BUILDING
TOMORROW
TOROMONT INDUSTRIES LTD.
2020 ANNUAL REPORT
Toromont Industries Ltd. employs more than 6,000
empowered people across seven business units and more
than 150 locations in a common cause: to create value through
the provision of specialized brand-name equipment and
lifecycle product support. We are united as one Toromont
by the business model, corporate values and core strategies
that fuel our performance.
Multiple Growth Platforms
Toromont Cat
Toromont is one of the largest
Caterpillar dealers in the world with
46 branches across seven provinces
and one territory. Through Toromont
Cat, we serve the specialized heavy
equipment, power generation, heavy
rent and product support needs of
thousands of public infrastructure,
construction, demolition, paving,
mining, aggregate, waste management,
agriculture, forestry, trucking, shipping,
transit and data centre customers.
Battlefield Equipment Rentals –
The Cat Rental Store
From 68 stores in our Cat dealer
territories, supported by a rapid
equipment delivery-to-site system,
Battlefield Equipment Rentals
addresses the full rental service,
purchase and product support needs
of contractors, specialty trades and
do-it-yourself customers with brand-
name machines, tools and supplies.
AgWest Ltd.
From six facilities, AgWest serves the
year-round equipment and product
support needs of Manitoba’s agriculture
industry as an official dealer of AGCO
and CLAAS, two trusted brands for crop
and livestock applications.
SITECH Mid-Canada Ltd.
SITECH specializes in providing
machine control, site positioning and
asset management technologies as
well as professional support services as
a Trimble and Cat AccuGrade® dealer
across Eastern Canada.
Jobsite Industrial Rental Services
Across eight 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.
CIMCO Refrigeration
CIMCO serves the North American
food, dairy, cold storage, beverage,
pharmaceutical, automotive, chemical,
petrochemical, mining and recreational
ice rink markets as a leading supplier
of refrigeration equipment and product
support services.
Toromont Material Handling
From 16 locations across eastern
Canada, Toromont Material Handling
serves ports and terminals, paper
producers, automotive parts
manufacturers, beverage companies,
hardware retailers and government
agencies by selling, renting and
supporting brand name lift trucks,
container handlers, industrial batteries,
chargers and racking systems.
1
FELLOW
SHAREHOLDERS:
The world changed in 2020, and Toromont rose to meet the challenges.
To protect our employees and customers from COVID-19 and address the
essential requirements of the customers and communities we serve, we
implemented rigorous measures to keep our stores, branches and warehouses
operating safely. We also applied technology in new ways to respond to
opportunity, more deeply entrench our financial disciplines and increase
competitiveness. These changes served us well in 2020, and in some cases,
will support better ways of doing business in the years to come.
Toromont earned $3.09 per diluted share in 2020
Toromont ended 2020 with substantial liquidity
as we worked hard to address customer needs and
provided by a $500 million revolving credit facility and
responded to volatile market conditions without
a $250 million one-year syndicated facility arranged
sacrificing service.
We also succeeded in remaining a safe and essential
in April 2020 as a precautionary measure. These
facilities were undrawn at December 31, 2020.
contributor to our customers’ successes in the
While revenue of $3.5 billion was down 5% from
markets we serve, completed high-priority business
the record achieved in 2019, the advantages of
improvement and integration tasks and maintained
market diversification and coverage, along with the
a strong financial position. Leverage, as represented
steadying business model effects of selling, renting
by our net debt to total capitalization ratio was 3% at
and supporting leading brands, served us well in a
year end, compared to 15% at December 2019, and
challenging environment. Re-investment amounted
40% at December 2017, the year we made the largest
to $133 million for rental fleets, branches and plants.
acquisition in our history.
This was lower than our three-year annual average
of $208 million as we scaled rental inventory
investment to demand signals.
We measure the efficiency and effectiveness
of our use of capital through return on opening
shareholders’ equity (“ROE”) and pre-tax return on
capital employed (“ROCE”). In 2020, ROE was 16.6%,
compared to our long-term goal of 18% after-tax over
a business cycle. ROCE was 20.4% at December 31,
2020 compared to 22.9% at year-end 2019.
Robert M. Ogilvie
Chair of the Board
Scott J. Medhurst
President and Chief Executive Officer
Annual Report 2020 2
In February 2020, the Board announced a 14.8% year-
Over the past few years, our mantra has been Building
over-year increase in Toromont’s dividend per common
Together. As Toromont demonstrated in 2020, together
share on the strength of cash generation. Since 1968,
is not defined in a physical sense but in the cohesion and
Toromont has paid a dividend uninterrupted and has
collaboration that come from a shared sense of purpose.
consistently grown the dividend annually for 31 years.
Teamwork at Its Finest
Integration Progress
In late 2017, Toromont began a multi-year effort to
Each year, Toromont’s success is the result of the
integrate the Caterpillar territories of Québec and the
commitment, teamwork and tenacity of our employees.
Maritimes (“QM”) we acquired. This effort focused
In 2020, the pandemic required even more, in the form
on elevating the performance of new and existing
of quick thinking and the courage to break habits formed
operations by sharing best practices and leveraging
over years in favour of physically distant ways of working.
the talents of the combined organization. In 2018, the
Team sacrifices were made at every level and in many
first stages were completed. Toromont brands were
ways. Many employees shared hours – a move that
introduced across QM, key management appointments
protected jobs and Toromont’s ability to respond to
were made, Toromont’s branch model was embedded
future opportunity. Technicians along with store, parts
in Atlantic Canada and we invested to bring our
and remanufacturing personnel served as front-line
full-service rental model to QM. In 2019, technology
responders, enabling Toromont to perform as an
integration brought all Battlefield Equipment Rentals
essential business for customers. Additional shifts
stores on the same management system and the
in many locations provided the means for physical
Toromont Cat branch model was activated in Québec.
distancing. In the months following March, those who
could work from home did so, and as 2020 ended, many
employees continued to balance work and family
obligations without the usual separation between the
two. The Board of Directors, executives and senior
leaders voluntarily reduced their compensation. Many
specific safety measures and new protocols were
introduced under the guidance of our Critical Incident
Executive Response Team.
2020 Revenues
The key integration event of 2020 was the
implementation of the Toromont Dealer Management
System (“TDMS”) at Toromont Cat in QM, as well as the
Québec operations of Toromont Material Handling.
For our decentralized organization, TDMS has long
been an indispensable tool for reporting, monitoring
and benchmarking branch performance against
system-wide key performance indicators. It also allows
for greater working capital visibility and teamwork.
While branch staff in new territories received training
in our business approach since acquisition, TDMS
creates the visibility they need to entrench Toromont’s
customer service and financial disciplines. It is an
enabler of alignment, authority and accountability
New & used equipment – 42%
Refrigeration equipment – 5%
Rentals – 10%
Product support – 43%
16.6%
Return on opening
shareholders’ equity
Toromont Industries Ltd. 3
and forms part of the backbone of customer-facing
and relative strength in remanufacturing. Consistent
digital services and business analytics.
with Caterpillar’s objective to offer clients additional
Operating with a unified technology platform cleared
a path for two operational changes at Toromont Cat
on January 1, 2021: the consolidation of our working
practices for construction and mining businesses each
under dedicated leadership. These changes eliminated
the last regional silo that impeded full Eastern Canada
value-added services and capitalize on aftermarket
opportunities, we improved the attach rate of CVAs on
new machine sales. Pre-scheduled mining fleet rebuilds
and the expansion of Toromont Cat’s component
exchange program in Québec were important
contributors to the year’s results.
alignment and represent the next step in achieving
Battlefield Equipment Rentals made good use of its
business excellence through tight integration.
broad Eastern Canada footprint, augmented by a new
Much more work is needed to unlock the full value
of our larger scale, but 2020’s performance
demonstrated that we can execute and leverage our
strengths through technology.
2020 Business Unit Highlights
Toromont Cat’s customers remained active in 2020.
Although construction machine monitoring showed
hours worked fell in the spring due to COVID-19
restrictions, some lost ground was recovered by late
summer. Similarly, over 20 mines moved to care and
maintenance rather than production at the outset of the
pandemic. To conserve cash in response to uncertain
economic conditions, many customers opted to buy
used equipment instead of new machines and reduced
their use of Toromont’s heavy rental fleet. We responded
by increasing our used equipment supply and moving
to match rental inventory with demand. Late in the
year, some large construction accounts returned to the
market to augment their fleets with new equipment
purchases and most mines returned to production. The
52/48 revenue split in our mining business between
precious metals and base metals/other resulting from
the addition of QM territories improved our risk profile.
Power Systems was a steady performer, completing
several noteworthy projects and experiencing relatively
healthy demand for customers, particularly data
centres. The deployment of Power Systems proprietary
IMACS+ project management software in QM enabled
efficient project sharing using common methodologies.
Dealership product support revenue was down from
2019. This reflected a cautious customer tone with
decisions to defer maintenance and certified rebuilds,
partly offset by Customer Value Agreements (“CVAs”)
store in Terrebonne, Québec, diverse product offering
and digitally enabled marketing and sales capabilities to
serve customers in 2020. These advantages, and sales of
Cat CCE machines to landscapers partially mitigated the
Province of Québec’s decision to shutter construction
sites for eight weeks at the beginning of the pandemic.
After installing its fleet management and reporting
system in QM in 2019, much attention was focused
on improving the efficiency of service and delivery
processes and maximizing returns per dollar invested in
the regional fleet. Rental equipment coming back from
job sites was returned to ready status faster than it was
in the prior year as a result of better service disciplines
and as technicians grew familiar with maintaining the
expanded fleet. This meant better product availability
for customers. The ongoing maturation of the inventory
aging and product disposition cycle should contribute to
improved performance over time.
Toromont Material Handling (“TMH”) continued
where it left off in 2019 by embedding new business
and financial disciplines with the help of TDMS. Another
key highlight was the expansion of TMH’s customer
base through new product offerings including Kalmar
container handlers in Manitoba and Saskatchewan,
Landoll and Bendi forklifts in Ontario and AUSA rough
terrain forklifts throughout Eastern Canada. Broadening
its range of products fits with TMH’s goal as a single-
source supplier. TMH also brought greater focus to
its rental business by clearing inventory of unpopular
machines and replacing them with high-demand
equipment. Growth in its workforce of mechanics,
centralized quoting, and a new telephony system for
its parts business were among efforts made to improve
product support and market coverage. Due to its
Annual Report 2020 4
alignment with Caterpillar, Jungheinrich and Rocla, TMH
resources, all parts counters were connected to a central
is well equipped to meet demand for electric propulsion
phone system. Improved results over 2019 reflected good
and autonomous lift vehicles. For environmental reasons,
execution by the team and a better harvest.
more customers are turning to these equipment styles
and TMH’s related product support capabilities.
Jobsite Industrial Rental Services counted a joint
win with Battlefield Equipment Rentals in securing a
five-year labour, tooling and equipment agreement with
a lubricants manufacturer and the opening of a new
location in Vars, Ontario to serve customers in the Ottawa
region and Québec, among its 2020 achievements.
SITECH had a solid year on the strength of customer
demand for its productivity and efficiency-enhancing
machine control software, hardware and technology
expertise. Silver Top Supply, acquired in 2019, introduced
new cloud-based technology to help waste disposal
customers capture weights and measures for faster
invoicing and more precise environmental management.
CIMCO performed essential services for many industrial
customers in 2020, including those in the food, beverage,
energy and pharmaceutical markets. Fortunately, project
backlog entering the pandemic was sizeable, which
created a good base of business for a challenging year.
Notable project wins included the first cold storage
facility in Canada to use 100% CO2 refrigeration – 700
tonnes of it supplied by six rooftop refrigeration packages
– and the design/build of a central refrigeration system
that supplies three cooling temperatures as well as heat
recovery for a large poultry plant. For CIMCO’s engineers,
the poultry plant requires extensive and complex 3D
modelling, while CIMCO’s automation group is creating
control, data logging and alarm systems. Scheduled
completion is June 2022. CIMCO’s prefabricating
capabilities served as a safety control and cost advantage
AgWest made good progress in representing new
by reducing time on site at customer locations.
combine machines. Specialization in the sales force
brought greater focus to AGCO and CLAAS products.
Reflecting the importance of product support to customer
Recreational markets struggled due to COVID-19 safety
restrictions. However, CIMCO booked nine CO2 U.S. ice
rink projects, including one in California. Product support
and business performance, more emphasis was placed
revenue was effectively flat compared to 2019 as growth
on proactive machine inspections that led to maintenance
in industrial markets, driven by the presence of additional
work and parts sales. To more quickly respond to
service technicians particularly in the United States,
customer orders and more efficiently use internal
offset lower activity levels in recreational markets.
Sustainability at Toromont
Toromont operates with a long-term sustainability
mindset. Our focus areas include workplace safety,
workforce development and environmental management.
In each area, our Board of Directors ensures we set
realistic goals, create effective strategies, measure
performance and account for our results.
Our Environmental, Social and Governance framework
along with our principles and priorities are described
beginning on page 6, while our 2020 activities are
profiled in the Sustainability Report on our website. To
highlight a few developments:
• The core measure of safety performance – Total
Recordable Injury Frequency Rate – has declined
9% over the past five years with the help of 110,000
hours of safety training and continued vigilance
Toromont Connect, an android-compatible application
available free with every new Cat machine, was introduced
in 2020 pre-COVID-19. Toromont feeds the application with
machine information such as service hours and physical
location and uses it to proactively advise customers of
upcoming preventative maintenance events.
Toromont Industries Ltd. 5
• Efforts to foster a culture of diversity and inclusion
While safely adapting to and navigating the current
continued with 22% of all senior leadership roles
health crisis, some workarounds have led to efficiency
held by women
and effectiveness gains, particularly in how we
• Toromont remanufacturing operations rebuilt
communicate and interact with customers and each
three million tonnes of used equipment parts
other. We will take what we learn and leverage it for
and components in 2020 as part of our circular
future advantage. As always, people development,
economy effort
cost and working capital management will remain
• For 2020, emissions from Scope 1, Scope 2 and
critical priorities.
limited Scope 3 – those that include business air
travel and upstream fossil fuel and electricity use –
were 75,454 CO2 equivalent tonnes
Building Tomorrow
While Toromont changed in many ways in 2020
• Customers using CIMCO’s ECO CHILL® have
and unlocked new benefits from the integration of
cumulatively offset approximately one million CO2-
equivalent tonnes by our estimate compared to
operations in our new territories that began in 2017,
our values and strategies did not. This steady approach
traditional refrigeration and saved 19.7 billion cubic
provides predictability and certainty in an uncertain
feet of natural gas since we introduced this product
world. It enables employees to act with confidence
some 15 years ago
We actively participate in the introduction of electric
battery and dual-fuel powered equipment in our
territories. As a dealer, we are well aligned with OEMs
including Caterpillar that are innovating to create
in addressing new challenges and always with the
knowledge of what is expected of them as customer
service providers and shareholder value creators. It
allows us to work together in Building Tomorrow for the
benefit of all stakeholders.
alternatives to the internal combustion engine and
Our Thanks
developing ever-lower emission machines.
Governance
On February 10, 2021, we welcomed a new independent
director, Ben Cherniavsky. Mr. Cherniavsky brings
deep capital markets, infrastructure, construction and
transportation sector expertise to our deliberations.
During his 25-year career, he served as a senior
Times like these test the business IQ of every company.
Toromont is led by dedicated and experienced people
at all levels. We sincerely thank the members of our
Board of Directors for continuing to oversee the
strategic direction, offer independent perspectives, and
act in the best interests of the company as a whole in
performing their duties.
investment analyst at a global investment bank, at
Special thanks to our customers and shareholders for
Canada’s Department of Finance and at the University
their loyalty. We reserve our utmost gratitude to our valued
of Toronto’s International Centre for Tax Studies at the
employees who delivered our products and services in
Rotman School of Management. With this addition, our
this unprecedented and challenging environment. We look
Board of Directors will consist of 11 members, of whom
forward to working with our partners to emerge stronger
ten are independent.
Looking Ahead
so we can build a better tomorrow.
Yours sincerely,
At the time of writing, COVID-19 remains a health threat
and Toromont remains an essential service provider.
Accordingly, we continue to marshal the company’s
considerable resources to protect what is important to
us as we pursue growth and improvement.
Robert M. Ogilvie
Scott J. Medhurst
Chair of the Board
President and Chief
Executive Officer
Annual Report 2020
6
BUILDING TOMORROW,
SUSTAINABLY
Toromont’s business model, governance principles and leadership practices
foster an empowered, collaborative and ethical culture that seeks to deliver
returns to all stakeholders: customers, employees, shareowners, business partners
and the communities where we work. Our Environmental, Social and Governance
(ESG) approach starts with our Board of Directors and accountability for
sustainable business practices is shared company wide. In 2020, we sharpened
our focus on priority areas with the formation of an ESG Committee of the
Board and in early 2021, updated our Code of Conduct. This is how Corporate
Governance works at Toromont.
ESG Framework
Board of Directors
Executive Team
Business Units
• Oversees risk, strategic
planning, compliance
• Establishes corporate
• Sets objectives aligned to
strategy and objectives for
corporate strategic priorities,
with Code of Conduct and
customer, financial, safety,
implements, executes to
regulatory obligations
workforce development and
achieve objectives
• Provides dedicated
environmental performance
Environmental, Social and
• Provides leadership to
• Allocates resources to
achieve priorities and
Governance oversight through
embed corporate Values
performance objectives
the ESG Committee
• Requires management to set
objectives, ensure strategies/
programs are in place to
achieve objectives
• Scrutinizes results
• Assesses Board and Director
effectiveness annually
• Monitors changes in
governance best practices for
continuous improvement
across all operations,
preserve business model
and manage risk
• Empowers decentralized
business units, ensures
focus and alignment,
scrutinizes results
• Fosters relationships with
shareholders, debtholders,
key business partners
• Creates and delivers
workplace safety, workforce
development, environmental
management programs
• Grows customer
and business partner
relationships
Toromont’s Management Information Circular
and Code of Conduct are online at www.toromont.com.
Toromont Industries Ltd. 7
ESG Principles and Priorities
Toromont understands that good governance is fundamental to the long-
term success of the organization. We also recognize that good governance is
not just about structure; it is about principled, invested people moving with
purpose to create a sustainable future and standing accountable for results in
our key areas of focus. We account for our 2020 performance in detail in our
Sustainability Report available at www.toromont.com.
Workplace Safety
Safety is paramount at Toromont. Our objective is
to achieve and sustain a zero-harm workplace built
on a strong safety culture. Our Board of Directors
regularly reviews our safety strategies and programs for
effectiveness and improvement and scrutinizes reports
on safety outcomes. Our primary reporting measure is
Total Recordable Injury Rate (“TRIR”). Our Executive
Team and business unit leaders are responsible for
the design and administration of an extensive safety
program tailored to the risks inherent in the jobs we
perform and the equipment we use. This program
is refreshed annually, enlists internal and external
subject-matter experts and receives significant funding.
Everyone at Toromont at every level is accountable for
Toromont Cat’s Tom Agueci, Parts Counterperson (left)
and Jeremy Heslop, Parts Counterperson prepare a package
of consumables at Kirkland Lake Gold’s Detour Lake Mine.
compliance with the safe operating practices embodied
in our Five Cardinal Safety Rules. To further demonstrate
the importance of safety as a way of life, the variable
compensation of our senior leaders is tied to safety
outcomes measured by TRIR.
