Toromont Industries Ltd.
Annual Report 2021
Equipped for today
and tomorrow
Toromont Industries Ltd. employs 6,400 empowered people across seven business
units and more than 160 locations. We are joined in a common purpose: to create value
through the provision of specialized brand-name equipment and lifecycle product
support. We are united as one Toromont team 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, used equipment 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.
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.
Battlefield Equipment Rentals –
The Cat Rental Store
From 70 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.
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 15 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.
SITECH Mid-Canada Ltd.
We specialize 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.
Fellow Shareholders:
In 2021, as waves of the coronavirus passed over our markets,
Toromont stood its ground. Relying on lessons learned from year
one of the pandemic and in alignment with core operating disciplines,
we responded to business- and market-altering conditions with a
clear sense of purpose and an unwavering focus on protecting the
health, safety and livelihoods of our employees and customers.
The annual result was favourable; the longer-run implications of the
year’s advancements are encouraging; the impact COVID-19, supply-
chain disruptions and macro-economic factors such as interest rates
and inflation will have in 2022 is unknown.
For the year, Toromont earned $4.00 per diluted share, a 29%
improvement over 2020 on revenue of $3.9 billion, 12% higher
than the prior year.
Context is important. At the outset of the pandemic, customers
displayed caution in committing to capital purchases. Provincial
lockdowns through the spring of 2020 took a toll on equipment
utilization and site access. Late in 2020 and through the early
part of 2021 as local pandemic restrictions ebbed and flowed,
equipment demand picked up as business confidence returned.
In some cases, customers placed large orders for multi-year
delivery. The popularity of rent with a purchase option declined
in favour of outright buying. Rental activity snapped back.
Product support grew on higher machine utilization and more
open access to customer sites. However, progression was not of
a straight-line variety. Neither was the path taken by COVID-19
and its Delta and Omicron variants.
In the fourth quarter of 2021, the journey to recovery took yet
another turn. Global logistics bottlenecks and component
shortages disrupted supply chains, somewhat inflating year-
end order backlogs. Supply shortages led to a rise in the costs
of some components. Toromont’s countermeasures included
Scott J. Medhurst
President and Chief Executive Officer
Richard G. Roy
Chair of the Board
1
Annual Report 2021 2021 Revenues
New & used equipment – 45%
Refrigeration equipment – 5%
Rentals – 10%
Product support – 40%
Dividends per Share
5 year CAGR = 13.6%
$1.36
$1.24
$1.08
$0.92
$0.76
2021 Revenues
Return on Opening
Shareholders’ Equity
%
22.3
21.4
19.3
19.6
16.6
New & used equipment – 45%
’17
’18
’19
’20
’21
’17
Refrigeration equipment – 5%
’20
’19
Rentals – 10%
’21
’18
Dividends per Share
Cumulative Value of
$100 Invested
5 year CAGR = 13.6%
(Assuming Reinvestment of Dividends)
$1.36
$292.03
$1.24
$1.08
$0.92
$0.76
$195.36
Return on Opening
Shareholders’ Equity
%
22.3
21.4
19.3
19.6
16.6
Cumulative Value of
$100 Invested
(Assuming Reinvestment of Dividends)
$292.03
$195.36
’16
’17
’17
’18
’18
’19 ’20 ’21
’19
’20
’21
’17
’18
’19
’20
’21
’16
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’19 ’20 ’21
Product support – 40%
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advanced purchasing of long-lead items, proactive factory
February 2022 meeting, our Board of Directors made it
demand planning, as well as sourcing used equipment to
33 years by increasing the dividend, effective with the April
augment customer fleets and remanufacturing components
2022 payment, by 4 cents to $0.39 per share per quarter or
to extend machine life.
$1.56 annualized. With this latest declaration, Toromont will
The strength of our balance sheet and willingness to deploy
have paid dividends for 54 uninterrupted years.
it made a difference. Net reinvestment in rental fleets,
A strong balance sheet allowed Toromont to introduce a
branches and other capital assets amounted to $136 million
Normal Course Issuer Bid in September 2021. Under this bid,
– $67 million (97%) higher than in 2020. Toromont ended
the company purchased and cancelled 470,600 common
2021 with $917 million of cash on hand, over $470 million of
shares. At an average price paid of $106.25 per share,
available credit on existing lines, and leverage, represented by
including transaction costs, this represented an investment
net debt to total capitalization ratio of minus 16%, compared
of $50.0 million.
to 3% at December 2020, and 40% at December 2017, the
year we made the largest acquisition in our history. Our
financial position bodes well for ongoing investments and
provides stability in a volatile environment where industry-
wide supply chain challenges and cost inflation have yet to
normalize and may not for some time.
Shareholder Value
Capital deployment in the year was efficient. Return on
Lessons Learned
Responding to the pandemic taught us valuable lessons but
also reinforced the importance of adhering to our long-term
operating disciplines. In a year of significant and unpredictable
change, Toromont’s decentralized management approach was
a decisive factor in allowing a quick and focused response.
With local empowerment, our branches adjusted well to
shifting customer priorities. Adapting to the year’s unique
opening shareholders’ equity was 19.6% compared to
challenges strengthened our team and allowed Toromont
Toromont’s long-term goal of 18% after-tax over a business
leaders to gain valuable experience.
cycle. Pre-tax return on capital employed was 26.6%
compared to 20.4% at year-end 2020.
Health and safety are the most critical components of our
operating disciplines. Here, the pandemic taught us that it is
In July 2021, Toromont increased the quarterly dividend
possible to function effectively even while adding necessary
by 12.9%, the 32nd consecutive year of increases. At its
layers to safety protocols. With the evolving threat posed by
different variants, our Critical Incident Executive Response
2
Toromont Industries Ltd. 2021 Revenues
2021 Revenues
Dividends per Share
5 year CAGR = 13.6%
Dividends per Share
5 year CAGR = 13.6%
Return on Opening
Return on Opening
Shareholders’ Equity
Shareholders’ Equity
%
%
Cumulative Value of
Cumulative Value of
$100 Invested
$100 Invested
(Assuming Reinvestment of Dividends)
(Assuming Reinvestment of Dividends)
$1.36
$1.36
$1.24
$1.24
$1.08
$1.08
$0.92
$0.92
$0.76
$0.76
22.3
22.3
21.4
21.4
19.3
19.3
19.6
19.6
16.6
16.6
$292.03
$292.03
$195.36
$195.36
New & used equipment – 45%
New & used equipment – 45%
Refrigeration equipment – 5%
Refrigeration equipment – 5%
Rentals – 10%
Rentals – 10%
Product support – 40%
Product support – 40%
’17
’17
’18
’18
’19
’19
’20
’20
’21
’21
’17
’17
’18
’18
’19
’19
’20
’20
’21
’21
’16
’16
’17
’17
’18
’18
’19 ’20 ’21
’19 ’20 ’21
TIH
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team provided real-time guidance to our operations. Ongoing
Putting TDMS in the hands of the operators in our acquired
vigilance meant Toromont branches and facilities stayed safe
territories was a key deliverable in Toromont’s business
and open for employees and customers.
integration plan and culminated with the onboarding of Toromont
Focus on traditional safety fundamentals – including
hazard identification, proper use of PPE (personal protective
equipment), daily safety talks and branch safety audits –
continued. Even here, lessons learned over the past year were
valuable. In particular, the use of virtual inspections enabled
our safety specialists to cover more territory, faster and will
remain in our toolkit beyond COVID-19.
Virtual training (for customers and employees), online product
demonstrations and roadshows, podcasts, social media
advertising, interactive webinars and touchless purchasing
and service demonstrated the importance of technology in
overcoming pandemic restrictions. What we learned in each
area will make Toromont more effective in the future.
Technology Integration:
Speaking the Same Language
A cultural turning point was reached in 2021, as all Toromont
Cat facilities operated with the Toromont Dealer Management
System (“TDMS”). TDMS is an enabler of decentralization that
brings real-time visibility to branch, department and product
performance including indicators such as orders, inventory,
work in process, accounts receivable and working capital. It
is purpose built for management empowerment in our heavy
equipment sales and service business.
Material Handling’s Ontario operations in November. (Battlefield
Equipment Rentals achieved technology integration in 2019.)
Now that we speak the same language using standardized data
sets, our teams can more readily benchmark to spot variances
and take targeted actions to improve performance. The stage is
set to unlock more value over time through rigorously applied
operating disciplines aided by TDMS.
Data Science in the Driver’s Seat
Increasingly, competition for business will be fought with digital
tools and artificial intelligence. Accordingly, Toromont operates
with digital strategy goals that include increasing customer
service, growing sales and market reach, improving efficiencies
and using data predictively to plan and align resources. More
than 150 skilled professionals, including an analytics and data
science team, lead our concerted efforts.
Connectivity is a foundational component of our approach. In
2021, Toromont Cat established over 5,000 new equipment
asset connections, including new deliveries and retrofits. What
we do for customers with the resulting data is critical. Simply
put, we must use the insights we capture wisely to add value
to our offerings.
3
Annual Report 2021 2 new
stores
Battlefield is
expanding
Ecommerce capabilities continued to advance with
as part of actions the customer is taking to reduce its carbon
functionality upgrades and pilot programs such as Toromont
dioxide emissions by 50%.
Equip and Toromont Connect. At full flight, Toromont Equip
will put all Equipment Group operations on the same end-to-
end ecommerce process. In 2021, the site focused on used
and restored inventory. Toromont Connect is designed to be
our primary portal to engage with customers across many
aspects of our business.
Strategies to Action: Operating Highlights
Applying Toromont’s core strategies – expand markets,
strengthen product support, broaden service offerings, invest
in resources and maintain a strong financial position – led to
profitable growth in 2021 and better positioning for the future.
Organizational changes made at the beginning of 2021 brought
together product support, heavy rents, used equipment and
remanufacturing operations for better strategic coordination of
these go-to-market services and product solutions. Utilization
of heavy rental equipment was the highest in our history. A
rental inventory review at midyear led to an enhanced product
mix. Used equipment sales were strong, although trade-ins, a
traditional source of supply, were lower.
Toromont Cat added dedicated branch managers in Val-d’Or
and Chicoutimi, Québec to enhance asset management and
sales and product support coverage in those resource-intensive
Toromont Cat construction, mining, power systems and
markets. Product support improved as the year progressed on
remanufacturing operations were more active in 2021 than in
higher machine utilization. With greater focus on promoting
2020. Construction and mining customers placed fleet orders to
the value of Customer Value Agreements (“CVAs”), two
prepare for work now and in the future. Several mines will open
Québec-based construction customers attached CVAs to their
in our territories in the next few years utilizing Cat production
fleet purchases. Measures taken to improve remanufacturing
equipment and beforehand, earthmoving machines are on task
effectiveness included automated powertrain testing, redesign
for road and infrastructure construction.
of a cylinder head workstream and centralized tool lockers.
Toromont continues to gain competitive advantage from
Battlefield Equipment Rentals was busy helping customers
Caterpillar’s leadership in important areas such as autonomous
across our territories with every-day projects including road
vehicle technology, as well as battery electric systems that
building, bridge repair, factory maintenance and landscaping,
contribute to our customers’ low carbon emissions goals.
augmented by special public transit construction projects in
Power Systems was selected to supply new equipment to the
Montréal, Toronto and Ottawa. Two new Ontario stores opened
Combined Heat and Power plant at Hamilton Health Sciences
in 2021 to serve Collingwood and Mississauga. Sales of Cat
4
Toromont Industries Ltd. Toromont provides
specialized
equipment for
civil infrastructure
projects and
road building
on customer
mine sites.
