assets:
Foreign exchange forward contracts
2018
2017
1,022
$
$ 644,540
1,941
$
$ 893,806
$
27,624
$
(5,260)
The fair value of derivative financial
the comparable foreign exchange rate at
which can be corroborated by observable
instruments is measured using the
period end under the same conditions. The
market data for substantially the full term of
discounted value of the difference between
financial institution’s credit risk is also taken
the asset or liability, most significantly
the contract’s value at maturity, based on
into consideration in determining fair value.
foreign exchange spot and forward rates.
the contracted foreign exchange rate and
The valuation is determined using Level 2
the contract’s value at maturity based on
inputs which are observable inputs or inputs
The fair value and carrying value of long-term debt is as follows:
Long-term debt
Fair value
Carrying value
2018
2017
$ 655,575
$ 651,022
$ 917,583
$ 902,963
The fair value was determined using the
risk. The Company has no plans to prepay
of the asset or liability.
discounted cash flow method, a generally
these instruments prior to maturity. The
During the years ended December 31,
accepted valuation technique. The
valuation is determined using Level 2 inputs
2018 and 2017, there were no transfers
discounted factor is based on market rates
which are observable inputs or inputs
between Level 1 and Level 2 fair value
for debt with similar terms and remaining
which can be corroborated by observable
measurements.
maturities and based on Toromont’s credit
market data for substantially the full term
67
Derivative Financial Instruments and
Hedge Accounting
Foreign exchange contracts are transacted
with financial institutions to hedge foreign
currency denominated obligations related to
purchases of inventory and sales of products.
As at December 31, 2018, the Company was
committed to: (i) US dollar purchase contracts
with a notional amount of $553.8 million at an
average exchange rate of $1.3084, maturing
between January 2019 and February 2020;
and (ii) US dollar sell contracts with a notional
amount of $31.9 million at an average
exchange rate of $1.3097, maturing between
January 2019 and April 2020.
Management estimates that a net gain
of $27.6 million (2017 – loss of $5.3 million)
would be realized if the contracts were
terminated on December 31, 2018. Certain
of these forward contracts are designated
as cash flow hedges and, accordingly, an
unrealized gain of $4.4 million (2017
– unrealized loss of $2.3 million) has been
included in other comprehensive income.
These gains will be reclassified to net
earnings within the next 12 months and will
offset losses recorded on the underlying
hedged items, namely foreign-
denominated accounts payable. Certain of
these forward contracts are not designated
as cash flow hedges but are entered into for
periods consistent with foreign currency
exposure of the underlying transactions. A
gain of $23.2 million (2017 – loss of $3.0
million) on these forward contracts is
included in net earnings, which offsets
losses recorded on the foreign-denominated
items, namely accounts payable.
All hedging relationships are formally
documented, including the risk management
objective and strategy. On an ongoing basis,
an assessment is made as to whether the
designated derivative financial instruments
continue to be effective in offsetting changes
in cash flows of the hedged transactions.
13. Financial Instruments – Risk Management
In the normal course of business,
Toromont is exposed to financial risks that
may potentially impact its operating results
in one or all of its reportable segments.
The Company employs risk management
strategies with a view to mitigating these
risks on a cost-effective basis. Derivative
financial agreements are used to manage
exposure to fluctuations in exchange
rates. The Company does not enter into
derivative financial agreements for
speculative purposes.
Currency Risk
The Canadian operations of the Company
source the majority of its products and
major components from the United States.
Consequently, reported costs of inventory
and the transaction prices charged to
customers for equipment and parts are
affected by the relative strength of the
Canadian dollar. The Company mitigates
exchange rate risk by entering into foreign
currency contracts to fix the cost of
imported inventory where appropriate. In
addition, pricing to customers is customarily
adjusted to reflect changes in the Canadian
dollar landed cost of imported goods.
The Company also sells its products to
certain customers in US currency. The
Company mitigates exchange rate risk by
entering into foreign currency contracts to
fix the cash inflows where appropriate.
The Company maintains a hedging
policy whereby all significant transactional
currency risks are identified and hedged.
Sensitivity Analysis
The following sensitivity analysis is intended
to illustrate the sensitivity to changes in
foreign exchange rates on the Company’s
financial instruments and show the impact
on net earnings and comprehensive
income. It is provided as a reasonably
possible change in currency in a volatile
environment. Financial instruments
affected by currency risk include cash,
accounts receivable, accounts payable and
derivative financial instruments.
As at December 31, 2018, a 5.0%
weakening/(strengthening) of the Canadian
dollar against the US dollar would result in a
$1.0 million (decrease)/increase in OCI for
financial instruments held in foreign
operations, and a $2.2 million increase/
(decrease) in net earnings and $4.1 million
(decrease)/increase in OCI for financial
instruments held in Canadian operations.
Credit Risk
Financial instruments that potentially
subject the Company to credit risk consist
of cash, accounts receivable and derivative
financial instruments. The carrying amount
of assets included on the consolidated
statements of financial position represents
the maximum credit exposure.
The Company has deposited cash
with reputable financial institutions, from
which management believes the risk of loss
to be remote.
The Company has accounts receivable
from customers engaged in various
industries including mining, construction,
food and beverage, and governmental
agencies. These specific customers may be
affected by economic factors that may
impact accounts receivable. Management
does not believe that any single customer
represents significant credit risk. Credit
risk concentration with respect to trade
receivables is mitigated by the Company’s
large customer base.
The credit risk associated with
derivative financial instruments arises from
the possibility that the counterparties may
default on their obligations. In order to
minimize this risk, the Company enters into
derivative transactions only with highly
rated financial institutions.