Workforce Development
Employee empowerment is a core Toromont value
that has contributed significantly to our success. To
empower employees, we operate with comprehensive
human resources strategies and practices that allow
us to attract and retain the industry’s best people and
ensure the sustainability and competitiveness of our
workforce. The Human Resources and Health and Safety
Committee of the Board is responsible for succession
planning, executive officer appointments, leadership
development and the design of short- and long-term
incentive plans that align management behaviours
to sustainable value creation. Our Executive Team
provides guidance and support to our business units
to ensure that workforce development and succession
programs are in place and functioning with programs
that focus on business needs and the improvement of
employee knowledge, skills, productivity, effectiveness
and wellbeing.
Diversity and Inclusion
Toromont acknowledges the benefits of a diverse
and respectful workforce in our Code of Conduct,
Employment Equity Policy and our Board and Leadership
Diversity Policy. We consider diversity and inclusion in
promotions at all levels and when hiring new members
Annual Report 2020 8
of our team. Our Board, its ESG Committee and senior
Community Engagement and Impact
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 employee Day of Caring Policy. Our corporate giving
program is dedicated to United Way because it reaches
all communities connected to our business and provides
opportunities for employees to work together for the
biggest societal impact.
Hilda Antwi-Nsiah (Engineer, CIMCO), Sunitha Michael
(Recruiter, Toromont Cat), and Kamel (McMaster University
student) take a break from a pre-pandemic National
Society for Black Engineers networking event to smile
for the camera.
management regularly review the outcomes of our
diversity strategies and look for new opportunities
to foster a culture of inclusion that respects the
features that make individuals unique: gender, gender
identity, sexual orientation, race, ethnicity, age, cultural
background, physical and mental ability and religion.
Environmental Management and
Stewardship
We are committed to addressing the environmental
impacts of our activities and to conserving resources
on the understanding that there is a direct connection
between economic and environmental sustainability.
Our environmental impact is measured annually –
including carbon emissions, energy and water usage
– and our strategic and annual business plans include
goals for continuous improvement. A dedicated
Toromont Cat environmental team is responsible for
workforce education and training and performing
compliance and audit functions under the auspices
of a formal Environmental Management Program.
Green procurement, waste reduction, landfill diversion
and conservation actions reduce our environmental
footprint. We contribute to the circular economy by
remanufacturing used equipment and components
to as-new condition, and through software upgrades
and engine updates, make modifications that reduce
emissions in rebuilt machines, including underground
mining machines. We innovate and educate in
collaboration with our customers and business partners
to produce and implement solutions that reduce
greenhouse gas emissions and build a more efficient,
sustainable future. This includes equipment, products,
solutions and service in the field of alternative energy
(battery electric, wind, solar, landfill gas, heat recapture)
and natural refrigerants.
Toromont’s Sustainability Report is
online at www.toromont.com.
Toromont Industries Ltd. MANAGEMENT’S
DISCUSSION
& ANALYSIS
10K report starts
10
Management’s Discussion and Analysis
This Management’s Discussion and Analysis (“MD&A”) comments on
the operations,
performance and financial condition of Toromont Industries Ltd. (“Toromont” or the “Company”)
as at and for the year ended December 31, 2020, compared to the preceding year. This MD&A
should be read in conjunction with the audited consolidated financial statements and related notes
for the year ended December 31, 2020.
The consolidated financial statements reported herein have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) and are reported in Canadian dollars. The
information in this MD&A is current to February 10, 2021.
Advisory
Information in this MD&A that is not a historical fact is "forward-looking information". Words such
as "plans", "intends", "outlook", "expects", "anticipates", "estimates", "believes", "likely", "should",
"could", "will", "may" and similar expressions are intended to identify statements containing
forward-looking information. Forward-looking information in this MD&A reflects current estimates,
beliefs, and assumptions, which are based on Toromont’s perception of historical trends, current
conditions and expected future developments, as well as other factors management believes are
appropriate in the circumstances. Toromont’s estimates, beliefs and assumptions are inherently
subject to significant business, economic, competitive and other uncertainties and contingencies
regarding future events and as such, are subject to change. Toromont can give no assurance that
such estimates, beliefs and assumptions will prove to be correct. This MD&A also contains
forward-looking statements about the recently acquired businesses.
Numerous risks and uncertainties could cause the actual results to differ materially from the
estimates, beliefs and assumptions expressed or implied in the forward-looking statements,
including, but not limited to: business cycles, including general economic conditions in the
countries and regions in which Toromont operates; commodity price changes, including changes
in the price of precious and base metals; potential risks and uncertainties relating to the novel
COVID-19 global pandemic, including an economic downturn, reduction or disruption in supply or
demand for our products and services, or adverse impacts on our workforce, capital resources,
or share trading price or liquidity, and increased regulation of or restrictions placed on our
businesses; changes in foreign exchange rates, including the Cdn$/US$ exchange rate; the
termination of distribution or original equipment manufacturer agreements; equipment product
acceptance and availability of supply; increased competition; credit of third parties; additional
costs associated with warranties and maintenance contracts; changes in interest rates; the
availability of financing; potential environmental liabilities of the acquired businesses and changes
to environmental regulation; failure to attract and retain key employees; damage to the reputation
of Caterpillar, product quality and product safety risks which could expose Toromont to product
liability claims and negative publicity; new, or changes to current, federal and provincial laws,
rules and regulations including changes in infrastructure spending; any requirement of Toromont
to make contributions to the registered funded defined benefit pension plans, postemployment
benefits plan or the multi-employer pension plan obligations in which it participates and acquired
in excess of those currently contemplated; and ability to secure insurance coverage and cost of
premiums. Readers are cautioned that the foregoing list of factors is not exhaustive.
Any of the above mentioned risks and uncertainties could cause or contribute to actual results
that are materially different from those expressed or implied in the forward-looking information
and statements included in this MD&A. For a further description of certain risks and uncertainties
1
Toromont Industries Ltd.
11
Annual Report 20202 and other factors that could cause or contribute to actual results that are materially different, see the risks and uncertainties set out in the "Risks and Risk Management" and "Outlook" sections herein. Other factors, risks and uncertainties not presently known to Toromont or that Toromont currently believes are not material could also cause actual results or events to differ materially from those expressed or implied by statements containing forward-looking information. Readers are cautioned not to place undue reliance on statements containing forward-looking information, which reflect Toromont’s expectations only as of the date of this MD&A, and not to use such information for anything other than their intended purpose. Toromont disclaims any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law. CORPORATE PROFILE AND BUSINESS SEGMENTATION As at December 31, 2020, Toromont employed over 6,000 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, Toromont Material Handling, representing MCFA, Kalmar and other manufacturers’’ products, and 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 12
“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.
information
Toromont’s
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.
technology represents another competitive differentiator
in
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.
3
Toromont Industries Ltd.
13
CONSOLIDATED ANNUAL OPERATING RESULTS
($ thousands, except per share amounts)
REVENUES
Cost of goods sold
Gross profit (1)
Selling and administrative expenses
OPERATING INCOME (1)
Interest expense
Interest and investment income
Income before income taxes
Income taxes
NET EARNINGS
$
2020
3,478,897
2,643,151
835,746
463,312
$
2019
3,678,705
2,772,583
906,122
493,627
$ change % change
(5%)
(5%)
(8%)
(6%)
(199,808)
(129,432)
(70,376)
(30,315)
372,434
29,981
(9,083)
351,536
96,621
254,915
412,495
27,707
(9,752)
394,540
107,740
(40,061)
2,274
669
(43,004)
(11,119)
(10%)
8%
(7%)
(11%)
(10%)
286,800
(31,885)
(11%)
BASIC EARNINGS PER SHARE
$
3.10
$
3.52
$
(0.42)
(12%)
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)
(1) Described in the sections titled "Additional GAAP Measures and Non-GAAP Measures".
24.0%
13.3%
10.7%
27.5%
20.4%
16.6%
24.6%
13.4%
11.2%
27.3%
22.9%
21.4%
The Company demonstrated resilience and ability to adapt to an ever-changing environment and
execute in a very challenging market. Results reflect reduced economic activity stemming from
reaction to the COVID-19 pandemic. While there was gradual recovery from the earlier part of the
year, with certain restrictions easing, customer activity was still cautious and below last year’s
levels. Cost containment initiatives have served to lessen the impact of the lower revenues while
being supportive of the workforce during the transitional time.
The Equipment Group’s core dealership business experienced lower results in most market
segments across most regions, due to the lower market demands, although fourth quarter results
showed some sequential improvement. CIMCO generated strong bookings, but this was not
converted to revenue growth due to customer construction schedules, delayed in part by site
restrictions. Net earnings decreased 11% versus a year ago on a 5% decrease in revenues.
Revenues decreased $199.8 million or 5% for the year with a decline of 5% in the Equipment
Group and 7% at CIMCO. Product support across the enterprise was down 4% with a decrease
of 5% in the Equipment Group and 3% in CIMCO. Market demand for product support is correlated
to equipment activity levels in the field.
Gross profit margin decreased 60 basis points (“bps”) to 24.0% versus last year. The Equipment
Group reported lower margins mainly on lower rental fleet utilization. Margins at CIMCO were
higher on good project execution. Both Groups benefitted from a favorable sales mix of higher
product support revenues to total revenues.
Selling and administrative expenses were $30.3 million (6%) lower for the year compared to the
prior year. Compensation costs decreased $17.5 million including senior leadership and Board
wage reductions, governmental work-share and subsidy programs, temporary lay-offs, and
4
Annual Report 2020
14
reduced profit sharing accruals on the lower earnings. Mark-to-market adjustments on Deferred
Share Units (“DSUs”) increased expenses $1.3 million year over year. Sales related and other
travel and training expenses were $17.6 million lower in light of lower market activity and travel
restrictions, while information technology expenses were $3.1 million higher as systems
integration work and other enhancements continued.
The Government of Canada introduced the Canada Emergency Wage Subsidy (“CEWS”) in
April 2020 to facilitate the economic recovery. The program provides a subsidy subject to certain
criteria, including demonstration of revenue declines. The qualification and application of the
CEWS is assessed in application periods as defined by the program. The Company qualified for
a $12.8 million subsidy for 2020, recognized as a reduction of selling and administrative
expenses. These funds have supported our workforce since the pandemic took hold by helping
to offset lower productivity levels and maintaining higher employment.
Operating income decreased $40.1 million or 10% reflecting the lower revenues and lower overall
gross margins. Operating income margin decreased 50 basis points (“bps”) to 10.7%.
Interest expense increased $2.3 million on costs related to the new credit facility and associated
drawings earlier this year.
Interest income decreased $0.7 million on lower interest income earned on conversion of
equipment on rent with a purchase option (“RPO”).
The effective income tax rate for 2020 was 27.5% compared to 27.3% in 2019.
Net earnings in 2020 of $254.9 million were down $31.9 million or 11% from 2019. Basic earnings
per share (“EPS”) decreased $0.42 or 12% to $3.10 mainly reflecting the lower revenues.
Other comprehensive loss of $12.3 million in 2020 (2019 – comprehensive loss of $24.9 million)
arose on actuarial losses on defined benefit pension and other post-employment benefit plans of
$11.2 million (2019 – actuarial loss of $18.6 million). The actuarial loss reflects a lower
weighted-average discount rate (2.6% at December 31, 2020 versus 3.1% at December 31, 2019)
as well as changes in the fair value of pension plan assets, both of which are reflective of
underlying financial markets. Other comprehensive loss also included an unfavorable net change
in the fair value of cash flow hedges of $0.7 million (2019 - $5.8 million). These changes reflect
mark to market differences in the value of foreign exchange derivative contracts designated as
cash flow hedges and are largely a function of the underlying USD/CAD exchange rates at period
end compared to contract date.
BUSINESS SEGMENT ANNUAL OPERATING RESULTS
The accounting policies of the segments are the same as those of the consolidated entity.
Management evaluates overall business segment performance based on revenue growth,
operating income relative to revenues and return on capital employed. Corporate expenses are
allocated based on each segment’s revenue. Interest expense and interest and investment
income are not allocated.
5
Toromont Industries Ltd.
Equipment Group
($ 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
Total
15
2020
2019
$ change % change
$
1,088,031
381,346
358,266
1,827,643
1,327,478
10,978
3,166,099
345,953
$
$
$
1,195,646
328,539
418,818
1,943,003
1,390,340
10,607
3,343,950
384,077
$
$
$
(107,615)
52,807
(60,552)
(115,360)
(62,862)
371
(177,851)
(38,124)
$
$
$
$
$
51,060
17,631
68,691
$
$
$
153,390
54,130
207,520
$
$
(102,330)
(36,499)
(138,829)
(9%)
16%
(14%)
(6%)
(5%)
3%
(5%)
(10%)
(67%)
(67%)
(67%)
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
41.9%
10.9%
91.0%
19.2%
41.6%
11.5%
90.9%
19.0%
The Equipment Group’s results for 2020, reflect the significant downturn in economic activity as
a result of the response to the pandemic, despite the classification as an essential service.
Although there was some gradual recovery from the second quarter as restrictions eased, activity
was lower than the prior year. Cost containment actions were employed, including human
resource initiatives, reduced travel and discretionary spending.
Total equipment sales (new and used) decreased $54.8 million or 4%. Sales in construction
markets increased $8.5 million or 1%. In Ontario, activity levels continued to improve, while
deliveries into Atlantic Canada and Quebec were lower on certain project activity due to pandemic
shut downs and disruptions to project schedules. All other market segments were down across
most regions for the year compared to prior year. Power systems sales (down $14.8 million or
8%); mining (down $41.8 million or 26%); material handling (down $3.1 million or 6%) and
agriculture (down $3.6 million or 5%). Used equipment benefitted from used machine sourcing
and a cautious market environment.
Rental revenues decreased $60.6 million or 14% versus last year. All markets and most segments
were lower reflecting the reduction in market activity. Rental revenues from equipment on rent
with a purchase option (“RPO”) were down 37% reflecting the lower market demand and cautious
tone. At December 31, 2020, the RPO fleet was $35.1 million versus $47.3 million a year ago.
Product support revenues decreased $62.9 million or 5%, with a decrease in both parts (-4%) and
service (-6%) across most markets and regions. Product support activity in construction markets
increased 1% on continued operation of equipment in the field. Mining product support was
9% lower, reflecting temporary mine site restrictions and lower activity levels earlier in the year.
Agricultural markets reported increases in both parts and services, up 15% and 11% respectively,
reflective of stronger market activity as well as weaker comparative results in 2019.
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Annual Report 2020
16
Power generation revenues were comparable to 2019.
Gross profit margin decreased 70 bps, to 24.0% versus last year of 24.7%. Equipment margins
were down 30 bps mainly due to sales mix, with a higher proportion of smaller equipment models.
Rental margins were down 10 bps reflecting the lower fleet utilization offset by selective
reductions in the fleet. Product support margins were down 30 bps, 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 10 bps.
Selling and administrative expenses decreased $28.7 million or 6%. Governmental subsidies
under the CEWS program reduced expenses by $11.4 million. Compensation costs also
decreased on other human resource initiatives such as vacation scheduling, selected salary
reductions, use of work-share programs and lay-offs and reduced profit sharing accruals on the
lower earnings. Travel and training was restricted through much of the year, resulting in additional
cost savings of $9.0 million. Allowance for doubtful accounts increased $1.1 million in
consideration of potential increased collection risk in the current economic environment.
Information technology related costs increased $3.1 million on system integration efforts and other
enhancements. Expenses in 2020 included a $4.1 million gain on the sale of a property while
2019 included a $5.0 million gain on a pension plan curtailment.
Operating income was down $38.1 million or 10% and was 60 bps lower as a percentage of
revenues (10.9% versus 11.5% last year) reflecting the lower gross margins.
Capital expenditures, net of dispositions, decreased $138.8 million, largely due to the strategic
decision to reduce the level of new investments in the light equipment rental fleet portfolio across
Eastern Canada as a result of the current market conditions, as well as in recognition of the time
required to absorb recent investments to full utilization. Net rental fleet additions decreased
$102.3 million to $51.1 million while other capital expenditures decreased $36.5 million. During
the first quarter of 2020, a property previously identified as available for sale was disposed of for
$9.4 million, resulting in a capital gain of $4.1 million ($3.5 million after-tax).
Bookings and Backlogs
($ millions)
Bookings - year ended December 31
Backlogs - as at December 31
2020
1,570.0
373.0
$
$
2019
1,468.2
272.3
$
$
$ change
101.8
100.7
$
$
% change
7%
37%
Bookings increased $101.8 million or 7%. Higher orders resulted across all market segments:
construction orders (+5%); mining (+21%), power systems (+3%), material handling lift trucks
(+1%) and agriculture orders (+26%).
Backlogs increased $100.7 million or 37% to $373.0 million. At December 31, 2020, the total
backlog related to power systems (29%), construction (38%), mining (17%), agriculture (10%)
and lift trucks (6%), most of which is expected to be delivered in 2021.
Bookings and backlogs can vary significantly from period to period on large project activities,
especially in mining and power systems, the timing of orders and deliveries and the availability of
equipment from either inventory or suppliers.
7
Toromont Industries Ltd.
CIMCO
($ thousands)
Package sales
Product support
Total revenues
Operating income
17
$ change % change
(9%)
$
(3%)
(7%)
(7%)
(16,830)
(5,127)
(21,957)
(1,937)
$
$
$
2019
177,974
156,781
334,755
28,418
$
$
$
2020
161,144
151,654
312,798
26,481
$
$
Capital expenditures (net)
$
14,735
$
2,335
$
12,400
531%
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
48.5%
8.5%
9.0%
78.0%
46.8%
8.5%
9.1%
75.9%
CIMCO’s results for 2020 were lower than the prior year on reduced construction and recreational
activity stemming in part from site restrictions and closures related to the pandemic. Customer
specific construction schedules also affect timing of revenue recognition. Product support activity
continued given the essential nature of the business, albeit at lower levels. The translation of
financial results at the US operations did not have a significant impact on results year over year.
Packages sales were down $16.8 million or 9% versus 2019. In Canada, package revenues were
down $17.8 million or 12%, reflecting lower sales into both the industrial (down $6.3 million or 6%)
and recreational market segment (down $11.5 million or 22%). In the US, package revenues
increased $1 million or 4% as higher sales into recreational markets (up $3.2 million or 18%) were
partially offset by lower industrial revenues (down $2.3 million or 26%).
Product support revenues decreased $5.1 million or 3% versus last year on weaker sales in
Canada (down 5%) on lower economic activity resulting mainly from COVID-19 related
restrictions, partially offset by higher sales in the US (up 3%). The strong installed base continues
to provide a growth platform for product support activity.
Gross profit margin improved 50 basis points. Package margins increased on improved project
execution and a favourable sales mix of higher product support revenues to total revenues.
Selling and administrative expenses decreased $1.5 million or 3% versus last year. Governmental
subsidies under the CEWS program reduced expenses by $1.4 million. Higher compensation
costs related to increased headcount to support the substantial backlog of orders, were offset by
cost reductions in other areas related to reduced activity.
Operating income was down by $2.0 million or 7% in 2020 largely reflecting the lower revenues.
Operating income as percentage of revenues was unchanged at 8.5% in both years.
Capital expenditures, net of dispositions, were up $12.4 million or 531% to $14.7 million, the
majority of the expenditure in 2020 related to the acquisition of land for CIMCO’s new head office
facility in Canada ($10.3 million). Other expenditures related to additional service vehicles
($2.4 million), information technology enhancements and upgrades ($0.8 million), and machinery
and equipment ($0.3 million).
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Annual Report 2020
18
Bookings and Backlogs
($ millions)
Bookings - year ended December 31
Backlogs - as at December 31
2020
228.3
184.4
$
$
2019
193.6
122.5
$
$
$ change
34.7
61.9
$
$
% change
18%
51%
Bookings of $228.3 million were up $34.7 million or 18%, with higher industrial orders (+54%) in
both Canada (+51%) and the US (+95%), offsetting lower recreational orders (-30%) down in both
Canada (-24%) and the US (-41%).