Compact Construction Equipment (CCE) exceeded
the offering eliminates the risk of obsolescence and reduces
the record set in 2020, and all units were covered with
capital requirements.
CVAs for maintenance.
Toromont Material Handling (“TMH”) found success in
Efforts to grow our Québec customer base continued with a
growing and improving its rental business, a key opportunity
focus on small to medium-sized landscape, mechanical and
area. Larger units (up to 72,000 pounds) were added to the
electrical contractors. Rental fleet mix expanded to include
rental fleet, low utilization units were sold and customer enquiry
additional light compaction, and concrete construction-related
management processes were enhanced. Product support
equipment used by these customer segments. Returning
activities gradually recovered and TMH gained advantage
equipment to ready status following rental improved against the
by adopting an Eastern Canada-wide structure for service
goal of having no more than 7% of the rental fleet in repair at any
operations. Used equipment strategies were applied including
time. Faster turnaround means more optimal asset utilization.
value selling, increased promotion and work order cost controls.
Battlefield Equipment Rentals piloted scheduling technology to
better manage in-shop repairs. An integrated account payment
option was added to our customer-focused web and mobile
technology known as InsideTRAC. In 2022, third-party carriers
The late-year adoption of TDMS in Ontario required an all-
hands-on-deck approach that resulted in a smooth transition
for customer-facing activities and will provide greater visibility
to KPIs across TMH’s operations.
delivering our rental machines will use this app, creating a
AgWest grew market shares for both CLAAS and AGCO
consistent customer experience.
brands, a key accomplishment that expands its future product
Jobsite Industrial Rental Services outgrew its shared (with
support opportunity.
Battlefield Equipment Rentals) Sarnia location and opened a
CIMCO continued to realize competitive advantage by
standalone facility to service local refineries. Multi-month provision
providing natural refrigerants and energy-efficient packages.
of specialized tool cribs and rental services for plant turnarounds
What began with the introduction of ECO CHILL® heat recovery
and maintenance shutdowns added to Jobsite’s results.
systems for ice rinks in 2004 has evolved into a Net Zero
SITECH launched TPaaS, a software as a service that enables
customers to subscribe to Trimble machine control systems and
automatically receive new technology releases. For customers,
Naturally line-up of refrigeration equipment for all markets –
so named to reflect CIMCO’s ability to help customers achieve
their net zero goals by eliminating climate-polluting synthetic
refrigerants and achieving optimal energy performance.
5
Annual Report 2021 72,000
pound
capacity
TMH is growing
its rental fleet
Natural carbon dioxide (CO2) refrigeration systems for
industrial applications grew in popularity in 2021. The year’s
bookings included CO2 projects for food, seafood, cold storage
and distribution facilities, as well as a large natural refrigerant
(ammonia) system for a plant-based consumer brand.
Markham District Energy ordered a CIMCO ammonia heat
pump that is nearly four times more energy efficient than a
gas boiler and will remove tonnes of greenhouse gases in the
process of heating over 8,500 residents and offices.
Sustainability Matters
Like Toromont, customers, shareholders, our employees and
partners also care about Toromont’s Environmental, Social and
Governance (“ESG”) practices.
In recognition of the importance of sustainability at all levels
of our company as well as our desire to provide additional
information on our ESG framework, strategies and outcomes,
we produce an annual Sustainability Report. Our focus on
sustainability remains unwavering and we are pleased to highlight
Although pandemic conditions dragged on in recreational
some of our important focus areas. As this year’s report notes,
markets, positioning for the future continued. The Federation
we view sustainability as a journey and work to continuously
of Canadian Municipalities named CIMCO an official Net Zero
improve our approach to drive stakeholder returns and value. We
Solutions provider, a welcome endorsement as most ice rinks
believe this aligns well with the anticipated introduction of ESG
in Canada are municipally owned. CIMCO also secured its
reporting standards that will provide a reporting framework that
place on the Sourcewell ecommerce buying platform used by
is transparent and comparable.
municipalities in their tendering processes.
Safety: Every year, Toromont invests heavily to build and
Sales, engineering, project management and service
maintain a safety-first culture and we are succeeding. In 2021,
operations were clustered together in Lancaster, Pennsylvania
over 80% of our facilities achieved a Total Recordable Injury
and Raleigh, North Carolina for more effective U.S. market
Rate (“TRIR”) of zero. Over the past five years, TRIR declined
coverage, with positive results.
In the first half of 2022, CIMCO’s first Western Canadian
packaging and assembly facility will open in Edmonton,
Alberta followed by CIMCO’s new main manufacturing plant in
Burlington, Ontario. Mass standardization of components is an
ongoing goal that will support manufacturing efficiency.
by 36% and we noted a 50% reduction in lost workdays
over the same period. While the trends are moving in the
right direction, continuous improvement is a must for us to
reach our zero-harm goal. To ensure this remains a strategic
imperative, we continue to tie the variable compensation
of our employees and in particular our senior leaders to
safety outcomes.
6
Toromont Industries Ltd. CIMCO’s powerful,
energy-efficient
refrigeration
packages help
customers
meet their
sustainability
objectives.
Recruitment and Retention: Toromont needs to add
However, we believe our greatest contribution to environmental
skilled people to our team, particularly technicians who are
sustainability is through the provision of products, services
in short supply, to maintain and grow the business. We use
and technologies that help our customers achieve their goals
a variety of recruitment strategies that take us deep into
for low carbon emissions and resource conservation. We are
our territories and beyond, promote technical careers with
proud to work with Caterpillar to introduce battery electric and
students, offer apprenticeships and create ongoing career
autonomous vehicles in our markets. Expertly reconditioning
development opportunities. We are pleased to note that
used equipment components, rather than scrapping them, is
2021 was a record year for technician recruitment and we
another area of contribution. Under the purview of Toromont
increased our technician apprenticeship positions by 31% from
remanufacturing, we rebuilt 90 machines and almost 4,400
2020. Retaining our skilled workforce is equally critical and
components for customers in 2021. CIMCO Refrigeration also
here again we are making headway. Despite retirements, our
did its part. This past year, CIMCO eliminated the manufacture
average workforce tenure is greater than 10 years.
of ice rink packages that use high Global Warming Potential
Equity, Diversity and Inclusion (“EDI”): Toromont’s Code of
Conduct, Employment Equity as well as Board and Leadership
Diversity policies recognize the benefits of EDI and we follow
through with actions that are aligned. Leading by example is
important which is why women comprise 30% of our Board of
Directors and 31% of our senior management team. Moreover,
persons with disabilities and visible minorities represented
refrigerants, which puts our business at the leading edge of
the refrigeration industry’s efforts to align with the Montréal
Protocol. With CIMCO’s new Pathway to Net Zero program
introduced in 2021, we help customers identify and implement
opportunities to apply measures to eliminate refrigerant
emissions, optimize energy consumption and harness green
power including district energy sources.
15% and 8% of our senior management team, respectively.
Special Thanks to James Gill
We are also committed to our partnerships with Indigenous
This spring will mark the retirement of Dr. James Gill from our
communities and businesses, which are described in our
Board of Directors as he has reached the age for retiring under
Sustainability Report.
Response to Climate Change: Under Toromont’s
Environmental Management program, Toromont seeks
to continually improve its conservation of resources and
responsibly manage our environmental footprint as we grow.
our Board policy. Jim served with distinction for the past six
years, generously sharing his sage advice, extensive knowledge,
sound business philosophies and business acumen along with
his Canadian Hall of Fame Mining expertise through general
Board deliberations and as a member of two Board committees.
7
Annual Report 2021 36%
Decrease in Total Recordable
Injury Rate over last 5 years
50%
Reduction in lost work days
over last 5 years
His leadership was beneficial to all Toromont businesses. We
investments complemented by several acquisitions. Their
sincerely thank him for his dedication to helping build the
legacies and the operating disciplines they embedded will be felt
Toromont business of today.
Special Thanks to Wayne Hill and Robert Ogilvie
This spring will also mark the retirement of Wayne Hill as a
Director. Wayne joined our Board in 1988 but his contributions
for years to come. Our entire organization wishes Robert and
Wayne well in their retirement years and thanks them for their
significant contributions to Toromont’s success and steadfast
commitment to our employees, customers and shareholders.
to our business run far deeper. He held the position of Toromont
Equipped for Today and Tomorrow
Chief Financial Officer from 1985 to 2005 and from 2006 to
No doubt, 2022 will bring new opportunities but also new
2008, he was Toromont’s Executive Vice President. Along
challenges as COVID-19 follows an unpredictable path and as
with our past Chairman Robert Ogilvie, Mr. Hill created the
factors such as supply chain disruptions and macro-economic
Toromont business model that we rely on today and through his
factors add operating complexities. However, we do feel that
professional stewardship, played a leading role in organizational
Toromont is equipped to perform. Our products and services
growth, continuous improvement and the pursuit of business
are essential in our markets. Our people are capable problem
excellence. His contributions to our long-term financial success
solvers dedicated to customer success. Our technologies and
cannot be understated.
It’s true that a company this size is bigger than any one person
but it’s also true that Toromont owes much to Robert Ogilvie.
those of our partners are enabling a more efficient, productive
and cleaner future. Our balance sheet is strong. We pledge to
use these advantages today and tomorrow.
Mr. Ogilvie retired in July 2021 after leading Toromont for 36
We are grateful to the people of Toromont for meeting the
years, 34 years as Chair and the first 20 as Chief Executive
pandemic’s business and market-altering realities. We thank our
Officer. During his impressive career, Robert not only forged
customers for allowing Toromont to serve you while challenging
many of the operating disciplines that serve us so well today,
us to do even better, and our shareholders for your support.
he was also an incredible leader and visionary. More than this,
he taught generations of Toromont leaders the finer points of
Yours sincerely,
business as a mentor. We are better because of his guidance.
Richard G. Roy
Working together, Robert and Wayne devoted their distinguished
Chair of the Board
careers to building a market-leading business through strategic
Scott J. Medhurst
President and Chief
Executive Officer
8
Toromont Industries Ltd.
Financial
Report
10 Management’s Discussion and Analysis
47 Management’s Report to the Shareholders
48
52
Independent Auditor’s Report
Consolidated Financial Statements
57 Notes to the Consolidated Financial Statements
95
96
Five-Year Financial Review
Corporate Information
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, 2021, 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, 2021.
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 9, 2022.
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 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; increased regulation of or restrictions placed on our businesses as a
result of COVID-19; 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 and changes to environmental
regulation; information technology failures, including data or cyber security breaches; 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 to make contributions to registered defined
benefit pension plans or postemployment benefit plans in excess of those currently contemplated;
and increased insurance 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
10
Toromont Industries Ltd.Management’s Discussion and Analysis
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, 2021, 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, 2021.
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 9, 2022.
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 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; increased regulation of or restrictions placed on our businesses as a
result of COVID-19; 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 and changes to environmental
regulation; information technology failures, including data or cyber security breaches; 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 to make contributions to registered defined
benefit pension plans or postemployment benefit plans in excess of those currently contemplated;
and increased insurance premiums. Readers are cautioned that the foregoing list of factors is not
exhaustive.
1
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, 2021, Toromont employed over 6,400 people in more than 160 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
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
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
2
11
Toromont Industries Ltd.Management’s Discussion and Analysis
“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 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 our 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 and
other digital 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
12
Toromont Industries Ltd.Management’s Discussion and Analysis
employs the following broad strategies:
Expand Markets
Toromont serves diverse markets that offer 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 our product and
service offering. The ability to consistently meet or exceed customers’ expectations for service
efficiency and quality is critical, as after-market support is an integral part of the customer’s
decision-making process when purchasing equipment.