Interest Rate Risk
The Company minimizes its interest rate
risk by managing its portfolio of floating-
and fixed-rate debt, as well as managing
the term to maturity. The Company may
use derivative instruments such as interest
rate swap agreements to manage its
current and anticipated exposure to
interest rates. There were no interest rate
swap agreements outstanding as at
December 31, 2018 or 2017.
The Company had no floating rate debt
outstanding as at December 31, 2018 (2017
- $250.0 million).
Liquidity Risk
Liquidity risk is the risk that the Company
may encounter difficulties in meeting
68
obligations associated with financial liabilities. As at December 31, 2018, the Company had unutilized lines of credit of $470.1 million
(2017 - $473.3 million).
Accounts payable are primarily due within 90 days and will be satisfied from current working capital.
The Company expects that continued cash flows from operations in 2019, together with currently available cash on hand and credit
facilities, will be more than sufficient to fund its requirements for investments in working capital, capital assets and dividend payments through
the next 12 months, and that the Company’s credit ratings provide reasonable access to capital markets to facilitate future debt issuance.
14. Interest Income and Expense
The components of interest expense were as follows:
Credit facilities
Senior debentures
Interest accretion on repayment of term credit facility
The components of interest and investment income were as follows:
Equipment on rent with purchase options
Other
15. Income Taxes
Significant components of the provision for income tax expense were as follows:
Current income tax expense
Deferred income tax expense
Total income tax expense
$
2018
4,553
25,269
821
$
2017
2,381
9,896
—
$
30,643
$
12,277
2018
3,461
5,457
8,918
$
$
2017
2,308
2,351
4,659
$
$
2018
2017
$
88,196
7,669
$
55,699
10,295
$
95,865
$
65,994
A reconciliation of income taxes at Canadian statutory rates with the reported income taxes was as follows:
Statutory Canadian federal and provincial income tax rates
Expected taxes on income
Increase (decrease) in income taxes resulting from:
Higher effective tax rates in other jurisdictions
Manufacturing and processing rate reduction
Expenses not deductible for tax purposes
Non-taxable gains
Effect of change in future income tax rate
Other
Provision for income taxes
Effective income tax rate
2018
26.5%
2017
26.5%
$
92,180
$
64,120
1,619
(65)
2,286
(1,267)
200
912
973
(171)
1,565
(655)
249
(87)
$
95,865
$
65,994
27.6%
27.3%
69
The statutory income tax rate represents the combined Canadian federal and Ontario provincial income tax rates which are the relevant
tax jurisdictions for the Company.
The sources of deferred income taxes were as follows:
Accrued liabilities
Deferred revenues and contract liabilities
Accounts receivable
Inventories
Deferred tax assets on current assets and current liabilities
Capital assets
Goodwill and intangible assets
Other
Cash flow hedges in other comprehensive income
Post-employment obligations
Deferred tax (liabilities) on non-current assets and non-current liabilities
$
2018
16,656
3,503
4,157
5,392
29,708
(44,139)
(6,375)
1,119
(1,141)
6,909
(43,627)
$
2017
16,857
1,869
2,241
5,216
26,183
(36,375)
1,428
926
604
7,645
(25,772)
Net deferred tax (liabilities) assets
$
(13,919)
$
411
The movement in net deferred income taxes were as follows:
Balance, January 1
Tax expense recognized in income
Foreign exchange and others
Tax (expense) recovery recognized in other comprehensive income
Balance, December 31
$
2018
411
(7,669)
498
(7,159)
$
2017
5,610
(10,295)
2,626
2,470
$
(13,919)
$
411
The aggregate amount of unremitted earnings in the Company’s subsidiaries was $20.4 million (2017 - $19.4 million). These earnings can
be remitted with no tax consequences.
16. Earnings Per Share
Net earnings available to common shareholders
Weighted average common shares outstanding
Dilutive effect of stock option conversions
2018
2017
$ 251,984
$ 175,970
81,231,282
744,028
79,091,706
815,764
Diluted weighted average common shares outstanding
81,975,310
79,907,470
Earnings per share
Basic
Diluted
$
$
3.10
3.07
$
$
2.22
2.20
For the calculation of diluted earnings per share for the year ended December 31, 2018, 584,250 (2017 – 514,550) outstanding stock
options with a weighted average exercise price of $66.22 (2017 - $53.88) were considered anti-dilutive (exercise price in excess of
average market price during the year) and, as such, were excluded from the calculation.
70
17. Employee Benefits Expense
Wages and salaries
Other employment benefit expenses
Stock-based compensation expense
Pension costs
2018
2017
$ 558,759
74,094
5,101
31,033
$ 368,497
57,937
3,502
17,321
$ 668,987
$ 447,257
18. Stock-based Compensation
The Company maintains a stock option
shall not exceed 1.0% of the outstanding
market prices of the common shares at the
program for certain employees. Under the
shares as of the beginning of the year in
date the option is granted. Stock options
plan, up to 7.0 million options may be
which a grant is made (2018 – 809,498).
granted in 2013 and after, have a 10-year
granted for subsequent exercise in exchange
Stock options vest 20.0% per year on
term while those granted prior to 2013 have
for common shares. It is the Company’s
each anniversary date of the grant and are
a seven-year term. Toromont accrues
policy that the aggregate number of options
exercisable at the designated common
compensation cost over the vesting period
that may be granted in any one calendar year
share price, which is fixed at prevailing
based on the grant date fair value.