Backlogs of $184.4 million were higher by $61.9 million or 51% versus last year. Industrial
backlogs were 96% higher on good activity in both Canada (+99%) and the US (+69%), while
recreational backlogs were 13% lower in both Canada (-14%) and the US (-11%). The backlog
levels provide a good base entering 2021. Substantially all of the backlog is expected to be
realized as revenue in 2021, however this is subject to construction schedules and potential
changes stemming from the pandemic.
CONSOLIDATED FINANCIAL CONDITION
The Company’s strong financial position continued.
At December 31, 2020, the ratio of net debt to total capitalization decreased to 3% versus 15% at
December 31, 2019.
Non-cash Working Capital
The Company’s investment in non-cash working capital was $486.8 million at December 31, 2020.
The major components, along with the changes from December 31, 2019, are identified in the
following table.
($ thousands)
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued liabilities
Provisions
Income taxes (payable) receivable, net
Derivative financial instruments
Dividends payable
Deferred revenues and contract liabilities
Total non-cash working capital
$
$
2020
541,580
728,404
10,897
(558,443)
(26,645)
(23,281)
(11,043)
(25,560)
(149,109)
486,800
2019
525,052
912,186
12,063
(797,807)
(23,680)
9,275
(10,366)
(22,139)
(140,898)
463,686
$
16,528
$
(183,782)
(1,166)
239,364
(2,965)
(32,556)
(677)
(3,421)
(8,211)
23,114
$
%
3%
(20%)
(10%)
(30%)
13%
n/m
7%
15%
6%
5%
$
$
Accounts receivable increased $16.5 million or 3% year over year. Trade accounts receivable
and other receivables were down slightly on improved collections within both the Equipment
Group and CIMCO. Days sales outstanding (“DSOs”) decreased 2 days to 41 days, on
improvements in both the Equipment Group (down 2 days) and CIMCO (down 1 day). The
increase in accounts receivable is mainly attributable to unbilled receivables where performance
on projects and other long-term contracts has progressed further than contractual billing
milestones.
9
Toromont Industries Ltd.
19
Inventories decreased $183.8 million or 20%, largely due to a decrease in the Equipment Group,
partially offset by an increase in CIMCO:
Equipment Group inventories were down $197.1 million or 22%, with decreases in
equipment (down $163.9 million or 29%), parts (down $22.1 million or 9%) and service
work-in-process (down $11.1 million or 17%). Equipment inventory was intentionally
reduced from the previous high and in light of market activity. Service work-in-process
levels reflect lower activity levels generally and an enhanced focus on timely billing.
CIMCO inventories were up $13.3 million or 60%, predominantly driven by higher
work-in-process and inventory held to support order backlog.
Other current assets mainly relates to prepaid expenses, which vary year-over-year on the timing
of payments and the realization of expenses.
Accounts payable and accrued liabilities decreased $239.4 million or 30% largely reflecting lower
activity levels. The extended credit terms from suppliers are unwinding as expected, thus
transitioning accounts payable to more normal levels. The DSU liability increased during the year
versus prior year on the higher relative closing share price.
Income taxes (payable) receivable 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 (weaker) have led to a cumulative net loss of
$11.0 million as at December 31, 2020. 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. Effective with the
April 2, 2020 payment, the quarterly dividend rate was increased 14.8% from $0.27 per share to
$0.31 per share.
Deferred revenues and contract liabilities represent billings to customers in excess of revenue
recognized.
In the Equipment Group, these arise due to progress billings from the sale of power and
energy systems; long-term product support maintenance contracts; sales of equipment
with residual value guarantees; and, customer deposits for machinery to be delivered in
the future. These balances were lower in 2020 generally on lower economic activity levels
and timing of progress of work under long-term contracts.
At CIMCO, these arise on progress billings from the sale of refrigeration packages and
were up $22.6 million or 95.8%, reflecting order backlog, and timing of billings compared
to customer’s construction schedules.
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 fair value less
cost to sell valuation method. This assessment affirmed goodwill and intangibles values as at
December 31, 2020 as outlined in note 7 of the notes to the consolidated financial statements.
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Annual Report 2020
20
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, 2020, 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 $2.9 million in 2020 (2019 – $2.7 million)
were charged to selling and administrative expense when paid. Approximately 39% of
employees participate in the plan (2019 – 33%), which is administered by an independent
third party.
3. A deferred share unit (“DSU”) plan for executives, certain senior managers and non-employee
directors. Executives and senior managers may elect, on an annual basis, to receive all or a
portion of their performance incentive bonus in DSUs. Non-employee directors receive
approximately 55% of their annual compensation in the form of DSUs and may also elect to
receive the balance of their annual 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 may be redeemed only 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, 2020, 394,154 DSUs were outstanding with a total value of $35.6 million
(2019 – 388,547 units at a value of $27.4 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.
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Toromont Industries Ltd.
21
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, 2020, approximately 4,100 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 1,600 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 $23.7 million (an increase in the accrued pension
liability) during 2020.
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 $15.6 million as at
December 31, 2020.
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”)
During the year the Company purchased and cancelled 67,800 common shares for $4.0 million
(average cost of $59.62 per share, including transaction costs) under the NCIB program. No
shares were purchased and cancelled in 2019.
The Company’s NCIB program expired in August 2020 and was not renewed.
Shareholder Rights Plan (“SRP”)
A new amended and restated SRP will be presented to a vote of shareholders at our annual and
special meeting on May 5, 2021. The proposed amended and restated SRP, if adopted, would
expire at the earlier of the Termination Time (as defined in the proposed new plan) and the
termination of the annual meeting of our shareholders in the year that is three years after the year
in which such adoption occurs.
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Annual Report 2020
22
Outstanding Share Data
As at the date of this MD&A, the Company had 82,474,658 common shares and 2,335,038 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 2020, the Company declared dividends of $1.24 per common share, $0.31 per quarter
(2019 - $1.08 per common share or $0.27 per quarter).
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Toromont’s liquidity requirements can be met through a variety of sources, including cash
generated from operations, long- and short-term borrowings and the issuance of common shares.
Borrowings are obtained through a variety of senior debentures, notes payable and committed
long-term credit facilities.
Toromont’s debt portfolio is unsecured, unsubordinated and ranks on par with each other.
The Company maintains a $500.0 million revolving credit facility, maturing in October 2022. No
amounts were drawn on this facility at December 31, 2020 and 2019. Standby letters of credit
utilized $30.8 million of the revolving facility (2019 - $33.1 million).
On April 17, 2020, Toromont arranged a $250 million one-year syndicated facility, on substantially
similar terms to the existing revolving credit facility, to provide additional liquidity given the current
economic environment. This facility was undrawn at December 31, 2020.
The Company’s credit arrangements include covenants, restrictions and events of default usually
present in arrangements of this nature, including requirements to meet certain financial tests
periodically and restrictions on additional indebtedness and encumbrances. The Company was
in compliance with all covenants at December 31, 2020 and 2019.
Cash at December 31, 2020, was $591.1 million, compared
December 31, 2019.
to $365.6 million at
The Company expects that cash flows from operations in 2021, together with currently available
cash on hand and credit facilities, will be more than sufficient to fund its requirements for
investments in working capital, capital assets and dividend payments through the next 12 months,
and that the Company’s credit ratings will continue to provide access to capital markets to facilitate
future debt issuance.
Principal Components of Cash Flow
Cash from operating, investing and financing activities, as reflected in the Consolidated
13
Toromont Industries Ltd.
23
Statements of Cash Flows, are summarized in the following table:
($ thousands)
Cash, beginning of period
Cash, provided by (used in):
Operating activities
Operations
Change in non-cash working capital and other
Net rental fleet additions
Investing activities
Financing activities
2020
365,589
$
2019
345,434
$
410,184
(10,096)
(51,060)
349,028
456,240
(156,820)
(153,390)
146,030
(32,553)
(56,558)
(90,878)
(69,173)
Effect of foreign exchange on cash balances
(58)
(144)
Increase in cash in the period
Cash, end of period
225,539
591,128
$
20,155
365,589
$
Cash Flows from Operating Activities
Operating activities provided $349.0 million in 2020 compared to $146.0 million in 2019.
Cash generated from operations decreased on lower net earnings.
Non-cash working capital and other used less cash in 2020 as compared to the prior year. In the
current year, reductions in inventory levels largely offset reductions in accounts payable, resulting
in a 5% increase in non-cash working capital. Inventory levels were reduced in light of market
demand, while reduction of accounts payable reflect the wind-down of extended payment terms
from certain suppliers. In 2019, non-cash working capital increased as cash was used to reduced
accounts payable.
Net rental fleet additions (purchases less proceeds of dispositions) were lower by $102.3 million
compared to 2019. The Company has reduced the level of new investments in the light equipment
rental fleet portfolio across Eastern Canada due to current market conditions as well as in
recognition of the time required to absorb recent investments to full utilization.
The components and changes in non-cash working capital are discussed in more detail in this
MD&A under the heading “Consolidated Financial Condition”.
Cash Flows from Investing Activities
Investing activities utilized less cash, down $24.0 million in 2020, as spending plans were
somewhat curtailed due to economic conditions.
During the first quarter of 2020, a property previously identified as available for sale was disposed
of for $9.4 million, resulting in a capital gain of $4.1 million ($3.5 million after-tax).
Investments in property, plant and equipment, net of disposition proceeds, were $32.4 million in
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Annual Report 2020
24
2020 versus $56.5 million in 2019 as follows:
$9.2 million for land and buildings for new and expanded branches (2019 - $25.5 million);
$15.0 million for service vehicles (2019 - $15.7 million);
$3.6 million for upgrades and enhancements to information technology infrastructure and
furniture and fixtures (2019 - $7.7 million); and
$4.6 million for machinery and equipment (2019 - $7.6 million).
Cash Flows from Financing Activities
Financing activities used $90.9 million in 2020 versus $69.2 million in 2019.
In 2020, the Company purchased and cancelled 67,800 common shares at an average cost of
$59.62 (including transaction costs) for $4.0 million. No shares were purchased and cancelled in
2019.
Other significant sources and uses of cash from financing activities included:
Dividends paid to common shareholders of $98.5 million or $1.20 per share
(2019 - $84.8 million or $1.04 per share);
Cash received on exercise of share options of $22.4 million (2019 - $26.7 million); and
Lease liability payments of $10.3 million (2019 - $10.1 million).
OUTLOOK
The COVID-19 pandemic has resulted in governments worldwide enacting emergency measures
to combat the spread of the virus. These measures, which include the implementation of travel
bans, self isolation and quarantine periods, social distancing, and business operating restrictions
and closures have affected economies and financial markets around the world resulting in an
economic slowdown. This outbreak may also cause staff shortages, affect customer demand and
supply chains, impact capital resources, as well as increase government regulations or
intervention, all of which may negatively impact the business, financial results and conditions of
the Company. Toromont’s businesses were classified as essential in all circumstances requiring
such a designation to date and supports operations. Emergency measures are variable and
evolving based on local conditions. The duration and impact of the COVID-19 outbreak is
unknown at this time and it is not possible to reliably estimate the length and severity of these
developments nor the impact on the financial results and condition of the Company in future
periods.
The Equipment Group’s parts and service business provides stability along with a large and
diversified installed base of equipment, so long as it is working in the field. Prior to the outbreak,
the long-term outlook for infrastructure projects and other construction activity was positive across
most territories. The Company has a large base of mining customers which in some cases saw
reduced operating activities as a result of the COVID-19 implications. These customers and
jurisdictions they operate in continue to evaluate appropriate activity levels on a regular basis.
Longer term, mine expansion is still possible depending on global economic and financial
conditions.
Human capital, including our technician workforce, is one of our most valuable assets and we will
protect that asset to the extent possible. Workforce planning initiatives undertaken to support our
team through this time included voluntary compensation reductions by the executive team and
the Board of Directors; wage increase freezes in some cases; advancement of vacation
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Toromont Industries Ltd.
25
schedules; use of governmental programs such as work share and CEWS subsidies; and,
selective temporary layoffs.
We continue to move forward with our investment in information technology, aligning our
dealership under one operating system as well as facilitating and securing remote access to our
networks. Actions are being balanced between short-term adjustments relative to demand, while
also being sensitive to long-term requirements ensuring the business is positioned well to meet
increased client requirements.
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 once economic, financial and social environments return to a more normalized state.
CIMCO’s installed base and product support levels should underpin current and future operations
and 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 provides growth
opportunities. Strong order backlog supports the business through this turbulent period.
The diversity of the markets served, expanding product offering and services, strong financial
position and disciplined operating culture position the Company well for continued positive results
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
2021
2022
2023
2024
2025 Thereafter
Total
$
-
24,765
$
-
24,765
$
-
24,765
$
-
24,765
$
150,000
23,374
$
500,000
35,200
$
650,000
157,634
584,003
9,152
617,920
$
-
6,527
31,292
$
-
4,977
29,742
$
-
3,281
28,046
$
-
964
174,338
$
-
815
536,015
$
584,003
25,716
1,417,353
$
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.
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Annual Report 2020
26
Years ended December 31,
EXPANDING MARKETS AND BROADENING
PRODUCT OFFERINGS
Revenue growth
Revenue per employee (thousands)
STRENGTHENING PRODUCT SUPPORT
Product support revenue growth
INVESTING IN OUR RESOURCES
2020
2019
2018
2017
2016
-5.4%
554
$
5.0%
575
$
49.1%
573
$
22.9%
487
$
3.5%
533
$
-4.4%
10.1%
60.4%
16.3%
7.6%
Investment in information technology (millions)
Return on capital employed (1)
$
37.7
20.4%
$
34.8
22.9%
$
27.4
21.7%
$
15.0
21.5%
$
15.2
24.5%
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)
$
$
486.8
3%
20.60
$
$
463.7
15%
18.70
$
$
309.5
18%
16.35
$
$
608.8
40%
13.89
$
$
388.5
-4%
11.29
-11.9%
14.8%
16.6%
13.5%
17.4%
21.4%
39.4%
21.1%
22.3%
11.6%
5.6%
19.3%
6.3%
5.9%
20.0%
(1) Defined in the sections titled "Additional GAAP Measures and Non-GAAP Measures".
Measuring Toromont’s results against these strategies over the past five years illustrates that the
Company has delivered consistent, steady growth. 2020 was an abnormal year due to the
pandemic and we have seen a decline in our calculated metrics reflective of the current economic
and market environment. The Toromont team continues to drive long-term, sustainable
improvements and invest in our resources, while remaining focused on our three priorities,
namely, safeguarding our employees, servicing our customers’ needs and protecting our business
for the future.
The addition of the Quebec and Maritimes territories in October 2017, bolstered these key
performance measures and provides a larger platform for continued growth. The 2018 amounts
shown above include one full year of operations in the acquired territories, and are fully
comparable to 2019 and 2020. Results for 2017 include the two months of operations under
Toromont’s ownership, thereby affecting the comparability of results versus the prior years.
Since 2016, revenues increased at an average annual rate of 15.0%, with product support
growing at 18.0% annually. Over this period, revenue growth has been mainly a result of:
In 2017 and 2018, the acquisition of the Hewitt Group of Companies, which contributed
$242.6 million and $1.3 billion to revenue respectively;
Increased customer demand in certain market segments, most notably construction and
mining;
Increased customer demand for formal product support agreements;
Organic growth through increased rental fleet size and additional branches;
Additional product offerings over the years from Caterpillar and other suppliers; and
Governmental funding programs that provide support for infrastructure spending.
Over the same five-year period, revenue growth has been constrained at times by a number of
17
Toromont Industries Ltd.
27
factors including:
General economic weakness and uncertainty in specific sectors;
Volatility in commodity prices;
Competitive conditions;
Inability to source equipment and parts from suppliers to meet customer demand or
delivery schedules;
Ability to hire necessary skilled technicians to service the market demand;
Declines in underlying market conditions such as depressed US industrial markets and
Manitoba agricultural markets;
Recent political trade wars between the USA and China which have created uncertainty
and adversely impacted several industries, including steel and agriculture; and
The COVID-19 pandemic in 2020, reflect the significant downturn in economic activity,
disrupting normal operations, stemming in part from site restrictions and closures and
timing of delivery of project schedules.
Changes in the Canadian/US exchange rate also affect reported revenues as the exchange rate
impacts the purchase price of equipment that, in turn, is reflected in selling prices. Since 2015,
there have been fluctuations in the average yearly exchange rate of the Canadian dollar against
the US dollar, during which time it has ranged between $0.75 and $0.77 and averaged $0.76,
however, there have been periods of higher volatility.
Toromont has generated a significant competitive advantage by investing in its resources, in part
to increase productivity levels, as well as to maintain our systems to be relevant in the ever-
changing technological environment in which we operate. We will continue this into the future as
it is a crucial element to our success in the marketplace.
Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of
net debt to total capitalization, was 3% at the end of 2020 versus 15% at the end of 2019. An
additional credit facility was secured in early 2020, in an abundance of caution in an uncertain
economic environment, bringing total revolving credit lines to $750 million; no amounts were
drawn on these facilities as at December 31, 2020. The decrease in the leverage ratio reflects
strong cash generation from operations.
Toromont has paid dividends consistently since 1968 and has increased the dividend in each of
the last 32 years. The regular quarterly dividend rate was increased 14.8% from $0.27 per share
to $0.31 per share in 2020, evidencing our commitment to delivering exceptional shareholder
value.
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Annual Report 2020
28
CONSOLIDATED FOURTH QUARTER OPERATING RESULTS
Three months ended December 31
($ thousands, except per share amounts)
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
$
2020
992,185
747,697
244,488
117,306
127,182
7,286
(3,075)
122,971
34,021
$
2019
1,025,190
770,016
255,174
126,976
128,198
6,854
(3,166)
124,510
34,056
$ change % change
(3%)
$
(3%)
(4%)
(8%)
(1%)
6%
(3%)
(1%)
(0%)
(33,005)
(22,319)
(10,686)
(9,670)
(1,016)
432
91
(1,539)
(35)
88,950
90,454
(1,504)
(2%)
(2%)
BASIC EARNINGS PER SHARE
$
1.08
$
1.10
$
(0.02)
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
24.6%
11.8%
12.8%
27.7%
24.9%
12.4%
12.5%
27.4%
Fourth quarter results reflect continued lower economic activity levels stemming from the
pandemic. While activity has improved on a sequential basis, it is still lower than the comparative
period in 2019, reflecting continued site restrictions and general market uncertainty.
Revenues decreased $33.0 million or 3% on weaker revenues in the Equipment Group (-4%),
partially offset by higher revenues at CIMCO (+3%). Equipment Group reported reduced
equipment sales and rental activity was lower. CIMCO reported strong package sales as
progressed continued on projects. Product support activity continued in both Groups, supported
by the essential nature of these services, down 1% in the quarter compared to last year.
Gross profit margin decreased 30 bps to 24.6% in the quarter, with lower reported gross margins
in both the Equipment Group and CIMCO.
Selling and administrative expenses decreased $9.7 million or 8% in the fourth quarter compared
to the prior year. Compensation costs decreased $4.8 million including senior leadership and
Board wage reductions, governmental work-share and subsidy programs, temporary lay offs, and
reduced profit sharing accruals on the lower earnings. Mark-to-market adjustments on DSU
increased expenses by $2.5 million. Sales related and other travel and training expenses were
$6.1 million lower in light of lower market activity and travel restrictions. As a percentage of
revenues, expenses improved 60 bps to 11.8% in 2020 compared to 12.4% in 2019.
Operating income decreased $1.0 million or 1% reflecting the lower activity levels in the
Equipment Group, partially offset by improvements at CIMCO. Operating income margin
increased 30 bps to 12.8%.
Interest expense increased $0.4 million in the quarter due to financing costs related to the higher
debt levels.