Broaden Product Offerings
Toromont delivers specialized capital equipment to a diverse range of customers and industries.
Collectively, hundreds of thousands of different parts are offered through the Company’s
distribution channels. The Company expands its customer base through selectively extending
product lines and capabilities. In support of this strategy, Toromont represents product lines that
are considered leading and generally best-in-class from suppliers and business partners who
continually expand and develop their offerings. Strong relationships with suppliers and business
partners are critical in achieving growth objectives.
Invest in Resources
The combined knowledge and experience of Toromont’s people is a key competitive advantage.
Growth is dependent on attracting, retaining and developing employees with values that are
consistent with Toromont’s. A highly principled culture, share ownership and profitability-based
incentive programs result in a close alignment of employee and shareholder interests. By
investing in employee training and development, the capabilities and productivity of employees
continually improve to better serve shareholders, customers and business partners.
Toromont’s
information
technology represents another competitive differentiator
in
the
marketplace. The Company’s selective investments in technology, inclusive of e-commerce and
other digital initiatives, strengthen customer service capabilities, generate new opportunities for
growth, drive efficiency and increase returns to shareholders.
Maintain a Strong Financial Position
A strong, well-capitalized balance sheet creates stability and financial flexibility, and has
contributed to the Company’s long-term track record of profitable growth. It is also fundamental
to the Company’s future success.
“Key Performance Measures” in this MD&A) and each of its operating groups consistently
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
$
2021
3,886,537
2,916,769
969,768
493,831
$
2020
3,478,897
2,643,151
835,746
463,312
$ change % change
12%
10%
16%
7%
407,640
273,618
134,022
30,519
475,937
28,161
(9,027)
456,803
124,093
372,434
29,981
(9,083)
351,536
96,621
103,503
(1,820)
56
105,267
27,472
332,710
254,915
77,795
28%
(6%)
(1%)
30%
28%
31%
30%
BASIC EARNINGS PER SHARE
$
4.03
$
3.10
$
0.93
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".
25.0%
12.7%
12.2%
27.2%
26.6%
19.6%
24.0%
13.3%
10.7%
27.5%
20.4%
16.6%
The Company delivered strong results for 2021 reflecting improved market activity after the
slow-down in 2020 stemming from the pandemic. Execution was solid in most areas as the
operating teams continued to focus on keeping employees safe, serving customer needs and
protecting the business for the long-term. Improved gross margins overall and favourable
operating leverage resulted in strong growth in net earnings.
The Equipment Group reported strong results with steadily increased equipment orders as
COVID-related restrictions continue to ease and improved economic conditions buoyed demand
for our products and services. CIMCO revenues were up year-over-year on higher package sales,
however tight margins and higher operational costs dampened bottom-line results. We continue
to operate with caution, monitoring the fluid nature of COVID-19, maintaining disciplined protocols
and evaluating economic factors flowing from the pandemic, inclusive of supply chain disruptions
and inflationary pressures.
Revenues increased $407.6 million or 12% for the year, with an increase in both the Equipment
Group and CIMCO. Equipment Group revenues increased 11% with strong new equipment sales,
rental and product support activity. CIMCO revenues were 15% higher year-over-year on strong
package deliveries, as construction on industrial projects progressed.
Gross profit margin increased 100 basis points (“bps”) to 25.0% versus last year. The Equipment
Group reported higher margins mainly on tight equipment supply, improved rental fleet utilization,
higher product support activity levels and operating leverage. Margins at CIMCO declined
year-over-year on lower booked margins on certain larger projects. Sales mix was less favourable
in both Groups, with a lower proportion of product support revenues to total revenues.
3
4
13
Toromont Industries Ltd.Management’s Discussion and Analysis
Selling and administrative expenses were $30.5 million (7%) higher for the year compared to the
prior year reflecting operating leverage on the increased revenues. In 2020, governmental
subsidies under the CEWS program reduced expenses by $12.8 million. Expenses in 2021
include a $5.0 million charge for the settlement of defined benefit pension obligations for certain
retirees, completed through an annuity purchase. Excluding these two items, expenses increased
$12.7 million or 3% year-over-year. Compensation costs increased $13.0 million on higher
staffing levels, annual salary increases, and higher profit sharing accruals on the higher earnings.
The mark-to-market adjustment on Deferred Share Units (“DSUs”) was $1.1 million less in 2021
than the prior year and bad debt expense was $1.3 million lower. Sales related expenses,
including travel and training expenses increased to support higher volumes.
Operating income increased $103.5 million or 28% reflecting the higher revenues, higher gross
margins and lower relative expense levels. Operating income margin increased 150 bps to 12.2%.
Revenue growth exceeded growth in expenses. The easing of COVID-19 restrictions has
improved activity levels. Operations remain focused on efficient execution.
Interest expense decreased $1.8 million on lower debt levels. Drawings on a term credit facility
taken in early 2020 at the onset of the pandemic were repaid in late 2020.
Interest income decreased $0.1 million on lower interest income earned on conversion of
equipment on rent with a purchase option (“RPO”).
The effective income tax rate for 2021 was 27.2% compared to 27.5% in 2020.
Net earnings in 2021 of $332.7 million were up $77.8 million or 31% from 2020. Basic earnings
per share (“EPS”) increased $0.93 or 30% to $4.03 mainly reflecting the higher revenues.
Other comprehensive income of $56.1 million in 2021 (2020 – comprehensive loss of
$12.3 million) arose on actuarial gains on defined benefit pension and other post-employment
benefit plans of $49.9 million (2020 – actuarial loss of $11.2 million). These gains/losses reflect
changes in the weighted average discount rates used in the valuation, which are reflective of
underlying financial markets, as well as changes in the fair value of pension plan assets. Other
comprehensive income also included a favorable net change in the fair value of cash flow hedges
of $6.2 million (2020 – unfavorable net change of $0.7 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 the 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
14
Toromont Industries Ltd.Management’s Discussion and Analysis
$
$
$
$
$
$
$
$
$
2021
2020
$ change % change
26%
(7%)
8%
15%
6%
-
11%
30%
278,650
(26,645)
29,489
281,494
77,650
41
359,185
104,997
1,366,681
354,701
387,755
2,109,137
1,405,128
11,019
3,525,284
450,950
1,088,031
381,346
358,266
1,827,643
1,327,478
10,978
3,166,099
345,953
Equipment Group
($ thousands)
Equipment sales and rentals
New
Used
Rentals
Total equipment sales and rentals
Product support
Power generation
Total revenues
Operating income
Selling and administrative expenses were $30.5 million (7%) higher for the year compared to the
prior year reflecting operating leverage on the increased revenues. In 2020, governmental
subsidies under the CEWS program reduced expenses by $12.8 million. Expenses in 2021
include a $5.0 million charge for the settlement of defined benefit pension obligations for certain
retirees, completed through an annuity purchase. Excluding these two items, expenses increased
$12.7 million or 3% year-over-year. Compensation costs increased $13.0 million on higher
staffing levels, annual salary increases, and higher profit sharing accruals on the higher earnings.
The mark-to-market adjustment on Deferred Share Units (“DSUs”) was $1.1 million less in 2021
than the prior year and bad debt expense was $1.3 million lower. Sales related expenses,
including travel and training expenses increased to support higher volumes.
Operating income increased $103.5 million or 28% reflecting the higher revenues, higher gross
margins and lower relative expense levels. Operating income margin increased 150 bps to 12.2%.
Revenue growth exceeded growth in expenses. The easing of COVID-19 restrictions has
improved activity levels. Operations remain focused on efficient execution.
Interest expense decreased $1.8 million on lower debt levels. Drawings on a term credit facility
taken in early 2020 at the onset of the pandemic were repaid in late 2020.
Interest income decreased $0.1 million on lower interest income earned on conversion of
equipment on rent with a purchase option (“RPO”).
The effective income tax rate for 2021 was 27.2% compared to 27.5% in 2020.
Net earnings in 2021 of $332.7 million were up $77.8 million or 31% from 2020. Basic earnings
per share (“EPS”) increased $0.93 or 30% to $4.03 mainly reflecting the higher revenues.
Other comprehensive income of $56.1 million in 2021 (2020 – comprehensive loss of
$12.3 million) arose on actuarial gains on defined benefit pension and other post-employment
benefit plans of $49.9 million (2020 – actuarial loss of $11.2 million). These gains/losses reflect
changes in the weighted average discount rates used in the valuation, which are reflective of
underlying financial markets, as well as changes in the fair value of pension plan assets. Other
comprehensive income also included a favorable net change in the fair value of cash flow hedges
of $6.2 million (2020 – unfavorable net change of $0.7 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 the 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.
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
39.9%
12.8%
90.7%
30.8%
41.9%
10.9%
91.0%
19.2%
Strong demand for products and services, tight equipment supply and improved operating
discipline served to deliver strong results in 2021. Economic activity increased from the lower
level experienced in 2020, the first year of the pandemic.
Total equipment sales (new and used) increased $252.0 million or 17% compared to 2020.
Revenues in 2020 were impacted by lower economic activity in light of restrictions and closures
implemented in response to the pandemic, as well as a generally cautious market sentiment.
Demand was stronger in 2021 as activity and confidence in end markets showed signs of
improvement. Market segment revenue generally increased amidst group supply constrains:
construction (up $152.0 million or 15%); mining (up $83.2 million or 70%); material handling
(up $3.8 million or 7%); agriculture (up $15.4 million or 21%); and power systems sales
(down $2.4 million or 1%). Used equipment revenues were lower compared to 2020, on
availability constraints.
Rental revenues increased $29.5 million or 8% versus last year. All markets and most segments
were higher, reflecting continued improvement in activity against weaker comparatives last year.
Year-over-year revenue changes in each market were as follows: Light equipment rentals +9%,
power systems +18%, heavy equipment rentals +17% and material handling +19%. Rental
revenues from equipment on rent with a purchase option (“RPO”) were down 22%, in part
reflecting a smaller average fleet. As at December 31, 2021, the RPO fleet was $46.1 million
versus $35.1 million a year ago.
Product support revenues increased $77.7 million or 6%, with increases in both parts and service.
Activity was higher in most markets and across all regions as follows: construction markets +8%;
mining +3%; power systems +2%; material handling +19%; and agricultural activity was down 9%.
Gross profit margin increased 130 bps to 25.3% from 24.0% in 2020. Margins increased across
all revenue streams, partially offset by less favourable sales mix (higher equipment sales to rental
and product support). Equipment margins were up 60 bps reflecting strong demand and tight
supply. Rental margins were up 90 bps on higher fleet utilization, as well as fleet optimization over
the last year. Product support margins were up 40 bps on continued focus on efficiency and higher
activity levels. A shift in sales mix with a lower proportion of product support revenues to total
5
6
15
Toromont Industries Ltd.Management’s Discussion and Analysis
revenues decreased margin by 60 bps.
Selling and administrative expenses increased $25.0 million or 6%. Expenses in 2021 include a
$5.0 million charge for the settlement of defined benefit pension obligations for certain retirees. In
2020, governmental subsidies under the CEWS program reduced expenses by $11.4 million.
Excluding these two items, expenses increased $8.6 million or 2% year-over-year, reflecting the
higher activity levels. Compensation costs increased on higher headcount, annual salary
increases and higher profit sharing on the increased earnings. Certain expenses such as travel
and training have increased compared to the prior year which experienced tighter restrictions.