A reconciliation of the outstanding options for the years ended December 31, 2018 and 2017, was as follows:
Options outstanding, January 1
Granted
Exercised (1)
Forfeited
Options outstanding, December 31
Options exercisable, December 31
2018
2017
Number of
Options
Weighted Average
Exercise Price
Number of
Options
Weighted Average
Exercise Price
2,628,036
589,750
(514,516)
(67,200)
2,636,070
1,093,480
$
$
$
34.85
66.22
23.71
45.12
43.78
31.87
2,430,871
514,550
(301,885)
(15,500)
2,628,036
1,123,236
$
$
$
29.25
53.88
22.39
31.63
34.85
26.15
(1) The weighted average share price at date of exercise for the year ended December 31, 2018, was $60.49 (2017 – $51.65).
The following table summarizes stock options outstanding and exercisable as at December 31, 2018.
Range of
Exercise
Prices
$20.76
$23.40 – $26.79
$36.65 – $39.79
$53.88 – $66.22
Number
131,090
559,600
873,150
1,072,230
2,636,070
Options Outstanding
Options Exercisable
Weighted Average
Remaining Life
(years)
Weighted Average
Exercise Price
Number
Weighted Average
Exercise Price
0.6
5.2
7.1
9.2
7.2
$
20.76
25.49
38.29
60.60
131,090
470,080
395,570
96,740
$
20.76
25.29
37.98
53.88
$
43.78
1,093,480
$
31.87
71
The fair value of the stock options granted during 2018 and 2017 were determined at the time of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
Fair value price per option
Share price
Expected life of options (years)
Expected stock price volatility
Expected dividend yield
Risk-free interest rate
$
$
2018
13.31
66.22
5.90
21.0%
1.39%
2.15%
$
$
2017
12.28
53.88
8.06
22.0%
1.41%
1.75%
Deferred Share Unit Plan
elect, on an annual basis, to receive all or a
DSUs. Non-employee directors also receive
The Company offers a deferred share unit
portion of their performance incentive
a portion of their compensation in DSUs.
(“DSU”) plan for executives and non-
bonus or fees, respectively, in DSUs. In
The liability for DSUs is recorded in
employee directors, whereby they may
addition, the Board may grant discretionary
accounts payable and accrued liabilities.
The following table summarizes information related to DSU activity:
Number of DSUs
Value
Number of DSUs
2018
Outstanding, January 1
Units taken or taken in lieu and dividends
Redemptions
Fair market value adjustment
426,279
28,733
(96,861)
—
$
23,417
1,647
(5,716)
(343)
407,731
35,937
(17,389)
—
$
2017
Value
17,265
1,722
(778)
5,208
Outstanding, December 31
358,151
$
19,005
426,279
$
23,417
Employee Share Ownership Plan (“ESOP”)
the rate of $1 for every $3 contributed, to a
- $2.0 million) were charged to selling and
The Company offers an ESOP whereby
maximum of the greater of 2.5% of an
administrative expenses when paid. The
employees who meet the eligibility criteria
employee’s base salary or $1,000 per
ESOP is administered by a third party.
can purchase shares by way of payroll
annum. Company contributions
deductions. There is a Company match at
amounting to $2.4 million in 2018 (2017
19. Employee Future Benefits
Defined Contribution Plans
in the United States. Certain unionized
agreements. In the case of defined
The Company sponsors pension arrangements
employees do not participate in Company-
contribution plans, regular contributions are
for more than 3,000 of its employees,
sponsored plans, and contributions are made
made to the individual employee accounts,
primarily through defined contribution plans
to these retirement programs in accordance
which are administered by a plan trustee in
in Canada and a 401(k) matched savings plan
with the respective collective bargaining
accordance with the plan documents.
Pre-tax pension expenses recognized in net earnings were as follows:
Defined contribution plans
401(k) matched savings plans
72
2018
2017
$
13,008
305
$
11,765
281
$
13,313
$
12,046
Defined Benefit Plans
members of the plan are retired. The
Company is not obligated to fund the
The Company sponsors funded and
Company is not obligated to fund the
plans but is obligated to pay benefits
unfunded defined benefit pension plans
plan but is obligated to pay benefits
under the terms of the plan as they come
and post-employment benefit plans as
under the terms of the plan as they
due. The most recent actuarial valuation
described below with approximately 2,181
come due. At December 31, 2018, the
was completed as at December 31, 2018,
qualifying employees. The plans described
Company has posted letters of credit in
with the next valuation scheduled as at
in d) and e) below are plans which were
the amount of $17.1 million to secure the
December 31, 2019.
assumed as part of the business
obligations under this plan. The most
acquisition described in note 25.
recent actuarial valuation was
Risks
a) Powell Pension Plan – This is a legacy
completed as at December 31, 2018,
Defined benefit pension plans and other
plan whose members were employees of
with the next valuation scheduled for
post-employment benefit plans expose the
Powell Equipment when it was acquired
December 31, 2019.
Company to risks as described below:
by Toromont in 2001. The plan is a
c) Other pension plan assets and
•
Investment risk - The present value of the
contributory plan that provides pension
obligations – This plan provides for
defined benefit plan liability is calculated
benefits based on length of service and
certain retirees and terminated vested
using a discount rate determined by
career average earnings. The plan is
employees of businesses previously
reference to high-quality corporate bond
administered by the Toromont Pension
acquired by the Company as well as for
yields; if the return on plan assets is
Management Committee with assets
retired participants of the defined
below this rate, it will create a plan deficit.
held in a pension fund that is legally
contribution plan at that time, that, in
Currently, the plans have a relatively
separate from the Company and cannot
accordance with the plan provisions,
balanced investment in equity securities,
be used for any purpose other than
had elected to receive a pension directly
debt instruments and real estate assets.
payment of pension benefits and related
from the plan. The plan is administered
The Toromont Pension Management
administrative fees. The plan is
by a fund that is legally separated from
Committee reviews the asset mix and
registered with the Province of Manitoba.
the Company. The most recent actuarial
performance of the plan assets on a
Manitoba’s minimum funding regulations
valuation was completed on January 1,
quarterly basis with the balanced
require special payments for Toromont
2017, with the next valuation scheduled
investment strategy intention.
to amortize any shortfalls of plan assets
for January 1, 2020.