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Toromont Industries Ltd.
29
Interest income decreased $0.1 million resulting from higher interest from conversions of RPOs
offset by lower interest earned on average cash balances, reflective of market interest rates.
The effective income tax rate for the fourth quarter was 27.7% compared to 27.4% in 2019.
Net earnings in the quarter were down $1.5 million or 2% to $88.9 million. Basic EPS decreased
$0.02 or 2% to $1.08 versus $1.10 in 2019.
BUSINESS SEGMENT FOURTH QUARTER OPERATING RESULTS
Equipment Group
Three months ended December 31
($ thousands)
Equipment sales and rentals
New
Used
Rentals
Total equipment sales and rentals
Product support
Power generation
Total revenues
Operating income
2020
2019
$ change % change
$
$
$
335,035
111,446
100,448
546,929
347,153
2,822
896,904
114,976
$
$
363,660
99,589
114,729
577,978
352,243
2,910
933,131
117,728
$
$
(28,625)
11,857
(14,281)
(31,050)
(5,090)
(88)
(36,228)
(2,752)
$
$
(8%)
12%
(12%)
(5%)
(1%)
(3%)
(4%)
(2%)
Bookings ($ millions)
$
563.3
$
415.1
$
148.2
36%
KEY RATIOS:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
38.7%
12.8%
90.4%
37.7%
12.6%
91.0%
The Equipment Group continued to see gradual recovery of results from the more significantly
reduced activity levels in the earlier part of the year. Restrictions vary by jurisdiction and activity
is still below prior year’s levels. New order bookings increased late in the quarter, which is
supportive for next year.
Total equipment sales (new and used) decreased $16.8 million or 4%. Higher sales into
construction (up 8%) were offset by lower sales into mining (down 28%), power systems
(down 30%), material handling (down 9%) and agricultural markets (down 20%).
Rental revenues decreased $14.3 million or 12%. All markets and most segments were lower
reflecting the reduction in market activity. Revenue declines in each market for the quarter were
as follows: Light equipment rentals 8%, Power 13%, Heavy rental in the construction market 5%
and Material Handling 8%. Rental revenues from RPO equipment were down 44% reflecting a
reduced fleet on both market demand and focused efforts to minimize fleet investments.
Product support revenues decreased $5.1 million or 1% on lower service (down 5%) while parts
were relatively unchanged from the comparable period last year. Service activity levels decreased
across most market segments: mining (down 13%); power systems (down 10%) and material
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Annual Report 2020
30
handling (down 6%), partially offset by increases in the construction (up 15%) and agricultural
market (up 9%).
Gross margins decreased 10 bps in the quarter versus last year. Equipment margins were lower,
down 40 bps, on product mix. Product support margins were also lower, down 60 bps, reflective
of lower activity levels. Rental gross margins improved in quarter compared to the comparable
period last year, up 70 bps, reflective of reductions in the rental fleet made over the last year.
Sales mix was also favourable (positive 20 bps) with a larger proportion of product support
revenues to total.
Selling and administrative expenses decreased $7.8 million or 7%. Governmental subsidies under
the CEWS program reduced expenses by $4.1 million. Compensation costs continued to
decrease on strategic initiatives mentioned previously. Travel and training was restricted through
much of the quarter, resulting in additional $2.5 million in savings.
Operating income decreased $2.8 million or 2% in the quarter. Operating income was 12.8% as
a percentage of revenues, 20 bps higher than the comparable period last year, mainly reflecting
the lower expenses.
Bookings increased $148.2 million or 36% to $563.3 million reflecting strong activity in
construction (+37%), mining (+107%), and agricultural (+48%). This was partially offset by lower
power systems (-8%) and material handling lift truck orders (-14%).
CIMCO
Three months ended December 31
($ thousands)
Package sales
Product support
Total revenues
Operating income
2020
53,934
41,347
95,281
12,206
$
$
$
2019
50,780
41,279
92,059
10,470
$
$
$
$ change % change
6%
$
-
3%
17%
3,154
68
3,222
1,736
$
$
Bookings ($ millions)
$
24.5
$
44.4
$
(19.9)
(45%)
KEY RATIOS:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
43.4%
12.8%
9.6%
44.8%
11.4%
9.0%
CIMCO’s results in the fourth quarter were higher, despite the pandemic, which continues to
impact the business with some project delays, as strong backlog, good margins in product
support, and reduced expenses all contributed to favourable results year-over-year. Translation
of US operations did not have a significant impact on results.
Package revenues were up $3.2 million or 6% in the quarter compared to last year. In Canada
revenues were up 6%, with increases in both the industrial (+2%) and recreational (+14%) market
segment. In the US, package sales were up 9% on strong recreational revenues (+20%), partially
offset by lower industrial activity (down 14%).
Product support revenues were in line with last year as growth in the US (+7%) was offset by a
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Toromont Industries Ltd.
31
slight decrease in Canada (-1%). Site closures and restrictions, particularly in the recreational
segment, resulted in reduced activity.
Gross margins, decreased 100 bps in the quarter on lower package sales margins, partially offset
by higher product support margins and an unfavourable sales mix of lower product support
revenues to total sales.
Selling and administrative expenses decreased $1.8 million or 13%. Governmental subsidies
under the CEWS program reduced expenses by $0.6 million. Compensation costs have increased
in part for hiring of staff to support the substantial backlog of orders while other expenses such
as bad debts, travel and training were lower.
Operating income increased $1.7 million in the quarter on reduced expenses. As a percentage of
revenues, operating income improved to 12.8% in 2020 versus 11.4% in 2019.
Bookings decreased $19.9 million or 45% to $24.5 million on weaker orders in both Canada and
the US. Overall recreational orders were down in both Canada (-16%) and the US (-68%), while
industrial orders increased in the US (183%) but were down in Canada (-54%).
QUARTERLY RESULTS
The following table summarizes unaudited quarterly consolidated financial data for the eight most
recently completed quarters. This quarterly information is unaudited but has been prepared on
the same basis as the 2020 annual audited consolidated financial statements.
($ thousands, except per share amounts)
Q1 2020
Q2 2020
Q3 2020
Q4 2020
REVENUES
Equipment Group
CIMCO
Total revenues
$ 657,776 $ 776,703 $ 834,716 $ 896,904
57,683 72,894 86,940 95,281
$ 715,459 $ 849,597 $ 921,656 $ 992,185
NET EARNINGS
$ 37,396 $ 51,210 $ 77,359 $ 88,950
PER SHARE INFORMATION:
Basic earnings per share
Diluted earnings per share
Dividends paid per share
Weighted average common shares
outstanding - basic (in thousands)
$
1.08
$
1.07
$ 0.27 $ 0.31 $ 0.31 $ 0.31
$
$
$
$
$
$
0.94
0.94
0.46
0.45
0.62
0.62
82,015 82,024 82,195 82,373
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Annual Report 2020
32
($ thousands, except per share amounts)
Q1 2019
Q2 2019
Q3 2019
Q4 2019
REVENUES
Equipment Group
CIMCO
Total revenues
NET EARNINGS
PER SHARE INFORMATION:
Basic earnings per share
Diluted earnings per share
Dividends paid per share
Weighted average common shares
outstanding - basic (in thousands)
$ 633,875 $ 895,457 $ 881,487 $ 933,131
66,099 82,863 93,734 92,059
$ 699,974 $ 978,320 $ 975,221 $ 1,025,190
$ 39,261 $ 77,398 $ 79,687 $ 90,454
1.10
$
$
1.10
$ 0.23 $ 0.27 $ 0.27 $ 0.27
$
$
$
$
$
$
0.48
0.48
0.95
0.94
0.98
0.97
81,326 81,510 81,622 81,897
Interim period revenues and earnings historically reflect variability from quarter to quarter due to
seasonality.
The Equipment Group has historically had a distinct seasonal trend in activity levels. Lower
revenues are recorded during the first quarter due to winter shutdowns in the construction
industry. The fourth quarter had typically been the strongest due in part to the timing of customers’
capital investment decisions, delivery of equipment from suppliers for customer-specific orders
and conversions of equipment on rent with a purchase option. This pattern is impacted by the
timing of significant sales to mining and other customers, resulting from the timing of mine site
development and access, and construction project schedules.
CIMCO has also had a distinct seasonal trend in results historically, due to timing of construction
activity. Lower revenues are recorded during the first quarter on slower construction schedules
due to winter weather. Revenues increase in subsequent quarters as construction schedules
ramp up. This trend can be, and has been, impacted somewhat by significant governmental
funding initiatives and significant industrial projects.
Historically, inventories have increased through the year to meet the expected demand for higher
deliveries in the third and fourth quarters of the fiscal year. This seasonal sales trend also leads
accounts receivable to be at their highest level at year-end.
Year-over-year quarterly comparisons were impacted by the governmental and market response
and reaction to COVID-19. Revenues and earnings for the first quarter of 2020 were trending up
from the prior year before the onset of the pandemic, with results ending largely flat to 2019. The
second quarter experienced the most significant slowdown in market activity, resulting in
reduction in revenues and earnings quarter-over-quarter. Market activity improved in the third
quarter sequentially, but was still below that of the prior year. Continued improvements were
noted in the fourth quarter of the year on a sequential basis, although activity remained below that
of the prior year.
23
Toromont Industries Ltd.
33
SELECTED ANNUAL INFORMATION
(in thousands, except per share amounts)
Revenues
Net earnings
Earnings per share ("EPS")
- Basic
- Diluted
Dividends declared per share
Total assets
Total long-term debt
Weighted average common shares outstanding -
basic (in millions)
2020
2019
2018
$
$
3,478,897
254,915
$
$
3,678,705
286,800
$
$
3,504,236
251,984
$
3.10
$
3.52
$
3.10
$
$
3.09
1.24
$
3.49
$
3.07
$
1.08
$
0.92
$
3,346,792
$
3,371,337
$
3,234,531
$
646,299
$
645,471
$
645,562
82.2
81.6
81.2
Revenues decreased 5% in 2020. Equipment Group revenues decreased 5% on lower product
support, new equipment sales and rentals reflecting significant downturn in economic activity as
a result of the COVID-19 pandemic, slightly offset by increased used equipment sales and prime
power generation projects. CIMCO revenues were down 7% on reduced construction activity
stemming in part from construction and recreational site restrictions and closures related to the
pandemic. Timing of receipt of orders and customer specific construction schedules also affect
timing of revenue recognition. Product support activity continued given the essential nature of the
business, albeit at lower levels, along with lower package sales. Revenues grew 5% in 2019
compared to 2018. Equipment Group revenues increased 6% on growth in product support, total
new and used equipment sales and rentals resulting from good market activity and increased
investment in the rental fleets. CIMCO revenues were down 2% as continued growth in product
support activity was offset by lower package sales.
Net earnings decreased 11% in 2020, largely reflecting the lower revenue levels in both the
Equipment Group and CIMCO. Lower selling and administrative expenses due to the curtailment
of non-essential expenditures was slightly off set by increased financing costs from the increased
credit facility. Net earnings increased 14% in 2019 compared to 2018. Equipment Group delivered
good results on the higher revenues and a lower relative expense ratio, while CIMCO’s results
improved on better project execution and a one-time inventory write-down in 2018 which did not
repeat. Net interest expense was lower in 2019 as strong cash inflows resulted in lower net debt
levels.
Dividends have generally increased in proportion to trailing earnings growth. The quarterly
dividend rate continued to increase - in 2018 by 21.1% to $0.23 per share, in 2019 by 17.4% to
$0.27 per share, and in 2020, by 14.8% to $0.31. The Company has paid dividends every year
since 1968.
Total assets decreased 1% in 2020. Equipment inventory was intentionally reduced from the
previous high levels and in light of reduced economic activity. Investments in light equipment
rental fleet was also reduced due to current market conditions, as well as in recognition of the
time required to absorb recent significant investments to full utilization. In 2019, total assets
increased 4% on continued investments in the rental fleets and capital assets, as well as higher
inventory levels held generally in support of the expanded business territory and volumes.
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Annual Report 2020
34
Long-term debt was largely unchanged from 2019. During 2020, the Company drew on the term
credit facility in an abundance of caution early in the year at the start of the pandemic. These
amounts were repaid within the year, in light of more stable market conditions and continued
strong cash balances and cash flows.
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. Lower commodity prices reduces short term demand as development of
new and existing projects may be curtailed or deferred, 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.
(“Caterpillar”) under a dealership agreement that dates back to 1993. As is customary in
distribution arrangements of this type, the agreement with Caterpillar can be terminated by either
party upon 90 days’ notice. In the event Caterpillar terminates, it must repurchase substantially
all inventories of new equipment and parts at cost. Toromont has maintained an excellent
relationship with Caterpillar since inception and management expects this will continue going
forward.
Toromont is dependent on the continued market acceptance of Caterpillar’s products. It is
believed that Caterpillar has a solid reputation as a high-quality manufacturer, with excellent brand
recognition and customer support as well as leading market shares in many of the markets it
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Toromont Industries Ltd.
35
serves. However, there can be no assurance that Caterpillar will be able to maintain its reputation
and market position in the future. Any resulting decrease in the demand for Caterpillar products
could have a material adverse impact on the Company’s business, results of operations and future
prospects.
Toromont is also dependent on Caterpillar for timely supply of equipment and parts. From time to
time during periods of intense demand, Caterpillar may find it necessary to allocate its supply of
particular products among its dealers. Such allocations of supply have not in the past proven to
be a significant impediment in the conduct of business. However, there can be no assurance that
Caterpillar will continue to supply its products in the quantities and timeframes required by
customers.
Competition
The Company competes with a large number of international, national, regional and local
suppliers in each of its markets. Although price competition can be strong, there are a number of
factors that have enhanced the Company’s ability to compete throughout its market areas
including the range and quality of products and services, ability to meet sophisticated customer
requirements, distribution capabilities including number and proximity of locations, financing
offered by Caterpillar Finance, e-commerce solutions, reputation and financial strength.
Increased competitive pressures or the inability of the Company to maintain the factors that have
enhanced its competitive position to date could adversely affect the Company’s business, results
of operations or financial condition.
Specialized Skills
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.
The Company addresses this issue by attempting to become the “employer of choice” for
technicians in the industries in which we operate, as well as encouraging and attracting young
people to the trades, and investing in on-going training and development of the current workforce.
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
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Annual Report 2020
36
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 can have an impact on revenue trends.
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, while a weaker Canadian dollar can
increase reported 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. The
Canadian dollar averaged US$0.75 in both 2020 and 2019.
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.
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Toromont Industries Ltd.
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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, 2020, the Company’s outstanding debt of $650.0 million bears interest at fixed-
rates 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 facilities totalling $750.0 million bear interest at floating-rates and
exposes the Company to fluctuations in short-term interest rates by causing related interest
payments and finance expense to vary. At December 31, 2020, no amounts were drawn on these
facilities while standby letters of credit utilized $30.8 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.
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Annual Report 2020
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Information Technology and Cybersecurity Risk
The Company depends on information technology infrastructure and systems, hosted internally
or outsourced, to conduct day-to-day operations and for the effective operation of our business.
Our business also requires the appropriate and secure utilization of sensitive and confidential
information belonging to third parties such as our customers and suppliers. While we strive to
leverage technology to meet the growing needs of our customers and enhance the efficiency of
our operations, it nevertheless comes with information security and cybersecurity risks.
These risks include information technology system failures and non-availability, and cyber-
attacks, including but not limited to hacking, malware, unauthorized access to confidential,
proprietary or sensitive information or other breaches of network or Information Technology (IT)
security. The Company continues to monitor and enhance its defences and procedures to
prevent, detect, respond to and manage these threats, which are constantly evolving. Disruption
to information systems or breaches of security could result in a negative impact on the Company’s
financial results or result in reputational damage.
Pandemic Risk (Coronavirus COVID-19)
A pandemic can create significant volatility, uncertainty and economic disruption. The outbreak of
the novel strain of coronavirus COVID-19 has resulted in governments worldwide enacting
emergency measures to contain the spread of the virus including the implementation of travel
bans, self-imposed quarantine periods, self-isolation, physical and social distancing and at times,
the closure of non-essential businesses. These, and potential future emergency measures and
restrictions, have and may cause, significant disruption to businesses in Canada and globally,
resulting in an uncertain and challenging economic environment.
Global debt and equity capital markets have experienced significant volatility. Governments and
central banks have reacted with considerable monetary and fiscal interventions designed to
stabilize economic conditions.
As an emerging risk, the duration and impact of the COVID-19 pandemic is unknown at this time,
as is the efficacy of the government and central bank interventions. Any estimate of the length
and severity of these developments is therefore subject to significant uncertainty, and accordingly
estimates of the extent to which the COVID-19 pandemic may, directly or indirectly, materially
and adversely affect the Company’s operations, financial results and condition in future periods
are also subject to significant uncertainty.
The risks and uncertainties disclosed previously above could be particularly exacerbated by
extraordinary externalities such as the COVID-19 pandemic and the recent commodity price
challenges, including, risks described under “Business Cycle”, “Product and Supply”, “Specialized
Skills”, “Credit Risk”, “Foreign Exchange”, “Interest Rate”, “Financing Arrangements” and
“Environmental Regulation”. Such risks include, but are not limited to:
a) uncertainty associated with the costs and ability of resources, including technicians,
required to provide the appropriate/required levels of service to our customers on site;
b) a material reduction in demand for, or profitability of, our products or services;
c) an increase in accounts receivable delinquencies from financial hardship for our
customers;
29
Toromont Industries Ltd.
39
d)
e)
f)
g)
issues delivering the Company’s products and services due to illness, Company or
government imposed isolation programs, restrictions on the movement of personnel and
supply chain disruptions;
the impact of additional legislation, regulation and other government interventions in
response to the COVID-19 pandemic;
the negative impact on global debt and equity capital markets, including the trading price
of the Company’s securities; and
the ability to access capital markets at a reasonable cost.
Any of these risks, and others, could have a material adverse effect on our business, operations,
capital resources and/or financial results of operations.
In response to the COVID-19 pandemic, management has directed significant focus towards
ensuring the ongoing safety of our employees, continuing to serve our customers’ needs as an
essential service, and protecting the business and organization for the long-term. A Critical
Incident Executive Response Team was activated at an early stage and continues to assess
developments and respond appropriately, including limiting business travel, enabling work from
home where practical, enforcing social distancing practices, mask wearing and sanitation
protocols in all areas. Steps have also been taken to ensure that information technology, including
remote access, is secure. The Company is regularly updating employees to provide information
on the situation and on necessary precautions to take. We continue to have an open dialogue
with public safety and government officials at all levels, as well as key suppliers, partners, and
customers.
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
No changes in accounting policies were adopted in 2020 as a result of new standards and
interpretations which became effective during the year. The accounting policy Government grants
was adopted in 2020 in light of the Canada Emergency Wage Subsidy program (“CEWS”), which
provided subsidies during the year in response to the pandemic.
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Annual Report 2020
40
Government Grants
Government grants are recognized when there is reasonable assurance that the grant will be
received and all conditions associated with the grant are met. Claims under income-related
government grants are reported in the consolidated income statements as other income included
in selling and administrative expenses. Government grants receivable are recorded in accounts
receivable on the consolidated statements of financial position.
Pending Accounting Changes
A number of amendments to standards have been issued but are not yet effective for the financial
year ending December 31, 2020, 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, 2020.
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, 2020,
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, 2020.
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Toromont Industries Ltd.
41
There have been no changes in the design of the Company’s internal control over financial
reporting during 2020 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.