Allowance for doubtful accounts decreased $1.2 million on good collection activity. Property
dispositions and other related transactions resulted in gains in both years, with $3.8 million in
2021 and $4.1 million in 2020.
Operating income was up $105.0 million or 30% and was 190 bps higher as a percentage of
revenues (12.8% versus 10.9% last year) reflecting the higher revenues and gross margins,
coupled with lower relative expense levels.
Capital expenditures
($ millions)
Rental
Capital expenditures
Proceeds on disposals
Net expenditure
2021
2020
$ change
% change
$
$
$
117,759
50,840
66,919
$
$
$
88,942
52,455
36,487
$
$
$
28,817
(1,615)
30,432
32%
(3%)
83%
Property, plant and equipment
Capital expenditures
$
50,201
$
28,948
$
21,253
73%
Additions in 2020 were managed lower given the economic activity levels at that time. Rental fleet
additions increased in 2021, but remained constrained due to supply chain limitations. Fleet
dispositions, as measured by proceeds, were curtailed in light of tight equipment supply.
Property, plant and equipment additions increased in 2021, as business activity improved. Capital
expenditures in 2021 included:
$21.1 million for land and buildings associated with facilities and new rental locations;
$22.1 million for new and replacement service and delivery vehicles;
$2.0 million for information technology infrastructure improvements and developments;
and
$5.0 million for other machinery and equipment for general operations.
Bookings and Backlogs
($ millions)
Bookings - year ended December 31
Backlogs - as at December 31
2021
2,478.8
1,130.4
$
$
2020
1,570.0
373.0
$
$
$ change
908.8
757.4
$
$
% change
58%
203%
Bookings and backlogs vary from period to period on large project activities, particularly in mining
and power systems, the timing of orders from customers, required customer delivery schedules,
and the availability of equipment from either inventory or suppliers.
7
16
Toromont Industries Ltd.Management’s Discussion and Analysis
$
$
2021
208,854
152,399
361,253
24,987
2020
161,144
151,654
312,798
26,481
$ change % change
30%
$
-
15%
(6%)
CIMCO
($ thousands)
Package sales
Product support
Total revenues
Operating income
Booking activity increased significantly compared to the lower activity reported in 2020. Higher
orders resulted across all market segments: construction orders (+66%); mining (+228%), power
systems (+55%), material handling lift trucks (+2%) and agriculture orders (+10%).
Backlogs increased reflecting both requested customer delivery schedules (2022 and 2023) and
delays in delivery of equipment from vendors. As at December 31, 2021, the total backlog related
to construction (46%), mining (31%), power systems (17%), agriculture (4%) and lift trucks (2%).
Approximately 85% of the backlog is expected to be delivered in 2022.
revenues decreased margin by 60 bps.
Selling and administrative expenses increased $25.0 million or 6%. Expenses in 2021 include a
$5.0 million charge for the settlement of defined benefit pension obligations for certain retirees. In
2020, governmental subsidies under the CEWS program reduced expenses by $11.4 million.
Excluding these two items, expenses increased $8.6 million or 2% year-over-year, reflecting the
higher activity levels. Compensation costs increased on higher headcount, annual salary
increases and higher profit sharing on the increased earnings. Certain expenses such as travel
and training have increased compared to the prior year which experienced tighter restrictions.
Allowance for doubtful accounts decreased $1.2 million on good collection activity. Property
dispositions and other related transactions resulted in gains in both years, with $3.8 million in
2021 and $4.1 million in 2020.
Operating income was up $105.0 million or 30% and was 190 bps higher as a percentage of
revenues (12.8% versus 10.9% last year) reflecting the higher revenues and gross margins,
coupled with lower relative expense levels.
Capital expenditures
($ millions)
Rental
Capital expenditures
Proceeds on disposals
Net expenditure
2021
2020
$ change
% change
$
117,759
$
50,840
$
66,919
$
88,942
$
28,817
$
52,455
$
(1,615)
$
36,487
$
30,432
32%
(3%)
83%
Property, plant and equipment
Capital expenditures
$
50,201
$
28,948
$
21,253
73%
Additions in 2020 were managed lower given the economic activity levels at that time. Rental fleet
additions increased in 2021, but remained constrained due to supply chain limitations. Fleet
dispositions, as measured by proceeds, were curtailed in light of tight equipment supply.
Property, plant and equipment additions increased in 2021, as business activity improved. Capital
expenditures in 2021 included:
$21.1 million for land and buildings associated with facilities and new rental locations;
$22.1 million for new and replacement service and delivery vehicles;
$2.0 million for information technology infrastructure improvements and developments;
and
$5.0 million for other machinery and equipment for general operations.
Bookings and Backlogs
($ millions)
Bookings - year ended December 31
Backlogs - as at December 31
2021
2020
$ change
% change
$
2,478.8
$
1,130.4
$
1,570.0
$
908.8
$
373.0
$
757.4
58%
203%
Bookings and backlogs vary from period to period on large project activities, particularly in mining
and power systems, the timing of orders from customers, required customer delivery schedules,
and the availability of equipment from either inventory or suppliers.
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
42.2%
6.9%
9.3%
61.7%
48.5%
8.5%
9.0%
78.0%
A strong opening order backlog buoyed CIMCO’s revenues in 2021 as construction progressed
and projects were completed. Recreational activity was dampened with site restrictions and
closures related to the pandemic, however as facilities reopened for the 2021-2022 winter season,
activity improved later in the year. Operating income was lower despite the higher volume, given
lower margins on large industrial projects and higher expense levels. The translation of financial
results at the US operations did not have a significant impact on results year over year.
Package sales were up $47.7 million or 30% versus 2020, with strong deliveries in the industrial
market (up 49%) on several large orders received in 2020. Recreational markets were down 1%,
as lower activity continued from site restrictions and closures. Package revenues reflect the
progress of project construction applying the percentage-of-completion method for revenue
recognition. This results in variability of reported revenues and earnings, as the timing of projects
and construction schedules are largely under the control of third parties (contractors and
end-customers). Package revenues increased in both Canada (up 29%) and the US (up 31%, but
on a smaller activity base).
Product support revenues were relatively unchanged year-over-year, however recreational
activity improved late in the year. Activity continued for some market segments throughout the
pandemic given the essential services nature of the business.
Gross profit margin decreased 210 basis points. Package margins were down 140 bps reflecting
lower margins on certain larger projects completed in the year. Sales mix was less favourable
with a lower percentage of product support revenues to total revenues (down 70 bps). Product
support margins were unchanged year-over-year.
Selling and administrative expenses increased $5.5 million or 11% versus last year reflecting
7
8
17
47,710
745
48,455
(1,494)
$
$
$
$
$
$
Toromont Industries Ltd.Management’s Discussion and Analysis
spending to support current and future activity levels. In 2020, governmental subsidies under the
CEWS program reduced expenses by $1.4 million. Excluding this, expenses were up 8%, on
higher staffing levels. Certain costs such as training were higher after a period of deferred
spending, and occupancy costs increased on expenditures related to the upcoming head office
move.
Operating income was down by $1.5 million or 6% in 2021, as higher package revenues, were
more than offset by the lower gross margins and increased expenses. Operating income as
percentage of revenues decreased 160 bps to 6.9% compared to prior year.
Capital expenditures
($ millions)
2021
2020
$ change
% change
Property, plant and equipment
$
21,729
$
14,742
$
6,987
47%
Capital expenditures in 2021 included acquisition of property for the new head office facility in
Canada ($16.8 million). Other expenditures
replacement service
vehicles ($2.7 million) and information technology enhancements and upgrades ($1.9 million).
included new and
Bookings and Backlogs
($ millions)
Bookings - year ended December 31
Backlogs - as at December 31
2021
188.4
161.1
$
$
2020
228.3
184.4
$
$
$ change
(39.9)
(23.3)
$
$
% change
(17%)
(13%)
Bookings were lower compared to 2020 which included several large industrial orders.
Recreational bookings were 42% higher on increased market activity in both Canada (up 25%)
and the US (up 81%), after a period of limited activity given pandemic closures and restrictions.
Industrial orders were down 38%, with a decrease in both Canada (down 41% on a tough
comparable) and the US (down 6%).
Backlogs of $161.1 million declined $23.3 million or 13% versus last year, which included several
large orders. Recreational backlogs were 42% higher in both Canada (+38%) and the US (+45%)
reflecting good order intake over the latter part of 2021. Industrial backlogs were 30% lower as
the orders from 2020 were completed. Substantially all of the backlog is expected to be realized
as revenue in 2022, however this is subject to construction schedules, component availability and
potential changes stemming from the COVID-19 pandemic.
CONSOLIDATED FINANCIAL CONDITION
The Company’s strong financial position continued.
At December 31, 2021, the ratio of net debt to total capitalization decreased to -16% (cash
exceeded debt) versus 3% at December 31, 2020, reflecting our strong cash position.
9
18
Toromont Industries Ltd.Management’s Discussion and Analysis
$
$
$
$
(89,636)
(7,983)
3,097
13,931
1,241
8,042
16,295
(3,291)
(50,587)
(108,891)
2021
451,944
720,421
13,994
(544,512)
(25,404)
(15,239)
5,252
(28,851)
(199,696)
377,909
2020
541,580
728,404
10,897
(558,443)
(26,645)
(23,281)
(11,043)
(25,560)
(149,109)
486,800
$ change % change
(17%)
(1%)
28%
(2%)
(5%)
(35%)
(148%)
13%
34%
(22%)
Non-cash Working Capital
The major components, along with the changes from December 31, 2020, are identified in the
following table.
($ thousands)
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued liabilities
Provisions
Income taxes payable
Derivative financial instruments
Dividends payable
Deferred revenues and contract liabilities
Total non-cash working capital
spending to support current and future activity levels. In 2020, governmental subsidies under the
CEWS program reduced expenses by $1.4 million. Excluding this, expenses were up 8%, on
higher staffing levels. Certain costs such as training were higher after a period of deferred
spending, and occupancy costs increased on expenditures related to the upcoming head office
move.
Operating income was down by $1.5 million or 6% in 2021, as higher package revenues, were
more than offset by the lower gross margins and increased expenses. Operating income as
percentage of revenues decreased 160 bps to 6.9% compared to prior year.
Capital expenditures
($ millions)
2021
2020
$ change
% change
Property, plant and equipment
$
21,729
$
14,742
$
6,987
47%
Capital expenditures in 2021 included acquisition of property for the new head office facility in
Canada ($16.8 million). Other expenditures
included new and
replacement service
vehicles ($2.7 million) and information technology enhancements and upgrades ($1.9 million).
Bookings and Backlogs
($ millions)
Bookings - year ended December 31
Backlogs - as at December 31
2021
2020
$ change
% change
$
188.4
$
161.1
$
228.3
$
(39.9)
$
184.4
$
(23.3)
(17%)
(13%)
Bookings were lower compared to 2020 which included several large industrial orders.
Recreational bookings were 42% higher on increased market activity in both Canada (up 25%)
and the US (up 81%), after a period of limited activity given pandemic closures and restrictions.
Industrial orders were down 38%, with a decrease in both Canada (down 41% on a tough
comparable) and the US (down 6%).
Backlogs of $161.1 million declined $23.3 million or 13% versus last year, which included several
large orders. Recreational backlogs were 42% higher in both Canada (+38%) and the US (+45%)
reflecting good order intake over the latter part of 2021. Industrial backlogs were 30% lower as
the orders from 2020 were completed. Substantially all of the backlog is expected to be realized
as revenue in 2022, however this is subject to construction schedules, component availability and
potential changes stemming from the COVID-19 pandemic.
