Toromont Industries Annual Report 2019

FY2019 Annual Report · Toromont Industries

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BUILDING
TOGETHER

TOROMONT INDUSTRIES LTD.

2019 ANNUAL REPORT

Toromont is a company of 6,500
empowered people working across
seven diff erent business units with a
variety of product and service off erings,
but we do not deﬁ ne ourselves in
individual terms. No matter what job we
perform or what territory we serve, our
success is based on our ability to work
collaboratively with each other and
our partners in creating value for our
customers, shareholders, communities
and each other. We are, quite literally,
Building Together for an exciting future.

Contents

2 Letter to Shareholders

41 Management’s and Independent Auditor’s Reports

9 Environmental, Social and Governance Report

44 Consolidated Financial Statements

16 Corporate Governance

49 Notes to the Consolidated Financial Statements

18 Executive Operating Team

78 Corporate Information

19 Management’s Discussion and Analysis

One Toromont

Toromont Industries Ltd. (TSX: TIH) is a diversiﬁed growth company employing 6,500
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
Toromont is one of the largest Caterpillar

Battleﬁeld – The Cat Rental Store
From 68 stores in our Cat dealer

CIMCO Refrigeration
CIMCO is a leading supplier of refrigeration

dealers in the world with 48 branches

territories, supported by a rapid

equipment and product support services to

across seven provinces and one territory.

equipment delivery-to-site system,

customers in North America’s food, dairy,

Through Toromont Cat, we serve the

Battleﬁeld addresses the full rental

cold storage, beverage, pharmaceutical,

specialized heavy equipment, power

service and purchase needs of

automotive, chemical, petrochemical,

generation, heavy rent and product

contractors, specialty trades and

mining and recreational ice-rink markets.

support needs of thousands of public

do-it-yourself customers through

infrastructure, construction, demolition,

its line-up of brand-name machines,

paving, mining, aggregate, waste

tools and supplies.

management, agriculture, forestry,

trucking, shipping, transit and data

centre customers.

Toromont Material Handling
From 19 locations across eastern Canada,

Toromont Material Handling rents, sells

AgWest Ltd.
From six facilities, AgWest serves the

SITECH Mid-Canada Ltd.
SITECH specializes in providing machine

and provides after-sales service for leading

brand name lift trucks, container handlers,

control, site positioning and asset

industrial batteries, chargers and racking

management technologies as well as

systems. This specialized equipment is

professional support services as a

used by ports and terminals, paper

year-round equipment and product

Trimble and Cat AccuGrade® dealer

producers, automotive parts manufacturers,

support needs of Manitoba’s agriculture

across eastern Canada.

beverage companies, hardware retailers

industry as an ofﬁcial dealer of AGCO

and CLAAS, two trusted brands for crop

and livestock applications.

and other customers to safely move, store

and protect critical inventories.

Jobsite Industrial Rental Services
Across seven locations, Jobsite Industrial

Rental Services meets the specialized tool

crib rental equipment needs of contractors

working in reﬁnery industries, healthcare,
automotive, steel and pulp and paper.

Toromont Annual Report 2019 Letter to Shareholders

Fellow
Shareholders

Toromont embarked on an ambitious journey two years
ago to integrate the largest acquisition in its history.
The objective was not simply to combine operations and
apply business-model discipline; it was to build a new
team capable of capitalizing on every strength and
every advantage every day for the beneﬁt of customers
and shareholders. The journey is far from over but the
mile markers of progress in 2019 were unmistakable.
Strategically, operationally and ﬁnancially, this was
a good year.

Toromont earned $3.45 per diluted share, net of a non-
recurring gain, on relatively broad-based growth in revenue
and disciplined expense management. In a year peppered by
complex and time-consuming integration projects, and marked
by weaker activity in some markets, bottom-line results attest
to the advantage of Toromont’s larger geographic footprint,
broader customer base and the diligent efforts of all employees.
The increasing proportion of product support and rental
revenues to total revenues added to proﬁtability.

Continuous re-investment also contributed. In addition to
signiﬁcant investments in employees and technologies,
over $896 million was allocated to rental ﬂeets, branches and
plants over the past ﬁve years including $252 million in 2019.
Strategic increases in inventory levels provided better
penetration of Toromont’s expanded markets.

We view these funds as seed capital that is put to work
to grow and nurture Toromont’s competitive advantages.

A favoured metaphor is that we are planting an orchard that
bears fruit annually, not a wheat ﬁeld. We do, however, expect
to achieve hurdle-rate returns. In 2019, return on opening
shareholders’ equity was 21.4%.

Another year of strong cash generation supported a 17.4%
increase in the common share dividend in 2019. With the
most recent increase of 14.8% announced in February 2020,
Toromont has grown dividends every year since 1989. Payments
have been made consistently for 52 years. Toromont’s strong
ﬁnancial position supports continued growth and investment.

Integration Progress

In 2019 (year two of integrating QM operations), the disciplines
associated with Toromont’s operating approach began to
take hold. Toromont’s branch model was introduced in Québec
after a successful roll out in Atlantic Canada in 2018 and
provided a solid foundation for decentralized management.

Local empowerment, a pre-requisite for the achievement
of operational excellence, led to decision-making that was
better aligned with customer and market needs and more
attuned to the key performance indicators used to
manage the business. Well-deserved promotions added
to esprit de corps and were consistent with our objective
of building a new, energized team. Collaboration within
business units contributed to the effective fulﬁllment
of complex customer assignments. New locations were
opened, sales resources were added and our ﬁrst large
technology integration was successfully completed.
Progress with our journey also allowed all business
units to bring greater focus to their digital strategies,
a catch-all phrase for how they employ the wealth
of data we collect to improve customer service and
enhance marketing and sales. We upgraded our
approach to used inventory acquisition and sales
given that the unit volume of used equipment sales in
some territories can be two to three times higher than
new unit sales. Collectively, these activities structured
Toromont to more efficiently and effectively pursue
growth opportunities across our expanded territories.

Proven Steady Growth

Toromont’s performance is driven by the actions of
our business units. These empowered enterprises
serve diverse end-use markets and customers under
their own brand names, pursue unique growth and
development opportunities and thrive on different
levels of capital. However, without exception, our
businesses are aligned to Toromont’s model of selling
specialized equipment and lifetime product support.
They also adhere to our management principles:

•

Continuous improvement in all activities to seize
and sustain market leadership

Preservation of our strong ﬁnancial position and
corporate reputation for honest and fair dealing

•

Alignment with world-leading business partners

•

Accountability for results realized including
employee safety, environmental compliance,
revenue growth, customer satisfaction and
loyalty, market share and pre-tax return on
capital employed

Our business model, management principles and ﬁve
core strategies – expand markets, strengthen
product support, broaden product offerings, invest in
resources and people, maintain a strong ﬁnancial
position – serve as Toromont’s “true north.” As such,
they are constant. What changes are the activities
energetically undertaken by our businesses to grow
and improve.

Our
Results

2019 Revenues

New & used equipment – 42%

Refrigeration equipment – 5%

Rentals – 11%

Product support – 42%

Core Strategies

Expand markets

Strengthen product support

Broaden product offerings

Invest in resources & people

Maintain a strong
ﬁnancial position

3
3

a. Jobsite technician Paul Hyatt prepares a diesel welder

for use during a reﬁnery turnaround. Jobsite recently

opened its ﬁrst facility in New Brunswick.

b. Brock University recently updated its highly efficient

district energy plant with the help of Toromont Power

Systems and four Cat G3516H generator sets.

c. Toromont Cat’s Rogéna Aboud tests a ﬂuid sample

at our recently consolidated, ISO-certiﬁed laboratory

in Pointe-Claire.

4
4

Net debt to total capitalization

18%

2018

15%
2019

21.4%

Return on opening
shareholders’ equity,
on higher earnings

150+
Locations

Toromont Cat encountered a cautious new capital
spending environment in some core markets in 2019, but
took advantage of its diversiﬁed platform and customer
demand for product support to deliver positive results. The
adoption of the traditional branch business model in acquired
territories, alongside investments in the heavy equipment
rental ﬂeet led to improved market penetration and greater
participation in customer projects. Standardization of best
practices across construction, power systems and mining
groups contributed to the goal of achieving a consistent
“One Toromont” experience for customers. To align with a
Caterpillar growth initiative, product support operations
introduced Customer Value Agreements to bring additional
focus to lifecycle support beginning at the point of sale.
Customer receptivity to pre-packaged kits containing ﬁlters,
belts and seals was positive. New warehouse management
systems were installed in Thunder Bay and Ottawa branches
to enable more-efficient parts retrieval and inventory tracking
while alleviating the need for physical expansion to meet the
needs of growth. Toromont’s four remanufacturing facilities
implemented common operating procedures, documentation,
testing and warranties and improved coordination of
inventory and capacity while increasing Cat® Certiﬁed
Rebuild volumes by 15%. To serve demand, we recruited
more than 300 technicians and apprentices. Fluid analysis
for the entire dealership was consolidated at our ISO-certiﬁed
laboratory in Pointe-Claire to optimize results for customers.
These activities contributed to product support growth on
our larger installed base and greater efficiencies.

Battleﬁeld Equipment Rentals ﬁnished year two of its
journey to install its full rental services model in Québec and
the Maritimes with good results. One feature of this formative
period has been a signiﬁcant expansion and diversiﬁcation
of rental inventory including elevated work platforms,
telehandlers, heaters, pumps, generators, small excavators
and tools to address the needs of customers. While returns
per dollar invested reﬂected the immature state of the
inventory aging and product disposition cycle, Battleﬁeld
Equipment Rentals’ market penetration improved
signiﬁcantly. Battleﬁeld Equipment Rentals also made
progress in leveraging its supply chain. Perhaps the
biggest advancement was the June 2019 integration of
Battleﬁeld Equipment Rentals’ ﬂeet management and
reporting system in QM territories. This system serves
as the technological backbone of the business, enabling
full line-of-sight on inventory location and status. It also
powers our TRAC technology, which supports efficient
equipment pickup and delivery, enables customers to use
their smartphones to manage their rentals and request
maintenance and provides real-time machine utilization
data. The ﬁnancial payback from this investment will
be quick at 1.5 years and the positive impact on business
efficiency and competitiveness will be long lasting.

a. This Genie S 85XC lift is one of many

specialized units Battleﬁeld Equipment

Rentals provided to Montréal’s Réseau Express

Métropolitain (REM) transit project in 2019.

By broadening its product offering, Battleﬁeld

Equipment Rentals has positioned itself to

serve large scale infrastructure projects in

the province.

b. Toromont Cat’s branch in Hamilton, Ontario,

working with our Remanufacturing operations

and ﬁeld service team, delivered the ﬁrst-ever

Cat Certiﬁed rebuild of a 992K loader. The
project involved engine and torque rebuilds, the

installation of a remanufactured transmission,

cleaning and painting of the disassembled

frame, cab and boom, reassembly of 7,000 parts

and the latest Caterpillar software upgrades.

Toromont Annual Report 2019 Letter to Shareholders

Toromont Material Handling (“TMH”), a business unit
serving over 6,000 users of brand-name lift trucks and other
specialized equipment, made several important moves.
Among them, it invested in its rental inventory, created a rental
operations team in Ontario, improved its ﬁeld product support
services and added Nordco’s Shuttlewagon mobile railcar
movers to the MCFA, Cat, Jungheinrich and Nilﬁsk brands
it sells. As a result of broader representation, TMH is now
Eastern Canada’s one-stop shop for all ﬁve classes of lift trucks
with capacities ranging from 680 to 104,000 kilograms.
A consolidated regional parts centre, centralized technical
and administration operations, a new Winnipeg facility for the
Manitoba market and the formation of a major accounts team
supported better customer service, efficiencies and expense
control. Demonstrating its focus on good execution, MCFA
presented TMH with a Dealer of Excellence award and Kalmar
Ottawa named TMH a Premium Partner.

Toromont’s other Equipment Group businesses were also
active. Jobsite Industrial Rental Services improved its market
coverage by opening a facility in Saint John, New Brunswick
(its ﬁrst outside Ontario) and delivered tool cribs to reﬁneries,
hospitals and a number of other institutional customers.
SITECH found success in selling data services and technology
support and acquired Silver Top Supply, a distributor of weigh-
scale systems for loaders and dump trucks used in SITECH’s
core construction, aggregate, demolition and waste

management markets. AgWest intensiﬁed its focus on
equipment monitoring and proactive parts sales to grow
product support in a weak market environment for new
machine sales.

CIMCO delivered healthy gains in proﬁtability following a
reset on project bidding and warranty management. Product
support revenues increased for the 8th consecutive year
despite lower package sales compared to the record set in
2018. With 34 new technicians added, CIMCO was better able
to serve customers throughout Canada and the continental
US. High-proﬁle assignments were awarded by customers
including an ammonia refrigeration package for the New York
Islanders arena on Long Island. CIMCO’s reputation as an
innovator was advanced with the continued development of
SMART products. The newest product, SMART Transfer, is
a patent-pending technology that monitors for system leaks
and transfers refrigerant to a storage vessel when required.
For customers, CIMCO’s ECO CHILL® branded equipment and
family of automated SMART rink technologies reduce energy
usage, enhance safety and enable faster troubleshooting. These
competitive advantages are bolstered by CIMCO’s ability to
harness natural refrigerants like CO2. CO2 systems accounted
for 16% of CIMCO’s order bookings in 2019 compared to 8%
in 2018; a clear sign of the growing popularity of this climate-
safe alternative to Freon and its synthetic derivatives.

Toromont Annual Report 2019 Letter to Shareholders

Safety

Toromont’s most important objective is to create a workplace
free of injury. In 2019, we did not meet this objective, although
total recordable injury frequency rate has declined over the
past ﬁve years. Our Environmental, Social and Governance
report documents our efforts. We are committed to continuous
improvement in 2020.

A Tribute to Robert Franklin

In February 2020, we were saddened by the sudden passing
of Mr. Robert Franklin after a courageous battle with cancer.
Rob’s contributions over his 26 year tenure as a Director were
foundational to the Toromont that you see today; leveraging
his extensive business experience and connections throughout
the business community to assist and guide Toromont. Over
the years, Rob served on the Audit Committee and had been the
Chair of our Human Resources and Compensation Committee
from 2003 up until the time of his passing. We will miss him.

Governance and Succession

Your Board operates with a disciplined and proactive
succession protocol that has enabled us to recruit four new
Directors in the past ﬁve years, each with relevant experience
and expertise to ensure continuity of approach, continuous
improvement and independence.

At the senior leadership level, 2019 saw the retirement of
Randall B. Casson as President of Battleﬁeld Equipment Rentals.
Mr. Casson joined Toromont in 1977 and successfully led
Battleﬁeld Equipment Rentals from 2001. We thank Mr. Casson
for his leadership and for preparing Colin Goheen who
assumed the role of Battleﬁeld Equipment Rentals’ President
in September 2019. Mr. Goheen is a 21-year Toromont veteran.

In the near term, Toromont will see the retirement of Paul R.
Jewer Executive Vice President and Chief Financial Officer.
Mr. Jewer has served Toromont with distinction for over 14
years and was frequently recognized as one of Canada’s top
CFOs. We thank Mr. Jewer for his many contributions including
his leadership on several transformative, value-creating M&A
transactions. After an extensive search, we announced the
appointment of Michael McMillan as Executive Vice President
and Chief Financial Officer, effective March 1, 2020. Mr. McMillan
is an accomplished CFO with more than 25 years of ﬁnancial
experience, including controllership, planning, M&A and
investor relations. Mr. McMillan is a Chartered Professional
Accountant and holds an MBA from the University of Calgary.

A New Team for a New World

The widespread improvements made in our operations in
2019 are a signal that Toromont’s team is working well
together. Entering 2020, each business unit introduced new
three-year plans with aggressive new performance targets
that will challenge, and we hope reward, every stakeholder.

The Barbara Ann Scott Ice Trail at Toronto’s College

Park opened in late 2019 with a CIMCO package – the
world’s ﬁrst transcritical CO2 system used in an outdoor
ice rink. Pumping CO2 directly to the ice undersurface
not only reduced horsepower needs, it eliminated

temperature changes that degrade ice quality. The City

of Toronto rejected Freon-based options and chose

CIMCO’s solution to achieve signiﬁcant annual

operational and maintenance cost savings and a 70%
reduction in greenhouse gas emissions.