•
Interest rate risk - A decrease in the
relative to the cost of settling all accrued
d) Québec/Maritimes Pension Plan – The
bond interest rates will increase the
benefit entitlements through the
Company sponsors six contributory plans
plan liability; however, this will be
purchase of annuities or payments of an
that provide pension benefits based on
partially offset by an increase in the
equivalent lump sum value (solvency
length of service and career average
plan’s holdings in debt instruments
funding basis). Security, in the form of
earnings. The plans are now administered
• Longevity risk - The present value
letters of credit, is permitted in lieu of
by the Toromont Pension Management
of the defined benefit plan liability
some or all of these solvency special
Committee with assets held in a pension
is calculated by reference to the best
payments. If the fair value of defined
fund that is legally separate from the
estimate of the mortality of plan
benefit assets were to exceed 105.0% of
Company and cannot be used for any
participants both during and after their
this solvency funding target, the excess
purpose other than payment of pension
employment. An increase in the life
can be applied to the cost of the defined
benefits and related administrative fees.
expectancy of the plan participants will
benefits and defined contributions in
The most recent actuarial valuation was
increase the plan’s liability.
future periods. The most recent actuarial
completed as at December 31, 2017, with
• Salary risk - The present value of the
valuation was completed as at December
the next valuation scheduled as at
defined benefit plan liability is calculated
31, 2017, with the next valuation
December 31, 2018.
by reference to the future salaries of
scheduled for December 31, 2018.
e) Post-Employment Benefit Plans – These
plan participants. As such, an increase
b) Executive Pension Plan – The plan is a
plans provide supplementary post-
in the salary of the plan participants will
supplemental pension plan and is solely
employment health and life insurance
increase the plan’s liability.
the obligation of the Company. All
coverage to certain employees. The
73
Information about the Company’s defined benefit plans as at December 31, in aggregate, is as follows:
Defined benefit obligations:
Balance, January 1
Business acquisition
Current service cost
Interest cost
Actuarial remeasurement (gains) losses arising from:
Experience adjustments
Demographic assumptions
Changes in financial assumptions
Benefits paid
Contributions by plan participants
Pension
Benefit Plans
Other Post-Employment
Benefit Plans
2018
2017
2018
2017
$ 493,745
—
12,973
16,511
$
83,370
401,986
3,814
5,274
$
(963)
—
(31,315)
(21,365)
4,963
(699)
99
8,152
(9,375)
1,124
24,858
—
875
827
39
—
(1,895)
(978)
—
$
—
24,740
141
140
35
—
—
(198)
—
Balance, December 31
$ 474,549
$ 493,745
$
23,726
$
24,858
Plan assets:
Fair value, January 1
Business acquisition
Interest income on plan assets
Return on plan assets (excluding amounts
included in net interest expense)
Contributions from the Company
Contributions from plan participants
Benefits paid
Fair value, December 31
Net post-employment obligations
$ 397,268
—
13,466
$
60,800
335,171
4,094
$
$
—
—
—
(13,482)
13,083
4,963
(21,365)
822
4,632
1,124
(9,375)
$ 393,933
$ 397,268
$
80,616
$
96,477
$
$
—
978
—
(978)
—
23,726
$
$
—
—
—
—
198
—
(198)
—
24,858
The funded status of the Company’s defined benefit plans at December 31 was as follows:
Powell Plan
Executive Plan
Québec/Maritimes Plan
Québec/Maritimes
other post-employment benefits
Other plan assets and obligations
2018
2017
Defined
Benefit
Obligations
Plan
Assets
Net Post-
employment
Obligations
Defined
Benefit
Obligations
Plan
Assets
Net Post-
employment
Obligations
$
54,975
17,575
395,818
$
55,342
—
333,910
$
367
(17,575)
(61,908)
$
57,660
18,368
410,451
$
56,245
—
335,526
$
(1,415)
(18,368)
(74,925)
23,726
6,181
—
4,681
(23,726)
(1,500)
24,858
7,266
—
5,497
(24,858)
(1,769)
$ 498,275
$ 393,933
$ (104,342)
$ 518,603
$ 397,268
$ (121,335)
The significant weighted average actuarial assumptions adopted in measuring the Company’s defined benefit obligations were as follows:
Discount rate
Expected rate of salary increase
2018
3.89%
3.00%
2017
3.40%
3.47%
74
Pre-tax pension and other post-retirement benefit expenses recognized in net earnings were as follows:
Service cost
Net interest expense
Pre-tax amounts recognized in other comprehensive income were as follows:
Actuarial gains arising from experience adjustments
Actuarial losses arising from changes in demographic assumptions
Actuarial (gains) losses arising from changes in financial assumptions
Return on plan assets (excluding amounts included in net interest expense)
2018
$
13,848
3,872
$
17,720
$
2018
(924)
—
(33,210)
13,482
$
$
$
2017
3,955
1,320
5,275
2017
(664)
99
8,152
(822)
$
(20,652)
$
6,765
The Company’s pension plans weighted average asset allocations by asset category were as follows:
Equity securities
Debt securities
Real estate assets
Cash and cash equivalents
2018
58.5%
37.2%
3.7%
0.6%
2017
53.9%
42.5%
2.8%
0.8%
The fair values of the plan assets were
determined based on the following methods:
• Equity securities – generally quoted
market prices in active markets.
• Debt securities – generally quoted
market prices in active markets.