CONSOLIDATED FINANCIAL CONDITION
The Company’s strong financial position continued.
At December 31, 2021, the ratio of net debt to total capitalization decreased to -16% (cash
exceeded debt) versus 3% at December 31, 2020, reflecting our strong cash position.
Accounts receivable decreased $89.6 million or 17% year over year largely reflecting continued
focus on collection activity within both the Equipment Group and CIMCO. Days sales outstanding
(“DSOs”) decreased 5 days to 36 days, on improvements in both the Equipment Group
(down 4 days) and CIMCO (down 18 days). The decrease in accounts receivable is also
attributable to lower trailing sales in the fourth quarter of 2021 compared to the same period of
2020.
Inventories decreased $8.0 million or 1%, largely due to a decrease in CIMCO, offset by an
increase in the Equipment Group:
Equipment Group inventories were up $6.4 million or 1%, with decreases in equipment
(down $4.1 million or 1%), and parts (down $7.9 million or 3%), offset by higher service
work-in-process (up $18.5 million or 35%). While inventory levels are typically lowest at
the end of a fiscal year due to seasonality, changes in supply chain availability has further
affected these trends, with inventory levels generally lower than desired levels in both
2020 and 2021. Service work-in-process levels reflect higher activity levels.
CIMCO inventories were down $14.4 million or 41%, predominantly driven by lower
work-in-process on the advancement of larger industrial projects, partially offset by
increased parts inventories (up $1.1 million or 37%).
Other current assets mainly relate to prepaid expenses, which vary year-over-year on the timing
of payments and the realization of expenses.
Accounts payable and accrued liabilities decreased $13.9 million or 2%. The DSU liability
decreased $12.4 million on redemptions, offset in part by the higher share price. Other accounts
payable and accrued liabilities were lower principally due to the timing of purchases and payments
for inventory.
Income taxes payable reflects the difference between tax installments and current income tax
expense.
Derivative financial instruments represent the fair value of foreign exchange contracts.
Fluctuations in the value of the Canadian dollar have led to a cumulative net gain of $5.3 million
9
10
19
$
$
Toromont Industries Ltd.Management’s Discussion and Analysis
as at December 31, 2021. This is not expected to affect net earnings as the unrealized gains will
offset future losses on the related hedged items.
Higher dividends payable year-over-year reflect the higher dividend rate. Effective with the
July 5, 2021 payment, the quarterly dividend rate was increased 12.9% from $0.31 per share to
$0.35 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 higher, up $74.7 million or 72.5%, in 2021, generally on
timing of progress billings under long-term contracts, as well as customer deposits for
future equipment deliveries.
At CIMCO, these arise on progress billings from the sale of refrigeration packages, which
were down $24.1 million or 52.2%, reflecting the timing of billings compared to revenue
recognized under the percentage-of-completion method.
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, 2021, as outlined in note 7 of the notes to the annual consolidated financial
statements.
Employee Share Ownership
The Company employs a variety of stock-based compensation plans to align employees’ interests
with corporate objectives.
1. An Executive Stock Option Plan for its senior employees. Stock options have a 10-year life,
vest 20% per year on each anniversary date of the grant and are exercisable at the designated
common share price, which is fixed at prevailing market prices at the date the option is
granted. As at December 31, 2021, 2.2 million options to purchase common shares were
outstanding, of which 0.8 million were exercisable.
2. An Employee Share Purchase Plan whereby employees can purchase shares by way of
payroll deductions. 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 vest five years from date of contribution. Company
contributions amounting to $3.3 million in 2021 (2020 – $2.9 million) were charged to selling
and administrative expense when paid. Approximately 40.9% of employees participate in the
plan (2020 – 39.0%), which is administered by an independent third party.
3. A deferred share unit (“DSU”) plan for executives, certain senior managers and non-employee
directors. 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
11
20
Toromont Industries Ltd.Management’s Discussion and Analysis
as at December 31, 2021. This is not expected to affect net earnings as the unrealized gains will
offset future losses on the related hedged items.
Higher dividends payable year-over-year reflect the higher dividend rate. Effective with the
July 5, 2021 payment, the quarterly dividend rate was increased 12.9% from $0.31 per share to
$0.35 per share.
recognized:
Deferred revenues and contract liabilities represent billings to customers in excess of revenue
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 higher, up $74.7 million or 72.5%, in 2021, generally on
timing of progress billings under long-term contracts, as well as customer deposits for
future equipment deliveries.
At CIMCO, these arise on progress billings from the sale of refrigeration packages, which
were down $24.1 million or 52.2%, reflecting the timing of billings compared to revenue
recognized under the percentage-of-completion method.
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, 2021, as outlined in note 7 of the notes to the annual consolidated financial
statements.
Employee Share Ownership
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. As at December 31, 2021, 2.2 million options to purchase common shares were
outstanding, of which 0.8 million were exercisable.
2. An Employee Share Purchase Plan whereby employees can purchase shares by way of
payroll deductions. 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 vest five years from date of contribution. Company
contributions amounting to $3.3 million in 2021 (2020 – $2.9 million) were charged to selling
and administrative expense when paid. Approximately 40.9% of employees participate in the
plan (2020 – 39.0%), which is administered by an independent third party.
3. A deferred share unit (“DSU”) plan for executives, certain senior managers and non-employee
directors. 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. 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 some or all of their remainder annual compensation in DSUs. The Company records
the cost of the DSU plan as compensation expense in selling and administrative expenses.
As at December 31, 2021, 202,969 DSUs were outstanding with a total value of $23.1 million
(2020 – 394,154 units at a value of $35.6 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, including 401(k) matched savings plans for employees in the
US, covering the largest segment of employees, including all new hires;
Defined benefit plans; and,
Other post-employment benefit plans for certain grandfathered employees.
Certain unionized employees do not participate in Company-sponsored plans, and contributions
are made to their retirement programs in accordance with the respective collective bargaining
agreements.
Defined Contribution Plans
In the case of defined contribution plans, regular contributions are made to the individual
employee accounts, which are administered by a plan trustee in accordance with the plan
documents. As at December 31, 2021, approximately 4,400 employees participated in
Company-sponsored defined contribution plans.
The Company employs a variety of stock-based compensation plans to align employees’ interests
Defined Benefit Plans
The Company sponsors defined benefit pension plans, which provide pension and other
post-retirement benefits for approximately 1,300 active 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 improved by $66.7 million during 2021 (a reduction in post
employment obligations). Actuarial gains, largely related to a higher discount rate reduced the
defined benefit obligation by $59.8 million. Return on plan assets was positive, and exceeded
interest cost on the obligation by $11.3 million. Company contributions increased and exceeded
current service cost by $6.7 million. Offsetting this was a charge of $5.0 million related to the
annuity purchase transaction entered into in October 2021, whereby the defined benefit
obligations associated with certain retired plan members were assumed by a third party insurer.
Toromont considers, for accounting purposes, that this buy-out transaction essentially eliminates
any further legal or constructive obligations for benefits, and that a settlement has occurred.
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
11
12
21
Toromont Industries Ltd.Management’s Discussion and Analysis
of credit to secure the obligations under this plan, which were $14.8 million as at
December 31, 2021.
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.
See notes 1, 2 and 19 to the audited consolidated financial statements for further information
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”)
The Company’s NCIB program commenced on September 15, 2021. The current issuer bid allows
the Company to purchase up to approximately 8.2 million of its common shares in the 12-month
period ending September 14, 2022, representing 10% of common shares in the public float, as
estimated at the time of renewal. All shares purchased under the bid will be cancelled.
In connection with the NCIB, the Company has entered into an Automatic Share Purchase Plan
(“ASPP’) with a broker that allows, in its sole discretion and based on parameters established by
the Company, the purchase of common shares for cancellation under the NCIB at any time during
predetermined trading blackout periods. At December 31, 2021, no liability was recorded in the
Company’s consolidated statements of financial position in connection with the ASPP.
Under this bid, the Company purchased and cancelled 470,600 common shares for $50.0 million
(average cost of $106.25 per share, including transaction costs) through to December 31, 2021.
During the year ended December 31, 2020, 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 in place at that time.
Shareholder Rights Plan (“SRP”)
The SRP is a ‘new generation’ shareholder rights plan, designed to encourage the fair treatment
of shareholders in connection with any takeover offer for the Company. The SRP was renewed
at the annual meeting of shareholders in 2021 and expires at the end of the annual meeting of
shareholders in 2024.
Outstanding Share Data
As at the date of this MD&A, the Company had 82,444,168 common shares and 2,164,895 share
options outstanding.
Dividends
Toromont pays a quarterly dividend on its outstanding common shares and has historically
13
22
Toromont Industries Ltd.Management’s Discussion and Analysis
December 31, 2021.
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.
See notes 1, 2 and 19 to the audited consolidated financial statements for further information
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”)
The Company’s NCIB program commenced on September 15, 2021. The current issuer bid allows
the Company to purchase up to approximately 8.2 million of its common shares in the 12-month
period ending September 14, 2022, representing 10% of common shares in the public float, as
estimated at the time of renewal. All shares purchased under the bid will be cancelled.
In connection with the NCIB, the Company has entered into an Automatic Share Purchase Plan
(“ASPP’) with a broker that allows, in its sole discretion and based on parameters established by
the Company, the purchase of common shares for cancellation under the NCIB at any time during
predetermined trading blackout periods. At December 31, 2021, no liability was recorded in the
Company’s consolidated statements of financial position in connection with the ASPP.
Under this bid, the Company purchased and cancelled 470,600 common shares for $50.0 million
(average cost of $106.25 per share, including transaction costs) through to December 31, 2021.
During the year ended December 31, 2020, 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 in place at that time.
Shareholder Rights Plan (“SRP”)
The SRP is a ‘new generation’ shareholder rights plan, designed to encourage the fair treatment
of shareholders in connection with any takeover offer for the Company. The SRP was renewed
at the annual meeting of shareholders in 2021 and expires at the end of the annual meeting of
As at the date of this MD&A, the Company had 82,444,168 common shares and 2,164,895 share
shareholders in 2024.
Outstanding Share Data
options outstanding.
Dividends
of credit to secure the obligations under this plan, which were $14.8 million as at
targeted a dividend rate of approximately 30 - 40% of trailing earnings from continuing operations.
During 2021, the quarterly dividend was increased by 12.9% or 4 cents per share, to 35 cents per
common share, effective with the second quarter. In 2021, the Company declared dividends of
$1.36 per common share (2020 - $1.24 per common share).
Considering the Company’s strong financial position and positive long-term outlook, the Board of
Directors increased the quarterly dividend by 11.4% to 39 cents per share effective with that
payable on April 4, 2022, to shareholders on record on March 9, 2022. Toromont has paid
dividends every year since 1968 and this is the 33rd consecutive year of dividend increases.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Toromont’s liquidity requirements can be met through a variety of sources, including cash and
cash equivalents on hand, 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.
The Company maintains a $500.0 million committed revolving credit facility. This facility was
extended in November 2021, maturing in November 2026. Debt under this facility 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 this revolving credit facility as at December 31, 2021 or 2020. Standby
facility as at December 31, 2021
letters of credit
(2020 – $30.8 million).
issued utilized $28.8 million of
the
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, 2021 and 2020.
The Company expects that cash on hand (2021 - $916.8 million) together with cash flows from
operations in 2022, will be more than sufficient to fund its requirements for investments in working
capital, capital assets and dividend payments through the next 12 months, and that the
Company’s credit ratings will continue to provide access to capital markets to facilitate future debt
issuance.