Toromont Annual Report 2019 Letter to Shareholders

Our plans recognize that we are operating in a rapidly changing
environment. Technology is redeﬁning how customers wish
to be served and placing greater emphasis on collecting,
interpreting and harnessing data right down to the machine
level. Climate change is bringing focus to energy efficiency
and alternative energy sources. Customer consolidation is
heightening the importance of supplier scale, geographic
reach and consistent service. Shortage of skilled trades
represents a pinch point for industry growth.

The acquisition of QM territories, investments in employee
recruitment and training, homegrown innovation and
transformative product developments by our partners, most
especially Caterpillar, position Toromont to compete in this
new world. In the ﬁnal analysis, however, staying ahead of the
curve will require something old-fashioned: teamwork.

We thank our team of employees, Directors and business
partners for the mighty efforts they made to deliver good
results in 2019. We are excited by what the future holds in
store and grateful to our customers and shareholders for
their participation in our journey.

Yours sincerely,

Robert M. Ogilvie

Chairman of the Board

Scott J. Medhurst

President and Chief

Executive Officer

a. Used equipment sales beneﬁted from

the launch of an upgraded Toromont Cat

website that allows customers to search

inventory across all territories and receive

a quote online.

b. Toromont Material Handling’s Peter

Lambropoulos services a lift truck at

our Concord shop. As part of its focus

on operational excellence, TMH made

several changes and investments

in 2019.

Toromont Annual Report 2019 Environmental, Social and Governance Report

Environmental,
Social and
Governance
Report

Across our territories and around the clock, Toromont
commits to operating in a safe, efficient and responsible
manner. Our sustainability efforts are guided by our
Board of Directors, led by our empowered executives
and business leaders and made manifest by our team
of 6,500 dedicated individuals. Together, we stand
accountable to our customers, shareholders and
neighbours for responsible stewardship every day.

ESG Priorities & Approach

Toromont’s Core Principles reﬂect what we value as an organization
and serve to guide us in the performance of our duties:

• safe and respectful workplace

• social responsibility

• uncompromising integrity

• empowerment at all levels

• growth of the individual and enterprise

• returns to all stakeholders

Toromont’s Board sets the tone for responsible management and
behaviours that are aligned to our Core Principles by providing guidance
and active oversight of the key priority areas set forth in this report.
In each area, the Board ensures we operate with speciﬁc objectives,
structured programs and monitoring/compliance systems to measure
progress, evaluate outcomes and address areas for improvement.
Through their actions, our Directors have built a strong governance
framework that creates value for all stakeholders, enhances long-term
corporate sustainability and reduces business risk. Please see our
2020 Management Information Circular for details at toromont.com.

Also consistent with our Core Principles, our executive team provides
the leadership to embed our values across our operations and empowers
Toromont’s decentralized business units to take actions and make
investments that are relevant to their operational realities. This approach
not only ensures plans are speciﬁc to the needs of our diversiﬁed
businesses and appropriate for Toromont as a responsible organization,
it breeds a broad, deep and abiding sense of ownership and accountability.

Safety Policies and Governance

Creating the safest possible workplace is Toromont’s paramount
objective. To protect employees, those we work with and our neighbours,
we have invested to create a strong safety culture and an extensive
safety program. Our commitment begins at the Board level – where
our policies are set and regularly reviewed for effectiveness – and
cascades throughout our organization. Quite literally, everyone at
Toromont is accountable for compliance to safe operating practices
(see Five Cardinal Safety Rules). The variable compensation of our senior
leaders is tied to safety outcomes measured by Total Recordable Injury
Rate “TRIR,” as well as a consistent demonstration of proper leadership
practices. It’s these behaviours, executed consistently, that deﬁne and
mold a safety culture. Dedicated business unit personnel, supported by
external subject-matter experts when needed, ensure safety programs
are well designed and functioning, deliver educational programs for
employees, monitor for compliance and, with the full support of our
Board and senior leaders, drive continuous improvements so that safety
is not just top of mind at work but a way of life. Our Safety Outside Work
intranet site, replete with safety tips and strategies, is available to all
employees and their families as part of our corporate commitment.

2019 Safety Actions and Outcomes

Toromont invested heavily in employee safety including over 170,000
hours of training in 2019, as well as investments in safety equipment
speciﬁc to the hazards encountered in each working environment.

However, training alone does not embed safety as a cultural norm.
To model the right behaviours, Toromont Cat and Toromont Material
Handling introduced Supervisor Training in Accountability and
Recognition Techniques (“START”). During the year, 400 leaders
participated in START’s role-playing exercises and were coached on
setting clear safety expectations and improving communications.
START was instrumental in improving accountability and led to the
introduction of monthly leadership meetings where participants
discussed safety challenges, set expectations and scrutinized

a. Toromont Cat sponsored the 2019

Skills Canada National Competition in

Halifax. Several members of the team

participated including Michael Gaetz

from Dartmouth branch (pictured

above). Toromont’s Technical Instructor

from Dartmouth also assisted in the
World Competition held in Russia.

b. On a daily basis, Toromont

technicians always engage in stretching

exercises to limber up before tackling

their assignments.

Toromont Annual Report 2019 Environmental, Social and Governance Report

results. Toromont Cat safety specialists saw their roles
adjusted to increase shop ﬂoor coaching time. Additional
support was provided to branch safety committees to
increase their effectiveness.

To raise employee awareness, enhance safety compliance
and support additional training, CIMCO invested in additional
full time health and safety resources in 2019.

Discipline and enabling technology play important roles.
Toromont Cat branches are evaluated monthly as part of a
formal safety recognition program. Marks are assigned for
completion of safety training, hazard identiﬁcation reporting,
timely incident investigations and ﬁeld spot audits. At CIMCO,
third-party safety audits of all branches were completed in
2019 to validate best practices and identify opportunities for
improvement. Velocity EHS, Toromont’s technology platform,
was enhanced and expanded such that Toromont Cat safety
activities are now recorded online, including the risk
assessments performed by all technicians before they start
any project. Managers are notiﬁed in real time when a near
miss occurs. Data and information are tracked and used to take
immediate corrective actions and to shape future training.
Velocity EHS was introduced at Battleﬁeld Equipment Rentals
in 2019 with CIMCO scheduled to onboard it in 2020.

We have also found success in recognizing great performance
by our employees through the Safety Bucket and the Maurice
De Stéphano awards given each year to the Toromont Cat
branches that surpass all others in safety indicators. Battleﬁeld
Equipment Rentals provided quarterly and annual awards for
safe driving and clean inspections.

Ownership of safety outcomes is a responsibility of every
Toromont employee. To reﬂect our uncompromising
approach, we introduced Five Cardinal Safety Rules in 2015,
and deployed them across all operations in Québec and the
Maritimes including at Toromont Material Handling in 2019.
These rules are modelled on the best practices used by
leading corporations in key industries.

As a result of greater awareness and focus, Total Recordable
Injury Frequency rate has declined 16% over the past ﬁve
years, even though exposure hours (the total number of hours
worked by all employees) increased 77%. While good, this
is not good enough. We will continue to focus on keeping all
eyes on task, reﬁning and refreshing our approach and holding
each other accountable at all levels for creating and sustaining
a safe workplace.

Workforce Development Policies
and Governance

We value employee empowerment and believe our culture of
authority with accountability has contributed signiﬁcantly to
Toromont’s long-term success. To foster an empowered

culture, attract and retain the industry’s best people and
ensure the sustainability and competitiveness of our workforce,
Toromont employs comprehensive human resources strategies
and programs. The Human Resources and Compensation
Committee of our Board of Directors oversees our policies
and practices including short- and long-term incentive plans
and is responsible for executive officer appointments and
overseeing succession planning and leadership development.
In turn, our corporate executives provide guidance and support
to our business units to ensure that workforce development
and succession programs are in place and functioning. Our
business units design and deliver programs that best reﬂect
their needs with a focus on improving employee knowledge,
skills, productivity and effectiveness. The long running
Toromont Employee Share Purchase Plan (see below) serves
to align the interests of employees and shareholders.

2019 Training and Development Actions and Outcomes

Toromont Cat employees set personal goals for performance
and skills development aligned to our business plan objectives
and collectively completed 285,000 training hours. Instruction
was provided in workshops and delivered through Leaders@
Work, a platform that gives managers and aspiring leaders
the ability to study online and in live virtual classrooms – a key
beneﬁt for our dispersed workforce. Leaders@Work resides
within Toromont University, a constantly evolving learning
portal that offers access to thousands of technical, sales and
personal development tools.

Signiﬁcant attention was paid to adopting and embedding the
best training programs and practices of both legacy Toromont
and Québec and Maritimes operations so that a consistent
standard of excellence applies across the enterprise. The
recent adoption of the Red Seal as the standard all apprentices
must meet is one example of best-practice standardization.
For 2020, we will align our programs towards this standard
across Toromont Cat.

Battleﬁeld has developed many in-house training programs
over the years within their BERC program (Battleﬁeld
Equipment Rental College). The BERC program for Rental
Coordinators was developed over a decade ago and provides
newer front-line counter staff with insights into customer
service as well as systems and equipment training, and imparts
product knowledge. Additionally, there is now a BERC Driver
program focused on G-class drivers to give them the necessary
skill sets and experience to deliver and pickup equipment.

At CIMCO, a new structure was implemented to support
on-the-job service technician development through coaching
and to provide a more formal pathway for advancement. In
the U.S., where the refrigeration industry does not have a
recognized technician training and licensing regimen, CIMCO
designed and introduced an apprenticeship program and

Toromont Annual Report 2019 Environmental, Social and Governance Report

attracted its ﬁrst cohort of trainees. The program is based on
best practices used in Canada and will assist recruiting efforts
and improve the skillsets and advancement prospects of U.S.
technicians while enhancing industry professionalism.

Reﬂecting our teamwork focus, and commitment to building
the best team in our industry, we hosted the largest-ever
leadership conference. A total of 65 new and high-potential
leaders from all Toromont businesses gathered in Montreal to
analyze topics relevant to Toromont’s improvement initiatives
including digital transformation, data analytics and critical
leadership behaviours required to enable ongoing success.

Employee wellness goes together with the development of a
high-performing workforce. We promote wellness through
training and awareness programs and our leaders are coached
to recognize and support employee wellbeing. In 2019, Toromont
Cat supported employees in managing mental wellness
challenges by offering a Mental Health Certiﬁcation for leaders.

Working at Toromont is demanding, but there are rewards.
One is the Toromont Employee Share Purchase Plan which
makes it easier for all salaried employees to own a piece of the
Company they are building. Approximately 33% of eligible
employees were enrolled in our ESPP at the end of 2019 after
it was made available in Québec and the Maritimes.

2019 Recruitment & Retention Actions and Outcomes

Toromont’s ability to grow is, in large part, determined by our
ability to recruit and retain highly skilled workers. The dearth
of such workers in Canada has caused us to become more
assertive and thoughtful in our recruitment efforts – with
positive results. During the year:

•

303 technicians were recruited to achieve
our growth targets

•

208 student apprenticeship positions were created

•

19 vocational institutions worked with Toromont as we
shared ideas with teachers to keep training current and
introduced our Company as a future employer to students

•

4th-year students in the engineering faculty at Queen’s
and McMaster universities were invited to participate in
a centralized tool crib automation and redesign project
under the auspices of a new Toromont Cat partnership

•

our Québec operations created an Honourable Journey
Award to encourage diversity by supporting skilled
trades students, ideally from a designated group
who achieve impressive academic standing despite
hardship circumstances.

Overall, our workforce grew approximately 8% in 2019
reﬂecting successful recruitment and onboarding and a
retention rate that is superior to external benchmarks.

Workforce Diversity Policies and Governance

Our ability to understand, embrace and operate in a culturally
and gender-diverse environment is critical to our long-term
sustainability. Consequently, we operate with a Diversity Policy
(updated by the Board this year to include speciﬁc references
to our leadership team) and related objectives. The beneﬁts
of a diverse workforce are fully acknowledged, and diversity
is considered in promotions and new hires consistent with
our Employment Equity Policy. Our Board, together with its
Nominating and Corporate Governance Committee and senior
management, regularly review the outcomes of our diversity
strategies and look for new opportunities to foster a culture of
inclusion. Like all business pursuits at Toromont, we track the
results of our diversity policies and efforts as part of disciplined
management and to encourage continuous improvement.

12
12

Toromont Annual Report 2019 Environmental, Social and Governance Report

2019 Diversity Actions and Outcomes

We began the year with an independent audit of our efforts to
recruit and promote individuals from four groups that are
underrepresented in our industry: women, aboriginals, visible
minorities and disabled persons. The audit found Toromont to
be compliant with the Federal Contractors Program (enabling
it to bid for government projects) and provided a clear indication
of where improvements have been made since our last audit
and where additional focus is needed.

Recruiting and promoting women to positions of leadership
are areas of progress and opportunity.

Four women now serve in senior management positions and
represent 22% of our leadership team.

Three members of our 10-member Board of Directors are women.

In 2019, women were promoted to serve as Branch Managers
at Toromont Cat Concord and at Battleﬁeld Equipment Rentals
in Québec and the Maritimes. Women also serve in supervisory
positions in various Toromont Cat locations as well as our
recently established data analytics team. Even in traditionally
male-dominated roles such as engineering at CIMCO, parts
and service at Toromont Cat and small engine repair at
Battleﬁeld Equipment Rentals, women excelled in 2019.

To build on this success and ensure we continue to encourage
women to enter our workforce, our recruiters presented
Toromont as a career destination to hundreds of young
women in 2019 and developed A Let’s Celebrate Women’s
Day video posted across social media.

Growth in our employment of Canada’s indigenous peoples,
visible minorities and disabled persons was also demonstrated

in our audit, although progress in each area was slower than
desired. Accordingly, we continue to reﬁne our programs.
In 2019, greater focus allowed us to recruit 10 apprentice
technicians, ﬁve licensed technicians, two co-op students,
two managers and four administrators from aboriginal
communities. Members of these communities achieved success
in leadership roles within our mining division and at Battleﬁeld
Equipment Rentals. Those with disabilities were welcomed into
important roles including account management and product
support. Engagement with COSTI Immigration Services
continued to diversify our workforce.

While maintaining our principle of promoting the best
candidates regardless of race, gender or physical ability, we
identify members of under-represented groups during our
succession planning process to ensure career development
opportunities are equal and the candidate pipeline is diverse.

Toromont’s THINK BIG scholarships and Management Trainee
Program reﬂect our desire to build our talent pipeline with
excellent candidates while diversifying our workforce. In 2019:

•

60% of our scholarship recipients not only excelled
academically, they belonged to diverse groups

•

three of eight new Management Trainees were from
a designated group

•

three new Management Trainee recruits were bilingual
as beﬁtting an organization with signiﬁcant operations
in French-speaking parts of Canada

Environmental Policies and Governance

Respect for the environment is a Toromont Core Principle.
To show respect, our Board of Directors and executive team
provide oversight of our environmental performance and take

Toromont Codes of Conduct

Toromont’s Code of Conduct is available at toromont.com. Among Code provisions are
requirements to uphold all laws including international anti-corruption and trade regulations.
The Code speciﬁcally prohibits employees from giving or receiving entertainment, gifts
or beneﬁts that could improperly inﬂuence business decisions. Toromont’s Supplier Code
of Conduct commits suppliers to, among other items, ensuring the safety of our employees,
the community and the environment. Toromont Cat’s online Contractor Compliance
system allows our branches to conﬁrm that a contractor has appropriate certiﬁcations
and credentials.

13
13

Toromont Annual Report 2019 Environmental, Social and Governance Report

responsibility for compliance with all environmental regulations
in the markets we serve. Beyond basic compliance, we
recognize that climate change and government policy
responses are having an impact on our customers, suppliers
and our business. As responsible, market-driven operators, we
work along with our customers and supply partners to reduce
greenhouse gas emissions and more generally eliminate waste
and use technology to build a more efficient, sustainable future.

As a matter of strategy, we track our environmental impact
and set goals for continuous improvement as part of annual
business planning. A dedicated Toromont Cat environmental
team is responsible for developing annual priorities, educating
and training the workforce, as well as performing compliance
and audit functions under the auspices of a formal Environmental
Management Program. Initiatives developed by this team
are incorporated into the Company’s corporate strategic
planning process. The Board receives reports from this team
on compliance and progress on a quarterly basis.