• Real estate assets – valued based on
appraisals performed by a qualified
external real estate appraiser. Real estate
assets are located primarily in Canada.
• Cash and cash equivalents – generally
recorded at cost which approximates
fair value.
The actual return on plan assets for the year ended December 31, 2018, was $nil (2017 - $4.9 million).
The Company expects to contribute $26.0 million to pension and other benefit plans in 2019, inclusive of defined contribution plans.
The weighted average duration of the defined benefit plan obligations at December 31, 2018 and 2017, was 14.5 years.
Sensitivity Analysis
Significant actuarial assumptions for the determination of the defined benefit obligations (“DBO”) are the discount rate and the life
expectancy. The sensitivity analyses have been determined based on reasonably possible changes of the respective assumptions
occurring at the end of the reporting period, while holding all other assumptions constant. As at December 31, 2018, the following
quantitative analysis shows changes to the significant actuarial assumptions and the corresponding impact to the DBO:
Actuarial Assumption
Sensitivity
Period end discount rate
1% increase
1% decrease
Pension
Benefit
Plans
$
$
(68,700)
80,526
Mortality
Increase of 1 year in expected
lifetime of plan participants
$
10,301
Increase (decrease) in DBO
Other Post-
retirement
Benefit Plans
$
$
$
(3,402)
4,197
(451)
Total
(72,102)
84,723
9,850
$
$
$
The sensitivity analysis presented above may not be representative of the actual change in the DBO as it is unlikely that the change in
assumptions would occur in isolation of one another as some of the assumptions may be correlated.
75
20. Capital Management
The Company defines capital as the
optimization of the cost of capital at
associated with the timing of cash flows.
aggregate of shareholders’ equity and
acceptable risk while balancing the
Also, if appropriate opportunities are
long-term debt, less cash.
interests of both equity and debt holders.
identified, the Company is prepared to
The Company’s capital management
The Company generally targets a net
significantly increase this ratio depending
framework is designed to maintain a
debt to total capitalization ratio of 33.0%,
upon the opportunity.
flexible capital structure that allows for
although there is a degree of variability
The Company’s capital management criteria can be illustrated as follows:
Long-term debt
Current portion of long-term debt
Less: Cash
Net debt
Shareholders’ equity
Total capitalization
Net debt as a % of total capitalization
Net debt to equity ratio
2018
2017
$ 644,540
1,022
345,434
$ 893,806
1,941
160,507
300,128
735,240
1,327,679
1,124,727
$ 1,627,807
$ 1,859,967
18%
0.23:1
40%
0.65:1
The Company is subject to minimum capital requirements relating to bank credit facilities and senior debentures. The Company has met
these minimum requirements during the years ended December 31, 2018 and 2017. There were no changes in the Company’s approach
to capital management during the years ended December 31, 2018 and 2017.
21. Supplemental Cash Flow Information
Net change in non-cash working capital and other
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Provisions
Deferred revenues and contract liabilities
Income taxes
Derivative financial instruments
Other
Cash paid during the year for:
Interest
Income taxes
Cash received during the year for:
Interest
Income taxes
76
2018
2017
$
(36,392)
(95,983)
364,019
1,946
(2,388)
28,164
(26,173)
2,857
$
(65,840)
(53,232)
162,797
297
33,906
(1,058)
3,722
(10,582)
$ 236,050
$
70,010
$
$
$
$
28,803
62,054
8,703
2,562
$
$
$
$
7,863
57,686
4,130
1,705
A reconciliation of liabilities arising from financing activities during the year, was as follows:
Balance, January 1, 2017
Cash flows
Other
Balance, December 31, 2017
Cash flows
Other
Balance, December 31, 2018
22. Commitments
The Company has entered into leases on
buildings, vehicles and office equipment.
The vehicle and office equipment leases
generally have an average life between
Current Portion of
Long-term Debt
Long-term Debt
Total
$
$
1,811
(1,811)
1,941
1,941
(1,941)
1,022
$ 150,717
750,000
(6,911)
$ 893,806
(250,000)
734
$ 152,528
748,189
(4,970)
$ 895,747
(251,941)
1,756
$
1,022
$ 644,540
$ 645,562
three and five years with no renewal
options. The building leases have a
maximum lease term of 20 years including
renewal options. Some of the contracts
include a lease escalation clause, which is
usually based on the Consumer Price Index.
Future minimum lease payments under non-cancellable operating leases as at December 31, 2018, were as follows:
2019
2020
2021
2022
2023
Thereafter
$
12,895
8,764
5,325
3,115
4,285
1,166
$
35,550
23. Segmented Information
The Company has two reportable segments:
the Equipment Group and CIMCO, each
supported by the corporate office. These
segments are strategic business units that
offer different products and services, and
each is managed separately. The corporate
office provides finance, treasury, legal,
human resources and other administrative
support to the segments. The accounting
policies of each of the reportable segments
are the same as the significant accounting
policies described in note 1.
The operating segments are being
reported based on the financial information
provided to the Chief Executive Officer and
Chief Financial Officer, who have been
identified as the Chief Operating Decision
Makers (“CODMs”) in monitoring segment
performance and allocating resources
between segments. The CODMs assess
segment performance based on segment
operating income, which is measured
differently than income from operations in
the consolidated financial statements.
Corporate overheads are allocated to the
segments based on revenue. Income taxes,
interest expense, interest and investment
income are managed at a consolidated level
and are not allocated to the reportable
operating segments. Current taxes, deferred
taxes and certain financial assets and
liabilities are not allocated to the segments as
they are also managed on a consolidated level.
The aggregation of the operating segments
is based on the economic characteristics of
the business units. These business units are
considered to have similar economic
characteristics including nature of products
and services, class of customers and markets
served and similar distribution models.