($ thousands)
Net earnings
plus: Interest expense
less: Interest and investment income
plus: Income taxes
Operating income
$
Three months ended December 31
2019
90,454
6,854
(3,166)
34,056
128,198
2020
88,950
7,286
(3,075)
34,021
127,182
$
$
$
2020
254,915
29,981
(9,083)
96,621
372,434
Years ended December 31
$
$
$
$
2019
286,800
27,707
(9,752)
107,740
412,495
Total Revenues
Operating income margin
992,185
12.8%
1,025,190
12.5%
3,478,897
10.7%
3,678,705
11.2%
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Annual Report 2020
42
Net Debt to Total Capitalization/Equity
Net debt to total capitalization/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
less: Cash
Net debt
Shareholders' equity
Total capitalization
Net debt to total capitalization
Net debt to equity
NON-GAAP MEASURES
$
2020
646,299
591,128
55,171
$
2019
645,471
365,589
279,882
1,698,652
1,753,823
$
1,533,891
1,813,773
$
3%
0.03:1
15%
0.18:1
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
33
2020
1,872,144
794,216
1,077,928
$
$
2019
1,824,254
994,979
829,275
$
$
Toromont Industries Ltd.
43
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
$
2020
1,872,144
591,128
1,281,016
$
2019
1,824,254
365,589
1,458,665
Total current liabilities
794,216
994,979
Non-cash working capital
$
486,800
$
463,686
Market Capitalization & 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 shares and share price)
Outstanding common shares
times: Ending share price
Market capitalization
Long-term debt
less: Cash
Net debt
2020
82,474,658
89.20
7,356,739
$
$
2019
82,012,448
70.59
5,789,258
$
$
$
$
646,299
591,128
55,171
645,471
365,589
279,882
$
$
Total enterprise value
$
7,411,910
$
6,069,140
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.
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Annual Report 2020
44
Gross Profit Margin
This measure is defined as gross profit (defined above) divided by total revenues.
Operating Income Margin
This measure is defined as operating income (defined above) divided by total revenues.
Order Bookings and Backlogs
The Company’s order bookings represent equipment unit orders that management believes are
firm. Backlogs are defined as the retail value of equipment unit ordered by customers for future
deliveries. Management uses order 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
plus: Income taxes
Adjusted net earnings
Average capital employed
Return on capital employed
Return on Equity (“ROE”)
$
$
2020
254,915
29,981
(9,083)
3,529
96,621
375,963
2019
286,800
27,707
(9,752)
4,283
107,740
416,778
$
$
$
1,838,533
20.4%
$
1,823,420
22.9%
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
2020
254,915
$
2019
286,800
$
Opening shareholders' equity (net of adjustments)
Return on equity
$
1,538,817
16.6%
$
1,338,468
21.4%
35
Toromont Industries Ltd.
45
MANAGEMENT’S REPORT TO THE SHAREHOLDERS
The preparation and presentation of the Company’s consolidated financial statements is the
responsibility of management. The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board and necessarily include estimates. The consolidated financial
statements reflect amounts which must, of necessity, be based on the best estimates and
judgment of management. Information contained in the Company’s Management’s Discussion
and Analysis is consistent, where applicable, with that contained in the consolidated financial
statements.
Management maintains appropriate systems of internal control. Policies and procedures are
designed to give reasonable assurance that transactions are appropriately authorized, assets are
safeguarded from loss or unauthorized use and financial records are properly maintained to
provide reliable information for preparation of the consolidated financial statements.
Ernst & Young LLP, an independent firm of Chartered Professional Accountants, were appointed
by the shareholders as external auditor to examine the consolidated financial statements in
accordance with generally accepted auditing standards in Canada and provide an independent
professional opinion. Their report is presented with the consolidated financial statements.
The Board of Directors, acting through an Audit Committee comprised solely of independent
directors, is responsible for determining that management fulfils its responsibilities in the
preparation of the consolidated financial statements and the financial control of operations. The
Audit Committee recommends the independent auditor for appointment by the shareholders. It
meets regularly with financial management and the internal and external auditor to discuss
internal controls, auditing matters and financial reporting issues. The independent auditor has
unrestricted access to the Audit Committee. The consolidated financial statements and
Management’s Discussion and Analysis have been approved by the Board of Directors, based on
the review and recommendation of the Audit Committee.
/s/ S.J. Medhurst
/s/ M.S. McMillan
Scott J. Medhurst
President and
Chief Executive Officer
Michael S. McMillan
Executive Vice President and
Chief Financial Officer
February 10, 2021
Toronto, Canada
1
Annual Report 2020
46
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Toromont Industries Ltd.,
Opinion
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, 2020 and 2019, and the consolidated income statements, consolidated statements
of comprehensive income, consolidated statements of changes in shareholders’ 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, 2020 and 2019,
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 our 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.
Key Audit Matter
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the consolidated financial statements of the current period. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our auditor’s opinion thereon, and we do not provide a separate opinion on these matters.
For the matter below, our description of how our audit addressed the matter is provided in that
context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report, including in relation to this matter.
Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated financial statements. The
results of our audit procedures, including the procedures performed to address the matter below,
provide the basis for our audit opinion on the accompanying consolidated financial statements.
Revenue recognition for long-term refrigeration packages
Key audit matter
The Group sells industrial and recreational
refrigeration packages, which involve the
design, manufacture, installation and
commissioning of longer-term projects under
the customer’s control and can span from
How our audit addressed the key audit
matter
For long-term refrigeration package contracts
that were open as of December 31, 2020, our
audit procedures included the following,
among others:
2
Toromont Industries Ltd.
three months to one year.
Revenue is recognized progressively based
on the percentage-of-completion method.
This method is measured by reference to
costs incurred to date as a percentage of the
total estimated costs. The Group’s policy for
revenue recognition together with the related
significant accounting estimates and
assumptions is described in notes 1 and 2 of
the consolidated financial statements.
The Group recognized $161.1 million of
revenues for the year ended December 31,
2020 related to these contracts. The
determination of the estimated costs to
complete projects that are open at period end
is a significant judgement that can have a
material impact on the amount of revenue
and profit recognized in the period. These
significant judgements include those related
to estimated future labour, materials and
overhead costs for contracts. Given the
variation in the types of refrigeration projects,
these judgements related to the estimation of
future costs are subjective in nature and
dependent on the complexity and status of
the related contract as of the period end date.
47
We obtained an understanding, evaluated the
design, and tested the operating
effectiveness of controls related to the
Group’s estimation processes (including the
approval of the initial budget, and the
monitoring and assessment of contract
activities and estimated costs to complete),
and the recording of revenue in the
consolidated financial statements;
We reviewed contractual arrangements,
including pricing and billing terms, change
orders and terms and conditions impacting
revenue recognition, if any, had discussions
with operational personnel and assessed
whether appropriate approvals were obtained
in accordance with the Company’s
authorization matrix for a sample of projects.
Once a project commenced, we also
obtained and reviewed a sample of meeting
minutes and observed a sample of project
update calls where management and project
managers discussed the status of each
project;
We compared prior period cost estimates to
actual contract costs incurred in the current
period to assess management’s ability to
estimate the costs to complete a contract;
We obtained management’s initial cost
estimates and tested a sample of actual
material and labour costs incurred to assess
the measurement of the estimated costs to
complete at period end; and
We assessed the adequacy of disclosures in
describing the areas of judgement and
estimation uncertainties involving revenue
recognition for projects that are open at
period end.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and 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 statements does not cover the other information and we
do not express any form of assurance conclusion thereon.
3
Annual Report 2020
48
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information, and in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If,
based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact in this auditor’s report. We have nothing to
report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If
based on the work we will perform on this other information, we conclude there is a material
misstatement of other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we
exercise professional judgment and maintain professional skepticism throughout the audit. We
also:
•
Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting
4
Toromont Industries Ltd.
49
from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to
continue as a going concern.
• Evaluate the overall presentation, structure, and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those
matters that were of most significance in the audit of the consolidated financial statements of the
current period and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is
Paula J. Smith.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
5
February 10, 2021
Toronto, Canada
Annual Report 2020
50
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31 ($ thousands)
Assets
Current assets
Cash
Accounts receivable
Inventories
Income taxes recoverable
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
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
Total shareholders' equity
Total liabilities and shareholders' equity
Commitments - see note 22
See accompanying notes
Approved by the Board:
(signed) R. M. Ogilvie
____________________
Robert M. Ogilvie
Director
6
Note
2020
2019
3
4
5
5
6
15
7
$
591,128
541,580
728,404
135
10,897
1,872,144
$
365,589
525,052
912,186
9,364
12,063
1,824,254
423,282
539,412
33,263
504
478,187
3,346,792
$
428,527
592,403
42,105
1,217
482,831
3,371,337
$
6, 18
8
9
12
9
6
10, 12
19
15
11
$
584,003
26,645
149,109
11,043
23,416
794,216
$
819,946
23,680
140,898
10,366
89
994,979
16,383
16,565
646,299
149,451
25,226
1,648,140
16,407
21,734
645,471
125,705
33,150
1,837,446
516,591
14,243
1,169,239
(1,421)
1,698,652
3,346,792
$
490,047
13,088
1,031,097
(341)
1,533,891
3,371,337
$
(signed) C. E. Cranston
____________________
Cathy E. Cranston
Director
Toromont Industries Ltd.
51
$
$
2020
3,478,897
2,643,151
835,746
463,312
372,434
29,981
(9,083)
351,536
96,621
254,915
2019
3,678,705
2,772,583
906,122
493,627
412,495
27,707
(9,752)
394,540
107,740
286,800
$
$
$
$
3.10
3.09
$
$
3.52
3.49
82,152,788
82,620,461
81,590,392
82,076,248
TOROMONT INDUSTRIES LTD.
CONSOLIDATED INCOME STATEMENTS
Years ended December 31 ($ thousands, except share amounts)
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
Note
23
4, 5
14
14
15
16
16
16
16
7
Annual Report 2020
52
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31 ($ thousands)
Net earnings
2020
254,915
$
2019
286,800
$
Other comprehensive loss, net of income taxes:
Items that may be reclassified subsequently to net earnings:
Foreign currency translation adjustments
Unrealized losses on derivatives designated as cash flow hedges
Income tax recovery
Unrealized losses on cash flow hedges, net of income taxes
Realized losses on derivatives designated as cash flow hedges
Income tax recovery
Realized losses on cash flow hedges, net of income taxes
Items that will not be reclassified subsequently to net earnings:
Actuarial and other losses
Income tax recovery
Actuarial and other losses, net of income taxes
Other comprehensive loss
Total comprehensive income
See accompanying notes
(339)
(2,911)
744
(2,167)
1,909
(483)
1,426
(15,213)
4,031
(11,182)
(12,262)
(481)
(12,232)
3,180
(9,052)
4,380
(1,139)
3,241
(25,252)
6,692
(18,560)
(24,852)
$
242,653
$
261,948
8
Toromont Industries Ltd.
53
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 ($ thousands)
Operating activities
Net earnings
Items not requiring cash:
Note
2020
2019
$
254,915
$
286,800
Depreciation and amortization
Stock-based compensation
Post-employment obligations
Deferred income taxes
Gain on sale of rental equipment and property, plant and
equipment
5,6,7,10
21
11
11
Net change in non-cash working capital and other
Additions to rental equipment
Proceeds on disposal of rental equipment
Cash provided by operating activities
Investing activities
Additions to property, plant and equipment
Proceeds on disposal of property, plant and equipment
Increase in other assets
Cash used in investing activities
Financing activities
Repayment of senior debentures
Debt issuance costs
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 during the year
Cash, at beginning of year
Cash, at end of year
Supplemental cash flow information (note 21)
See accompanying notes
166,307
5,731
8,530
(2,919)
(22,380)
410,184
(10,096)
(103,515)
52,455
349,028
(43,290)
10,924
(187)
(32,553)
-
(338)
(98,531)
22,373
(4,043)
(10,339)
(90,878)
162,962
5,730
(3,889)
26,757
(22,120)
456,240
(156,820)
(212,176)
58,786
146,030
(57,202)
737
(93)
(56,558)
(1,022)
-
(84,790)
26,726
-
(10,087)
(69,173)
(58)
225,539
365,589
591,128
$
(144)
20,155
345,434
365,589
$
9
Annual Report 2020
54
TOROMONT INDUSTRIES LTD.
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Share capital
Share capital
Accumulated other comprehensive income (loss)
$
Amount
Number
$
457,800
81,226,383
-
-
-
32,247
Contributed
surplus
12,879
$
-
-
-
(5,521)
786,065
-
32,247
-
-
786,065
$
490,047
5,730
209
-
-
13,088
$
-
-
-
82,012,448
-
26,949
-
-
$
-
(4,576)
-
26,949
(405)
530,010
-
5,731
1,155
-
-
14,243
$
516,591
$
-
-
-
-
-
-
-
-
530,010
(67,800)
-
Accumulated other
comprehensive income (loss)
Amount
$
457,800
-
Retained
earnings
851,049
286,800
(18,560)
-
268,240
-
-
-
32,247
-
-
-
(88,192)
32,247
$
1,031,097
-
254,915
(11,182)
243,733
-
-
-
-
-
(3,638)
26,949
(101,953)
$
1,169,239
-
26,949
(405)
-
-
$
$
$
Foreign
currency
translation
Contributed
adjustments
surplus
2,700
12,879
-
(481)
-
(481)
-
-
-
-
(5,521)
-
-
5,730
-
209
2,219
-
-
(339)
13,088
(339)
-
-
-
-
-
-
-
(4,576)
-
1,880
5,731
1,155
-
-
14,243
$
$
$
490,047
$
Foreign
currency
Total
shareholders'
translation
equity
adjustments
$
1,327,679
2,700
$
286,800
(24,852)
-
261,948
(481)
26,726
(481)
5,730
-
32,456
-
-
(88,192)
-
1,533,891
-
254,915
(12,262)
2,219
242,653
-
22,373
(339)
5,731
28,104
(339)
(4,043)
-
(101,953)
1,698,652
-
-
-
-
1,880
$
$
$
$
$
Total
Cash flow
Retained
hedges
earnings
3,251
$
851,049
-
(5,811)
286,800
(5,811)
(18,560)
-
268,240
5,951
-
(6,292)
(6,292)
-
$
$
$
-
-
-
-
(341)
-
(1,080)
(1,080)
-
-
-
-
-
(1,421)
-
-
-
-
(2,560)
-
-
-
$
(88,192)
-
(741)
1,031,097
(741)
254,915
-
(11,182)
-
-
243,733
-
-
(3,301)
-
$
-
-
(3,638)
(101,953)
1,169,239
82,474,658
$
516,591
$
$
Cash flow
hedges
3,251
-
(5,811)
(5,811)
-
-
-
-
(2,560)
$
-
(741)
(741)
-
-
-
-
-
(3,301)
$
Total
shareholders'
Total
equity
$
5,951
$
1,327,679
$
(341)
$
1,533,891
(6,292)
(6,292)
(1,080)
(1,080)
-
-
-
-
-
-
-
-
-
-
-
286,800
(24,852)
261,948
26,726
5,730
32,456
(88,192)
254,915
(12,262)
242,653
22,373
5,731
28,104
(4,043)
(101,953)
$
(1,421)
$
1,698,652
Number
81,226,383
-
-
-
786,065
82,012,448
($ thousands, except share numbers)
($ thousands, except share numbers)
As at January 1, 2019
Net earnings
As at January 1, 2019
Other comprehensive loss
Net earnings
Total comprehensive income (loss)
Other comprehensive loss
Exercise of stock options
Total comprehensive income (loss)
Stock-based compensation expense
-
Exercise of stock options
Effect of stock compensation plans
786,065
Shares purchased for cancellation
-
Stock-based compensation expense
Dividends declared
-
Effect of stock compensation plans
As at December 31, 2019
Dividends declared
Net earnings
Other comprehensive loss
As at December 31, 2019
Total comprehensive income (loss)
Net earnings
Exercise of stock options
Other comprehensive loss
Stock-based compensation expense
-
Effect of stock compensation plans
Total comprehensive income (loss)
Shares purchased for cancellation
Exercise of stock options
Dividends declared
As at December 31, 2020
82,474,658
Stock-based compensation expense
Effect of stock compensation plans
See accompanying notes
Shares purchased for cancellation
Dividends declared
As at December 31, 2020
530,010
-
-
-
530,010
(67,800)
-
See accompanying notes
10
Toromont Industries Ltd.
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
($ 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 and 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 6,000 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 Board of Directors on
February 10, 2021 on the recommendation of the Audit Committee.
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.
11
Annual Report 2020
56
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 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 statements.
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.
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.
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Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
57
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.
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.
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.
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Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
58
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.
Government Grants
Government grants are recognized when there is reasonable assurance that the grant will be
received and all conditions associated with the grant are met. Claims under income-related
government grants are reported in the consolidated income statements as other income included
in selling and administrative expenses. Government grants receivable are recorded in accounts
receivable on the consolidated statements of financial position.
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.
14
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
59
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
15
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
60
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 testing, goodwill arising from acquisitions is allocated to each of the Company’s
CGUs or group of CGUs expected to benefit from the acquisition. The level at which goodwill is
allocated represents the lowest level at which goodwill is monitored for internal management
purposes, and is not higher than an operating segment. Intangible assets with indefinite lives that
do not have separate identifiable cash flows are also allocated to CGUs or a group of CGUs. Any
potential impairment of goodwill or intangible assets is identified by comparing the recoverable
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 and its value-in-use. If the recoverable amount is less than the
carrying amount, then the impairment loss is allocated first to reduce the carrying amount of any
goodwill and then to the other assets pro-rata on the basis of the carrying amount of each asset. In
determining fair value less costs to sell, recent market transactions are taken into account, if
available. In assessing value-in-use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of
16
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
61
money and the risks specific to the asset. Impairment losses are recognized in the consolidated
income statements.
For non-financial assets other than goodwill and intangible assets with indefinite lives, an
assessment is made at each reporting date whether there is any indication of impairment, or that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the Company estimates the asset’s recoverable amount. An impairment loss is
recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.
A previously recognized impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognized. The reversal is limited so that the carrying amount of the asset does not exceed its
recoverable amount, nor exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is
recognized in the consolidated income statements.
Revenue from Contracts with Customers
Revenue from contracts with customers is recognized when control of the goods or services are
transferred to the customer at an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services.
Sale of Equipment – Revenue is recognized when control of the equipment has been
transferred to the customer. This usually occurs when the equipment is delivered or picked-
up by the customer. The transaction price is documented on the sales invoice and agreed
to by the customer. Payment is generally due at the time of delivery, as such, a receivable
is recognized as the consideration is unconditional and only the passage of time is required
before payment is due. In certain situations, control transfers to the customer through a bill
and hold arrangement when the following criteria are met: (i) there is a substantive reason
for the arrangement; (ii) the equipment is separately identified as belonging to the customer;
(iii) Toromont is no longer able to use the equipment or direct it to another customer; and
(iv) the equipment is currently ready for physical transfer to the customer.
Sale of Equipment with a Guaranteed Residual Value or Repurchase Commitment – The
sale of equipment for which the Company has provided a guarantee to repurchase the
equipment at a predetermined residual value and date is accounted for as an operating
lease in accordance with IFRS 16 – Leases (“IFRS 16”). Revenue is therefore recognized
over the period extending to the date of the residual guarantee.
Sale of Systems – The Company sells systems, including power and energy facilities and
industrial and recreational refrigeration systems, which involve the design, manufacture,
installation and commissioning of longer-term projects under the customer’s control and can
span from three months to one year. Revenue is recognized progressively based on the
percentage-of-completion method. This method is normally measured by reference to costs
incurred to date as a percentage of the total estimated costs as outlined in the contract.
Payment terms are usually based on set milestones outlined in the contract. Periodically:
(i) amounts are received in advance of the associated contract work being performed - these
amounts are recorded as deferred revenues and contract liabilities; and (ii) revenue is
recognized without issuing an invoice – this entitlement to consideration is recognized as
unbilled receivables. Any foreseeable losses on such projects are recognized immediately
in profit or loss as identified.