2019 Environmental Actions and Outcomes

Toromont Cat’s Environmental Management Program was
extended to all operations in Québec and the Maritimes in
2019 and was supported by training and an online tracking
tools. Once again, a key area of focus was reducing greenhouse
gas (“GHG”) emissions. Toromont’s largest source of GHGs is
our ﬂeet and to reduce emissions we:

•

operate with an anti-idling policy for all Company
vehicles and vehicles on our properties

•

use telematics to track idling time and monitor for hard
accelerations and speeding that are unsafe for our team
and hard on the environment

•

employ Auxiliary Power Units on our service vehicles,
alleviating the need to idle engines and needlessly burn fuel

•

assess ﬂeet additions on total cost of ownership
including fuel economy, which has led to the acquisition
of smaller ﬁeld-service vehicles wherever possible that
are 20% more fuel efficient than larger vehicles.

Within the Equipment Group, energy intensity in our buildings
is monitored and improved through ongoing investments in
energy-efficient HVAC systems, lighting, overhead doors and
compressed air tools. Emission abatement is assisted by
selective catalytic reduction equipment that minimizes the
release of nitrogen oxide and sulphur during generator testing
at Toromont Power Systems in Ontario.

Over the past three years, GHG emission carbon intensity was
reduced by over 10% in our legacy operations due to these
ongoing initiatives. To provide a baseline for action, GHG
assessments were completed for Québec and the Maritimes
operations in 2019.

Reducing GHG emissions is important for our customers and
we are playing our part:

•

at seven landﬁlls in Ontario and one in New Brunswick,
Toromont-supplied generators capture harmful methane
to transform it into electricity

in mining, we recruited our ﬁrst battery electric machine
(BEM) specialist to prepare Toromont’s strategy for the
future launch of new technology

In refrigeration, CIMCO works closely with customers to advise
them on the environmental impact of various refrigerants and
employs integrated building design to offset GHG emissions.
For customers, selecting a refrigerant is increasingly complex due
to the evolution of environmental regulations, the introduction
of new synthetic solutions and the phase-out of others. The
alternative is natural refrigerants, such as ammonia and CO2.
CIMCO helps customers opt for the best refrigerant choice
based on factors including lifecycle costs, safety and
environmental impact. Customers also use CIMCO’s unique
design methodology to lower their carbon footprint. More
speciﬁcally, the byproduct of refrigeration is heat, which is
traditionally wasted through atmospheric release. CIMCO’s
ECO CHILL® employs a patented system to recover heat
and apply it elsewhere. This offsets operating costs, reduces
GHG emissions and lowers natural gas usage – without
compromising performance. ECO CHILL® has cumulatively
offset 966,000 CO2-equivalent tonnes (the same amount
produced by 215,000 cars operating for one year) compared
to traditional refrigeration and saved 17.6 billion cubic feet
of natural gas over the past 15 years.

Reducing water consumption is an ongoing priority. Multiple
Battleﬁeld Equipment Rental stores now operate specialized
wash bay systems that recycle water. The largest, in our
Stoney Creek, Ontario store, reduces water usage by over
1.4 million liters per year. Toromont Cat conserves water and
reduces chemical usage during component cleaning through
steam and pressure washers. During the year, we upgraded
water/oil interceptor systems at three branches. These
systems capture oil, sediment and water runoff in service
bays and separate the ingredients for safe disposal.

We continue to foster zero-waste behaviour in our branches
by drawing attention to day-to-day habits that improve landﬁll
diversion rates. In legacy operations, landﬁll diversion increased
by more than 25% over the past three years. In Québec and the
Maritimes operations, we introduced waste diversion programs
in 2019. Recycling is also a key feature of Toromont Cat’s four
remanufacturing operations where used and highly worn
hydraulic cylinders, engines and other components are rebuilt
as many as four times. Battleﬁeld Equipment Rentals
participates in waste diversion through battery recycling.

Community Impact Policies
and Governance

From our Board, through our leadership
ranks and across our workforce, we believe
Toromont has a role to play in the health and
wellbeing of the communities where we live
and work. In line with our values and focus on
social responsibility, Toromont encourages
community volunteerism through our Day of
Caring program. It provides all employees
with paid time off to volunteer for a
charitable cause of their choice. Corporately,
Toromont’s official charity is the United Way,
an organization chosen because it reaches all
communities connected to our business units
and provides opportunities for our employees
to work together, in an enjoyable way, to
focus fundraising efforts for the biggest
community impact. We also encourage our
business units to contribute to philanthropic
causes that resonate with them.

2019 Community Impact Actions
and Outcomes

In 2019, employees from across all Toromont
Cat territories joined together during our
annual campaign to raise funds for United
Way through payroll deductions and cash
pledges made during BBQs, raffles, bake
sales, a baseball tournament and other
grassroots events. This year’s campaign –
and numerous other charity drives in support
of organizations such as Feed Nova Scotia,
CHUM City Christmas Wish and the Sporting
Life run/walk in support of Camp Ooch –
fostered a remarkable team spirit and
proved once again that we are building
together for a better future.

As an inspiring reminder of the importance of caring for

the environment, Toromont Cat held its ﬁrst ever Earth

Day photo competition in 2019. All employee photos were

shared across our intranet site.

a. Martin Cadieux, Sales System Specialist, Pointe-Claire, QC

b. Bruce Darling, Senior Business Analyst, Concord, ON

c. Dominique Lavoie, Credit Manager, Pointe-Claire, QC

d. Hélène Lebreux, Administrative Assistant, Sept-Îles, QC

Toromont Annual Report 2019 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.

such matters as strategic planning, identiﬁcation and
management of risks, succession planning, communication
policy, internal controls and governance.

The Company’s corporate governance program is in
compliance with National Policy 58-201 – Corporate
Governance Guidelines and Multilateral Instrument 52-110
– Audit Committees.

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

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.

For more information on the Board of Directors, please refer
to the Management Information Circular dated February 28,
2020, prepared in connection with the Corporation’s 2020
Annual Meeting of Shareholders and available on our website
at toromont.com.

Toromont Annual Report 2019 Corporate Governance

L to R: Sharon L. Hodgson, James W. Gill, Robert M. Franklin, Scott J. Medhurst, Robert M. Ogilvie, Cathryn E. Cranston, Jeffrey S. Chisholm,
Richard G. Roy, Katherine A. Rethy, Peter J. Blake, Wayne S. Hill.

Committee Structure and Mandates

The Audit Committee

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
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.

Principal duties include oversight responsibility for ﬁnancial
statements and related disclosures, reports to shareholders
and other related communications, establishment of
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.

The Nominating and Corporate
Governance Committee

The Human Resources and
Compensation Committee

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.

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.

Toromont Annual Report 2019 Corporate Governance

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
Business Development Advisor

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 Equipment Rentals
in 2001. He is a graduate
of Toromont’s Management
Trainee Program. Mr. Casson
retired as President of
Battleﬁeld Equipment Rentals
in September 2019.

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.

Jennifer J. Cochrane
Vice President, Finance

Paul R. Jewer
Executive Vice President

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.

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. Mr. Jewer
stepped down as Chief
Financial Officer as of
March 1, 2020, as part
of his planned retirement.

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 joined
Toromont in 1999 and
was appointed President
of CIMCO in 2015. 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

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) comments on the operations, performance and ﬁ nancial condition of Toromont

Industries Ltd. (“Toromont” or the “Company”) as at and for the year ended December 31, 2019, compared to the preceding year.

This MD&A should be read in conjunction with the audited consolidated ﬁ nancial statements and related notes for the year ended

December 31, 2019.

The consolidated ﬁ nancial 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 11, 2020.

Additional information is contained in the Company’s ﬁ lings with Canadian securities regulators, including the Company’s 2019

Annual Report and 2020 Annual Information Form. These ﬁ lings are available on SEDAR at sedar.com and on the Company’s website

at toromont.com.

Advisory

of distribution or original equipment

to Toromont or that Toromont currently

Information in this MD&A that is not a

manufacturer agreements; equipment

believes are not material could also

historical fact is “forward-looking

product acceptance and availability of

cause actual results or events to diff er

information”. Words such as “plans”,

supply; increased competition; credit of

materially from those expressed or

“intends”, “outlook”, “expects”,

third parties; additional costs associated

implied by statements containing forward-

“anticipates”, “estimates”, “believes”,

with warranties and maintenance contracts;

looking information.

“likely”, “should”, “could”, “will”, “may” and

changes in interest rates; the availability of

Readers are cautioned not to place

similar expressions are intended to identify

ﬁ nancing; potential environmental liabilities

undue reliance on statements containing

statements containing forward-looking

of the acquired businesses and changes to

forward-looking information, which reﬂ ect

information. Forward-looking information

environmental regulation; failure to attract

Toromont’s expectations only as of the

in this MD&A reﬂ ects current estimates,

and retain key employees; damage to the

date of this MD&A, and not to use such

beliefs, and assumptions, which are based

reputation of Caterpillar, product quality

information for anything other than their

on Toromont’s perception of historical

and product safety risks which could expose

intended purpose. Toromont disclaims any

trends, current conditions and expected

Toromont to product liability claims and

obligation to update or revise any forward-

future developments, as well as other

negative publicity; new, or changes to

looking information, whether as a result of

factors management believes are

current, federal and provincial laws, rules

new information, future events or

appropriate in the circumstances.

and regulations including changes in

otherwise, except as required by law.

Toromont’s estimates, beliefs and

infrastructure spending; and any

assumptions are inherently subject to

requirement of Toromont to make

signiﬁ cant business, economic,

contributions to its registered funded

competitive and other uncertainties and

deﬁ ned beneﬁ t pension plans, post-

contingencies regarding future events and

employment beneﬁ ts plan or the multi-

as such, are subject to change. Toromont

employer pension plan obligations in

can give no assurance that such estimates,

excess of those currently contemplated.

beliefs and assumptions will prove to be

Readers are cautioned that the foregoing

correct. This MD&A also contains forward-

list of factors is not exhaustive.

looking statements about the recently

Any of the above mentioned risks and

acquired businesses.

uncertainties could cause or contribute to

Numerous risks and uncertainties could

actual results that are materially diff erent

cause the actual results to diff er materially

from those expressed or implied in the

from the estimates, beliefs and assumptions

forward-looking information and

expressed or implied in the forward-looking

statements included in this MD&A. For a

statements, including, but not limited to:

further description of certain risks and

business cycles, including general economic

uncertainties and other factors that could

conditions in the countries in which

cause or contribute to actual results that

Toromont operates; commodity price

are materially diff erent, see the risks and

changes, including changes in the price of

uncertainties set out in the “Risks and Risk

precious and base metals; changes in

Management” and “Outlook” sections

foreign exchange rates, including the

herein. Other factors, risks and

Cdn$/US$ exchange rate; the termination

uncertainties not presently known

Corporate Proﬁle and Business Segmentation

As at December 31, 2019, Toromont
employed over 6,500 people in more than
150 locations across Canada and the United
States. Toromont is listed on the Toronto
Stock Exchange under the symbol TIH.

Toromont has two reportable operating
segments: the Equipment Group and CIMCO.

The Equipment Group includes
Toromont Cat, one of the world’s larger
Caterpillar dealerships, Battleﬁeld – The Cat
Rental Store, an industry-leading rental
operation, SITECH, providing Trimble
technology products and services, AgWest,
an agricultural equipment and solutions
dealer representing AGCO, CLAAS and
other manufacturers’ products. The
Company is the exclusive Caterpillar dealer
for a contiguous geographical territory in

Canada that covers Manitoba, Ontario,
Quebec, Newfoundland, New Brunswick,
Nova Scotia, Prince Edward Island and most
of Nunavut. Additionally, the Company is the
MaK engine dealer for the Eastern Seaboard
of the United States, from Maine to Virginia.
Performance in the Equipment Group is
driven by activity in several industries: road
building and other infrastructure-related
activities; mining; residential and
commercial construction; power generation;
aggregates; waste management; steel;
forestry; and agriculture. Signiﬁcant
activities include the sale, rental and service
of mobile equipment for Caterpillar and
other manufacturers; sale, rental and
service of engines used in a variety of
applications including industrial,

commercial, marine, on-highway trucks
and power generation; and sale of
complementary and related products, parts
and service.

CIMCO is a market leader in the design,

engineering, fabrication, installation and
after-sale support of refrigeration systems
in industrial and recreational markets.
Results of CIMCO are inﬂuenced by
conditions in the primary market segments
served: beverage and food processing; cold
storage; food distribution; mining; and
recreational ice rinks. CIMCO offers systems
designed to optimize energy usage through
proprietary products such as ECO CHILL®.
CIMCO has manufacturing facilities in
Canada and the United States and sells its
products and services globally.

Primary Objective and Major Strategies

The primary objective of the Company is to
build shareholder value through sustainable
and proﬁtable growth, supported by a strong
ﬁnancial foundation. To guide its activities in
pursuit of this objective, Toromont works
toward speciﬁc, long-term ﬁnancial goals
(see section heading “Key Performance
Measures” in this MD&A) and each of its
operating groups consistently employs the
following broad strategies:

Expand Markets
Toromont serves diverse markets that offer
signiﬁcant long-term potential for proﬁtable
expansion. Each operating group strives to
achieve or maintain leading positions in
markets served. Incremental revenues are
derived from improved coverage, market
share gains and geographic expansion.
Expansion of the installed base of equipment
provides the foundation for product support
growth and leverages the ﬁxed costs
associated with the Company’s infrastructure.

Strengthen Product Support
Toromont’s parts and service business is a
signiﬁcant contributor to overall proﬁtability
and serves to stabilize results through
economic downturns. Product support
activities also represent opportunities to

develop closer relationships with customers
and differentiate the Company’s product and
service offering. The ability to consistently
meet or exceed customers’ expectations for
service efficiency and quality is critical, as
after-market support is an integral part of the
customer’s decision-making process when
purchasing equipment.

Broaden Product Offerings
Toromont delivers specialized capital
equipment to a diverse range of customers
and industries. Collectively, hundreds of
thousands of different parts are offered
through the Company’s distribution
channels. The Company expands its
customer base through selectively
extending product lines and capabilities.
In support of this strategy, Toromont
represents product lines that are
considered leading and generally best-in-
class from suppliers and business partners
who continually expand and develop
their offerings. Strong relationships with
suppliers and business partners are critical
in achieving growth objectives.

Invest in Resources
The combined knowledge and experience
of Toromont’s people is a key competitive

advantage. Growth is dependent on
attracting, retaining and developing
employees with values that are consistent
with Toromont’s. A highly principled culture,
share ownership and proﬁtability-based
incentive programs result in a close
alignment of employee and shareholder
interests. By investing in employee training
and development, the capabilities and
productivity of employees continually
improve to better serve shareholders,
customers and business partners.

Toromont’s information technology

represents another competitive differentiator
in the marketplace. The Company’s selective
investments in technology, inclusive of
e-commerce initiatives, strengthen customer
service capabilities, generate new
opportunities for growth, drive efficiency
and increase returns to shareholders.

Maintain a Strong Financial Position
A strong, well-capitalized balance sheet
creates stability and ﬁnancial ﬂexibility,
and has contributed to the Company’s
long-term track record of proﬁtable growth.
It is also fundamental to the Company’s
future success.

Consolidated Annual Operating Results

($ thousands, except per share amounts)

2019

2018

$ Change

% Change

Revenues
Cost of goods sold

$ 3,678,705
2,772,583

$ 3,504,236
2,640,835

$ 174,469
131,748

Gross proﬁt (1)
Selling and administrative expenses

Operating income (1)
Interest expense
Interest and investment income

Income before income taxes
Income taxes

906,122
493,627

412,495
27,707
(9,752)

394,540
107,740

863,401
493,827

369,574
30,643
(8,918)

347,849
95,865

42,721
(200)

42,921
(2,936)
(834)

46,691
11,875

Net earnings

$ 286,800

$ 251,984

$ 34,816

Basic earnings per share

3.52

3.10

0.42

5%
5%

5%
—

12%
(10%)
9%

13%
12%

14%

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%
13.4%
11.2%
27.3%
22.9%
21.4%

(1) Described in the sections titled “Additional GAAP Measures and Non-GAAP Measures.”

24.6%
14.1%
10.5%
27.6%
21.7%
22.3%

The Company delivered solid results in the

Revenues increased $174.5 million or

year with double-digit growth in operating

5% for the year with a 6% growth in the

income in both the Equipment Group and

Equipment Group and a 2% decline at CIMCO.