No reportable segment is reliant on any
single external customer.
Equipment Group
The Equipment Group comprises
the following:
• Toromont Cat – supplies, rents and
provides support services for specialized
mobile equipment and industrial engines.
• Battlefield Equipment Rentals – supplies
and rents specialized mobile equipment
as well as specialty supplies and tools.
• Toromont Material Handling – supplies,
rents and services material handling
lift trucks.
• AgWest – supplies specialized mobile
equipment to the agriculture industry.
• Toromont Energy – develops distributed
generators and combined heat and
power projects using Caterpillar engines.
• SITECH – supplies control systems
for specialized mobile equipment.
77
CIMCO
Provides design, engineering, fabrication, installation, and product support for industrial and recreational refrigeration systems.
Corporate Office
The corporate office does not meet the definition of a reportable operating segment as defined in IFRS 8 – Operating Segments, as it does
not earn revenue.
The following table sets forth information by segment for the years ended December 31:
Equipment Group
CIMCO
Consolidated
2018
2017
2018
2017
2018
2017
Equipment/package sales
Rentals
Product support
Power generation
$ 1,508,120
378,027
1,264,295
10,645
$ 1,012,208
261,641
746,832
11,270
$ 202,367
—
140,782
—
$ 189,212
—
128,999
—
$ 1,710,487
378,027
1,405,077
10,645
$ 1,201,420
261,641
875,831
11,270
Total revenues
$ 3,161,087
$ 2,031,951
$ 343,149
$ 318,211
$ 3,504,236
$ 2,350,162
Operating income
$ 348,876
$ 219,814
$
20,698
$
29,768
$ 369,574
$ 249,582
Interest expense
Interest and investment income
Income taxes
Net earnings
Selected statements of financial position information:
30,643
(8,918)
95,865
12,277
(4,659)
65,994
$ 251,984
$ 175,970
As at December 31
Identifiable assets
Corporate assets
Total assets
Identifiable liabilities
Corporate liabilities
Total liabilities
Equipment Group
CIMCO
Consolidated
2018
2017
2018
2017
2018
2017
$ 2,755,039
$ 2,560,610
$ 104,498
$ 101,719
$ 1,091,029
$ 611,730
$
71,730
$
76,323
$ 2,859,537
374,994
$ 2,662,329
204,616
$ 3,234,531
$ 2,866,945
$ 1,162,759
744,093
$ 688,053
1,054,165
$ 1,906,852
$ 1,742,218
Capital expenditures (net)
$ 162,694
Depreciation
$ 133,323
$
$
99,532
84,922
$
$
2,452
1,836
$
$
1,422
$ 165,146
$ 100,954
1,365
$ 135,159
$
86,287
Operations are based in Canada and the United States. The following tables summarize the final destination of revenues to customers and
the capital assets and goodwill held in each geographic segment:
Years ended December 31
Canada
United States
International
Revenues
As at December 31
Canada
United States
Capital Assets and Goodwill
78
2018
2017
$ 3,387,552
110,552
6,132
$ 2,252,343
96,666
1,153
$ 3,504,236
$ 2,350,162
2018
2017
$ 1,043,007
5,079
$ 971,339
4,318
$ 1,048,086
$ 975,657
24. Related Party Disclosures
Key management personnel and director compensation comprised:
Salaries
Stock options and DSU awards
Annual non-equity incentive based plan compensation
Pension
All other compensation
$
2018
3,068
2,461
3,400
648
135
$
2017
3,271
2,169
2,733
647
148
$
9,712
$
8,968
The remuneration of directors and key management is determined by the Human Resources Committee having regard to the
performance of the individual and Company and market trends.
25. Business Acquisition in 2017
On October 27, 2017, the Company acquired
the businesses and net operating assets of
the Hewitt Group of Companies and became
the approved Caterpillar dealer for the
province of Québec, Western Labrador and
the Maritimes, as well as the Caterpillar lift
truck dealer for Québec and most of Ontario
and the MaK engine dealer for Québec, the
Maritimes and the Eastern Seaboard of the
United States from Maine to Virginia.
Additional distribution rights were also
acquired in this transaction. The acquisition
expanded the Company’s Eastern
operations into a contiguous territory
covering all of Eastern and Central Canada
extending into the Far North and provides a
platform for long-term growth opportunities
and diversification into new markets.
plus the issuance of 2.25 million Toromont
common shares ($121.2 million) for a total
consideration of $1.02 billion. Toromont
funded the cash portion of the acquisition
through cash-on-hand, the issuance of
long-term senior debentures and drawings
on an unsecured term credit facility.
The Company acquired the businesses
The acquisition was accounted for using
and net operating assets in exchange for
consideration of $902.9 million cash (net of
a final closing working capital adjustment)
the purchase method of accounting.
The final allocation of the purchase price was as follows:
Accounts receivable
Inventories
Property, plant and equipment
Rental equipment
Deferred tax asset
Intangible asset with an indefinite life:
Distribution network
Intangible assets with a finite life:
ERP system
Customer relationships
Customer order backlog
Accounts payable and accrued liabilities
Provisions
Deferred revenues and contract liabilities
Post-employment benefit obligations
Net identifiable assets
Residual purchase price allocated to goodwill
Total
$ 159,539
288,535
216,112
169,993
2,617
357,882
5,000
15,137
8,691
(130,624)
(6,045)
(51,503)
(91,555)
943,779
80,330
$ 1,024,109
26. Economic Relationship
The Company, through its Equipment
Group, sells and services heavy
equipment and related parts. Distribution
agreements are maintained with several
equipment manufacturers, of which the
most significant are with subsidiaries of
Caterpillar Inc. The distribution and
servicing of Caterpillar products account
for the major portion of the Equipment
Group’s operations. Toromont has had a
strong relationship with Caterpillar since
inception in 1993.