Toromont pays a quarterly dividend on its outstanding common shares and has historically
13
14
23
Toromont Industries Ltd.Management’s Discussion and Analysis
Principal Components of Cash Flow
Cash from operating, investing and financing activities, as reflected in the Consolidated
Statements of Cash Flows, are summarized in the following table:
($ thousands)
Cash, beginning of year
Cash, provided by (used in):
Operating activities
Operations
Change in non-cash working capital and other
Net rental fleet additions
Investing activities
Financing activities
Effect of foreign exchange on cash balances
Increase in cash in the year
Cash, end of the year
Cash Flows from Operating Activities
2021
591,128
$
2020
365,589
$
480,745
129,322
(67,343)
542,724
(68,869)
(148,143)
(10)
410,184
(10,096)
(51,060)
349,028
(32,553)
(90,878)
(58)
325,702
916,830
$
225,539
591,128
$
Operating activities provided $542.7 million in 2021 compared to $349.0 million in 2020.
Cash generated from operations increased 17% compared to prior year primarily on higher net
earnings.
Non-cash working capital and other provided $129.3 million in 2021. Lower accounts receivable
on lower trailing sales and good collection activity provided $89.6 million. An increase in deferred
revenues including customer deposits provided $61.5 million. The remaining working capital
accounts had a more modest impact overall, with higher income tax instalments and derivative
contracts; inventory levels have been constrained due to supply chain limitations.
Non-cash working capital and other used $10.1 million in 2020. Reductions in inventory levels in
light of market demand provided $183.8 million, while timing of income tax instalments provided
$32.6 million. This was more than offset by reductions in accounts payable, largely due to the
wind-down of certain vendor extended payment terms, utilizing $224.7 million.
Net rental fleet additions (purchases less proceeds of dispositions) were higher by $16.3 million
compared to 2020. Additional investment in both the heavy and light equipment rental fleets reflect
increased demand and improving market conditions, dampened slightly by equipment availability.
In some cases, fleet dispositions have been deferred, pending improved equipment supply.
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 $68.9 million in 2021 compared to $32.6 million in 2020, an increase
15
24
Toromont Industries Ltd.Management’s Discussion and Analysis
Principal Components of Cash Flow
Cash from operating, investing and financing activities, as reflected in the Consolidated
Statements of Cash Flows, are summarized in the following table:
($ thousands)
Cash, beginning of year
Cash, provided by (used in):
Operating activities
Operations
Change in non-cash working capital and other
Net rental fleet additions
Investing activities
Financing activities
Effect of foreign exchange on cash balances
Increase in cash in the year
Cash, end of the year
Cash Flows from Operating Activities
2021
2020
$
591,128
$
365,589
480,745
129,322
(67,343)
542,724
(68,869)
(148,143)
(10)
410,184
(10,096)
(51,060)
349,028
(32,553)
(90,878)
(58)
325,702
225,539
$
916,830
$
591,128
Operating activities provided $542.7 million in 2021 compared to $349.0 million in 2020.
Non-cash working capital and other provided $129.3 million in 2021. Lower accounts receivable
on lower trailing sales and good collection activity provided $89.6 million. An increase in deferred
revenues including customer deposits provided $61.5 million. The remaining working capital
accounts had a more modest impact overall, with higher income tax instalments and derivative
contracts; inventory levels have been constrained due to supply chain limitations.
Non-cash working capital and other used $10.1 million in 2020. Reductions in inventory levels in
light of market demand provided $183.8 million, while timing of income tax instalments provided
$32.6 million. This was more than offset by reductions in accounts payable, largely due to the
wind-down of certain vendor extended payment terms, utilizing $224.7 million.
Net rental fleet additions (purchases less proceeds of dispositions) were higher by $16.3 million
compared to 2020. Additional investment in both the heavy and light equipment rental fleets reflect
increased demand and improving market conditions, dampened slightly by equipment availability.
In some cases, fleet dispositions have been deferred, pending improved equipment supply.
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 $68.9 million in 2021 compared to $32.6 million in 2020, an increase
of $36.3 million. Additional investments have been made in 2021 for new and expanded facilities
and branches, including the new CIMCO head office, and two new rental locations (Collingwood
and Mississauga, Ontario). In 2020, spending plans were adjusted to reflect weaker economic
conditions.
Investments in property, plant and equipment included:
$35.8 million for land and buildings for new and expanded branches (2020 - $9.2 million);
$24.0 million for service vehicles (2020 - $15.0 million);
$3.9 million for upgrades and enhancements to information technology infrastructure and
furniture and fixtures (2020 - $3.6 million); and
$5.0 million for machinery and equipment (2020 - $4.6 million).
Cash Flows from Financing Activities
Financing activities used $148.1 million in 2021 versus $90.9 million in 2020.
In 2021, the Company purchased and cancelled 470,600 common shares at an average cost of
$106.25 (including transaction costs) for $50.0 million. In 2020, 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 in place at that time.
Other significant sources and uses of cash from financing activities included:
Dividends paid to common shareholders of $109.1 million or $1.36 per share
(2020 - $98.5 million or $1.20 per share);
Cash received on exercise of share options of $21.8 million (2020 - $22.4 million); and
Lease liability payments of $9.9 million (2020 - $10.3 million).
Cash generated from operations increased 17% compared to prior year primarily on higher net
earnings.
OUTLOOK
The emergency measures enacted in early 2020, to combat the spread of COVID-19 have
affected economies and disrupted business operations around the world. Staff shortages,
reduced customer activity and demand, product availability and other supplier constraints, cost
increases and increased government regulations or intervention, are some of the factors that have
and may continue to negatively impact our business, consolidated financial results and conditions
of the Company. While vaccination programs are underway and generally restrictions are easing
across most of our territories, there is ongoing concern and uncertainty regarding potential new
COVID-19 variants. As a result it is not possible to reliably estimate the length and severity of
these developments as well as the impact on the consolidated financial results and condition of
the Company in future periods.
We are closely monitoring inflationary pressures from price and wage increases. Initiatives are
underway across all of our operations to improve efficiency and leverage the learnings from the
last two years, including use of technology and innovative ways to engage with customers,
employees and other partners with reduced travel.
The ongoing challenges in the global supply chain have resulted in delivery date delays for
equipment, components and parts and this is expected to continue. We continue to actively
manage supply chain constraints by taking appropriate mitigation steps in collaboration with our
key suppliers and our customers, such as actively sourcing used equipment, optimizing
preparation time on equipment, and offering rebuilds and rental options. We expect a tight supply
environment to continue.
15
16
25
Toromont Industries Ltd.Management’s Discussion and Analysis
The protection and support of our people remains a priority, particularly, our front-line technical
workforce who provide valuable service to our customers. Workforce planning initiatives, including
hiring and scheduling, continue in light of current and expected activity levels.
The Equipment Group’s parts and service business provides stability supported by a large and
diversified installed base of equipment. The on-going integration and alignment of operating
systems, best practices and culture, continues across our territory. Prior to the outbreak, the long-
term outlook for infrastructure projects and other construction activity was positive across most
territories. Mining customers and jurisdictions they operate in continue to evaluate appropriate
activity levels on a daily/weekly basis. Longer term, mine expansion will remain dependent on
global economic and financial conditions.
Investment continues in broadening product lines, the branch network, rental fleets, and
technologies to create efficiency and effectiveness across the organization. Product support
technologies, such as remote diagnostics, telematics and digital information models support and
expand our strategic platform.
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. Recreational markets have been limited due to pandemic restrictions, however over
the longer term, opportunity exists. Current backlogs are supportive of future activity.
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
2022
2023
2024
2025
2026 Thereafter
Total
$
-
24,765
$
-
24,765
$
-
24,765
$
150,000
23,374
$
-
19,200
$
500,000
16,000
$
650,000
132,869
573,363
7,833
605,961
$
-
5,779
30,544
$
-
3,966
28,731
$
-
1,187
174,561
$
-
452
19,652
$
-
396
516,396
$
573,363
19,613
1,375,845
$
The above table does not include obligations related to defined benefit pension plans. Regular
contributions are made to registered defined benefit pension plans in order to fund the pension
obligations as required. Funding levels are monitored regularly and reset with new actuarial
funding valuations at least every three years. Contributions in 2021 totaled $21.3 million, including
certain defined benefit pension payments, which are made directly by the Company. Based on
17
26
Toromont Industries Ltd.Management’s Discussion and Analysis
The protection and support of our people remains a priority, particularly, our front-line technical
workforce who provide valuable service to our customers. Workforce planning initiatives, including
hiring and scheduling, continue in light of current and expected activity levels.
The Equipment Group’s parts and service business provides stability supported by a large and
diversified installed base of equipment. The on-going integration and alignment of operating
systems, best practices and culture, continues across our territory. Prior to the outbreak, the long-
term outlook for infrastructure projects and other construction activity was positive across most
territories. Mining customers and jurisdictions they operate in continue to evaluate appropriate
activity levels on a daily/weekly basis. Longer term, mine expansion will remain dependent on
global economic and financial conditions.
Investment continues in broadening product lines, the branch network, rental fleets, and
technologies to create efficiency and effectiveness across the organization. Product support
technologies, such as remote diagnostics, telematics and digital information models support and
expand our strategic platform.
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. Recreational markets have been limited due to pandemic restrictions, however over
the longer term, opportunity exists. Current backlogs are supportive of future activity.
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
2022
2023
2024
2025
2026 Thereafter
Total
$
-
$
-
$
-
$
150,000
$
-
$
500,000
$
650,000
24,765
24,765
24,765
23,374
19,200
16,000
132,869
573,363
7,833
-
-
-
5,779
3,966
1,187
-
452
-
396
573,363
19,613
$
605,961
$
30,544
$
28,731
$
174,561
$
19,652
$
516,396
$
1,375,845
The above table does not include obligations related to defined benefit pension plans. Regular
contributions are made to registered defined benefit pension plans in order to fund the pension
obligations as required. Funding levels are monitored regularly and reset with new actuarial
funding valuations at least every three years. Contributions in 2021 totaled $21.3 million, including
certain defined benefit pension payments, which are made directly by the Company. Based on
17
the most recent valuations completed, funding contributions and pension payments are expected
to be approximately $12.1 million in 2022.
KEY PERFORMANCE MEASURES
Management reviews and monitors its activities and the performance indicators it believes are
critical to measuring success. Some of the key financial performance measures are summarized
in the following table. Others include, but are not limited to, measures such as market share, fleet
utilization, customer and employee satisfaction, and employee health and safety.
Years ended December 31,
EXPANDING MARKETS AND BROADENING
PRODUCT OFFERINGS
Revenue growth
Revenue per employee (thousands)
STRENGTHENING PRODUCT SUPPORT
Product support revenue growth
INVESTING IN OUR RESOURCES
2021
2020
2019
2018
2017
11.7%
625
$
-5.4%
554
$
5.0%
575
$
49.1%
573
$
22.9%
487
$
5.3%
-4.4%
10.1%
60.4%
16.3%
Investment in information technology (millions)
Return on capital employed (1)
$
35.2
26.6%
$
37.7
20.4%
$
34.8
22.9%
$
27.4
21.7%
$
15.0
21.5%
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)
$
$
377.9
-16%
23.69
$
$
486.8
3%
20.60
$
$
463.7
15%
18.70
$
$
309.5
18%
16.35
$
$
608.8
40%
13.89
30.0% -11.9%
14.8%
16.6%
9.7%
19.6%
13.5%
17.4%
21.4%
39.4%
21.1%
22.3%
11.6%
5.6%
19.3%
(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 steady growth. 2021 has seen a gradual recovery to pre-pandemic
comparative years with good operating performance, financial results, cash generation and
financial position through a challenging business environment. Results in 2020 reflect the
pandemic which resulted in lower economic activity levels in our markets, negatively impacting
many of the key performance measures. Since the beginning of the pandemic, Toromont
remained focused on 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, provided 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 from 2019 to 2021. Results for 2017 include the two
months of operations under Toromont’s ownership, thereby affecting the comparability of results.