CIMCO. Within the Equipment Group, the

Product support across the enterprise grew

core dealership business saw signiﬁcant

10% with similar increases in both Groups.

growth in key performance metrics, largely

Gross proﬁt margin was unchanged at

reﬂective of continued success in business

24.6% versus last year. The Equipment

integration and market penetration.

Group reported lower margins on continued

The rental services business was unable to

competitive pressures and lower ﬂeet

fully absorb the past two years’ signiﬁcant

utilization. Margins at CIMCO were higher

rate of ﬂeet expansion, expectedly leading to

on broad-based improved execution. Both

reduced proﬁtability on higher depreciation

Groups beneﬁtted from a favorable sales

and branch expansion costs. The agricultural

mix of higher product support revenues

equipment business created a $4.9 million

to total revenues which in total were up to

drag on operating income year-over-year,

42.1% in 2019 compared to 40.1% in 2018.

as ongoing adverse market conditions led

Selling and administrative expenses were

to a revaluation of inventory late in the year,

largely unchanged year-over-year despite the

on top of weak equipment sales. CIMCO

5% increase in revenues. Mark-to-market

generated improved proﬁtability year-over-

adjustments on Deferred Share Units (“DSUs”)

year on improved project execution and an

increased expenses $6.7 million year-over-

inventory write-down recorded in the prior

year reﬂective of the 30% increase in share

year that was not repeated. Even with the

price. A post-employment beneﬁt plan

headwinds, the strength of the Equipment

curtailment gain of $5.0 million was recorded

Group and CIMCO led net earnings to

in the ﬁrst quarter of 2019, and is further

increase 14% versus a year ago on a 5%

increase in revenues.

described in note 19 of the notes to the
consolidated ﬁnancial statements. All other

compensation expenses were lower than a
year ago on the alignment of beneﬁt programs,
partially offset by increased headcount
and annual wage increases. Information
technology expenses increased $3.3 million
primarily on system enhancement and
upgrades. Allowance for doubtful accounts
were $4.3 million lower on improved
collections and accounts receivable aging
proﬁle. Certain other expenses categories
such as customer allowances, travel,
insurance and training were higher in support
of the growth and continued integration
efforts across the territories.

Operating income increased $42.9 million

reﬂecting the higher revenues and lower
expense levels. Both Groups reported strong
improvements. Operating income margin
increased 70 basis points (“bps”) to 11.2%.
Interest expense decreased $2.9 million

on lower average debt balances.

Interest income increased $0.8 million,
mainly as a result of interest income earned
on equipment on rent with a purchase
option (“RPO”) and investment income
resulting from higher average cash
balances held throughout the year.

The effective income tax rate for 2019

Earnings per share (“EPS”) tracked the

$21.0 million in 2018, included actuarial

was 27.3% compared to 27.6% in 2018.

increase, up $0.42 or 14% to $3.52.

gains on deﬁned beneﬁt pension and other

The decrease is substantially due to the

Other comprehensive loss of $24.9 million

post-employment beneﬁt plans and a net

continued phase in of corporate tax rate

in 2019 arose on actuarial losses on deﬁned

gain on cash ﬂow hedges.

reductions in Quebec.

beneﬁt pension and other post-employment

Net earnings in 2019 of $286.8 million

beneﬁt plans and a net loss on cash ﬂow

were up $34.8 million or 14% from 2018.

hedges. Other comprehensive income of

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

2019

2018

$ Change

% Change

$ 1,195,646
328,539
418,818

1,943,003
1,390,340
10,607

$ 1,190,000
306,575
389,572

1,886,147
1,264,295
10,645

5,646
21,964
29,246

56,856
126,045
(38)

$ 3,343,950

$ 3,161,087

$ 182,863

$ 384,077

$ 348,876

35,201

$ 153,390
54,130

$ 125,148
37,546

28,242
16,584

—
7%
8%

3%
10%
—

10%

23%
44%

28%

Total

$ 207,520

$ 162,694

44,826

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

41.6%
11.5%
90.9%
19.0%

40.0%
11.0%
90.2%
21.4%

The Equipment Group performed well on
the strength of results at the core
dealership business, partially offset by
performance in the rental services business
(with expected challenges associated with
absorbing the increased ﬂeet investment)
and weakness in the agricultural sector
leading to inventory write-downs and
reduced proﬁtability.

Total equipment sales (new and used)
increased $27.6 million or 2%. Construction
markets increased $82.0 million or 9%. In

Quebec and Ontario, construction markets
were strong with good activity levels and
increased market penetration while
deliveries into Atlantic Canada were lower
on certain project activity in the prior year
which did not repeat. Power systems sales
were up $2.6 million or 1%. Sales into
mining markets were down $37.2 million or
19% against a tough prior year comparator,
which included large deliveries. Material
handling and agriculture markets were also
softer compared to the prior year.

Rental revenues increased $29.2 million

or 8% versus last year, mainly on higher
utilization and larger ﬂeets. Rental rates
have increased marginally relative to 2018.
Heavy equipment rentals were down 7%
across all regions, except for Quebec which
reported growth on the larger ﬂeet. Power
rentals were unchanged from the prior year.
Light equipment rentals increased 9% with
all regions reporting growth on good market
penetration based on the strategic focus on
growing and diversifying the ﬂeet to

address demand signals year round and
across the wider market base. Rental
revenues from equipment on rent with a
purchase option (“RPO”) were up 27% on a
larger average ﬂeet versus 2018. At
December 31, 2019, the RPO ﬂeet across
the business was up $7.9 million from a year
ago to $82.5 million.

Product support revenues increased
$126.0 million or 10% with similar increases
in both parts and service across all markets.
The growing installed base of equipment in
the ﬁeld and customer activity levels
resulted in good growth. Product support
revenues also beneﬁtted from good rebuild
activity and a growing technician base.
Power generation revenues were

$10.6 million in 2019 and 2018.

Gross proﬁt margin decreased 40 bps
versus last year. Equipment margins declined

slightly year-over-year on competitive
pricing pressures combined with softness
in certain market segments. Rental margins
decreased modestly on lower ﬂeet utilization,
reﬂecting the time required to absorb the
recent increased investment in the ﬂeets.
The largest component of cost of sales on
rentals is depreciation, which, at Toromont,
is straight-line, regardless of utilization
levels. Product support margins were lower,
a result of a higher portion of parts to
service volumes. The overall sales mix of
product support revenues to total revenues
had a favourable impact of 50 bps on margins.
Selling and administrative expenses
decreased $2.8 million or 1%, due to the
previously noted post-employment beneﬁt
curtailment gain and a $4.4 million reduction
in the allowance for doubtful accounts
resulting from good collection activity.

All other expenses increased $6.6 million
or 1%. Higher compensation costs and
information technology costs in support
of growth and integration were partially
offset by reductions in other areas.

Operating income was up $35.2 million

or 10% and was 50 bps higher as a
percentage of revenues (11.5% versus
11.0% last year).

Capital expenditures, net of dispositions,

increased $44.8 million, largely due to
investments in new facilities and service
vehicles to increase efficiencies and
accommodate growth and continued
investments to expand the rental ﬂeets
across all territories. Net rental ﬂeet additions
increased $28.2 million to $153.4 million
while other capital expenditures increased
$16.6 million.

Bookings and Backlogs

($ millions)

2019

2018

$ Change

% Change

Bookings – year ended December 31
Backlogs – as at December 31

$
$

1,468.2
272.3

$
$

1,536.7
341.8

$
$

(68.5)
(69.5)

(4%)

(20%)

Bookings decreased $68.5 million or 4%.

Backlogs decreased $69.5 million or 20%

Bookings and backlogs can vary

Higher construction orders (+12%) were

more than offset by lower mining (41%),

power systems (27%), material handling lift

truck (23%) and agriculture orders (18%).

to $272.3 million. At December 31, 2019,
the total backlog related to power systems
(42%), construction (33%), mining (11%),
agriculture (7%) and lift trucks (7%), most
of which is expected to be delivered in 2020.

signiﬁcantly from period to period on large
project activities, especially in mining and
power systems, the timing of orders and
deliveries and the availability of equipment
from either inventory or suppliers.

CIMCO

($ thousands)

Package sales
Product support

Total revenues

Operating income

Capital expenditures (net)

2019

2018

$ Change

% Change

$ 177,974
156,781

$ 202,367
140,782

$ 334,755

$ 343,149

28,418

2,335

20,698

2,452

(24,393)
15,999

(8,394)

7,720

(117)

(12%)
11%

(2%)

37%

(5%)

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

46.8%
8.5%
9.1%
75.9%

41.0%
6.0%
9.8%
64.1%

CIMCO results for 2018 included a $6.0 million
write-down of inventory stemming from a
review of work-in-process costing and aging.
Excluding this item in the comparator,
results in 2019 improved despite the lower
revenues, on better project execution.
The translation of ﬁnancial results at the US
operations did not have a signiﬁcant impact
on results year-over-year.

In Canada, package revenues were down
$9.2 million or 6%, reﬂecting lower sales into
industrial markets (down $20.3 million or
17%), partially offset by higher recreational
revenues (up $11.1 million or 27%). In the US,
package revenues decreased $15.2 million
or 36% as lower sales into industrial
markets (down $19.4 million or 69%) were

partially offset by higher recreational
revenues (up $4.2 million or 30%).

Product support revenues increased
$16.0 million or 11% versus last year on
growth in both Canada (up 10%) and the US
(up 16%). The increased installed base
continues to provide a solid growth platform
as product support revenues have increased
every year since 2009. Hiring of technicians
continues in order to address demand signals.
Gross proﬁt margin improved 190 basis
points after excluding the aforementioned
inventory write-down on improved project
execution and a favourable sales mix
of higher product support revenues to
total revenues.

Selling and administrative expenses

increased $2.6 million versus last year, largely
on higher compensation costs. Most other
expense categories were unchanged or lower
as expense management remains critical to
mitigating margin pressures broadly.

Operating income was up by $7.7 million

or 37% in 2019 reﬂecting the one-time
charge last year not repeated and improved
project gross proﬁt margins.

Capital expenditures, net of

dispositions, were down $0.1 million or 5%
to $2.3 million with the majority of
expenditures in 2019 related to information
technology infrastructure enhancements
and upgrades ($1.2 million), additional
service vehicles ($0.7 million), and
machinery and equipment ($0.2 million).

Bookings and Backlogs

($ millions)

Bookings – year ended December 31
Backlogs – as at December 31

2019

193.6
122.5

$
$

2018

184.7
112.7

$
$

$ Change

% Change

$
$

8.9
9.8

5%
9%

Bookings of $193.6 million were up
$8.9 million or 5%, with higher recreational
orders (+15%) offsetting lower industrial
orders (2%). In Canada, both market
segments were up, while in the US, higher
recreational orders served to offset lower
industrial orders.

Backlogs of $122.5 million were higher

by $9.8 million or 9% versus last year.
Industrial backlogs were in line with last
year with an increase in Canada offsetting a
decrease in the US. Recreational backlogs
were up 25% on higher levels in the US

(+75%). The backlog levels provide a good
base entering 2020, with substantially all
expected to be realized as revenue in 2020.

Consolidated Financial Condition

The Company’s strong ﬁnancial position continued. At December 31, 2019, the ratio of net debt to total capitalization decreased to 15%
versus 18% at December 31, 2018.

Non-cash Working Capital
The Company’s investment in non-cash working capital was $463.7 million at December 31, 2019. The major components, along with
the changes from December 31, 2018, are identiﬁed in the following table.

($ thousands)

2019

2018

$ Change

% Change

Accounts receivable
Inventories
Other current assets
Accounts payable and accrued liabilities
Provisions
Income taxes receivable (payable)
Derivative ﬁnancial instruments
Dividends payable
Deferred revenues and contract liabilities

$ 525,052
912,186
12,063
(797,807)
(23,680)
9,275
(10,366)
(22,139)
(140,898)

$ 522,462
873,507
9,932
(916,300)
(24,382)
(28,368)
27,624
(18,737)
(136,244)

2,590
38,679
2,131
118,493
702
37,643
(37,990)
(3,402)
(4,654)

Total non-cash working capital

$ 463,686

$ 309,494

$ 154,192

—
4%
21%
(13%)
(3%)
nm
nm
18%
3%

50%

Accounts receivable were largely
unchanged from last year. Trade accounts
receivable were down slightly on improved
collections within the Equipment Group.
Other receivables, largely credits and
claims from suppliers increased on timing
of payment. Days sales outstanding
(“DSOs”) was 43 days, unchanged from
last year.

Inventories increased $38.7 million

or 4% with increases in both Groups:
• Equipment Group inventories were
$37.3 million or 4% higher with
increases in equipment (up $22.2
million or 4%) and parts (up $15.9
million or 7%). The higher inventory
levels were mainly attributable to
improved availability from suppliers,
positioning for better penetration in the
expanded territories, transitional terms
from suppliers, and on higher RPO
levels. Service work-in-process was
down $0.8 million or 1% with
improvement in invoicing cycle and
timing of project completion.

• CIMCO inventories were up $1.3 million
or 6% on higher work-in-process levels
and parts.

Other current assets include prepaid
expenses, which vary year-over-year on
the timing of payments and the realization
of expense.

Accounts payable and accrued liabilities

decreased $118.5 million or 13% on the
timing of inventory purchases. Certain
transitional terms provided in conjunction
with the 2017 acquisition are expected to
end mid-year 2020, at which time accounts
payable will begin to revert to more normal
levels. The adoption of IFRS 16 – Leases in
the current year resulted in the recognition
of current lease liabilities of $9.7 million
at December 31, 2019 (refer to note 6
of the notes to the consolidated ﬁnancial
statements).

Income taxes receivable (payable) reﬂects

the difference between tax installments
and current income tax expense.

Derivative ﬁnancial instruments

represent the fair value of foreign exchange
contracts. Fluctuations in the value of the
Canadian dollar have led to a cumulative
net loss of $10.4 million as at December 31,
2019. This is not expected to affect net

earnings as the unrealized losses will offset
future gains on the related hedged items.

Higher dividends payable year-over-year

reﬂect the higher dividend rate. Early in
2019, the quarterly dividend rate was
increased from $0.23 per share to $0.27
per share, a 17.4% increase.

Deferred revenues and contract
liabilities represent billings to customers
in excess of revenue recognized.
•

In the Equipment Group, these balances
arise mainly due to progress billings
from the sale of power and energy
systems, product support maintenance
contracts, sales of equipment with
residual value guarantees and customer
deposits for machinery to be delivered
in the future. In 2019, these increased
$1.3 million or 1% largely related to
progress billings and customer deposits
for deliveries in 2020.

• At CIMCO, these balances arise on
progress billings from the sale of
refrigeration packages and were up
$3.4 million or 17%, reﬂecting activity
levels, and customers’ construction needs.

2.3 million options to purchase common
shares were outstanding, of which
0.9 million were exercisable.
2. An Employee Share Purchase Plan

whereby employees can purchase shares
by way of payroll deductions. Under the
terms of this plan, which is designed to
incentivize long-term share ownership,
eligible employees may purchase
common shares of the Company in the
open market at the then-current market
price. The Company pays a portion of the
purchase price, matching contributions
at a rate of $1 for every $3 contributed,
to a maximum of 2.5% of an employee’s
base salary per annum. Company
contributions prior to 2019 vested
to the employee immediately, while
contributions in 2019 onwards will vest
in ﬁve years from date of contribution.
Company contributions amounting to
$2.7 million in 2019 (2018 – $2.4 million)
were charged to selling and administrative
expense when paid. Approximately 33%
(2018 – 32%) of employees participate
in the plan, which is administered by an
independent third party.

Goodwill and Intangibles
The Company performs impairment tests
on its goodwill and intangibles with
indeﬁnite lives on an annual basis or as
warranted by events or circumstances.
The assessment entails estimating the fair
value of operations to which the goodwill
and intangibles relate using the present
value of expected discounted future cash
ﬂows. This assessment affirmed goodwill
and intangibles values as at December 31,
2019 as outlined in note 7 of the notes to
the consolidated ﬁnancial statements.