79
Ten-Year Financial Review (1)
For the years ended December 31
($ thousands, except ratios and share data)
Operating Results
Revenues
Net earnings
Net interest expense (2)
Capital expenditures (net) (2)
Dividends declared
Financial Position
Working capital
Capital assets
Total assets
Non-current portion of long-term debt (3)(8)(9)
Shareholders’ equity
Financial Ratios
Working capital
Return on opening shareholders’ equity (%) (4)
Total debt, net of cash, to shareholders’ equity
Per Share Data ($)
Basic earnings per share
Diluted earnings per share
Dividends declared
Book value (shareholders’ equity)
Shares outstanding at year end (8)
Price range (5)
High
Low
Close
2018
2017(7)(8)
2016
2015
2014
2013
2012(6)
2011
2010
2009
3,504,236
2,350,162
1,912,040
1,846,723
1,660,390
1,593,431
1,507,173
1,381,974
1,207,028
1,824,592
251,984
21,725
165,146
74,516
653,906
954,306
3,234,531
644,540
1,327,679
1.6:1
22.3
.23:1
3.10
3.07
0.92
16.35
81,226,383
68.11
46.24
54.26
175,970
7,618
100,954
60,402
767,374
881,877
2,866,945
893,806
1,124,727
2.1:1
19.3
.65:1
2.22
2.20
0.76
13.89
80,949,819
58.44
41.10
55.10
155,748
3,236
85,031
56,280
575,382
454,104
1,394,212
150,717
885,432
2.8:1
20.0
(.04):1
1.99
1.98
0.72
11.29
78,398,456
44.44
27.25
42.35
145,666
5,246
113,911
52,882
486,293
429,824
1,276,077
152,079
775,281
2.6:1
21.6
.11:1
1.88
1.86
0.68
9.95
77,905,821
37.61
26.70
31.55
133,196
4,034
76,893
46,267
294,753
371,661
1,107,802
4,942
668,075
1.7:1
23.0
.07:1
1.73
1.71
0.60
8.65
28.97
24.48
28.51
123,031
4,900
71,267
39,854
356,347
341,152
1,030,555
130,948
576,557
2.2:1
25.7
.11:1
1.61
1.59
0.52
7.50
26.94
21.12
26.65
119,473
5,740
77,245
36,728
302,919
316,925
936,170
158,395
476,575
2.2:1
29.9
.33:1
1.56
1.55
0.48
6.24
25.00
18.61
21.10
246,459
5,798
55,757
36,968
251,122
287,290
913,331
132,815
403,861
1.7:1
28.9
.15:1
3.20
3.18
0.48
5.27
33.25
15.39
21.32
103,912
8,826
49,385
47,716
478,289
556,991
2,271,763
413,040
1,196,838
1.8:1
9.1
.21:1
1.36
1.35
0.62
15.50
32.40
22.86
30.76
120,516
2,460
25,835
38,848
539,264
369,666
1,364,667
144,051
854,063
2.6:1
15.5
(.06):1
1.86
1.86
0.60
13.17
27.80
19.26
27.79
77,259,396
76,844,897
76,407,658
76,629,777
77,149,626
64,867,467
(1) 2010 - 2017 results were prepared in accordance with IFRS. Results for 2009 were prepared in accordance with Canadian GAAP.
(2) Figures for 2010 onwards are presented on a continuing operations basis, excluding the spinoff discussed in (5) below.
(3) In 2015, debentures totalling $125.0 million matured and as such were shown as “Current portion of long-term debt” in working capital in 2014.
(4) 2011 ROE was calculated excluding earnings and equity from discontinued operations.
(5) On June 1, 2011, Toromont completed the spinoff of Enerflex. Toromont shareholders received one share of Enerflex for each Toromont share held.
(6) The Company adopted revisions to IAS 19 - Employee Benefits, effective January 1, 2013. As a result, certain 2012 amounts were restated - refer to note 1 of the 2013
audited financial statements.
(7) The Company completed the acquisition of the businesses and net operating assets of the Hewitt Group of Companies on October 27, 2017 for $1.02 billion - refer to note 25
of the 2018 audited financial statements.
(8) Long-term debt and common shares were issued on October 27, 2017, to partially fund the aforementioned acquisition - refer to note 25 of the 2018 audited financial statements.
(9) $250.0 million drawn on a term credit facility to partially fund the acquisition in 2017 was fully repaid during the year ended December 31, 2018.
80
Ten-Year Financial Review (1)
For the years ended December 31
($ thousands, except ratios and share data)
Operating Results
Revenues
Net earnings
Net interest expense (2)
Capital expenditures (net) (2)
Dividends declared
Financial Position
Working capital
Capital assets
Total assets
Shareholders’ equity
Financial Ratios
Working capital
Non-current portion of long-term debt (3)(8)(9)
Return on opening shareholders’ equity (%) (4)
Total debt, net of cash, to shareholders’ equity
Per Share Data ($)
Basic earnings per share
Diluted earnings per share
Dividends declared
Book value (shareholders’ equity)
Shares outstanding at year end (8)
Price range (5)
High
Low
Close
251,984
21,725
165,146
74,516
653,906
954,306
3,234,531
644,540
1,327,679
1.6:1
22.3
.23:1
3.10
3.07
0.92
16.35
68.11
46.24
54.26
175,970
7,618
100,954
60,402
767,374
881,877
2,866,945
893,806
1,124,727
2.1:1
19.3
.65:1
2.22
2.20
0.76
13.89
58.44
41.10
55.10
155,748
3,236
85,031
56,280
575,382
454,104
1,394,212
150,717
885,432
2.8:1
20.0
(.04):1
1.99
1.98
0.72
11.29
44.44
27.25
42.35
145,666
5,246
113,911
52,882
486,293
429,824
1,276,077
152,079
775,281
2.6:1
21.6
.11:1
1.88
1.86
0.68
9.95
37.61
26.70
31.55
81,226,383
80,949,819
78,398,456
77,905,821
(1) 2010 - 2017 results were prepared in accordance with IFRS. Results for 2009 were prepared in accordance with Canadian GAAP.