Equipment Rentals – Revenue is accounted for in accordance with IFRS 16. Revenue is
recognized on a straight-line basis over the term of the agreement. Payment terms are
generally 30 days from invoicing.
Product Support Services – Revenue from product support services includes the sale of
parts and performance of service work on equipment. For the sale of parts, revenue is
17
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
62
recognized when the part is shipped or picked-up by the customer. For the servicing of
equipment, revenue on both the labour and parts used in performing the work is recognized
when 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 and are customer-specific. These contracts are sold either separately or
bundled together with the sale of equipment to a customer. These arrangements cover a
range of services from regular maintenance to major 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
The Company assesses at contract inception whether a contract is, or contains, a lease, that is, if
the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.
Toromont as Lessee
A single recognition and measurement approach is applied for all leases, except for short-term
leases and leases of low-value assets. Right-of-use assets representing the right to use the
underlying assets and lease liabilities representing lease payments are recognized.
Right-of-use assets
Right-of-use assets are recognized at the commencement date of the lease (i.e., the date the
underlying asset is available for use) and are measured at cost, less any accumulated depreciation
and impairment losses. The cost of right-of-use assets includes the amount of lease liabilities
recognized, initial direct costs incurred, and lease payments made at or before the commencement
date, less any lease incentives received. Unless the Company is reasonably certain to obtain
18
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
63
ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are
depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term,
which ranges from three to five years for vehicles and 1 to 15 years for properties. Right-of-use
assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, lease liabilities are recognized and measured at the
present value of lease payments to be made over the lease term. The lease payments include fixed
payments less any lease incentives receivable, variable lease payments that depend on an index
or a rate, and amounts expected to be paid under residual value guarantees.
The interest rate implicit in the lease is used, if readily determinable, to calculate the present value
of lease payments. If not readily determinable, the Company’s incremental borrowing rate at the
lease commencement date is used in the present value calculation. After the commencement date,
the amount of lease liabilities is reduced by the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a 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 assets
The short-term lease recognition exemption is applied to leases that have a lease term of 12 months
or less from the commencement date and do not contain a purchase option. It also applies the
recognition exemption for leases that are considered of low value. Lease payments on short-term
leases and leases of low-value assets are recognized as an expense on a straight-line basis over
the lease term.
Toromont as Lessor
Leases in which the Company does not transfer substantially all the risks and rewards incidental to
ownership of an asset are classified as operating leases. Rental income arising is recognized on a
straight-line basis over the lease terms and is included in the consolidated income statement. Initial
direct costs incurred in negotiating and arranging an operating lease are added to the carrying
amount of the leased asset and recognized over the lease term on the same basis as rental income.
Foreign Currency Translation
The functional and presentation currency of the Company is the Canadian dollar. Each of the
Company’s subsidiaries determines its functional currency.
Transactions in foreign currencies are initially recorded at the functional currency rate prevailing as
at the date of the transaction or at the average rate for the period when this is a reasonable
approximation. Monetary assets and liabilities denominated in foreign currencies are retranslated
at the functional currency spot rate of exchange as at the reporting date. All differences are taken
directly to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial transactions.
The assets and liabilities of foreign operations (having a functional currency other than the
Canadian dollar) are translated into Canadian dollars at the rate of exchange prevailing at the
consolidated statement of financial position dates and the consolidated income statements are
translated at the average exchange rate for the period. The exchange differences arising on
translation are recognized in accumulated other comprehensive income (loss) in shareholders’
19
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
64
equity. On disposal of a foreign operation, the deferred cumulative amount recognized in equity is
recognized in the consolidated income statements.
Share-based Payment Transactions
The Company maintains both equity-settled and cash-settled share-based compensation plans
under which the Company receives services from employees, including senior executives and
directors, as consideration for equity instruments of the Company.
For equity-settled plans, expense is based on the fair value of the awards granted determined using
the Black-Scholes option pricing model and the best estimate of the number of equity instruments
that will ultimately vest. For awards with graded vesting, each tranche is considered to be a separate
grant based on its respective vesting period. The fair value of each tranche is determined separately
on the date of the grant and is recognized as stock-based compensation expense, net of forfeiture
estimate, over its respective vesting period.
For cash-settled plans, the expense is determined based on the fair value of the liability incurred at
each award date. The fair value of the liability is measured by applying quoted market prices.
Changes in fair value are recognized in the consolidated income statements in selling and
administrative expenses.
Employee Future Benefits
For defined contribution plans, the pension expense recorded in the consolidated income statement
is the amount of the contributions the Company is required to pay in accordance with the terms of
the plans.
For defined benefit pension plans and other post-employment benefit plans, the expense is
determined separately for each plan using the following policies:
The cost of future benefits earned by employees is actuarially determined using the
projected unit credit method prorated on length of service and management’s best estimate
assumptions using a measurement date of December 31;
Net interest is calculated by applying the discount rate to the net defined benefit liability or
asset;
Past service costs from plan amendments are recognized immediately in net earnings to
the extent that the benefits have vested; otherwise, they are amortized on a straight-line
basis over the vesting period; and
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognized in retained earnings and included in the consolidated
statements of comprehensive income in the period in which they occur.
Income Taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered
from or paid to taxation authorities.
Deferred income taxes are provided for, using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes at the reporting date. Deferred tax assets and liabilities are measured using enacted or
substantively enacted income tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in income tax rates is recognized in the consolidated income
20
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
65
statements in the period that includes the date of substantive enactment. The Company assesses
recoverability of deferred tax assets based on the Company’s estimates and assumptions. Deferred
tax assets are recorded at an amount that the Company considers probable to be realized.
Current and deferred income taxes, relating to items recognized directly in shareholders’ equity,
are also recognized directly in shareholders’ equity.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized
as part of the cost of the respective asset. All other borrowing costs are expensed in the period they
occur.
Standards Adopted in 2020
The Company has not early-adopted any other standard, interpretation or amendment that has
been issued but is not yet effective.
Amendments Issued but Not Effective
A number of amendments to standards have been issued but are not yet effective for the financial
year ended December 31, 2020, and accordingly, have not been applied in preparing these
consolidated financial statements. The Company reviewed these amendments and concluded that
there would be no impact on adoption given their nature and applicability.
2. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of the Company’s consolidated financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions that affect the reported
amounts of revenue, 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 outbreak of COVID-19 as a pandemic has resulted in a series of public health and emergency
measures that have been put in place to combat the spread of the virus. The duration and impact
of the pandemic is unknown at this time and it is not possible to reliably estimate the impact that
the length and severity of the pandemic will have on the financial results and the condition of the
Company in future periods.
In the process of applying the Company’s accounting policies, management has made the following
judgments, estimates and assumptions that have the most significant effect on the amounts
recognized in the consolidated financial statements.
21
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
66
Sale of Power and Energy Systems and Refrigeration Packages
Revenue is recognized over time for the sale of power and energy systems and refrigeration
packages. Because of the control transferring over time, revenue is recognized based on the extent
of progress towards completion of the performance obligation. The selection of the method to
measure progress towards completion requires judgment and is based on the nature of the products
and services to be provided.
The percentage-of-completion method is used as the measure of progress for these contracts as it
best depicts the transfer of assets to the customer, which occurs as costs are incurred on the
contracts. Under the percentage-of-completion method, the extent of progress towards completion
is measured based on the ratio of costs incurred to date to the total estimated costs of completion
of the performance obligation. Revenue is recorded proportionally as costs are incurred. Costs to
fulfill include labour, materials and subcontractors’ costs, other direct costs, and an allocation of
indirect costs.
This method requires management to make a number of estimates and assumptions about the
expected profitability of the contract. These factors are routinely reviewed as part of the project
management process.
Long-term Maintenance Contracts
These contracts typically have fixed prices based on either machine hours or cost per hour, with
provisions for inflationary and exchange adjustments. Revenue is recognized as work is performed
under the contract based on standard or contract rates. Revenue from maintenance services is
recognized over time, using an input method to measure progress towards complete satisfaction of
the service.
Management makes a number of estimates and assumptions surrounding machine usage, machine
performance, future parts and labour pricing, manufacturers’ warranty coverage and other detailed
factors. These factors are routinely reviewed as part of the project management process.
Property, Plant and Equipment and Rental Equipment
Depreciation is calculated based on the estimated useful lives of the assets and estimated residual
values. Depreciation expense is sensitive to the estimated service lives and residual values
determined for each type of asset. Actual lives and residual values may vary depending on a
number of factors including technological innovation, product life cycles and physical condition of
the asset, prospective use, and maintenance programs.
Impairment of Non-financial Assets
Judgment is used in identifying an appropriate discount rate and growth rate for the calculations
required in assessing potential impairment of non-financial assets. Judgment is also used in
identifying the CGUs to which the intangible assets should be allocated, and the CGU or group of
CGUs at which goodwill is monitored for internal management purposes. The impairment
calculations require the use of estimates related to the future operating results and cash generating
ability of the assets.
Income Taxes
Estimates and judgments are made for uncertainties that exist with respect to the interpretation of
complex tax regulations, changes in tax laws, and the amount and timing of future taxable income.
22
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
67
Inventories
Management is required to make an assessment of the net realizable value of inventory at each
reporting period. These estimates are determined on the basis of age, stock levels, current market
prices, current economic trends and past experience in the measurement of net realizable value.
Allowance for Doubtful Accounts
The Company makes estimates for allowances that represent its estimate of potential losses in
respect of trade receivables. The main components of this allowance are a specific loss component
that relates to individually significant exposures, and a collective loss component established for
groups of similar assets in respect of losses that may have been incurred but not yet specifically
identified. The Company’s allowance is determined by historical experiences, and considers factors
including the aging of the balances, the customer’s credit worthiness, current economic conditions,
expectation of bankruptcies and the economic volatility in the markets/locations of customers.
COVID-19 has increased the measurement uncertainty with respect to the determination of the
allowance for doubtful accounts.
Share-based Compensation
The option pricing model used to determine the fair value of share-based payments requires various
estimates relating to volatility, interest rates, dividend yields and expected life of the options granted.
Fair value inputs are subject to market factors as well as internal estimates. The Company
considers historic trends together with any new information to determine the best estimate of fair
value at the date of grant. Separate from the fair value calculation, the Company is required to
estimate the expected forfeiture rate of equity-settled share-based payments.
Post-employment Benefit Plans
The Company has defined benefit pension plans and other post-employment benefit plans that
provide certain benefits to its employees. Actuarial valuations of these plans are based on
assumptions, which include discount rates, retail price inflation, mortality rates, employee turnover
and salary escalation rates. Judgment is exercised in setting these assumptions. These
assumptions impact the measurement of the net employee benefit obligation, funding levels, the
net benefit cost and the actuarial gains and losses recognized in OCI.
Leases
The lease term is determined as the non-cancellable term of the lease, together with any periods
covered by an option to extend the lease if it is reasonably certain to be exercised.
The Company applies judgment in evaluating whether it is reasonably certain to exercise the option
to renew. All relevant factors that create an economic incentive for it to exercise the renewal are
considered. After the commencement date, the lease term is reassessed if there is a significant
event or change in circumstances that is within the Company’s control and affects its ability to
exercise (or not to exercise) the option to renew.
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its
incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is a rate of interest that the
Company would have to pay to borrow funds, over a similar term and with similar security, in order
to obtain an asset of similar value to the right-of-use asset in a similar economic environment. The
Company estimates the IBR using observable market interest rates and adjusts for entity-specific
estimates, such as credit rating.
23
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
68
3. ACCOUNTS RECEIVABLE
Trade receivables
Less: Allowance for doubtful accounts
Trade receivables, net
Unbilled receivables
Other receivables
The aging of gross trade receivables was as follows:
Current to 90 days
Over 90 days
Trade receivables
$
$
2020
485,429
(20,661)
464,768
53,671
23,141
541,580
2019
491,683
(19,941)
471,742
26,844
26,466
525,052
$
$
$
$
$
$
2020
461,908
23,521
485,429
2019
458,332
33,351
491,683
The movement in the Company’s allowance for doubtful accounts were as follows:
Balance, January 1
Provisions and revisions, net
Balance, December 31
$
$
$
$
The movement in the Company’s unbilled receivables were as follows:
Balance, January 1
Transfer from opening balance to trade receivables
Increase as a result of changes in the measure of progress
Balance, December 31
4. INVENTORIES
Equipment
Repair and distribution parts
Direct materials
Work-in-process
Work-in-process (contracts)
2020
19,941
720
20,661
2020
26,844
(23,597)
50,424
53,671
2020
407,240
230,877
5,055
53,398
31,834
728,404
$
$
$
$
$
$
$
$
2019
19,484
457
19,941
2019
28,738
(27,523)
25,629
26,844
2019
571,134
253,077
5,057
69,915
13,003
912,186
The amount of inventory recognized as an expense in cost of goods sold (accounted for other than
by the percentage-of-completion method) during 2020 was $2.2 billion (2019 - $2.2 billion). In 2020
cost of goods sold included a net reversal of write-downs of $4.0 million. In 2019 cost of goods sold
included inventory write-downs pertaining to obsolescence and aging, net of reversal of write-downs
of $1.4 million.
24
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
69
5. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT
Land
Buildings
Equipment
Power
Generation
Property,
Plant and
Equipment
Rental
Equipment
Cost
January 1, 2020
Additions
Disposals
Currency translation effects
December 31, 2020
$
$
$
$
$
$
147,701
11,084
(3,450)
(3)
155,332
$
292,553
8,570
(3,803)
(54)
297,266
239,134
23,493
(17,480)
(122)
245,025
39,140
542
-
-
39,682
718,528
43,689
(24,733)
(179)
737,305
$
$
Accumulated depreciation
January 1, 2020
Depreciation expense
Depreciation of disposals
Currency translation effects
December 31, 2020
Net book value - December 31, 2020
-
$
-
-
-
$
-
$
155,332
102,140
13,326
(1,231)
(9)
114,226
183,040
155,098
27,707
(17,314)
(87)
165,404
79,621
$
$
$
$
32,763
1,630
-
-
34,393
5,289
290,001
42,663
(18,545)
(96)
314,023
423,282
$
$
$
$
$
$
$
$
$
$
940,708
88,942
(96,671)
-
932,979
348,305
107,122
(61,860)
-
393,567
539,412
$
$
$
$
Cost
January 1, 2019
Additions
Disposals
Currency translation effects
December 31, 2019
Land
Buildings
Equipment
Power
Generation
Property,
Plant and
Equipment
Rental
Equipment
$
$
$
$
$
$
129,699
18,071
(61)
(8)
147,701
285,795
7,304
(411)
(135)
292,553
216,679
30,791
(8,047)
(289)
239,134
$
$
39,054
86
-
-
39,140
Accumulated depreciation
January 1, 2019
Depreciation expense
Depreciation of disposals
Currency translation effects
December 31, 2019
Net book value - December 31, 2019
-
$
-
-
-
$
-
$
147,701
$
$
$
$
$
89,655
12,796
(290)
(21)
102,140
190,413
137,646
25,344
(7,697)
(195)
155,098
84,036
$
$
$
$
31,150
1,613
-
-
32,763
6,377
$
$
671,227
56,252
(8,519)
(432)
718,528
258,451
39,753
(7,987)
(216)
290,001
428,527
$
$
$
$
836,035
196,011
(91,338)
-
940,708
294,505
108,265
(54,465)
-
348,305
592,403
$
$
$
$
During 2020, depreciation expense of $128.6 million was charged to cost of goods sold
(2019 - $125.7 million) and $21.2 million was charged to selling and administrative expenses
(2019 - $22.4 million).
Property, plant and equipment as at December 31, 2020 included $0.5 million (2019 - $5.2 million)
related to properties that are available-for-sale.
Operating income from rental operations for the year ended December 31, 2020, was $38.4 million
(2019 - $53.3 million).
25
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
70
6. OTHER ASSETS AND LEASE LIABILITIES
Right-of-use assets
Equipment sold with guaranteed residual values
Other
Other assets
Right-of-use Assets and Lease Liabilities
$
$
2020
24,967
5,304
2,992
33,263
2019
30,975
8,325
2,805
42,105
$
$
Activity within right-of-use assets and lease liabilities during the year was as follows:
Properties
Right-of-use Assets
Vehicles
Total
Lease
Liabilities
$
$
$
$
January 1, 2020
Additions and remeasurements
Depreciation expense
Disposals and expirations
Payments
December 31, 2020
January 1, 2019
Additions
Depreciation expense
Payments
December 31, 2019
$
$
$
$
Properties
Right-of-use Assets
Vehicles
Total
Lease
Liabilities
$
$
$
$
15,320
230
(5,711)
(150)
-
9,689
15,740
5,466
(5,886)
-
15,320
30,975
6,247
(10,668)
(1,587)
-
24,967
33,765
7,745
(10,535)
-
30,975
31,423
6,247
-
(1,615)
(10,339)
25,716
33,765
7,745
-
(10,087)
31,423
15,655
6,017
(4,957)
(1,437)
-
15,278
18,025
2,279
(4,649)
-
15,655
$
$
$
$
The current portion of lease liabilities as at December 31, 2020 of $9.2 million (2019 - $9.7 million)
is included in accounts payable and accrued liabilities on the consolidated statement of financial
position.
The following amounts were recognized in the consolidated income statements during the year:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases and leases of low-value assets
$
$
2020
10,668
905
176
11,749
2019
10,535
991
223
11,749
$
$
Cash outflows for leases in 2020 were $10.3 million (2019 - $10.1 million).
The future cash outflows relating to leases are disclosed in note 22.
26
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
7. GOODWILL AND INTANGIBLE ASSETS
71
Patents
and
Licenses
Customer
Order
Backlog
ERP
System
Customer
Relationships
Distribution
Networks Goodwill
Total
$
$
$
500
500
500
$
$
$
8,691
8,691
8,691
$
$
$
5,000
5,000
5,000
$
$
$
15,137
15,137
15,137
$
$
$
371,551
371,551
371,551
$
$
$
93,780
93,780
93,780
$
$
$
494,659
494,659
494,659
$
$
$
$
176
30
206
30
236
$
$
4,642
556
5,198
722
5,920
$
$
$
1,333
1,000
2,333
2,000
4,333
$
$
$
2,199
1,892
4,091
1,892
5,983
$
-
-
-
$
-
$
-
$
-
-
-
$
-
$
-
$
8,350
3,478
11,828
4,644
16,472
$
$
$
$
294
264
$
$
3,493
2,771
$
$
2,667
667
$
$
11,046
9,154
$
$
371,551
371,551
$
$
93,780
93,780
$
$
482,831
478,187
Cost
January 1, 2019
December 31, 2019
December 31, 2020
Accumulated amortization
January 1, 2019
Amortization expense
December 31, 2019
Amortization expense
December 31, 2020
Net book value -
December 31, 2019
December 31, 2020
Goodwill
The carrying amount of goodwill has been allocated as follows:
2020
2019
Equipment Group
Toromont Cat
Battlefield Equipment Rentals
CIMCO
$
$
89,270
4,060
450
93,780
89,270
4,060
450
93,780
$
$
The Company performed the annual impairment test as at December 31, 2020. The recoverable
amounts have been determined based on the fair value less costs to sell (FVLCS) based on a range
of relevant historical company and current market multiples of earnings, applied to current earnings.
As a result of the analysis, management determined there was no impairment of goodwill.