Employee Share Ownership
The Company employs a variety of
stock-based compensation plans to align
employees’ interests with corporate
objectives.
1. An Executive Stock Option Plan for its

senior employees. Stock options have a
10-year life, vest 20% per year on each
anniversary date of the grant and are
exercisable at the designated common
share price, which is ﬁxed at prevailing
market prices at the date the option
is granted. At December 31, 2019,

3. A deferred share unit (“DSU”) plan for
executives, certain senior managers
and non-employee directors, whereby
they may elect, on an annual basis, to
receive all or a portion of their
performance incentive bonus (in the
case of employees) or fees (in the case
of directors) in DSUs. Non-employee
directors also receive a portion of their
compensation in DSUs. A DSU is a
notional unit that reﬂects the market
value of a single Toromont common
share and generally vests immediately.
DSUs will be redeemed on cessation of
employment or directorship. DSUs have
dividend equivalent rights, which are
expensed as earned. The Company
records the cost of the DSU plan as
compensation expense in selling and
administrative expenses. As at
December 31, 2019, 388,547 DSUs
were outstanding with a total value of
$27.4 million (2018 – 358,151 units at a
value of $19.0 million). The liability for
DSUs is included in accounts payable and
accrued liabilities on the consolidated
statements of ﬁnancial position.

Employee Future Beneﬁts

The Company sponsors pension

arrangements for substantially all of its

employees. These include:

• Deﬁned contribution plans, which cover

the largest segment of employees,

including all newly hired employees;

• Deﬁned beneﬁt plans, which are largely

associated with acquired businesses;

• 401(k) matched savings plans for

employees in the US; and

• Other post-employment beneﬁt plans

for certain grandfathered employees

in the acquired businesses.

Certain unionized employees do not

participate in Company-sponsored plans, and

contributions are made to their retirement

programs in accordance with the respective

collective bargaining agreements.

Deﬁned Contribution Plans
In the case of deﬁned contribution plans,

regular contributions are made to the

individual employee accounts, which

are administered by a plan trustee in

accordance with the plan documents.

At December 31, 2019, approximately

3,900 employees participated in Company-

sponsored deﬁned contribution plans.

Deﬁned Beneﬁt Plans
The Company sponsors deﬁned beneﬁt

pension plans, which provide pension

and other post-retirement beneﬁts for

approximately 1,700 qualifying employees.

All plans are administered by a separate Fund

that is legally separate from the Company,

with the exception of the Executive Plan

described below.

The funded status of these plans

changed by $21.4 million (an increase in the
accrued pension liability) during 2019.

The Executive Plan is a supplemental

plan and is solely the obligation of the
Company. All members of the plan are
retired. The Company is not obligated to
fund the plan but is obligated to pay
beneﬁts under the terms of the plan as they
come due. The Company has posted letters
of credit to secure the obligations under
this plan, which were $16.1 million as at
December 31, 2019.

A key assumption in pension accounting

is the discount rate. This rate is set with
regard to the yield on high-quality
corporate bonds of similar average
duration to the cash ﬂow liabilities of the
plans. Yields are volatile and can deviate
signiﬁcantly from period to period.

Legal and Other Contingencies
Due to the size, complexity and nature of
the Company’s operations, various legal
matters are pending. Exposure to these
claims is mitigated through levels of
insurance coverage considered appropriate
by management and by active management
of these matters. In the opinion of
management, none of these matters will
have a material effect on the Company’s
consolidated ﬁnancial position or results
of operations.

Normal Course Issuer Bid (“NCIB”)
Toromont believes that, from time to time,
the purchase of its common shares at
prevailing market prices may be a worthwhile
investment and in the best interests of both
Toromont and its shareholders. As such, the
normal course issuer bid with the TSX was
renewed in 2019. This issuer bid allows the

Company to purchase up to approximately
7.0 million of its common shares,
representing 10.0% of common shares in the
public ﬂoat, in the twelve-month period
ending August 30, 2020. 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.

No shares were purchased and

cancelled under the NCIB program in 2019.
In 2018 common shares of 237,952 were
purchased and cancelled for $12.8 million
(average cost of $53.83 per share, including
transaction costs).

Outstanding Share Data
As at the date of this MD&A, the Company
had 82,012,448 common shares and
2,329,705 share options outstanding.

Dividends
Toromont pays a quarterly dividend on its
outstanding common shares and has
historically targeted a dividend rate that
approximates 30-40% of trailing earnings
from continuing operations.

During 2019, the Company declared
dividends of $1.08 per common share,
$0.27 per quarter (2018 – $0.92 per
common share or $0.23 per quarter).

Considering the Company’s solid ﬁnancial

position and positive long-term outlook, the
Board of Directors announced an increase to
the quarterly dividend to 31 cents per share
effective with the dividend payable on April 2,
2020. This represents a 14.8% increase in
Toromont’s regular quarterly cash dividend.
The Company has paid dividends every year
since going public in 1968 and this
represents the 31st consecutive year it has
announced an increase.

Liquidity and Capital Resources

Sources of Liquidity

Toromont’s debt portfolio is unsecured,

to partially fund the acquisition was repaid

Toromont’s liquidity requirements can be met

unsubordinated and ranks on par with

in full during 2018. Standby letters of credit

through a variety of sources, including cash

each other.

utilized $33.1 million of the revolving facility

generated from operations, long- and short-

The Company maintains a $500.0

(2018 – $29.9 million).

term borrowings and the issuance of common

million revolving credit facility, maturing in

The Company’s credit arrangements

shares. Borrowings are obtained through a

October 2022. No amounts were drawn on

include covenants, restrictions and events

variety of senior debentures, notes payable

this facility at December 31, 2019 and 2018.

of default usually present in arrangements

and committed long-term credit facilities.

A $250.0 million term facility drawn in 2017

of this nature, including requirements to

meet certain ﬁnancial tests periodically

The Company expects that continued

payments through the next 12 months, and

and restrictions on additional indebtedness

cash ﬂows from operations in 2020, together

that the Company’s credit ratings provide

and encumbrances. The Company was in

with currently available cash on hand and

reasonable access to capital markets to

compliance with all covenants at December 31,

credit facilities, will be more than sufficient

facilitate future debt issuance.

2019 and 2018.

to fund its requirements for investments in

Cash at December 31, 2019, was

working capital, capital assets and dividend

$365.6 million, compared to $345.5 million

at December 31, 2018.

Principal Components of Cash Flow

Cash from operating, investing and ﬁnancing activities, as reﬂected in the Consolidated Statements of Cash Flows, is 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 in cash in the year

Cash, end of year

2019

2018

$ 345,434

160,507

456,240
(156,820)
(153,390)

146,030

(56,558)

(69,173)

(144)

20,155

395,281
236,050
(125,148)

506,183

2,475

(323,985)

254

184,927

$ 365,589

345,434

Cash Flows from Operating Activities

by $28.2 million, reﬂecting ongoing

Investments in property, plant and

Operating activities provided $146.0 million

investment in the ﬂeets across the

equipment, net of disposition proceeds,

in 2019 compared to $506.2 million in 2018.

expanded territories, with a focus on

were $56.5 million in 2019 versus

Cash generated from operations

growing and optimizing to adequately

$40.0 million in 2018 as follows:

increased as a result of the higher net

earnings generated by the business.

Non-cash working capital and other

address retail demand signals year round.
The adoption of IFRS 16 – Leases on
January 1, 2019, results in higher cash from

• $25.5 million for land and buildings

for new and expanded branches

(2018 – $5.2 million);

utilized cash in 2019. Transitional terms

operating activities as lease payments (2019 –

• $15.7 million for service vehicles

offered by suppliers in conjunction with the

$10.1 million) are presented under ﬁnancing

(2018 – $18.5 million);

2017 acquisition resulted in a signiﬁcant

activities (refer to note 6 of the notes to the

• $7.7 million for upgrades and

increase in accounts payable in 2018 as the

consolidated ﬁnancial statements).

enhancements to information

program was fully implemented. Accounts

The components and changes in

technology infrastructure and furniture

payable was a use of funds in 2019 as

non-cash working capital are discussed in

and ﬁxtures (2018 – $4.9 million); and

deferred payments on inventory purchases

more detail in this MD&A under the heading

• $7.6 million for machinery and

became due on reduced ordering levels.

“Consolidated Financial Condition.”

equipment (2018 – $11.4 million).

Income tax installments exceeded ﬁnal

amounts owing resulting in a use of cash in

Cash Flows from Investing Activities

Cash Flows from Financing Activities

2019. Accounts receivable and inventories
increased at a lower rate than in 2018, with

Investing activities utilized $56.6 million in

Financing activities used $69.2 million in

2019 compared to generating $2.5 million

2019 versus $324.0 million in 2018.

good focus on collections and inventory

in 2018.

In 2018, the $250.0 term facility drawn

investment levels.

In 2018, a ﬁnal adjustment payment

to partially fund the acquisition in 2017 was

Net rental ﬂeet additions (purchases

related to the acquisition in 2017 was

less proceeds of dispositions) were higher

collected from the vendor.

repaid. Also in 2018, the Company purchased
and cancelled 237,952 common shares

at an average cost of $53.83 (including
transaction costs) for $12.8 million.

Other signiﬁcant sources and uses of

cash from ﬁnancing activities included:

• Dividends paid to common shareholders
of $84.8 million or $1.04 per share (2018
– $71.4 million or $0.88 per share);

• Cash received on exercise of share options
of $26.7 million (2018 – $12.2 million); and

• Principal portion of lease liability

payments resulting from the adoption of
IFRS 16 – Leases, on January 1, 2019 of
$10.1 million (2018 – $nil).

Outlook

On October 27th, Toromont passed the
two-year mark following the signiﬁcant
acquisition in 2017. The expansion of our
territories to include Quebec and the
Maritimes presents a great opportunity for
the long-term performance of Toromont.
The focus on a measured and steady pace
of integration, has already delivered
tangible improvements in operating results.
Effective execution of operational initiatives
will be required to continue to realize on this
signiﬁcant potential for a greater combined
presence in key Canadian economic sectors
such as mining, construction and power
systems. Additionally, rental services,
product support and material handling
markets present signiﬁcant growth
opportunities over the longer-term. Our
focus continues to be on the safety of our
people, customer deliverables, business
integration, operational efficiencies and
asset management initiatives to generate
favorable long-term returns.

The Equipment Group’s parts and
service business continues to provide
momentum driven by the larger installed

base of equipment working in the ﬁeld,
providing a measure of stability in a variable
business environment. The Company
continues to hire technicians in anticipation
of an increase in demand, including the
opportunity for increased equipment
rebuilds and readying used iron. Broader
product lines, investment in rental
equipment and developing product support
technologies supporting remote diagnostics
and telematics are expected to contribute
to longer-term growth.

The long-term outlook for infrastructure

projects and other construction activity
remains positive across most territories.

A disciplined investment in rental ﬂeets

together with the inclusion of equipment
lines utilized in the weaker shoulder and
winter seasons, present the opportunities to
grow and to stabilize seasonality.
Assessment of the rental footprint is an
aging process.

Production at existing mine sites is
generating meaningful product support
opportunities and incremental equipment
sales to facilitate mine expansion, although

industry equipment investment has slowed in
an uncertain global economic environment.
Our substantially increased base of
installed equipment is a good bell-weather
for future product support activity.

CIMCO’s increasing installed base and

long-term product support levels are
positive signals for future growth trends.
CIMCO has a wide product offering using
natural refrigerants including innovative
CO2 solutions, which remains a differentiator
in recreational markets. In industrial
markets, CIMCO’s proven track record and
strong geographical coverage provide
continued growth opportunities. Market
activity is tighter, reﬂecting a cautious
environment in the near term, although
booking activity improved in the year and
quoting activity remains solid.

The diversity of the markets served,
expanding product offering and services,
ﬁnancial strength and disciplined operating
culture position the Company for continued
growth in the long term.

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 year
($ thousands)

Long-term debt
Principal
Interest
Accounts payable
and accrued liabilities
Lease liabilities

2020

2021

2022

2023

2024

Thereafter

Total

—
24,765

$ 650,000 $ 650,000
182,399

58,574

819,946
9,694

—
7,717

—
5,701

—
4,077

—
2,490

—
1,744

819,946
31,423

$ 854,405

$ 32,482

$ 30,466

$ 28,842

$ 27,255

$ 710,318 $ 1,683,768

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

2019

2018

2017

2016

2015

Expanding markets and broadening product offerings
Revenue growth
Revenue per employee (thousands)

5.0%

575 $

49.1%
573

22.9%

487 $

3.5%
533

11.2%
537

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)

10.1%

60.4%

16.3%

7.6%

24.2%

34.8 $

22.9%

27.4
21.7%

15.0 $

21.5%

15.2
24.5%

463.7 $

15%

18.70 $

309.5
18%
16.35

608.8 $

40%

13.89 $

388.5
-4%
11.29

13.5%
17.4%
21.4%

39.4%
21.1%
22.3%

11.6%
5.6%
19.3%

6.3%
5.9%
20.0%

14.0
24.3%

421.3
10%
9.95

8.5%
13.3%
21.6%

(1) Deﬁned in the sections titled “Additional GAAP Measures and Non-GAAP Measures.”

Measuring Toromont’s results against

market segments, most notably

industrial markets and Manitoba

these strategies over the past ﬁve years

construction and mining;

agricultural markets; and,

illustrates that the Company has delivered

• Organic growth through increased

• Recent political trade wars between

consistent, steady growth. The addition

rental ﬂeet size and additional branches;

the USA and China which have created

of the Quebec and Maritimes territories

•

Increased customer demand for formal

uncertainty and adversely impacted

in October 2017, bolstered these key

product support agreements;

several industries, including steel

performance measures and provides

• Additional product offerings over the

and agriculture.

a larger platform for continued growth.

years from Caterpillar and other

The 2018 amounts shown above include

suppliers; and

Changes in the Canadian/US exchange

one full year of operations in the acquired

• Governmental funding programs such

rate also affect reported revenues as the

territories, and are fully comparable to 2019.

as the RinC program which provided

exchange rate impacts the purchase price

Results for 2017 include the two months

support for recreational spending.

of equipment that, in turn, is reﬂected in

of operations under Toromont’s ownership,

selling prices. Since 2015 there have been

thereby affecting the comparability of results

Over the same ﬁve-year period, revenue

ﬂuctuations in the average yearly exchange

versus the prior years.

growth has been constrained at times by

rate of Canadian dollar against the US dollar,

Since 2015, revenues increased at an

a number of factors including:

during which time it has ranged between

average annual rate of 18.4%, with product

• General economic weakness and

US$0.75 and US$0.78 and averaged

support growing at 23.7% annually.

uncertainty in speciﬁc sectors;

US$0.77.

Over this period, revenue growth has

• Volatility in commodity prices;

Toromont has generated a signiﬁcant

been mainly a result of:

• Competitive conditions;

competitive advantage by investing in its

•

In 2017 and 2018, the acquisition

•

Inability to source equipment and parts

resources, in part to increase productivity

of the Hewitt Group of Companies,

from suppliers to meet customer

levels. We will continue this into the future

which contributed $242.6 million and

demand or delivery schedules;

as it is a crucial element to our success in

$1.3 billion to revenue respectively;

• Declines in underlying market

the marketplace.

•

Increased customer demand in certain

conditions such as depressed US

Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of net debt to total capitalization was

15% at the end of 2019 versus 18% at the end of 2018. No additional debt ﬁnance was obtained in 2019, the decrease in ratio represents

repayment on existing debt, as well as increased cash generation from operations.

Toromont has paid dividends consistently since 1968 and has increased the dividend in each of the last 31 years. The regular quarterly

dividend rate was increased 17.4% from $0.23 per share to $0.27 per share in 2019 and a further 14.8% to $0.31 per share in 2020,

evidencing our commitment to delivering exceptional shareholder value.

Consolidated Fourth Quarter Operating Results

Three months ended December 31
($ thousands, except per share amounts)

2019

2018

$ Change

% Change

Revenues
Cost of goods sold

$ 1,025,190
770,016

$ 966,047
722,581

59,143
47,435

6%
7%

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

255,174
126,976

128,198
6,854
(3,166)

124,510
34,056

243,466
121,837

121,629
6,550
(2,488)

117,567
32,669

90,454

1.10

84,898

1.04

11,708
5,139

6,569
304
(678)

6,943
1,387

5,556

0.06

5%
4%

5%
5%
27%

6%
4%

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

24.9%
12.4%
12.5%
27.4%

25.2%
12.6%
12.6%
27.8%

Fourth quarter results reﬂect variables in

Revenues grew $59.1 million or 6% on

income at CIMCO. Operating income

the Equipment Group similar to those

growth in the Equipment Group (up 7%), while

margin decreased 10 bps to 12.5%.

described for the year:

revenues at CIMCO were largely unchanged.