Since 2017, revenues increased at an average annual rate of 16.7%, with product support
18
27
Toromont Industries Ltd.Management’s Discussion and Analysis
growing at 17.5% 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
factors including:
The COVID-19 pandemic, first identified in March 2020, which resulted in a significant
downturn in economic activity and disrupting normal operations in part from site
restrictions and closures which impacted the timing of delivery of project schedules
Inability to source equipment and parts from suppliers to meet customer demand or
delivery schedules, as a result of specific supplier issues or more recently due to global
supply chain disruption caused by the pandemic;
Economic weakness and uncertainty, both generally and in specific markets or sectors;
Volatility in commodity prices;
Competitive conditions;
Ability to hire necessary skilled technicians to service market demand; and
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 2017,
the average annual exchange rate of the Canadian dollar against the US dollar has varied from
$0.75 to $ 0.80, however, there have been periods of higher volatility, with the dollar ranging from
a low of $0.69 to a high of $0.83.
Toromont continues to invest in its resources, including investment in information technology, 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.
Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of
net debt to total capitalization, was -16% at the end of 2021 versus 3% at the end of 2020.
Leverage of 40% at the end of 2017 reflects borrowings used to finance in part the acquisition of
the Quebec/Maritimes Caterpillar dealership. Strong cash generation since that time has served
to consistently decrease leverage on a sequential basis.
Toromont has paid dividends consistently since 1968 and has increased the dividend in each of
the last 33 years. The Company declared dividends of $1.36 per common share in 2021, $0.31
in the first quarter and $0.35 per each subsequent quarter of the year (2020 - $1.24 per common
share or $0.31 per quarter). The regular quarterly dividend rate was increased 12.9% from
$0.31 per share to $0.35 per share in the second quarter of 2021, evidencing our commitment to
delivering exceptional shareholder value.
19
28
Toromont Industries Ltd.Management’s Discussion and Analysis
$
(36,150)
(60,912)
24,762
3,174
21,588
(397)
248
21,737
5,097
$ change % change
(4%)
(8%)
10%
3%
17%
(5%)
(8%)
18%
15%
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
$
2021
956,035
686,785
269,250
120,480
148,770
6,889
(2,827)
144,708
39,118
$
2020
992,185
747,697
244,488
117,306
127,182
7,286
(3,075)
122,971
34,021
mining;
growing at 17.5% 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
Organic growth through increased rental fleet size and additional branches;
Increased customer demand for formal product support agreements;
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
factors including:
The COVID-19 pandemic, first identified in March 2020, which resulted in a significant
downturn in economic activity and disrupting normal operations in part from site
restrictions and closures which impacted the timing of delivery of project schedules
Inability to source equipment and parts from suppliers to meet customer demand or
delivery schedules, as a result of specific supplier issues or more recently due to global
supply chain disruption caused by the pandemic;
Economic weakness and uncertainty, both generally and in specific markets or sectors;
Volatility in commodity prices;
Competitive conditions;
Ability to hire necessary skilled technicians to service market demand; and
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 2017,
the average annual exchange rate of the Canadian dollar against the US dollar has varied from
$0.75 to $ 0.80, however, there have been periods of higher volatility, with the dollar ranging from
a low of $0.69 to a high of $0.83.
Toromont continues to invest in its resources, including investment in information technology, 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.
Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of
net debt to total capitalization, was -16% at the end of 2021 versus 3% at the end of 2020.
Leverage of 40% at the end of 2017 reflects borrowings used to finance in part the acquisition of
the Quebec/Maritimes Caterpillar dealership. Strong cash generation since that time has served
to consistently decrease leverage on a sequential basis.
Toromont has paid dividends consistently since 1968 and has increased the dividend in each of
the last 33 years. The Company declared dividends of $1.36 per common share in 2021, $0.31
in the first quarter and $0.35 per each subsequent quarter of the year (2020 - $1.24 per common
share or $0.31 per quarter). The regular quarterly dividend rate was increased 12.9% from
$0.31 per share to $0.35 per share in the second quarter of 2021, evidencing our commitment to
delivering exceptional shareholder value.
NET EARNINGS
105,590
88,950
16,640
BASIC EARNINGS PER SHARE
$
1.28
$
1.08
$
0.20
19%
19%
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
28.2%
12.6%
15.6%
27.0%
24.6%
11.8%
12.8%
27.7%
Revenues in the fourth quarter were lower in both the Equipment Group and CIMCO, while
improved gross margin on sales mix and market conditions resulted in higher net earnings.
The timing of customer orders in both 2020 and 2021 have been impacted by the pandemic,
including lower economic activity, market uncertainty and global supply chain disruptions. For
some customers, orders were accelerated earlier in 2021, while in other situations, ordering
and/or delivery has been deferred into 2022. Rental activity increased with good market activity
and constrained equipment supply. Product support activity continued in both Groups, supported
by the essential nature of these services, up 3% in the quarter compared to last year.
Gross profit margin increased 360 bps to 28.2% in the quarter, with higher reported gross margins
in both the Equipment Group and CIMCO. Strong demand, good execution and a favourable sales
mix were all factors in the increase.
Selling and administrative expenses increased $3.2 million or 3% in the fourth quarter compared
to the prior year. Expenses in 2021 include a $5.0 million charge related to an annuity purchase
to settle defined benefit pension obligations for certain retirees. Benefits under the CEWS
program in the fourth quarter of 2020 totalled $4.7 million (2021 - $nil). The mark-to-market
expense on DSUs was $1.5 million in the fourth quarter of 2021 compared to $5.2 million in the
fourth quarter of 2020. Excluding these three items, expenses were down $2.8 million or 2% in
the quarter. Compensation costs increased on higher headcount, annual salary increases and
higher profit sharing accruals on the higher earnings. Sales related and other travel and training
expenses were $1.4 million lower in light of lower market activity and travel restrictions.
Operating income increased $21.6 million or 17% reflecting the higher gross margins, partially
offset by higher expenses. Operating income margin increased 280 bps to 15.6%.
Interest expense decreased $0.4 million in the quarter due to lower financing costs related to the
reduced debt levels.
19
20
29
Toromont Industries Ltd.Management’s Discussion and Analysis
Interest income decreased $0.2 million resulting from lower interest from conversions of RPOs
offset by higher interest earned on average cash balances, reflective of market interest rates.
The effective income tax rate for the fourth quarter was 27.0% compared to 27.7% in 2020.
Net earnings in the quarter were up $16.6 million or 19% to $105.6 million. Basic EPS increased
$0.20 or 19% to $1.28 versus $1.08 in 2020.
BUSINESS SEGMENT FOURTH QUARTER OPERATING RESULTS
Equipment Group
Three months ended December 31
($ thousands)
Equipment sales and rentals
New
Used
Rentals
Total equipment sales and rentals
Product support
Power generation
Total revenues
Operating income
2021
2020
$ change % change
$
$
$
313,232
78,878
112,742
504,852
359,403
2,715
866,970
135,302
335,035
111,446
100,448
546,929
347,153
2,822
896,904
114,976
$
$
$
$
$
$
(21,803)
(32,568)
12,294
(42,077)
12,250
(107)
(29,934)
20,326
(7%)
(29%)
12%
(8%)
4%
(4%)
(3%)
18%
Bookings ($ millions)
$
618.9
$
563.3
$
55.6
10%
KEY RATIOS:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
41.5%
15.6%
90.7%
38.7%
12.8%
90.4%
The Equipment Group delivered results reflective of pandemic related factors that override normal
seasonality in the quarter, with lower revenues and higher operating income. The last quarter of
the year has historically been the strongest for the Equipment Group, however the impact of the
pandemic over the past two years, and more recent supply chain disruptions has altered this
trend. Delivery schedules have been altered based on customer requirements, with some pulled
forward earlier in the year and some being deferred into 2022. Strong focus on cost containment
strategies and improved margins based on market demand has served to improve operating
income.
Total equipment sales (new and used) decreased $54.4 million or 12%. Sales decreased across
most markets and regions, mainly due to timing of delivery and supply chain challenges. Sales
declines were as follows: construction (-10%), mining (-18%), power systems (-23%), material
handling (-7%) and agricultural markets (-1%).
Rental revenues increased $12.3 million or 12%. All markets and most segments were higher
reflecting the continued improvement in market activity. Revenue growth in the quarter for each
market was as follows: Light equipment rentals +11%, Power +28%, Heavy rental in the
construction market +7% and Material Handling +15%. Rental revenues from RPO equipment
were up 10%.
21
30
Toromont Industries Ltd.Management’s Discussion and Analysis
Interest income decreased $0.2 million resulting from lower interest from conversions of RPOs
offset by higher interest earned on average cash balances, reflective of market interest rates.
The effective income tax rate for the fourth quarter was 27.0% compared to 27.7% in 2020.
Net earnings in the quarter were up $16.6 million or 19% to $105.6 million. Basic EPS increased
$0.20 or 19% to $1.28 versus $1.08 in 2020.
BUSINESS SEGMENT FOURTH QUARTER OPERATING RESULTS
Equipment Group
Three months ended December 31
Equipment sales and rentals
($ thousands)
New
Used
Rentals
Total equipment sales and rentals
Product support
Power generation
Total revenues
Operating income
2021
2020
$ change % change
$
313,232
$
335,035
$
(21,803)
78,878
112,742
504,852
359,403
2,715
111,446
100,448
546,929
347,153
2,822
(32,568)
12,294
(42,077)
12,250
(107)
$
866,970
$
135,302
$
896,904
$
(29,934)
$
114,976
$
20,326
(7%)
(29%)
12%
(8%)
4%
(4%)
(3%)
18%
Bookings ($ millions)
$
618.9
$
563.3
$
55.6
10%
KEY RATIOS:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
41.5%
15.6%
90.7%
38.7%
12.8%
90.4%
The Equipment Group delivered results reflective of pandemic related factors that override normal
seasonality in the quarter, with lower revenues and higher operating income. The last quarter of
the year has historically been the strongest for the Equipment Group, however the impact of the
pandemic over the past two years, and more recent supply chain disruptions has altered this
trend. Delivery schedules have been altered based on customer requirements, with some pulled
forward earlier in the year and some being deferred into 2022. Strong focus on cost containment
strategies and improved margins based on market demand has served to improve operating
income.
Total equipment sales (new and used) decreased $54.4 million or 12%. Sales decreased across
most markets and regions, mainly due to timing of delivery and supply chain challenges. Sales
declines were as follows: construction (-10%), mining (-18%), power systems (-23%), material
handling (-7%) and agricultural markets (-1%).
Rental revenues increased $12.3 million or 12%. All markets and most segments were higher
reflecting the continued improvement in market activity. Revenue growth in the quarter for each
market was as follows: Light equipment rentals +11%, Power +28%, Heavy rental in the
construction market +7% and Material Handling +15%. Rental revenues from RPO equipment
were up 10%.