Intangible Assets with Indefinite Lives – Distribution Networks
The carrying amount distribution networks has been allocated to the following CGUs and/or group
of CGUs:
2020
2019
Equipment Group
Toromont Cat - Quebec/Maritimes
Toromont Cat - all other locations
Battlefield Equipment Rentals - Quebec/Maritimes
$
$
352,434
13,669
5,448
371,551
352,434
13,669
5,448
371,551
$
$
The Company performed the annual impairment test of intangible assets as at December 31, 2020.
The recoverable amounts have been determined based on FVLCS based on a range of relevant
historical company and current market multiples of earnings, applied to current earnings, adjusted
27
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
72
for current economic conditions. Based on the analysis, management determined there was no
impairment of indefinite-lived intangible assets.
These valuations are determined using Level 2 inputs, which are observable inputs or inputs that
can be corroborated by observable market data. The calculation of FVLCS for impairment testing
is most sensitive to the earnings multiplier. Management believes that any reasonable change in
the key assumptions used to determine the recoverable amount would not cause the carrying
amount of any cash generating unit or group of cash generating units to exceed its recoverable
amount.
8. PROVISIONS
Activities related to provisions were as follows:
Balance, January 1, 2019
New provisions
Charges against provisions
Balance, December 31, 2019
New provisions
Charges against provisions
Balance, December 31, 2020
Warranty
$
$
$
Warranty
13,784
22,332
(22,999)
13,117
28,640
(27,877)
13,880
Other
10,598
1,626
(1,661)
10,563
4,542
(2,340)
12,765
Total
24,382
23,958
(24,660)
23,680
33,182
(30,217)
26,645
$
$
$
$
$
$
At the time of sale, a provision is recognized for expected warranty claims on products and services,
based on past experience and known issues. It is expected that most of these costs will be incurred
in the next financial year.
Other
Other provisions relate largely to open legal, insurance and potential environmental claims, and
potential onerous contracts. No one claim is significant.
9. DEFERRED REVENUES AND CONTRACT LIABILITIES
Deferred revenues and contract liabilities represent billings to customers in excess of revenue
recognized and arise on the sale of equipment with residual guarantees, extended warranty
contracts, long-term maintenance agreements, and the sale of power and energy systems and
refrigeration packages recorded using the percentage-of-completion method.
During the year ended December 31, 2020, the Company recognized as revenue, $135.1 million
(2019 - $133.9 million) of the deferred revenues and contract liabilities balance at January 1, 2020.
Management expects that 90% of the transaction price allocated to unsatisfied performance
obligations as at December 31, 2020 will be recognized as revenue during the year ended
December 31, 2021 and the remaining 10% between the years ended December 31, 2022 and
2027.
28
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
73
10. LONG-TERM DEBT
The Company’s debt portfolio is unsecured, unsubordinated and ranks pari passu.
2020
2019
Senior Debentures:
3.71%, $150.0 million, due September 30, 2025 (1)
3.84%, $500.0 million, due October 27, 2027 (1)
Debt issuance costs, net of amortization
Total long-term debt
(1) Interest payable semi-annually, principal due on maturity.
$
$
150,000
500,000
650,000
(3,701)
646,299
150,000
500,000
650,000
(4,529)
645,471
$
$
The Company maintains a $500.0 million committed revolving credit facility that matures in
October 2022. On April 17, 2020, the Company entered into an additional $250.0 million committed
revolving credit facility maturing in April 2021. Debt under these facilities is unsecured and ranks
pari passu with debt outstanding under Toromont’s existing debentures. Interest is based on a
floating rate, primarily bankers’ acceptances and prime, plus applicable margins and fees based on
the terms of the credit facility.
No amounts were drawn on these revolving credit facilities as at December 31, 2020 or 2019. Standby
facility as at December 31, 2020
letters of credit
(2019 – $33.1 million).
issued utilized $30.8 million of
the
These credit arrangements include covenants, restrictions and events of default usually present in
credit facilities of this nature, including requirements to meet certain financial tests periodically and
restrictions on additional indebtedness and encumbrances.
The Company was in compliance with all covenants as at December 31, 2020 and 2019.
Scheduled principal repayments and interest payments on long-term debt are as follows:
2021
2022
2023
2024
2025
Thereafter
Principal
$
-
-
-
-
150,000
500,000
650,000
$
Interest
24,765
24,765
24,765
24,765
23,374
35,200
157,634
$
$
Interest expense includes interest on debt initially incurred for a term of one year or greater of
$29.1 million (2019 - $26.7 million).
29
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
74
11. SHARE CAPITAL
Authorized
The Company is authorized to issue an unlimited number of common shares (no par value) and
preferred shares. No preferred shares were issued or outstanding for the years ended
December 31, 2020 and 2019.
A continuity of the shares issued and outstanding for the years ended December 31, 2020 and
2019, is presented in the consolidated statements of changes in shareholders’ equity.
Shareholder Rights Plan (“SRP”)
The SRP is designed to encourage the fair treatment of shareholders in connection with any
takeover offer for the Company. Rights issued under the plan become exercisable when a person,
and any related parties, acquires or commences a takeover bid to acquire 20% or more of the
Company’s outstanding common shares without complying with certain provisions set out in the
plan or without approval of the Company’s Board of Directors. Should such an acquisition occur,
each rights holder, other than the acquiring person and related parties, will have the right to
purchase common shares of the Company at a 50% discount to the market price at that time. The
SRP expires at the end of the annual meeting of shareholders in 2021.
Normal Course Issuer Bid (“NCIB”)
During the year, the Company purchased and cancelled 67,800 common shares for $4.0 million
(average cost of $59.62 per share, including transaction costs) under the NCIB program. No shares
were purchased and cancelled during the comparative period in 2019.
The Company’s NCIB program expired in August 2020 and was not renewed.
Dividends Paid
The Company paid dividends of $98.5 million ($1.20 per share) for the year ended
December 31, 2020, and $84.8 million ($1.04 per share) for the year ended December 31, 2019.
Subsequent to the year ended December 31, 2020, the Board of Directors approved a quarterly
dividend of $0.31 per share payable on April 1, 2021, to shareholders on record at the close of
business on March 9, 2021.
30
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
75
12. FINANCIAL INSTRUMENTS
Financial Assets and Liabilities – Classification and Measurement
The following table highlights the carrying amounts and classifications of certain financial assets
and liabilities:
Other financial liabilities:
Long-term debt
2020
2019
$
646,299
$
645,471
Derivative financial instruments liabilities, net:
Foreign exchange forward contracts
$
(11,043)
$
(10,366)
The fair value of derivative financial instruments is measured using the discounted value of the
difference between the contract’s value at maturity based on the contracted foreign exchange rate
and the contract’s value at maturity based on the comparable foreign exchange rate at period-end
under the same conditions. The financial institution’s credit risk is also taken into consideration in
determining fair value. The valuation is determined using Level 2 inputs, which are observable
inputs or inputs that can be corroborated by observable market data for substantially the full term
of the asset or liability, most significantly foreign exchange spot and forward rates.
The fair value and carrying value of long-term debt is as follows:
Long-term debt
Fair value
Carrying value
2020
726,871
650,000
$
$
2019
683,092
650,000
$
$
The fair value was determined using the discounted cash flow method, a generally accepted
valuation technique. The discounted factor is based on market rates for debt with similar terms and
remaining maturities and based on Toromont’s credit risk. The Company has no plans to prepay
these instruments prior to maturity.
During the years ended December 31, 2020 and 2019, there were no transfers between Level 1
and Level 2 fair value measurements.
Derivative Financial Instruments and Hedge Accounting
Foreign exchange contracts and options are transacted with financial institutions to hedge foreign
currency-denominated obligations related to purchases of inventory and sales of products. As at
December 31, 2020, the Company was committed to: (i) US dollar purchase contracts with a
notional amount of $330.4 million at an average exchange rate of $1.3076, maturing between
January 2021 and October 2022; and (ii) US dollar sale contracts with a notional amount of
$7.5 million at an average exchange rate of $1.3247, maturing during January 2021.
Management estimates that a net loss of $11.0 million (2019 – loss of $10.4 million) would be
realized if the contracts were terminated on December 31, 2020. Certain of these forward contracts
are designated as cash flow hedges and, accordingly, an unrealized loss of $4.4 million
(2019 – unrealized loss of $2.8 million) has been included in OCI. These losses will be reclassified
to net earnings within the next 12 months and will offset gains recorded on the underlying hedged
items, namely foreign-denominated accounts payable and accrued liabilities. Certain of these
forward contracts are not designated as cash flow hedges but are entered into for periods consistent
31
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
76
foreign
currency
with
of
the
$6.6 million (2019 – loss of $7.6 million) on these forward contracts is included in net earnings,
which offsets gains recorded on the foreign-denominated items, namely accounts payable and
accrued liabilities.
transactions. A
underlying
exposure
loss
of
All hedging relationships are formally documented, including the risk management objective and
strategy. On an ongoing basis, an assessment is made as to whether the designated derivative
financial instruments continue to be effective in offsetting changes in cash flows of the hedged
transactions.
13. FINANCIAL INSTRUMENTS - RISK MANAGEMENT
In the normal course of business, Toromont is exposed to financial risks that may potentially impact
its operating results in one or all of its reportable segments. The Company employs risk management
strategies with a view to mitigating these risks on a cost-effective basis. Derivative financial
agreements are used to manage exposure to fluctuations in exchange rates. The Company does not
enter into derivative financial agreements for speculative purposes.
Currency Risk
The Canadian operations of the Company source the majority of its products and major components
from the United States. Consequently, reported costs of inventory and the transaction prices
charged to customers for equipment and parts are affected by the relative strength of the Canadian
dollar. The Company mitigates exchange rate risk by entering into foreign currency contracts to fix
the cost of imported inventory where appropriate. In addition, pricing to customers is customarily
adjusted to reflect changes in the Canadian dollar landed cost of imported goods.
The Company also sells its products to certain customers in US currency. The Company mitigates
exchange rate risk by entering into foreign currency contracts to fix the cash inflows where
appropriate.
The Company maintains a hedging policy whereby all significant transactional currency risks are
identified and hedged.
Sensitivity Analysis
The following sensitivity analysis is intended to illustrate the sensitivity to changes in foreign
exchange rates on the Company’s financial instruments and show the impact on net earnings and
comprehensive income. It is provided as a reasonably possible change in currency in a volatile
environment. Financial instruments affected by currency risk include cash, accounts receivable,
accounts payable and accrued liabilities and derivative financial instruments.
As at December 31, 2020, a 5% weakening (strengthening) of the Canadian dollar against the US
dollar would result in a $0.4 million (decrease) increase in OCI for financial instruments held in
foreign operations, and a $0.1 million (decrease) increase in net earnings and $9.1 million
(decrease) increase in OCI for financial instruments held in Canadian operations.
Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash, accounts
receivable and derivative financial instruments. The carrying amount of assets included on the
consolidated statements of financial position represents the maximum credit exposure.
32
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
77
The Company has deposited cash with reputable financial institutions, from which management
believes the risk of loss to be remote.
The Company has accounts receivable from customers engaged in various industries including
mining, construction, food and beverage, and governmental agencies. These specific customers
may be affected by economic factors that may impact accounts receivable. Management does not
believe that any single customer represents significant credit risk. Credit risk concentration with
respect to trade receivables is mitigated by the Company’s large customer base.
The credit risk associated with derivative financial instruments arises from the possibility that the
counterparties may default on their obligations. In order to minimize this risk, the Company enters
into derivative transactions only with highly rated financial institutions.
Interest Rate Risk
The Company minimizes its interest rate risk by managing its portfolio of floating-and fixed-rate
debt, as well as managing the term to maturity. The Company may use derivative instruments such
as interest rate swap agreements to manage its current and anticipated exposure to interest rates.
There were no interest rate swap agreements outstanding as at December 31, 2020 or 2019.
The Company had no floating-rate debt outstanding as at December 31, 2020 or 2019.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations
associated with financial liabilities. As at December 31, 2020, the Company had unutilized lines of
credit of $719.2 million (2019 - $466.9 million).
Accounts payable are primarily due within 90 days and will be satisfied from current working capital.
The Company expects that continued cash flows from operations in 2021, together with currently
available cash on hand and credit facilities, will be more than sufficient to fund its requirements for
investments in working capital, capital assets and dividend payments through the next 12 months,
and that the Company’s credit ratings provide reasonable access to capital markets to facilitate
future debt issuance.
14. INTEREST INCOME AND EXPENSE
The components of interest expense were as follows:
Credit facilities
Senior debentures
Interest on lease liabilities
33
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
$
$
2020
3,833
25,243
905
29,981
2019
1,495
25,221
991
27,707
$
$
Annual Report 2020
78
The components of interest and investment income were as follows:
Interest on conversion of rental equipment
Other
$
$
$
$
2020
3,529
5,554
9,083
2019
4,283
5,469
9,752
15. INCOME TAXES
Significant components of the provision for income tax expense were as follows:
Current income tax expense
Deferred income tax (recovery) expense
Total income tax expense
$
$
$
$
2020
99,700
(3,079)
96,621
2019
81,731
26,009
107,740
A reconciliation of income taxes at Canadian statutory rates with the reported income taxes was
as follows:
Statutory Canadian federal and provincial income tax rates
Expected taxes on income
Increase (decrease) in income taxes resulting from:
Higher effective tax rates in other jurisdictions
Manufacturing and processing rate reduction
Expenses not deductible for tax purposes
Non-taxable gains
Effect of change in future income tax rate
Other
Provision for income taxes
Effective income tax rate
2020
26.5%
93,157
$
2019
26.5%
104,553
$
848
(65)
1,961
(1,242)
21
1,941
96,621
$
1,525
(71)
2,291
(837)
517
(238)
107,740
$
27.5%
27.3%
The statutory income tax rate represents the combined Canadian federal and Ontario provincial
income tax rates which are the relevant tax jurisdictions for the Company.
34
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
79
The sources of deferred income taxes were as follows:
Accrued liabilities
Deferred revenues and contract liabilities
Accounts receivable
Inventories
Deferred tax assets on current assets and current liabilities
Capital assets
Goodwill and intangible assets
Tax loss carryforward
Other
Cash flow hedges in OCI
Post-employment obligations
Deferred tax (liabilities) on non-current assets and non-current liabilities
Net deferred tax liabilities
The movement in net deferred income taxes were as follows:
Balance January 1
Tax expense (recovery) recognized in income
Foreign exchange and others
Tax recovery recognized in OCI
Balance December 31
$
$
$
$
$
$
2020
28,308
4,151
5,070
6,557
44,086
(78,110)
(18,617)
411
2,466
1,160
23,882
(68,808)
(24,722)
2020
(31,933)
3,079
(160)
4,292
(24,722)
$
$
$
$
$
$
$
$
2019
21,615
4,439
4,277
5,850
36,181
(73,060)
(13,204)
774
1,095
900
15,381
(68,114)
(31,933)
2019
(13,919)
(26,009)
(738)
8,733
(31,933)
The aggregate amount of unremitted earnings in the Company’s subsidiaries was $30.4 million
(2019 - $21.7 million). These earnings can be remitted with no tax consequences.
16. EARNINGS PER SHARE
Net earnings available to common shareholders
Weighted average common shares outstanding
Dilutive effect of stock option conversions
Diluted weighted average common shares outstanding
Earnings per share:
Basic
Diluted
2020
254,915
$
2019
286,800
$
82,152,788
467,673
82,620,461
81,590,392
485,856
82,076,248
$
$
3.10
3.09
$
$
3.52
3.49
There were no anti-dilutive options for the calculation of diluted earnings per share for the year
ended December 31, 2020. For the comparative period in 2019, 1,030,260 outstanding stock
options with a weighted average exercise price of $65.98 were considered anti-dilutive (exercise
price in excess of average market price during the year) and, as such, were excluded from the
calculation.
35
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
80
17. EMPLOYEE BENEFITS EXPENSE
Wages and salaries
Other employment benefit expenses
Stock-based compensation expense
Pension costs
18. STOCK-BASED COMPENSATION
$
$
2020
563,043
81,000
5,731
37,419
687,193
2019
595,502
89,219
5,730
25,931
716,382
$
$
The Company maintains a stock option program for certain employees. Under the plan, up to
7,000,000 options may be granted for subsequent exercise in exchange for common shares. It is
the Company’s policy that the aggregate number of options that may be granted in any one calendar
year shall not exceed 1% of the outstanding shares as of the beginning of the year in which a grant
is made (2020 – 820,124; 2019 – 812,264).
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 of the
common shares at the date the option is granted. Toromont accrues compensation cost over the
vesting period based on the grant date fair value.
A reconciliation of the outstanding options for the years ended December 31, 2020 and 2019, was
as follows:
2020
Weighted
Average
Exercise
Price
51.68
72.95
Number of
Options
2,636,070
495,200
Number of
Options
2,329,705
532,443
Options outstanding, January 1
Granted
Exercised (1)
(786,065)
(15,500)
Forfeited
2,329,705
Options outstanding, December 31
Options exercisable, December 31
896,115
(1) The weighted average share price at date of exercise for the year ended December 31, 2020 was $76.58 (2019 - $67.45).
(530,010)
(4,100)
2,328,038
855,675
42.21
65.95
58.67
46.61
$
$
$
2019
Weighted
Average
Exercise
Price
43.78
65.72
$
34.00
53.33
51.68
39.88
$
$
The following table summarizes stock options outstanding and exercisable as at December 31, 2020.
Range of Exercise Prices
$23.40 - $26.52
$36.65 - $39.79
$53.88 - $66.22
$72.95
Number
120,430
436,620
1,238,545
532,443
2,328,038
Options Outstanding
Weighted
Average
Exercise
Price
25.38
38.63
62.83
72.95
58.67
Weighted
Average
Remaining
Life (years)
3.2
5.2
7.7
9.6
7.4
$
$
$
$
$
Options Exercisable
Weighted
Average
Exercise
Price
25.38
$
38.37
$
$
61.05
$
-
$
46.61
Number
120,430
355,360
379,885
-
855,675
36
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
81
The fair value of the stock options granted during 2020 and 2019 were determined at the time of grant
using the Black-Scholes option pricing model with the following weighted average assumptions:
Fair value price per option
Share price
Expected life of options (years)
Expected stock price volatility
Expected dividend yield
Risk-free interest rate
Deferred Share Unit Plan
$
$
2020
11.14
72.95
5.76
21.0%
1.70%
0.34%
$
$
2019
11.68
65.72
5.90
21.0%
1.64%
1.40%
The Company offers a deferred share unit (“DSU”) plan for executives and non-employee directors,
whereby they may elect, on an annual basis, to receive all or a portion of their performance incentive
bonus or fees, respectively, in DSUs. In addition, the Board of Directors may grant discretionary
DSUs. Non-employee directors also receive a portion of their compensation in DSUs. The liability
for DSUs is recorded in accounts payable and accrued liabilities.
The following table summarizes information related to DSU activity:
2020
2019
Outstanding, January 1
Units taken and dividends
Redemptions
Fair market value adjustment
Outstanding, December 31
Number of
DSUs
388,547
29,084
(23,477)
-
394,154
Employee Share Ownership Plan (“ESOP”)
$
$
Value
27,392
2,066
(1,527)
7,624
35,555
Number of
DSUs
358,151
32,414
(2,018)
-
388,547
Value
19,005
2,114
(127)
6,400
27,392
$
$
The Company offers an ESOP whereby employees who meet the eligibility criteria can purchase
shares by way of payroll deductions. There is a Company match at the 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 $2.9 million in
2020 (2019 - $2.7 million) were charged to selling and administrative expenses when paid. The
ESOP is administered by a third party.
19. POST-EMPLOYMENT OBLIGATIONS
Defined Contribution Plans
The Company sponsors pension arrangements for more than 4,100 of its employees, primarily
through defined contribution plans in Canada and a 401(k) matched savings plan in the United
States. Certain unionized employees do not participate in Company-sponsored plans, and
contributions are made to these retirement programs in accordance with the respective collective
bargaining agreements. 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.