Interest expense increased $0.3 million

• Signiﬁcant year-over-year improvement

Gross proﬁt margin decreased 30 bps

in proﬁt at the dealership;

to 24.9% in the quarter. The Equipment

in the quarter due to ﬁnancing costs related
to the adoption of IFRS 16 – Leases.

• Declines in earnings from the rental

Group reported lower gross margins while

Interest income increased $0.7 million

services business, as it works through

CIMCO’s margins increased.

on higher investment income resulting

the absorption of signiﬁcant capital

Selling and administrative expenses

from higher average cash balances held

investments; and

increased $5.1 million or 4%. Mark-to-market

throughout the year and higher interest

• Challenges in agricultural equipment

adjustments on DSUs increased expenses by

from conversions of RPOs.

markets leading to underperformance

$7.4 million. Allowance for doubtful accounts

The effective income tax rate for the

and a charge to used equipment values

was $3.1 million lower on improved

fourth quarter was 27.4% compared to

recognizing market conditions.

collections. All other expenses increased

27.8% in 2018. The decrease is

$2.6 million in support of the revenue growth.

substantially due to the continued phase in

In addition, CIMCO earnings improved as
increased product support and reduced

As a percentage of revenues, expenses were

20 bps lower than last year at 12.4%.

of corporate tax rate reductions in Quebec.
Net earnings in the quarter were up

inventory charges were partially offset by

Operating income increased $6.6 million

$5.6 million or 7% to $90.5 million with

reduced project activity (albeit at improved

reﬂecting the higher activity levels in the

basic EPS closely tracking the increase,

margins on better execution).

Equipment Group and increased operating

up $0.06 or 6% to $1.10.

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

2019

2018

$ Change

% Change

$ 363,660
99,589
114,729

577,978
352,243
2,910

$ 333,209
100,015
113,139

546,363
324,641
2,864

$ 933,131

$ 873,868

$ 117,728

$ 115,741

30,451
(426)
1,590

31,615
27,602
46

59,263

1,987

—

6%
9%
2%

(7.9)

(2%)

Bookings ($ millions)

415.1

423.0

Key ratios:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues

37.7%
12.6%
91.0%

37.1%
13.2%
90.5%

The Equipment Group reported good results
for the fourth quarter on revenue growth.

by lower power systems (down 6%) and
heavy equipment rentals (down 12%).

Total equipment sales (new and used)
increased $30.0 million or 7%. Higher sales
into construction (up 8%), mining (up 7%)
and power systems (up 23%), were
partially offset by lower sales into material
handling (down 17%) and agricultural
markets (down 32%).

Rental revenues increased $1.6 million

or 1%. Most rental segments reported
growth, led by light equipment rentals
(up 3%), equipment on rent with a
purchase option (up 13%) and material
handling rentals (up 4%), partially offset

Product support revenues increased
$27.6 million or 9% on higher parts (up 8%)
and service (up 10%). Activity levels were
good across most market segments.
Power generation revenues were

$2.9 million in 2019 and 2018.

Gross margins decreased 120 bps in the

quarter versus last year principally due to
lower equipment margins on continued
competitive pressures and a tight pricing
environment.

Selling and administrative expenses

increased $2.4 million or 2%, largely

reﬂecting higher compensation and
information technology costs, offset by
lower allowance for doubtful accounts. As a
percentage of revenues, selling and
administrative expenses were down 60 bps
to 12.1%.

Operating income increased $2.0 million
in the quarter but was lower by 60 bps as a
percentage of revenues at 12.6%, largely
reﬂecting the lower equipment margins.

Bookings decreased $7.9 million or 2%

to $415.1 million reﬂecting lower mining,
construction and agriculture orders,
partially offset by higher power systems
and material handling lift truck orders.

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

2019

50,780
41,279

92,059

10,470

44.4

44.8%
11.4%
9.0%

2018

$ Change

% Change

(151)
31

(120)

4,582

7.5

—
—

—

78%

20%

50,931
41,248

92,179

5,888

36.9

44.7%
6.4%
9.5%

CIMCO’s results in the fourth quarter of

industrial activity. In the US, revenues were

as a result were up 300 bps to 14.9% as a

2018 included a $6.0 million charge for

down 12% with lower industrial sales more

percentage of revenues.

inventory write-down described earlier.

than offsetting strong recreational activity.

Operating income increased $4.6 million

Excluding this item, CIMCO’s results in

Product support revenues were in line

in the quarter as reduced inventory

the fourth quarter were lower as higher

with the record fourth quarter last year

write-downs and improved gross margins

expenses were only partially offset by

as growth in the US was offset by a slight

on better project execution were partially

improved gross margins. Translation of

decrease in Canada.

offset by higher expense levels.

US operations did not have a signiﬁcant

Gross margins, excluding the one-time

Bookings increased $7.5 million or 20%

impact on results.

item, increased 150 bps in the quarter on

to $44.4 million on strong orders in both

Package revenues were largely

improved project execution, partially offset

Canada and the US. Recreational orders

unchanged in the quarter compared to

by lower product support margins.

were up in the US (59%) but down in

the similar period last year. Revenues in

Selling and administrative expenses

Canada (46%), while industrial orders

Canada were higher by 2%, with strong

increased $2.7 million or 26%, mainly

increased in Canada (80%) but were down

recreational sales and relatively unchanged

reﬂecting higher compensation costs and

in the US (35%).

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 2019 annual audited consolidated ﬁnancial statements.

($ thousands, except per share amounts)

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Revenues
Equipment Group
CIMCO

Total revenues

Net earnings

$ 633,875
66,099

$ 895,457
82,863

$ 881,487
93,734

$ 933,131
92,059

$ 699,974

$ 978,320

$ 975,221

$ 1,025,190

39,261

77,398

79,687

90,454

Per share information:
Basic earnings per share
Diluted earnings per share
Dividends paid per share
Weighted average common shares outstanding –
basic (in thousands)

$
$
$

0.48
0.48
0.23

$
$
$

0.95
0.94
0.27

$
$
$

0.98
0.97
0.27

$
$
$

1.10
1.10
0.27

81,326

81,510

81,622

81,897

($ 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

Interim period revenues and earnings

equipment on rent with a purchase option.

up. This trend can be, and has been,

historically reﬂect variability from quarter

This pattern is impacted by the timing of

impacted somewhat by signiﬁcant

to quarter due to seasonality.

signiﬁcant sales to mining and other

governmental funding initiatives and

The Equipment Group has historically

customers, resulting from the timing of

signiﬁcant industrial projects.

had a distinct seasonal trend in activity

mine site development and access, and

Historically, inventories have increased

levels. Lower revenues are recorded during

construction project schedules.

through the year to meet the expected

the ﬁrst quarter due to winter shutdowns in

CIMCO has also had a distinct seasonal

demand for higher deliveries in the third

the construction industry. The fourth

trend in results historically, due to timing of

and fourth quarters of the ﬁscal year. This

quarter had typically been the strongest

construction activity. Lower revenues are

seasonal sales trend also leads accounts

due in part to the timing of customers’

recorded during the ﬁrst quarter on slower

receivable to be at their highest level at

capital investment decisions, delivery of

construction schedules due to winter

year-end.

equipment from suppliers for customer-

weather. Revenues increase in subsequent

speciﬁc orders and conversions of

quarters as construction schedules ramp

Selected Annual Information

($ thousands, except per share amounts)

2019

2018

2017

Revenues
Net earnings

Earnings per share (“EPS”)
Basic
Diluted

Dividends declared per share

$ 3,678,705
$ 286,800

$ 3,504,236
$ 251,984

$ 2,350,162
$ 175,970

$
$

3.52
3.49

1.08

$
$

3.10
3.07

0.92

$ 3,234,531
$ 645,562
81.2

$
$

2.22
2.20

0.76

$ 2,866,945
$ 895,747
79.1

Total assets
Total long-term debt
Weighted average common shares outstanding – basic (in millions)

$ 3,371,337
$ 645,471
81.6

The acquisition of the Hewitt Group of

6% on good growth in both Groups, buoyed

14% in 2019 and 39% in 2018.

Companies in October 2017 impacts the

in part by continued product support growth.

Dividends have generally increased

comparability of ﬁnancial results and

Net earnings increased 14% in 2019.

in proportion to trailing earnings growth.

performance between 2018 and 2017,

Equipment Group delivered good results

The quarterly dividend rate continues to

with only two months of operations in 2017

on the higher revenues and a lower relative

increase – in 2017 by 5.6% to $0.19 per

under Toromont’s ownership.

expense ratio, while CIMCO’s results

share, in 2018 by 21.1% to $0.23 per share,

Revenues grew 5% in 2019. Equipment

improved on better project execution and

in 2019 by 17.4% to $0.27 per share and in

Group revenues increased 6% on growth

a one-time inventory write-down in 2018

2020 by 14.8% to $0.31. The Company has

in product support, total new and used

which did not repeat. Net interest expense

paid dividends every year since 1968.

equipment sales and rentals resulting

was lower in 2019 as strong cash inﬂows

Total assets increased 4% in 2019 and

from good market activity and increased

resulted in lower net debt levels. Net

13% in 2018 on continued investments in

investment in the rental ﬂeets. CIMCO

earnings increased 43% in 2018. In addition

the rental ﬂeets and capital assets, as well

revenues were down 2% as continued

to the incremental net earnings at the

as higher inventory levels held generally in

growth in product support activity was

acquired businesses, the Equipment Group

support of the expanded business territory

offset by lower package sales. Revenues

delivered good results, offset weaker results

and volumes.

grew 49% in 2018 with the acquired

at CIMCO and the higher net interest expense

Long-term debt was largely unchanged

businesses contributing $1.3 billion in its

as a result of the additional debt incurred to

from 2018. In 2018, certain amounts drawn

ﬁrst full year of operations, compared to

partially fund the acquisition in 2017.

on the term credit facility to ﬁnance the 2017

$242.6 million in 2017 for two months.

EPS growth has generally tracked growth

acquisition were repaid, in light of strong

The legacy businesses revenues increased

in net earnings, with basic EPS increasing

cash balances and inﬂows.

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.

Business Cycle
Expenditures on capital goods have
historically been cyclical, reﬂecting a
variety of factors including interest rates,
foreign exchange rates, consumer and
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 Inc. under a dealership
agreement that dates back to 1993. As is
customary in distribution arrangements of
this type, the agreement with Caterpillar Inc.
can be terminated by either party upon
90 days’ notice. In the event Caterpillar Inc.
terminates, it must repurchase substantially
all inventories of new equipment and parts
at cost. Toromont has maintained an
excellent relationship with Caterpillar Inc.
since inception and management expects
this will continue going forward.

Toromont is dependent on the continued

market acceptance of Caterpillar Inc.’s
products. It is believed that Caterpillar Inc.
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 Inc. will be
able to maintain its reputation and market
position in the future. Any resulting
decrease in the demand for Caterpillar Inc.
products could have a material adverse
impact on the Company’s business,
results of operations and future prospects.

Toromont is also dependent on
Caterpillar Inc. for timely supply of
equipment and parts. From time to time
during periods of intense demand,
Caterpillar Inc. 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 Inc. 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 expected 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.

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$0.75 and US$0.77, in 2019
and 2018, respectively. 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, 2019, the Company’s

outstanding debt of $650.0 million was
entirely ﬁxed-rate and matures between
2025 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
does not intend to settle or reﬁnance any
existing ﬁxed-rate debt before maturity.

The Company’s revolving credit facility
of $500.0 million is 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, 2019, no amounts
were drawn on this facility while standby
letters of credit utilized $33.1 million.

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.

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. The Company has discussed the
development, selection, and application of
its key accounting policies, and the critical
accounting estimates and assumptions
they involve, with the Audit Committee.

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, 2019, the Company
adopted IFRS 16 – Leases, the interpretation

of IFRIC 23 – Uncertainty over Income Tax
Treatments, and amendments to IAS 19 –
Employee Beneﬁts.

The impact upon adoption are

described in full in note 1 of the notes to
the consolidated ﬁnancial statements.

Pending Accounting Changes
A number of amendments to standards
have been issued but are not yet effective
for the ﬁnancial year ending December 31,
2019, and accordingly, have not been
applied. The Company reviewed these
amendments and concluded that there
would be no impact on adoption given their
nature and applicability.

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, 2019.

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, 2019, 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, 2019.

There have been no changes in the
design of the Company’s internal control
over ﬁnancial reporting during 2019 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.

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

2019

90,454
6,854
(3,166)
34,056

2018

84,898
6,550
(2,488)
32,669

2019

2018

$ 286,800
27,707
(9,752)
107,740

$ 251,984
30,643
(8,918)
95,865

Operating income

$ 128,198

$ 121,629

$ 412,495

$ 369,574

Net Debt to Total Capitalization and Net Debt to Total Equity
Net debt to total capitalization and net debt to total 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

2019

2018

$ 645,471
—
365,589

$ 644,540
1,022
345,434

$ 279,882

$ 300,128

1,533,891

1,327,679

$ 1,813,773

$ 1,627,807

15%

0.18:1

18%

0.23:1

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

2019

2018

$ 1,824,254
994,979

$ 1,779,100
1,125,194

$ 829,275

$ 653,906

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

2019

2018

$ 1,824,254
365,589

$ 1,779,100
345,434

1,458,665

1,433,666

994,979
—

994,979

1,125,194
1,022

1,124,172

$ 463,686

$ 309,494

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

2019

2018

82,012
70.59

81,226
54.26

$ 5,789,258

$ 4,407,344

$ 645,471
—
365,589

$ 644,540
1,022
345,434

$ 279,882

$ 300,128

Total enterprise value

$ 6,069,140

$ 4,707,472

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 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 ordered by customers for future deliveries. Management uses order backlog as a measure of projecting future

equipment deliveries. There are no directly comparable IFRS measures for order bookings or backlog.

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

Adjusted net earnings

Average capital employed

Return on capital employed

Return on Equity (“ROE”)

2019

2018

$ 286,800
27,707
(9,752)
4,283
107,740

$ 251,984
30,643
(8,918)
3,461
95,865

$ 416,778

$ 373,035

$ 1,823,420

$ 1,720,921

22.9%

21.7%

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

2019

2018

$ 286,800

$ 251,984

$ 1,338,468

$ 1,130,947

21.4%

22.3%

Management’s Report to the Shareholders

The preparation and presentation of

assurance that transactions are appropriately

determining that management fulﬁlls its

the 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 as

external auditors to discuss internal

statements reﬂect amounts which must, of

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, where

an independent professional opinion. Their

statements and Management’s Discussion

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 11, 2020
Toronto, Canada

Independent Auditor’s Report

To the Shareholders of Toromont Industries Ltd.

We have audited the consolidated ﬁnancial
statements of Toromont Industries Ltd. and
its subsidiaries (the Group), which comprise
the consolidated statements of ﬁnancial
position as at December 31, 2019 and 2018,
the consolidated income statements, the
consolidated statements of comprehensive
income, consolidated statements of
changes in equity and consolidated
statements of cash ﬂows for the years then
ended, and notes to the consolidated
ﬁnancial statements, including a summary
of signiﬁcant accounting policies.

In our opinion, the accompanying

consolidated ﬁnancial statements
present fairly, in all material respects the
consolidated ﬁnancial position of the Group
as at December 31, 2019 and 2018, and its
consolidated ﬁnancial performance and its
consolidated cash ﬂows for the years then
ended in accordance with International
Financial Reporting Standards (“IFRS”).

Basis for Opinion
We conducted our audit in accordance with
Canadian generally accepted auditing
standards. Our responsibilities under those
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 in accordance with the ethical
requirements that are relevant to our audit
of the consolidated ﬁnancial statements in
Canada, and we have fulﬁlled our other
ethical responsibilities in accordance with
these requirements. We believe that the
audit evidence we have obtained is
sufficient and appropriate to provide a basis
for our opinion.

Other Information
Management is responsible for the other
information which comprises:
• Management’s Discussion & Analysis
• The information other than the

consolidated ﬁnancial statements and
our auditor’s report thereon, in the
Annual Report

Our opinion on the consolidated ﬁnancial

intends to liquidate the Group or to cease

statements does not cover the other

operations, or has no realistic alternative

information and we do not express any

but to do so.

form of assurance conclusion thereon.