(2) Figures for 2010 onwards are presented on a continuing operations basis, excluding the spinoff discussed in (5) below.
(3) In 2015, debentures totalling $125.0 million matured and as such were shown as “Current portion of long-term debt” in working capital in 2014.
(4) 2011 ROE was calculated excluding earnings and equity from discontinued operations.
(5) On June 1, 2011, Toromont completed the spinoff of Enerflex. Toromont shareholders received one share of Enerflex for each Toromont share held.
(6) The Company adopted revisions to IAS 19 - Employee Benefits, effective January 1, 2013. As a result, certain 2012 amounts were restated - refer to note 1 of the 2013
audited financial statements.
of the 2018 audited financial statements.
(7) The Company completed the acquisition of the businesses and net operating assets of the Hewitt Group of Companies on October 27, 2017 for $1.02 billion - refer to note 25
(8) Long-term debt and common shares were issued on October 27, 2017, to partially fund the aforementioned acquisition - refer to note 25 of the 2018 audited financial statements.
(9) $250.0 million drawn on a term credit facility to partially fund the acquisition in 2017 was fully repaid during the year ended December 31, 2018.
2018
2017(7)(8)
2016
2015
2014
2013
2012(6)
2011
2010
2009
3,504,236
2,350,162
1,912,040
1,846,723
1,660,390
1,593,431
1,507,173
1,381,974
1,207,028
1,824,592
133,196
4,034
76,893
46,267
294,753
371,661
1,107,802
4,942
668,075
1.7:1
23.0
.07:1
1.73
1.71
0.60
8.65
77,259,396
28.97
24.48
28.51
123,031
4,900
71,267
39,854
356,347
341,152
1,030,555
130,948
576,557
2.2:1
25.7
.11:1
1.61
1.59
0.52
7.50
76,844,897
26.94
21.12
26.65
119,473
5,740
77,245
36,728
302,919
316,925
936,170
158,395
476,575
2.2:1
29.9
.33:1
1.56
1.55
0.48
6.24
76,407,658
25.00
18.61
21.10
246,459
5,798
55,757
36,968
251,122
287,290
913,331
132,815
403,861
1.7:1
28.9
.15:1
3.20
3.18
0.48
5.27
76,629,777
33.25
15.39
21.32
103,912
8,826
49,385
47,716
478,289
556,991
2,271,763
413,040
1,196,838
1.8:1
9.1
.21:1
1.36
1.35
0.62
15.50
77,149,626
32.40
22.86
30.76
120,516
2,460
25,835
38,848
539,264
369,666
1,364,667
144,051
854,063
2.6:1
15.5
(.06):1
1.86
1.86
0.60
13.17
64,867,467
27.80
19.26
27.79
81
Corporate Information
Toromont Cat
3131 Highway 7 West
5001 Trans-Canada Highway
P.O. Box 5511
Pointe-Claire, Québec H9R 1B8
Concord, Ontario L4K 1B7
T: 416.667.5511
F: 416.667.5555
www.toromontcat.com
T: 514.630.3100
F: 514.630.9020
Battlefield Equipment Rentals
880 South Service Road
Stoney Creek, Ontario L8H 7S8
T: 905.577.7777
F: 905.643.6008
www.battlefieldequipment.ca
Toromont Material Handling
4000 Trans-Canada Highway
Pointe-Claire, Québec H9R 1B2
T: 514.426.6700
F: 514.630.3577
www.toromontmaterialhandling.com
AgWest Ltd.
Highway #1 West
P.O. Box 432
Elie, Manitoba R0H 0H0
T: 204.353.3850
F: 877.353.4343
www.agwest.com
CIMCO Refrigeration
65 Villiers Street
Toronto, Ontario M5A 3S1
T: 416.465.7581
F: 416.465.8815
www.cimcorefrigeration.com
Annual Meeting
The Annual Meeting of the Shareholders of Toromont Industries Ltd. will be held at 10:00 am (EST) on Friday, May 3, 2019 at the
Toromont Cat offices at 5001 Trans-Canada Highway, Pointe-Claire, Québec H9R 1B8.
82
How to Get in Touch With Us
Tel: 416.667.5511
Fax: 416.667.5555
E-mail: investorrelations@toromont.com
www.toromont.com
How to Reach Our Transfer
Agent and Registrar
Investors are encouraged to contact AST Trust Company (Canada)
for information regarding their security holdings.
AST Trust Company (Canada)
P.O. Box 700
Station B
Montreal, Québec H3B 3K3
Toll-Free North America: 1.800.387.0825
Local: 416.682.3860
E-mail: inquiries@astfinancial.com
www.astfinancial.com/ca-en
Common Shares
Listed on the Toronto Stock Exchange
Stock Symbol – TIH
This annual report was printed in Canada
on stock manufactured chlorine-free
with 10% post-consumer fibre.
Design and Coordination: Ove Design & Communications www.ovedesign.com Editorial: Fundamental Creative Inc.
c
d
Toromont Industries Ltd.
Corporate Office
3131 Highway 7 West
P.0. Box 5511
Concord ON L4K 1B7
Tel: 416 667 5511
www.toromont.com