37
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
82
Pre-tax pension expenses recognized in net earnings were as follows:
Defined contribution plans
401(k) matched savings plans
Defined Benefit Plans
2020
15,686
306
15,992
$
$
$
$
2019
15,082
312
15,394
The Company sponsors funded and unfunded defined benefit pension plans and post-employment
benefit plans as described below with approximately 1,600 qualifying employees. In late 2020, a
plan merger of all seven funded defined benefit pension plans was announced effective
December 31, 2020. The plan merger is not expected to gain regulatory approval for 18 to 24
months, in which time the plans will continue to be valued separately.
a) Defined Benefit Pension Plans – The Company sponsors six plans that provide pension benefits
based on length of service and career average earnings, five of which are contributory. The funded
plans are currently registered with various provincial regulators and are subject to provincial
pension legislation as well as the Income Tax Act (Canada). The plans are administered by the
Toromont Pension Management Committee with assets held in a pension fund that is legally
separate from the Company and cannot be used for any purpose other than payment of pension
benefits and related administrative fees. In addition, the Company has posted a letter of credit in
the amount of $7.2 million to secure obligations under one of the plans. Actuarial valuations were
completed for each plan at dates ranging from October 31, 2018 to December 31, 2019. As a result
of the plan merger, actuarial valuations will be performed for all plans as of December 31, 2020.
b) Executive Pension Plan – The plan is a supplemental pension 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. At
December 31, 2020, the Company has posted letters of credit in the amount of $15.6 million to
secure the obligations under this plan. The most recent actuarial valuation was completed as at
December 31, 2020, with the next valuation scheduled as at December 31, 2021.
c) Other Plan Assets and Obligations – This plan provides for certain retirees and terminated vested
employees of businesses previously acquired by the Company as well as for retired participants of
the defined contribution plan at that time, that, in accordance with the plan provisions, had elected
to receive a pension directly from the plan. The most recent actuarial valuation was completed as
at January 1, 2018 with the next valuation scheduled for December 31, 2020 along with all the other
funded plans.
d) Post-employment Benefit Plans – These plans provide supplementary post-employment health
and life insurance coverage to certain employees. The Company is not obligated to fund the plans
but is obligated to pay benefits under the terms of the plan as they come due. The most recent
actuarial valuation was completed as at January 1, 2020, with the next valuation scheduled as at
January 1, 2023.
38
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
83
Risks
Defined benefit pension plans and other post-employment benefit plans expose the Company to
risks as described below:
Investment risk - The present value of the defined benefit plan liability is calculated using a
discount rate determined by reference to high-quality corporate bond yields; if the return on
plan assets is below this rate, it will create a plan deficit. Currently, the plans have a relatively
balanced investment in equity securities, debt instruments and real estate assets. The
Toromont Pension Management Committee reviews the asset mix and performance of the
plan assets on a quarterly basis with the balanced investment strategy intention.
Interest rate risk - A decrease in the bond yields will increase the plan liability; however, this
will be partially offset by higher market values of the plan’s holdings in debt instruments.
Longevity risk - An increase in the life expectancy of the plan participants will increase the
plan’s liability by lengthening the period in which benefits are paid.
Salary risk - The present value of the defined benefit plan liability is calculated by reference
to the future salaries of plan participants. As such, an increase in the salary of the plan
participants will increase the plan’s liability.
Information about the Company’s defined benefit plans as at December 31, in aggregate, is as
follows:
Defined benefit obligations:
Balance, January 1
Curtailment gain
Current service cost
Interest cost
Actuarial remeasurement (gains) losses arising from:
Experience adjustments
Demographic assumptions
Changes in financial assumptions
Benefits paid
Contributions by plan participants
Balance, December 31
Pension Benefit Plans
2020
2019
Other Post-employment
Benefit Plans
2020
2019
$
551,250
$
474,549
-
15,575
17,023
3,695
(4,965)
49,159
(21,652)
4,098
614,183
-
11,424
18,158
(464)
-
65,808
(22,581)
4,356
551,250
$
18,346
-
1,959
586
$
23,726
(5,000)
588
597
1,096
(184)
1,254
(1,428)
-
21,629
(2,121)
-
1,943
(1,387)
-
18,346
Plan assets:
Fair value, January 1
Interest income on plan assets
Return on plan assets (excluding amounts included in
net interest expense)
Contributions by the Company
Contributions by plan participants
Benefits paid
Fair value, December 31
Net post-employment obligations
443,891
13,716
393,933
15,230
-
-
-
-
34,842
11,466
4,098
(21,652)
486,361
127,822
$
39,914
13,039
4,356
(22,581)
443,891
107,359
$
-
1,432
-
(1,432)
-
21,629
$
-
1,387
-
(1,387)
-
18,346
$
39
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
84
The funded status of the Company’s defined benefit plans at December 31 was as follows:
2020
2019
Defined Benefit Pension Plans
Executive Pension Plan
Other Plan Assets and Obligations
Post-employment Benefit Plans
Defined
Benefit
Obligations Plan Assets
482,705
$
$
589,393
18,712
6,078
21,629
635,812
$
-
3,656
-
$
486,361
Net Post-
employment
Obligations
(106,688)
$
(18,712)
(2,422)
(21,629)
(149,451)
$
Defined
Benefit
Obligations Plan Assets
439,524
$
$
527,252
18,114
5,884
18,346
569,596
$
-
4,367
-
$
443,891
$
Net Post-
employment
Obligations
(87,728)
(18,114)
(1,517)
(18,346)
(125,705)
$
The significant weighted average actuarial assumptions adopted in measuring the Company’s
defined benefit obligations are noted below. The mortality assumption is based upon the 2014
Private Sector Canadian Pensioners’ Mortality Table, developed by the Canadian Institute of
Actuaries, projected generationally using scale MI-2017, and adjusted to reflect differences in each
Plan.
Discount rate
Expected rate of salary increase
2020
2.56%
3.00%
2019
3.10%
3.00%
Pre-tax pension and other post-retirement benefit expenses recognized in net earnings were as
follows:
Service cost
Net interest expense
Curtailment gain
Pre-tax amounts recognized in OCI were as follows:
Actuarial gains arising from experience adjustments
Actuarial losses (gains) arising from demographic assumptions
Actuarial losses (gains) arising from changes in financial assumptions
Return on plan assets (excluding amounts included in net interest expense)
$
$
$
$
2020
17,534
3,893
-
21,427
2020
4,791
(5,149)
50,413
(34,842)
15,213
$
$
$
$
2019
12,012
3,525
(5,000)
10,537
2019
(2,585)
-
67,751
(39,914)
25,252
The Company’s pension plans actual weighted average asset allocations by asset category were
as follows:
Debt securities
Equity securities
Real estate assets
Cash and cash equivalents
2020
48.2%
42.7%
9.1%
0.0%
2019
57.2%
39.5%
3.3%
0.0%
40
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
85
The fair values of the plan assets were determined based on the following methods:
Equity securities – generally quoted market prices in active markets.
Debt securities – generally quoted market prices in active markets.
Real estate assets – valued based on appraisals performed by a qualified external real
estate appraiser. Real estate assets are located primarily in Canada.
Cash and cash equivalents – generally recorded at cost, which approximates fair value.
The actual return on plan assets for the year ended December 31, 2020, was $48.6 million
(2019 - $55.1 million).
The Company expects to contribute $28 million to pension and other benefit plans in 2021, inclusive
of defined contribution plans.
The weighted average duration of the defined benefit plan obligations at December 31, 2020 was
17.3 years (2019 - 17.3 years).
Sensitivity Analysis
Significant actuarial assumptions for the determination of the defined benefit obligations (“DBO”)
are discount rate and life expectancy. The sensitivity analyses have been determined based on
reasonably possible changes of the respective assumptions occurring at the end of the reporting
period, while holding all other assumptions constant.
As at December 31, 2020, the following quantitative analysis shows changes to the significant
actuarial assumptions and the corresponding impact to the DBO:
Actuarial Assumption
Sensitivity
Increase (Decrease) in DBO
Other Post-
retirement
Benefit Plans
Pension
Benefit Plans
Total
Period- end discount rate
1% increase
1% decrease
$
$
(90,739)
106,755
$
$
(2,112)
2,553
$
$
(92,851)
109,308
Mortality
Increase of 1 year in
expected lifetime of plan
participants
$
13,206
$
(365)
$
12,841
The sensitivity analysis presented above may not be representative of the actual change in the
DBO as it is unlikely that the change in assumptions would occur in isolation of one another as
some of the assumptions may be correlated.
41
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
86
20. CAPITAL MANAGEMENT
The Company defines capital as the aggregate of shareholders’ equity and long-term debt, less
cash.
The Company’s capital management framework is designed to maintain a flexible capital structure
that allows for optimization of the cost of capital at acceptable risk while balancing the interests of
both equity and debt holders.
The Company generally targets a net debt to total capitalization ratio of 33%, although there is a
degree of variability associated with the timing of cash flows. Also, if appropriate opportunities are
identified, the Company is prepared to significantly increase this ratio depending upon the
opportunity.
The Company’s capital management criteria can be illustrated as follows:
Long-term debt
Less : Cash
Net debt
Shareholders' equity
Total capitalization
Net debt as a % of total capitalization
Net debt to equity ratio
$
2020
646,299
591,128
55,171
$
2019
645,471
365,589
279,882
1,698,652
1,753,823
$
1,533,891
1,813,773
$
3%
0.03:1
15%
0.18:1
The Company is subject to minimum capital requirements relating to bank credit facilities and senior
debentures. The Company has met these minimum requirements during the years ended
December 31, 2020 and 2019.
There were no changes in the Company’s approach to capital management during the years ended
December 31, 2020 and 2019.
42
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
21. SUPPLEMENTAL CASH FLOW INFORMATION
Net change in non-cash working capital and other
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Provisions
Deferred revenues and contract liabilities
Income taxes
Derivative financial instruments
Other
Cash paid during the year for:
Interest
Income taxes
Cash received during the year for:
Interest
Income taxes
87
2020
2019
$
$
(16,528)
183,782
(224,655)
2,965
8,187
32,556
(325)
3,922
(10,096)
(2,590)
(38,679)
(111,068)
(702)
3,814
(37,644)
30,129
(80)
(156,820)
$
$
$
$
26,085
75,812
$
$
24,811
120,009
$
$
8,515
9,494
$
$
9,291
1,711
A reconciliation of liabilities arising from financing activities was as follows:
Current Portion
Balance, January 1, 2019
Cash flows
Other
Balance, December 31, 2019
Cash flows
Other
Balance, December 31, 2020
Government Grants
of Long-term Long-term Debt
644,540
$
$
$
1,022
(1,022)
-
$
-
-
-
$
-
-
931
645,471
$
-
828
646,299
$
Total
645,562
(1,022)
931
645,471
$
-
828
646,299
$
During the year ended December 31, 2020, the Company recognized a $12.7 million government
grant under the Canada Emergency Wage Subsidy (“CEWS”) program.
22. COMMITMENTS
Future minimum lease payments under non-cancellable leases as at December 31, 2020, were
$9.2 million within one year, $15.7 million within two and five years and $0.8 million thereafter.
23. SEGMENTED INFORMATION
The Company has two reportable segments: the Equipment Group and CIMCO, each supported
by the corporate office. These segments are strategic business units that offer different products
and services, and each is managed separately. The corporate office provides finance, treasury,
legal, human resources and other administrative support to the segments. The accounting policies
43
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
88
of each of the reportable segments are the same as the significant accounting policies described in
note 1.
The operating segments are being reported based on the financial information provided to the Chief
Executive Officer and Chief Financial Officer, who have been identified as the Chief Operating
Decision Makers (“CODMs”) in monitoring segment performance and allocating resources between
segments. The CODMs assess segment performance based on segment operating income, which
is measured differently than income from operations in the consolidated financial statements.
Corporate overheads are allocated to the segments based on revenue. Income taxes, interest
expense, interest and investment income are managed at a consolidated level and are not allocated
to the reportable operating segments. Current income taxes, deferred income taxes and certain
financial assets and liabilities are not allocated to the segments as they are also managed on a
consolidated level.
The aggregation of the operating segments is based on the economic characteristics of the
business units. These business units are considered to have similar economic characteristics
including nature of products and services, class of customers and markets served and similar
distribution models.
No reportable segment is reliant on any single external customer.
Equipment Group
The Equipment Group comprises the following:
Toromont CAT – supplies, rents and provides product support services for specialized
mobile equipment and industrial engines.
Battlefield Equipment Rentals – The CAT Rental Store – supplies and rents specialized
mobile equipment as well as specialty supplies and tools.
Toromont Material Handling – supplies, rents and provides product support services for
material handling lift trucks.
AgWest – supplies and provides product support services for specialized mobile equipment
to the agriculture industry.
SITECH – supplies control systems for specialized mobile equipment.
Toromont Energy – develops distributed generators and combined heat and power projects
using Caterpillar engines.
CIMCO
Provides design, engineering, fabrication, installation, and product support services for industrial
and recreational refrigeration systems.
Corporate Office
The corporate office does not meet the definition of a reportable operating segment as defined in
IFRS 8 – Operating Segments, as it does not earn revenue.
44
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
89
The following table sets forth information by segment:
Years ended December 31
2020
2019
2020
2019
Equipment Group
CIMCO
Consolidated
2020
2019
Equipment/package sales
Rentals
Product support
Power generation
Total revenues
$
1,469,377
358,266
1,327,478
10,978
3,166,099
$
$
1,524,185
418,818
1,390,340
10,607
3,343,950
$
$
$
161,144
-
151,654
-
312,798
177,974
-
156,781
-
334,755
$
1,630,521
358,266
1,479,132
10,978
3,478,897
$
$
1,702,159
418,818
1,547,121
10,607
3,678,705
$
$
$
Operating income
$
345,953
$
384,077
$
26,481
$
28,418
$
372,434
$
412,495
Interest expense
Interest and investment income
Income taxes
Net earnings
29,981
(9,083)
96,621
254,915
$
27,707
(9,752)
107,740
286,800
$
Selected consolidated statements of financial position information:
As at December 31
Identifiable assets
Corporate assets
Total assets
Identifiable liabilities
Corporate liabilities
Total liabilities
Equipment Group
CIMCO
2020
2,563,391
$
2019
2,829,147
$
2020
151,526
$
2019
119,600
$
$
742,550
$
991,950
$
107,143
$
81,712
Consolidated
2020
2,714,917
631,875
3,346,792
2019
2,948,747
422,590
3,371,337
$
$
$
$
$
849,693
798,447
1,648,140
$
$
1,073,662
763,784
1,837,446
$
Capital expenditures, net
$
68,691
$
207,520
$
14,735
$
2,335
$
83,426
$
209,855
Depreciation expense
$
154,011
$
152,900
$
6,486
$
5,660
$
160,497
$
158,560
Operations are based in Canada and the United States. The following tables summarize the final
destination of revenue to customers and the capital assets and goodwill held in each geographic
segment:
Years ended December 31
Canada
United States
International
Revenues
As at December 31
Canada
United States
Capital assets and goodwill
$
$
2020
3,396,536
80,710
1,651
3,478,897
2019
3,581,029
95,731
1,945
3,678,705
$
$
2020
1,051,965
4,509
1,056,474
$
$
2019
1,109,961
4,749
1,114,710
$
$
45
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Annual Report 2020
90
24. RELATED PARTY DISCLOSURES
Key management personnel and director compensation comprised:
Salaries
Stock options and DSU awards
Annual non-equity incentive based plan compensation
Pension costs
All other compensation
$
$
2020
3,029
2,508
1,713
684
132
8,066
2019
3,315
2,524
3,271
740
151
10,001
$
$
The remuneration of directors and key management is determined by the Human Resources
Committee having regard to the performance of the individual and Company and market trends.
25. ECONOMIC RELATIONSHIP
The Company, through its Equipment Group, sells and services heavy equipment and related parts.
Distribution agreements are maintained with several equipment manufacturers, of which the most
significant are with subsidiaries of Caterpillar Inc. The distribution and servicing of these products
account for the major portion of the Equipment Group’s operations. Toromont has had a strong
relationship with Caterpillar Inc. since inception in 1993.
46
Notes to the Consolidated Financial Statements
for the year ended December 31, 2020
Toromont Industries Ltd.
91
Annual Report 2020 92
OUR BOARD OF
DIRECTORS
Robert M. Ogilvie
Cathryn E. Cranston
Sharon L. Hodgson
Chair of the Board
Corporate Director
Corporate Director
Richard G. Roy
Corporate Director
(Director since 1986)
(Director since 2013),
(Director since 2019)
(Director since 2018),
Peter J. Blake
Corporate Director
Chair of Audit Committee
James W. Gill
(Director since 2019)
Corporate Director
Scott J Medhurst
President and Chief
Executive Officer
Chair of Environmental,
Social and Governance
Committee
Jeffrey S. Chisholm
(Director since 2015)
(Director since 2012)
Corporate Director
Wayne S. Hill
Katherine A. Rethy
(Director since 2011),
Corporate Director
Corporate Director
Chair of Human Resources
(Director since 1988)
(Director since 2013)
and Health and Safety
Committee
OUR EXECUTIVE
OPERATING TEAM
Jennifer J. Cochrane
Paul R. Jewer
David A. Malinauskas
Michael McMillan
Vice President, Finance
Executive Vice President
President, CIMCO
Executive Vice President
Refrigeration
and Chief Financial Officer
Michael P. Cuddy
Lynn M. Korbak
Vice President and Chief
General Counsel and
Scott J. Medhurst
Information Officer
Corporate Secretary
President and Chief
Executive Officer
Toromont Industries Ltd. CORPORATE
INFORMATION
Annual Meeting
The Annual and Special Meeting of the Shareholders
of Toromont Industries Ltd. will be held at 10:00 am
(EST) on Wednesday, May 5, 2021.
Visit Toromont.com for more details.
How to Get in Touch With Us
Tel: 416.667.5511 Fax: 416.667.5555
E-mail: investorrelations@toromont.com
www.toromont.com
How to Reach Our Transfer
Agent and Registrar
Investors are encouraged to contact AST Trust Company
(Canada) for information regarding their security holdings.
AST Trust Company (Canada)
P.O. Box 700
Station B
Montreal, Québec H3B 3K3
Toll-Free North America: 1.800.387.0825
Local: 416.682.3860
E-mail: inquiries@astfinancial.com
www.astfinancial.com/ca-en
Common Shares
Listed on the Toronto Stock Exchange
Stock Symbol – TIH
Toromont Cat
3131 Highway 7 West
P.O. Box 5511
Concord, Ontario L4K 1B7
T: 416.667.5511 F: 416.667.5555
www.toromontcat.com
5001 Trans-Canada Highway
Pointe-Claire, Québec H9R 1B8
T: 514.630.3100 F: 514.630.9020
Battlefield Equipment Rentals
880 South Service Road
Stoney Creek, Ontario L8E 5M7
T: 905.643.9410 F: 905.643.6008
www.battlefieldequipment.ca
Toromont Material Handling
425 Millway Avenue
Concord, Ontario L4K 3V8
T: 905.669.6590 F: 416.661.1513
www.toromontmaterialhandling.com
AgWest Ltd.
Highway #1 West
P.O. Box 432
Elie, Manitoba R0H 0H0
T: 204.353.3850 F: 877.353.2486
www.agwest.com
CIMCO Refrigeration
65 Villiers Street
Toronto, Ontario M5A 3S1
T: 416.465.7581 F: 416.465.8815
www.cimcorefrigeration.com
Toromont Industries Ltd.
Corporate Office
3131 Highway 7 West
P.O. Box 5511
Concord ON L4K 1B7
www.toromont.com