Those charged with governance are

In connection with our audit of the

responsible for overseeing the Group’s

consolidated ﬁnancial statements, our

ﬁnancial reporting process.

responsibility is to read the other

information, and in doing so, consider

Auditor’s Responsibilities for the Audit of

whether the other information is materially

the Consolidated Financial Statements

inconsistent with the consolidated ﬁnancial

Our objectives are to obtain reasonable

statements or our knowledge obtained in

assurance about whether the consolidated

the audit or otherwise appears to be

ﬁnancial statements as a whole are free

materially misstated.

from material misstatement, whether due

We obtained Management’s Discussion

to fraud or error, and to issue an auditor’s

& Analysis prior to the date of this auditor’s

report that includes our opinion. Reasonable

report. If, based on the work we have

assurance is a high level of assurance, but is

performed, we conclude that there is a

not a guarantee that an audit conducted in

material misstatement of this other

accordance with Canadian generally

information, we are required to report that

accepted auditing standards will always

fact in this auditor’s report. We have

detect a material misstatement when it exists.

nothing to report in this regard.

Misstatements can arise from fraud or error

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

auditor’s report. If based on the work we will

be expected to inﬂuence the economic

perform on this other information, we

decisions of users taken on the basis of

conclude there is a material misstatement of

these consolidated ﬁnancial statements.

other information, we are required to report

As part of an audit in accordance with

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:

Consolidated Financial Statements

•

Identify and assess the risks of material

Management is responsible for the

misstatement of the consolidated

preparation and fair presentation of the

ﬁnancial statements, whether due to

consolidated ﬁnancial statements in

fraud or error, design and perform audit

accordance with IFRS, and for such internal

procedures responsive to those risks,

control as management determines is

and obtain audit evidence that is

necessary to enable the preparation of

sufficient and appropriate to provide a

consolidated ﬁnancial statements that are

basis for our opinion. The risk of not

free from material misstatement, whether

detecting a material misstatement

due to fraud or error.

resulting from fraud is higher than for

In preparing the consolidated ﬁnancial

one resulting from error, as fraud may

statements, management is responsible

involve collusion, forgery, intentional

for assessing the Group’s ability to

omissions, misrepresentations, or the

continue as a going concern, disclosing, as

override of internal control.

applicable, matters related to going

• Obtain an understanding of internal

concern and using the going concern basis

control relevant to the audit in order to

of accounting unless management either

design audit procedures that are

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

• Evaluate the appropriateness of

auditor’s report. However, future events

We communicate with those charged with

accounting policies used and the

or conditions may cause the Group to

governance regarding, among other matters,

reasonableness of accounting

cease to continue as a going concern.

the planned scope and timing of the audit

estimates and related disclosures made

• Evaluate the overall presentation,

and signiﬁcant audit ﬁndings, including any

by management.

structure, and content of the

signiﬁcant deﬁciencies in internal control

• Conclude on the appropriateness of

consolidated ﬁnancial statements,

that we identify during 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 11, 2020
Toronto, Canada

Consolidated Statements of
Financial Position

Note

2019

2018

3
4

5
5
6
15
7

6,18
8
9
10
12

9
6
10
19
15

$ 365,589
525,052
912,186
9,364
—
12,063

$ 345,434
522,462
873,507
118
27,647
9,932

1,824,254

1,779,100

428,527
592,403
42,105
1,217
482,831

412,776
541,530
13,206
1,610
486,309

$ 3,371,337

$ 3,234,531

$ 819,946
23,680
140,898
—
10,366
89

$ 935,037
24,382
136,244
1,022
23
28,486

994,979

1,125,194

16,407
21,734
645,471
125,705
33,150

17,247
—
644,540
104,342
15,529

1,837,446

1,906,852

490,047
13,088
1,031,097
(341)

457,800
12,879
851,049
5,951

1,533,891

1,327,679

$ 3,371,337

$ 3,234,531

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 lease liabilities
Long-term debt
Post-employment obligations
Deferred tax liabilities

Total liabilities

Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive (loss) income

Shareholders’ equity

Total liabilities and shareholders’ equity

Commitments – see note 22
See accompanying notes

Approved by the Board:

Robert M. Ogilvie
Director

Wayne S. Hill

Director

Consolidated Income
Statements

Years ended December 31 ($ thousands, except share amounts)

Note

2019

2018

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

$ 3,678,705
2,772,583

$ 3,504,236
2,640,835

906,122
493,627

412,495
27,707
(9,752)

394,540
107,740

863,401
493,827

369,574
30,643
(8,918)

347,849
95,865

$ 286,800

$ 251,984

$
$

3.52
3.49

$
$

3.10
3.07

81,590,392
82,076,248

81,231,282
81,975,310

14
14

16
16

Consolidated Statements of
Comprehensive Income

Years ended December 31 ($ thousands)

Net earnings

Other comprehensive (loss) income, net of income taxes:

Items that may be reclassiﬁed subsequently to net earnings:

2019

2018

$ 286,800

$ 251,984

Foreign currency translation adjustments

(481)

789

Unrealized (losses) gains on derivatives designated as cash ﬂow hedges
Income tax recovery (expense)

Unrealized (losses) gains on cash ﬂow hedges, net of income taxes

Realized losses (gains) on derivatives designated as cash ﬂow hedges
Income tax (recovery) expense

Realized losses (gains) on cash ﬂow hedges, net of income taxes

Items that will not be reclassiﬁed subsequently to net earnings:
Actuarial and other (losses) gains
Income tax recovery (expense)

Actuarial and other (losses) gains, net of income taxes

Other comprehensive (loss) income

Total comprehensive income

See accompanying notes

(12,232)
3,180

(9,052)

4,380
(1,139)

3,241

(25,252)
6,692

(18,560)

8,239
(2,144)

6,095

(1,528)
398

(1,130)

20,652
(5,413)

15,239

(24,852)

20,993

$ 261,948

$ 272,977

Consolidated Statements
of Cash Flows

Years ended December 31 ($ thousands)

Note

2019

2018

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

5,6,7,10

$ 286,800

$ 251,984

162,962
5,730
(3,889)
26,757
—
(22,120)

456,240
(156,820)
(212,176)
58,786

141,535
5,101
3,659
7,171
821
(14,990)

395,281
236,050
(149,650)
24,502

Cash provided by operating activities

146,030

506,183

Investing activities
Additions to property, plant and equipment
Proceeds on disposal of property, plant and equipment
(Increase) decrease in other assets

Cash (used in) provided by investing activities

Financing activities
Repayment of term credit facility
Repayment of senior debentures
Dividends paid
Cash received on exercise of stock options
Shares purchased for cancellation
Payment of lease liabilities

Cash used in ﬁnancing activities

Effect of currency translation on cash balances

Increase in cash
Cash, at beginning of year

Cash, at end of year

Supplemental cash ﬂow information (note 21)
See accompanying notes

(57,202)
737
(93)

(56,558)

—
(1,022)
(84,790)
26,726
—
(10,087)

(69,173)

(144)

20,155
345,434

(49,504)
9,506
42,473

2,475

(250,000)
(1,941)
(71,434)
12,198
(12,808)

—

(323,985)

254

184,927
160,507

$ 365,589

$ 345,434

Consolidated Statements
of Changes in Equity

($ thousands, except share numbers)

Number

Share Capital

Accumulated Other
Comprehensive Income (Loss)

Contributed
Surplus

Amount

Foreign
Currency
Retained Translation Cash Flow
Hedges
Earnings Adjustments

Total

At January 1, 2018

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

514,516
—

14,710
—

(2,512)
5,101

Effect of stock compensation plans

514,516

14,710

2,589

—
—

—

Shares purchased for cancellation
Dividends declared

(237,952)
—

(1,337)
—

—
—

(11,471)
(74,516)

—
—

—

—
—

—

—
—

—

—
—

12,198
5,101

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

Net earnings
Other comprehensive loss

Total comprehensive income (loss)

—
—

—

—
—

—

—
—

286,800
(18,560)

—
(481)

—
(5,811)

—
(6,292)

286,800
(24,852)

—

268,240

(481)

(5,811)

(6,292)

261,948

Exercise of stock options
Stock-based compensation expense

786,065
—

32,247
—

(5,521)
5,730

Effect of stock compensation plans

786,065

32,247

209

—
—

—

Dividends declared

—

(88,192)

—
—

—

—
—

—

—
—

—

26,726
5,730

32,456

(88,192)

At December 31, 2019

82,012,448 $ 490,047 $ 13,088 $ 1,031,097 $ 2,219

$ (2,560) $

(341) $ 1,533,891

See accompanying notes

Notes to the Consolidated
Financial Statements

December 31, 2019

($ thousands, except where otherwise indicated)

1. Description of Business and Signiﬁcant Accounting Policies

Corporate Information
Toromont Industries Ltd. (the “Company”
or “Toromont”) is a limited company
incorporated and domiciled in Canada
whose shares are publicly traded on the
Toronto Stock Exchange under the symbol
TIH. The registered office is located at 3131
Highway 7 West, Concord, Ontario, Canada.
The Company operates through two
business segments: the Equipment Group
and CIMCO. The Equipment Group includes
one of the larger Caterpillar dealerships by
revenue and geographic territory – spanning
the Canadian provinces of Newfoundland &
Labrador, Nova Scotia, New Brunswick,
Prince Edward Island, Québec, Ontario and
Manitoba, in addition to most of the territory
of Nunavut. The Equipment Group includes
industry leading rental operations, a
complementary material handling business
and an agricultural equipment business.
CIMCO is a market leader in the design,
engineering, fabrication and installation
of industrial and recreational refrigeration
systems. Both segments offer comprehensive
product support capabilities. Toromont
employs over 6,500 people in more than
150 locations.

Statement of Compliance
These consolidated ﬁnancial statements
are prepared in accordance with International
Financial Reporting Standards (“IFRS”),
as issued by the International Accounting
Standards Board (“IASB”).

These consolidated ﬁnancial

statements were authorized for issue
by the Audit Committee of the Board
of Directors on February 11, 2020.

Basis of Preparation
These consolidated ﬁnancial statements
were prepared on a historical cost basis,
except for derivative instruments that have

been measured at fair value. The
consolidated ﬁnancial statements are
presented in Canadian dollars and all values
are rounded to the nearest thousand, except
where otherwise indicated.

Basis of Consolidation
The consolidated ﬁnancial statements
include the accounts of the Company and
its wholly owned subsidiaries.

Subsidiaries are fully consolidated from

the date of acquisition, being the date on
which the Company obtains control, and
continue to be consolidated until the date
that such control ceases. The ﬁnancial
statements of the subsidiaries are
prepared for the same reporting period as
the parent company, using consistent
accounting policies. All intra-group
balances, income and expenses and
unrealized gains and losses resulting from
intra-group transactions are eliminated in
full upon consolidation.

Business Combinations and Goodwill
When determining the nature of an
acquisition, as either a business
combination or an asset acquisition,
management deﬁnes a business as
“an integrated set of activities and assets
that is capable of being conducted and
managed for the purpose of providing a
return in the form of dividends, lower costs
or other economic beneﬁts directly to
investors or other owners, members or
participants.” An integrated set of activities
and assets requires two essential elements
– inputs and processes applied to those
inputs, which together are or will be used to
create outputs. However, a business need
not include all of the inputs or processes
that the seller used in operating that
business if the Company is capable of

acquiring the business and continuing
to produce outputs, for example, by
integrating the business with their own
inputs and processes. If the transaction
does not meet the criteria of a business,
it is accounted for as an asset acquisition.
Business combinations are accounted
for using the acquisition method. The cost
of an acquisition is measured as the
aggregate of consideration transferred,
measured at acquisition date fair value.
Acquisition costs are expensed as incurred.
Goodwill is initially measured at cost,
being the excess of the cost of the business
combination over the Company’s share in the
net fair value of the acquiree’s identiﬁable
assets, liabilities and contingent liabilities.
If the cost of acquisition is less than
the fair value of the net assets of the
subsidiary acquired, the difference is
recognized directly in the consolidated
income statement.

After initial recognition, goodwill is
measured at cost less any accumulated
impairment losses. For the purpose of
impairment testing, goodwill acquired in a
business combination is, from the
acquisition date, allocated to each of the
Company’s cash-generating units (“CGUs”)
that are expected to beneﬁt from the
synergies of the combination, irrespective
of whether other assets or liabilities of the
acquiree are assigned to those units.

Where goodwill forms part of a CGU and

part of the operation within that unit is
disposed of, the goodwill associated with the
operation disposed of is included in the
carrying amount of the operation when
determining the gain or loss on disposal of
the operation. Goodwill disposed of in this
circumstance is measured based on the
relative fair values of the operation disposed
of and the portion of the CGU retained.

Cash and Cash Equivalents
Cash consists of petty cash and demand
deposits. Cash equivalents, when applicable,
consist of short-term deposits with an
original maturity of three months or less.

Net realizable value is the estimated

selling price in the ordinary course of
business, less estimated costs of
completion and the estimated costs
necessary to make the sale.

Accounts Receivable
Trade accounts receivable are amounts due
from customers for merchandise sold or
services performed in the ordinary course
of business. If collection is expected in one
year or less (or in the normal operating
cycle of the business, if longer), they are
classiﬁed as current assets. If not, they are
presented as non-current assets. Trade
accounts receivable are recognized initially
at amounts due, net of impairment for
estimated expected credit loss (allowance
for doubtful accounts). The expense
relating to expected credit loss is included
within selling and administrative expenses
in the consolidated income statements.

Unbilled receivables represent contract

assets related to the Company’s rights to
consideration for work completed but not
billed as at the reporting date on the sale of
power and energy systems and refrigeration
packages. These are transferred to
receivables when the entitlement
to payment becomes unconditional.

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

Cost of equipment, repair and
distribution parts and direct materials
include purchase cost and costs incurred in
bringing each product to its present
location and condition. Serialized inventory
is determined on a speciﬁc-item basis.
Non-serialized inventory is determined
based on a weighted average actual cost.
Cost of work-in-process includes cost
of direct materials, labour and an allocation
of manufacturing overheads, excluding
borrowing costs, based on normal
operating capacity.

Cost of work-in-process (contracts) are
costs speciﬁcally chargeable to customers
that are deferred in inventories and are
probable of recovery.

Cost of inventories includes the transfer

of gains and losses on qualifying cash ﬂow
hedges, recognized in other comprehensive
income (loss), in respect of the purchase
of inventory.

Property, Plant and Equipment
Property, plant and equipment are recorded
at cost, net of accumulated depreciation
and accumulated impairment losses, if any.
Depreciation is recognized principally
on a straight-line basis over the estimated
useful lives of the assets. Estimated useful
lives range from 20 to 30 years for
buildings, 3 to 10 years for equipment and
20 years for power generation assets.
Leasehold improvements are amortized on
a straight-line basis over the term of the
lease. Land is not depreciated.

The assets’ residual values, useful lives
and methods of depreciation are reviewed
at each ﬁnancial year-end and adjusted
prospectively, if appropriate.

Rental Equipment
Rental equipment is recorded at cost,
net of accumulated depreciation and any
impairment losses. Cost is determined on
a speciﬁc-item basis. Rental equipment is
depreciated to its estimated residual value
over its estimated useful life on a straight-
line basis, which ranges from 1 to 10 years.
The assets’ residual values, useful lives
and methods of depreciation are reviewed
at each ﬁnancial year-end and adjusted
prospectively, if appropriate.

Intangible Assets
Intangible assets acquired separately are
measured on initial recognition at cost.
Intangible assets acquired as part of a
business acquisition are initially recorded
at the acquisition date fair value. Following
initial recognition, intangible assets are
carried at cost less any accumulated
amortization and accumulated impairment
losses, as applicable.

Intangible assets with a ﬁnite useful life
are amortized over their estimated useful lives
and are assessed for impairment whenever
there is an indication that the intangible
assets may be impaired. The amortization
period and the amortization method for
intangible assets with ﬁnite useful lives are
reviewed at least at the end of each
reporting period.

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,

straight-line

Intangible assets with indeﬁnite useful
lives are not amortized, but are tested for
impairment annually or when indicators
of impairment are present. Distribution
networks are considered to have
an indeﬁnite life based on the terms
of the distribution rights contracts.
The assessment of indeﬁnite life is
reviewed annually to determine whether
the indeﬁnite life continues to be supportable.

Provisions
Provisions are recognized when the
Company has a present obligation, legal
or constructive, as a result of a past event,
it is probable that an outﬂow of resources
embodying economic beneﬁts will be
required to settle the obligation and a
reliable estimate can be made of the
amount of the obligation.

Provisions for warranty costs are
recognized when the product is sold or
service provided. Initial recognition is
based on historical experience.

Financial Instruments
Financial assets and liabilities are recognized
when the entity becomes a party to the
contractual provisions of the instrument.
The Company determines the classiﬁcation
of its ﬁnancial assets and liabilities at initial
recognition or when reclassiﬁed on the
consolidated statements of ﬁnancial
position. Financial assets and liabilities are
classiﬁed in the following measurement
categories: (i) amortized cost; (ii) fair value
through other comprehensive income (loss);
or (iii) fair value through proﬁt usually, or loss
(“FVTPL”). Initially, all ﬁnancial assets and
liabilities are recognized at fair value.
Regular-way trades of ﬁnancial assets and
liabilities are recognized on the trade date.
Transaction costs are expensed as incurred,
except for loans and receivables and loans
and borrowings, in which case transaction
costs are included in the initial cost.

Financial Assets
Subsequent measurement of ﬁnancial
assets depends on the classiﬁcation.
The Company has made the following
classiﬁcations:
• Cash is classiﬁed as held for trading and
as such is measured at fair value, with
changes in fair value being included
in proﬁt or loss.

• Accounts receivable are classiﬁed as

loans and receivables and are recorded
at amortized cost using the effective
interest rate method, less provisions
for doubtful accounts.

The Company assesses, as at each
consolidated statement of ﬁnancial
position date, whether there is any
objective evidence that a ﬁnancial asset
or a group of ﬁnancial assets is impaired.

Financial Liabilities
All ﬁnancial liabilities are subsequently
measured at amortized cost using the
effective interest rate method or at FVTPL.
Financial liabilities are classiﬁed as FVTPL
when the ﬁnancial liability is: (i) contingent
consideration of an acquirer in a business
combination; (ii) held for trading; or (iii) it is
designated as FVTPL.

For ﬁnancial liabilities that are designated

as FVTPL, the amount of change in the
fair value of the ﬁnancial liability that is
attributable to changes in the credit risk
of that liability is recognized in other
comprehensive income (loss) (“OCI”), unless
the recognition of the effects of changes in
the liability’s credit risk in OCI would create
or enlarge an accounting mismatch in the
consolidated income statements. The
remaining amount of change in the fair value
of liability is recognized in the consolidated
income statements. Changes in fair value
attributable to a ﬁnancial liability’s credit
risk that are recognized in OCI are not
subsequently reclassiﬁed to the consolidated
income statements; instead, they are
transferred to retained earnings upon
derecognition of the ﬁnancial liability.
Financial liabilities that are not:

(i) contingent consideration of an acquirer in
a business combination; (ii) held for trading;
or (iii) are designated as FVTPL, are
subsequently measured at amortized cost
using the effective interest rate method.

Derivatives
Derivative assets and liabilities are classiﬁed
as held for trading and are measured at fair
value with changes in fair value being
included in proﬁt or loss, unless they are
designated as hedging instruments, in which
case changes in fair value are included in OCI.

Fair Value of Financial Instruments
The Company uses the following hierarchy
for determining and disclosing the fair
value of ﬁnancial instruments by valuation
technique:
• Level 1 – unadjusted quoted prices

in active markets for identical assets
or liabilities.

• Level 2 – other techniques for which all
inputs that have a signiﬁcant effect on
the recorded fair value are observable,
either directly or indirectly.

• Level 3 – techniques that use inputs
that have a signiﬁcant effect on the
recorded fair value that are not based
on observable market data.

Impairment of Financial Assets
Financial assets classiﬁed as amortized
cost are assessed for impairment at the
end of each reporting period and a loss
allowance is measured by estimating the
lifetime expected credit losses. Certain
categories of ﬁnancial assets, such as trade
receivables, that are considered not to be
impaired individually are also assessed for
impairment on a collective basis.

A ﬁnancial asset is considered in default
when contractual payments are 90 days past
due. A ﬁnancial asset may also be considered
to be in default if internal or external
information indicates that the Company
is unlikely to receive the outstanding
contractual amounts in full before taking
into account any credit enhancements held.
A ﬁnancial asset is written off when there is
no reasonable expectation of recovering the
contractual cash ﬂows.

Derivative Financial Instruments
and Hedge Accounting
Derivative ﬁnancial arrangements are used
to hedge exposure to ﬂuctuations in
exchange rates. Such derivative ﬁnancial
instruments are initially recognized at fair
value on the date on which a derivative
contract is entered into and are subsequently

measured at fair value. Derivatives are
carried as ﬁnancial assets when the fair value
is positive and as ﬁnancial liabilities when the
fair value is negative.

At inception, the Company designates and
documents the hedge relationship, including
identiﬁcation of the transaction and the risk
management objectives and strategy for
undertaking the hedge. The Company also
documents its assessment, both at hedge
inception and on an ongoing basis, of whether
the derivatives that are used in hedging
transactions are highly effective in offsetting
changes in cash ﬂows of hedged items.

The Company has designated certain
derivatives as cash ﬂow hedges. These are
hedges of ﬁrm commitments and highly
probable forecast transactions. The effective
portion of changes in the fair value of
derivatives that are designated as a cash
ﬂow hedge is recognized in OCI. The gain
or loss relating to the ineffective portion is
recognized immediately in the consolidated
income statements. Additionally:
•

If a hedge of a forecast transaction
subsequently results in the recognition
of a non-ﬁnancial asset, the associated
gains or losses that were recognized
in OCI are included in the initial cost
or other carrying amount of the asset;
• For cash ﬂow hedges other than those

identiﬁed above, amounts accumulated
in OCI are recycled to the consolidated
income statements in the period when
the hedged item will affect earnings
(for instance, when the forecast sale
that is hedged takes place);

• When a hedging instrument expires or

is sold, or when a hedge no longer meets
the criteria for hedge accounting, any
cumulative gain or loss in OCI remains in
OCI and is recognized when the forecast
transaction is ultimately recognized in
the consolidated income statements; and
• When a forecast transaction is no longer
expected to occur, the cumulative gain
or loss that was reported in OCI is
immediately recognized in the
consolidated income statements.

Impairment of Non-ﬁnancial Assets
The Company assesses whether goodwill
or intangible assets with indeﬁnite lives
may be impaired annually during the fourth

quarter, or when indicators of impairment

are present. For the purpose of impairment

carrying amount of the asset does not exceed

design, manufacture, installation and

testing, goodwill arising from acquisitions is

its recoverable amount, nor exceed the

commissioning of longer-term projects

allocated to each of the Company’s CGUs

carrying amount that would have been

under the customer’s control and can

or group of CGUs expected to beneﬁt from

determined, net of depreciation, had no

span from three months to one year.

the acquisition. The level at which goodwill

impairment loss been recognized for the asset

Revenue is recognized progressively

is allocated represents the lowest level at

in prior years. Such reversal is recognized

based on the percentage-of-completion

which goodwill is monitored for internal

in the consolidated income statements.

method. This method is normally

management purposes, and is not higher

measured by reference to costs incurred

than an operating segment. Intangible assets

Revenue From Contracts With Customers

to date as a percentage of the total

with indeﬁnite lives that do not have separate

Revenue from contracts with customers is

estimated costs as outlined in the

identiﬁable cash ﬂows are also allocated to

recognized when control of the goods or

contract. Payment terms are usually

CGUs or a group of CGUs. Any potential

services is transferred to the customer at an

based on set milestones outlined in the

impairment of goodwill or intangible assets

amount that reﬂects the consideration to

contract. Periodically: (i) amounts are

is identiﬁed by comparing the recoverable

which the Company expects to be entitled in

received in advance of the associated

amount of a CGU or a group of CGUs to its

carrying value. The recoverable amount is

the higher of its fair value less costs to sell

exchange for those goods or services.
• Sale of Equipment – Revenue is
recognized when control of the

contract work being performed – these

amounts are recorded as deferred

revenues and contract liabilities; and

and its value-in-use. If the recoverable

equipment has been transferred to the

(ii) revenue is recognized without issuing

amount is less than the carrying amount,

customer. This usually occurs when the

an invoice – this entitlement to

then the impairment loss is allocated ﬁrst to

equipment is delivered or picked-up by

consideration is recognized as unbilled

reduce the carrying amount of any goodwill

the customer. The transaction price is

receivables. Any foreseeable losses

and then to the other assets pro-rata on the

documented on the sales invoice and

on such projects are recognized

basis of the carrying amount of each asset.

agreed to by the customer. Payment is

immediately in proﬁt or loss as identiﬁed.

In determining fair value less costs to sell,

generally due at the time of delivery, as

• Equipment Rentals – Revenue is

recent market transactions are taken into

such, a receivable is recognized as the

accounted for in accordance with IFRS

account, if available. In assessing value-in-

consideration is unconditional and only

16. Revenue is recognized on a straight-

use, the estimated future cash ﬂows are

the passage of time is required before

line basis over the term of the

discounted to their present value using a

payment is due. In certain situations,

agreement. Payment terms are

pre-tax discount rate that reﬂects current

control transfers to the customer

generally 30 days from invoicing.

market assessments of the time value of

through a bill and hold arrangement

money and the risks speciﬁc to the asset.

when the following criteria are met:

• Product Support Services – Revenue from
product support services includes the

Impairment losses are recognized in the

(i) there is a substantive reason for

sale of parts and performance of service

consolidated income statements.

the arrangement; (ii) the equipment

work on equipment. For the sale of parts,

The Company bases its impairment

is separately identiﬁed as belonging

revenue is recognized when the part is

calculation on detailed three-year budgets

to the customer; (iii) Toromont is no

shipped or picked-up by the customer.

and extrapolated long-term growth rate for

longer able to use the equipment or

For the servicing of equipment, revenue

periods beyond the third year.

direct it to another customer; and

on both the labour and parts used in

For non-ﬁnancial assets other than goodwill

(iv) the equipment is currently ready

performing the work is recognized when

and intangible assets with indeﬁnite lives,

an assessment is made at each reporting

for physical transfer to the customer.
• Sale of Equipment With a Guaranteed

date whether there is any indication of

impairment, or that previously recognized

impairment losses may no longer exist or

Residual Value or Repurchase
Commitment – The sale of equipment
for which the Company has provided a

the job is completed. Payment terms are

generally 30 days from invoicing.
• Long-term Maintenance Contracts –
Long-term maintenance contracts

generally range from one to ﬁve years

may have decreased. If such indication

guarantee to repurchase the equipment

and are customer-speciﬁc. These

exists, the Company estimates the asset’s

at a predetermined residual value and

contracts are sold either separately or

recoverable amount. An impairment loss

is recognized for the amount by which

the asset’s carrying amount exceeds

date is accounted for as an operating
lease in accordance with IFRS 16 – Leases
(“IFRS 16”). Revenue is therefore

bundled together with the sale of

equipment to a customer. These

arrangements cover a range of services

its recoverable amount. A previously

recognized over the period extending

from regular maintenance to major

recognized impairment loss is reversed only

if there has been a change in the assumptions

used to determine the asset’s recoverable

to the date of the residual guarantee.
• Sale of Systems – The Company sells
systems, including power and energy

amount since the last impairment loss was

facilities and industrial and recreational

recognized. The reversal is limited so that the

refrigeration systems, which involve the

repairs. The Company has concluded

that these are two separate performance

obligations as each of the promises to
transfer equipment and provide services
is capable of being distinct and

separately identiﬁable. If the sales are
bundled, the Company allocates a
portion of the transaction price based on
the relative stand-alone selling price to
each performance obligation. Customers
are invoiced on a periodic basis reﬂecting
the terms of the agreement, generally
based on machine hours, with payment
terms of 30 days from invoicing. These
amounts are recognized as deferred
revenues and contract liabilities.
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.

• Extended Warranty – Extended

warranty may be purchased by a
customer at time of purchase of a
machine to provide additional warranty
coverage beyond the initial one-year
standard warranty covered by the
supplier. Extended warranty generally
covers speciﬁed components for a term
from three to ﬁve years. Extended
warranty is normally invoiced at time
of purchase and payment is expected
at time of invoicing. These billings are
included in deferred revenues and
contract liabilities. The Company
recognizes revenue for extended
warranty as work is performed under
the extended warranty contract using
standard rates.

• Power Generation – The Company owns
and operates power generation plants
that sell electricity and thermal power.
Revenue is recognized monthly based on
set rates as power is consumed. Payment
is due within 30 days of invoicing.

Consideration is given whether there are
other promises in a contract with a
customer that are separate performance
obligations to which a portion of the
transaction price needs to be allocated.
In determining the transaction price for the
sale of equipment, variable consideration,
the existence of signiﬁcant ﬁnancing
components, non-cash consideration, and
consideration payable to the customer
(if any) are considered.

Leases

commencement date is used in the present

The Company assesses at contract

value calculation. After the commencement

inception whether a contract is, or contains,

date, the amount of lease liabilities is

a lease; that is, if the contract conveys

reduced by the lease payments made.

the right to control the use of an identiﬁed

In addition, the carrying amount of lease

asset for a period of time in exchange

liabilities is remeasured if there is a

for consideration.

Toromont as Lessee
A single recognition and measurement

approach is applied for all leases, except for

modiﬁcation, a change in the lease term,

a change in the in-substance ﬁxed lease

payments or a change in the assessment

to purchase the underlying asset.

short-term leases and leases of low-value

Short-Term Leases and Leases

assets. Right-of-use assets representing

of Low-Value Assets

the right to use the underlying assets and

The short-term lease recognition

lease liabilities representing lease

exemption is applied to leases that have

payments are recognized.

a lease term of 12 months or less from the

Right-of-use Assets

commencement date and do not contain

a purchase option. It also applies the

Right-of-use assets are recognized at the

recognition exemption for leases that are

commencement date of the lease (i.e., the

considered of low value. Lease payments

date the underlying asset is available for

on short-term leases and leases of low-value

use) and are measured at cost, less any

assets are recognized as an expense on a

accumulated depreciation and impairment

straight-line basis over the lease term.

losses. The cost of right-of-use assets

includes the amount of lease liabilities

recognized, initial direct costs incurred,

Toromont as Lessor
Leases in which the Company does not

and lease payments made at or before the

transfer substantially all the risks and

commencement date, less any lease

rewards incidental to ownership of an asset

incentives received. Unless the Company is

are classiﬁed as operating leases. Rental

reasonably certain to obtain ownership of

income arising is recognized on a straight-

the leased asset at the end of the lease

line basis over the lease terms and is

term, the recognized right-of-use assets

included in the consolidated income

are depreciated on a straight-line basis over

statement. Initial direct costs incurred in

the shorter of its estimated useful life and

negotiating and arranging an operating lease

the lease term, which ranges from three to

are added to the carrying amount off the

ﬁve years for vehicles and 1 to 15 years for

leased asset and recognized over the lease

properties. Right-of-use assets are subject

term on the same basis as rental income.

to impairment.

Foreign Currency Translation

Lease Liabilities

The functional and presentation currency

At the commencement date of the lease,

of the Company is the Canadian dollar.

lease liabilities are recognized and

Each of the Company’s subsidiaries

measured at the present value of lease

determines its functional currency.

payments to be made over the lease term.

Transactions in foreign currencies are

The lease payments include ﬁxed payments

initially recorded at the functional currency

less any lease incentives receivable,

rate prevailing as at the date of the

variable lease payments that depend on

transaction or at the average rate for

an index or a rate, and amounts expected

the period when this is a reasonable

to be paid under residual value guarantees.

approximation. Monetary assets and

The interest rate implicit in the lease is

liabilities denominated in foreign currencies

used, if readily determinable, to calculate

are retranslated at the functional currency

the present value of lease payments. If

spot rate of exchange as at the reporting

not readily determinable, the Company’s

date. All differences are taken directly to

incremental borrowing rate at the lease

proﬁt or loss. Non-monetary items that are

measured in terms of historical cost in

the Company is required to pay in

amount that the Company considers

a foreign currency are translated using

accordance with the terms of the plans.

probable to be realized.

the exchange rates as at the dates of the

For deﬁned beneﬁt pension plans and

Current and deferred income taxes,

initial transactions.