21
Product support revenues increased $12.3 million or 4% on high parts (up 3%) and
service (up 6%). Activity levels were good across most market segments. Parts revenues in
construction were up 14%, offset by lower mining (-6%) and power systems (-14%). Service
revenues were up in mining (+29%) and material handling (+16), partially offset by decreases in
construction (-6%) and power systems (-3%).
Gross margins increased 330 bps in the quarter versus last year. Equipment margins were
up 100 bps, reflecting strong demand and tight supply. Product support margins increased
80 bps, reflecting improved efficiency on higher volumes. Rental gross margins were up 50 bps,
reflective of higher utilization as well as fleet adjustments (selective dispositions and additions)
over the last year. Sales mix was also favourable (up 100 bps) with a larger proportion of product
support revenues to total revenues.
Selling and administrative expenses increased $0.9 million or 1%. Expenses in 2021 include a
$5.0 million charge related to the annuity purchase in settlement of defined benefit pension
obligations for certain retirees. Benefits under the CEWS program in the fourth quarter of 2020
totalled $4.1 million. Excluding these two items, expenses were down $8.3 million or 8% in the
quarter reflecting the benefit of a continued focus on cost control. Compensation costs were lower
on a reduction in mark-to-market expense on DSUs in the quarter and normal year-end
adjustments to profit sharing accruals. Other compensation costs were higher on higher
headcount and annual salary and wage increases. Certain costs such as travel and training have
increased as activity returns and certain restrictions ease, and investments continue after a period
of restrained spending.
Operating income increased $20.3 million or 18% in the quarter. Operating income was 15.6% as
a percentage of revenues, 280 bps higher than the comparable period last year, mainly reflecting
the higher gross margins.
Bookings increased $55.6 million or 10% to $618.9 million reflecting strong activity in construction
(+12%) and power systems (+34%). This was partially offset by lower orders in material handling
(-22%), mining (-3%), and agricultural (-2%).
CIMCO
Three months ended December 31
($ thousands)
Package sales
Product support
Total revenues
Operating income
2021
48,103
40,962
89,065
13,468
$
$
$
2020
53,934
41,347
95,281
12,206
$
$
$
$ change % change
(11%)
$
(1%)
(7%)
10%
(5,831)
(385)
(6,216)
1,262
$
$
Bookings ($ millions)
$
55.9
$
24.5
$
31.4
128%
KEY RATIOS:
Product support revenues as a % of total revenues
Operating income margin
Group total revenues as a % of consolidated revenues
46.0%
15.1%
9.3%
43.4%
12.8%
9.6%
Revenues in the fourth quarter were lower reflecting timing of customers’ construction schedules.
Order bookings improved in the quarter versus the same quarter of 2020 and sequentially, a
22
31
Toromont Industries Ltd.Management’s Discussion and Analysis
positive sign of market activity. Operating income improved reflecting good execution and sales
mix, offset by higher expenses.
Package revenues were down $5.8 million or 11% in the quarter compared to last year. In Canada
revenues were down 15%, mainly due to a decrease in recreational markets (-42%), while the
industrial segment remained flat. Equipment supply issues and customer delays have deferred
some projects, and the recreational market was slow for most of the last year due to COVID-19
restrictions and closures. In the US, package sales were up 14% on strong industrial
activity (+50%), while the recreational market was unchanged.
Product support revenues were down slightly from last year as growth in Canada (+4%) was more
than offset by a decrease in the US (-13%). In Canada, economic activity has improved and site
restrictions in most areas, including recreational facilities, easing late in the quarter.
Gross margins increased 580 bps in the quarter on good execution and sales mix. Package
margins increased 480 bps while product support margins increased 60 bps. Sales mix was
favourable, with a higher proportion of product support revenues to total revenues (up 40 bps).
Selling and administrative expenses increased $2.3 million or 19%. Bad debt expense increased
$1.3 million from the similar period reflecting certain collection matters. In the fourth quarter of
2020, governmental subsidies under the CEWS program reduced expenses by $0.6 million
(2021 – nil). All other expenses, including compensation increased $0.4 million or 3%, on higher
staffing levels and normal annual salary increases, offset by year-end adjustments to certain
payroll expense accruals following completion of a new payroll and HRIS system in the year.
Operating income increased $1.3 million in the quarter on improved gross margins, offset by
higher selling and administrative expense. As a percentage of revenues, operating income
improved to 15.1% in 2021, versus 12.8% in 2020.
Bookings increased $31.4 million or 128% to $55.9 million on stronger orders in both Canada and
the US, after a period of slower activity given pandemic closures and restrictions. Recreational
orders were up in Canada (+83%) and the US (+403%), along with industrial orders which were
up in Canada (+102%) and the US (+57%).
QUARTERLY RESULTS
The following table summarizes 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 2021 annual audited consolidated financial statements.
23
32
Toromont Industries Ltd.Management’s Discussion and Analysis
mix, offset by higher expenses.
Package revenues were down $5.8 million or 11% in the quarter compared to last year. In Canada
revenues were down 15%, mainly due to a decrease in recreational markets (-42%), while the
industrial segment remained flat. Equipment supply issues and customer delays have deferred
some projects, and the recreational market was slow for most of the last year due to COVID-19
restrictions and closures. In the US, package sales were up 14% on strong industrial
activity (+50%), while the recreational market was unchanged.
Product support revenues were down slightly from last year as growth in Canada (+4%) was more
than offset by a decrease in the US (-13%). In Canada, economic activity has improved and site
restrictions in most areas, including recreational facilities, easing late in the quarter.
Gross margins increased 580 bps in the quarter on good execution and sales mix. Package
margins increased 480 bps while product support margins increased 60 bps. Sales mix was
favourable, with a higher proportion of product support revenues to total revenues (up 40 bps).
Selling and administrative expenses increased $2.3 million or 19%. Bad debt expense increased
$1.3 million from the similar period reflecting certain collection matters. In the fourth quarter of
2020, governmental subsidies under the CEWS program reduced expenses by $0.6 million
(2021 – nil). All other expenses, including compensation increased $0.4 million or 3%, on higher
staffing levels and normal annual salary increases, offset by year-end adjustments to certain
payroll expense accruals following completion of a new payroll and HRIS system in the year.
Operating income increased $1.3 million in the quarter on improved gross margins, offset by
higher selling and administrative expense. As a percentage of revenues, operating income
improved to 15.1% in 2021, versus 12.8% in 2020.
Bookings increased $31.4 million or 128% to $55.9 million on stronger orders in both Canada and
the US, after a period of slower activity given pandemic closures and restrictions. Recreational
orders were up in Canada (+83%) and the US (+403%), along with industrial orders which were
up in Canada (+102%) and the US (+57%).
QUARTERLY RESULTS
The following table summarizes quarterly consolidated financial data for the eight most recently
completed quarters. This quarterly information is unaudited but has been prepared on the same
basis as the 2021 annual audited consolidated financial statements.
positive sign of market activity. Operating income improved reflecting good execution and sales
($ thousands, except per share amounts)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
REVENUES
Equipment Group
CIMCO
Total revenues
$ 727,383 $ 1,016,545 $ 914,386 $ 866,970
78,855 110,521 82,812 89,065
$ 806,238 $ 1,127,066 $ 997,198 $ 956,035
NET EARNINGS
$ 47,956 $ 85,400 $ 93,764 $ 105,590
PER SHARE INFORMATION:
Basic earnings per share
Diluted earnings per share
Dividends paid per share
Weighted average common shares
outstanding - basic (in thousands)
$
1.28
$
1.27
$ 0.31 $ 0.35 $ 0.35 $ 0.35
$
$
$
$
$
$
1.13
1.12
1.03
1.02
0.58
0.58
82,499 82,587 82,705 82,401
($ thousands, except per share amounts)
Q1 2020
Q2 2020
Q3 2020
Q4 2020
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)
$ 657,776 $ 776,703 $ 834,716 $ 896,904
57,683 72,894 86,940 95,281
$ 715,459 $ 849,597 $ 921,656 $ 992,185
$ 37,396 $ 51,210 $ 77,359 $ 88,950
1.08
$
$
1.07
$ 0.27 $ 0.31 $ 0.31 $ 0.31
$
$
$
$
$
$
0.62
0.62
0.46
0.45
0.94
0.94
82,015 82,024 82,195 82,373
Interim period revenues and earnings historically reflect variability from quarter to quarter due to
seasonality. The pandemic and resulting impact on the economy, including global supply chains,
has affected seasonal trends in 2021 and may result in continued variations to historically
experienced trends.
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. This trend can also be impacted
during periods of equipment supply constraints from suppliers.
CIMCO has also had a distinct seasonal trend in results historically, as the timing of construction
activity impacts revenue recognition under percentage-of-completion accounting. Lower revenues
are recorded during the first quarter as winter weather slows down construction schedules.
Revenues increase in subsequent quarters as construction schedules ramp up. This trend can be
impacted by governmental funding initiatives, supply constraints and customer timing of
significant industrial projects. Sequential comparisons are also impacted by CIMCO’s relatively
23
24
33
Toromont Industries Ltd.Management’s Discussion and Analysis
high fixed cost structure.
Historically, inventories have increased through the year to meet the expected demand for higher
deliveries in the third and fourth quarter. This trend can be impacted by equipment and parts
availability. This seasonal sales trend also typically leads to accounts receivable to be at their
highest level at year-end.
In 2020 and 2021, these patterns were impacted by the governmental and market response and
reaction to COVID-19. In 2021, demand for equipment was stronger through the first nine months
of the year, on both delayed purchasing from 2020, as well as an acceleration of orders in light of
global supply chain disruptions, thus impacting revenues in the fourth quarter. In 2020, the second
quarter experienced the most significant slowdown in market activity.
Net earnings have generally followed the trend in revenues. Cost reduction and containment
strategies continue to be a focus, however have a delayed effect on net earnings.
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)
2021
2020
2019
$
$
3,886,537
332,710
$
$
3,478,897
254,915
$
$
3,678,705
286,800
$
4.03
$
3.10
$
3.52
$
$
4.00
1.36
$
3.09
$
3.49
$
1.24
$
1.08
$
3,583,796
$
3,346,792
$
3,371,337
$
646,337
$
646,299
$
645,471
82.5
82.2
81.6
Revenues increased 12% in 2021 versus the prior year. Equipment Group revenues
increased 11% on strong equipment sales, higher rental revenue and product support reflecting
the improvement in demand as pandemic restrictions eased compared to 2020. CIMCO revenues
were up 15% on execution of several large industrial construction projects while product support
activity was unchanged year-over-year.
Revenues decreased 5% in 2020 compared to 2019. Equipment Group revenues decreased 5%
on lower new equipment sales, rentals and product support revenues, reflecting a downturn in
economic activity as a result of the COVID-19 pandemic, slightly offset by higher used equipment
sales. CIMCO revenues were down 7% on reduced construction and product support activity
stemming in part from site restrictions and closures related to the pandemic.
Net earnings increased 31% in 2021, largely reflecting the 12% increase in revenues, improved
gross margins in the Equipment Group, and a lower relative level of selling and administrative
expenses to sales reflecting cost reductions implemented as a result of the pandemic. Financing
costs were lower on a lower total value of committed credit facilities year-over-year.
Net earnings decreased 11% in 2020 compared to 2019, largely reflecting the 5% reduction in
25
34
Toromont Industries Ltd.Management’s Discussion and Analysis
high fixed cost structure.
Historically, inventories have increased through the year to meet the expected demand for higher
deliveries in the third and fourth quarter. This trend can be impacted by equipment and parts
availability. This seasonal sales trend also typically leads to accounts receivable to be at their
highest level at year-end.
In 2020 and 2021, these patterns were impacted by the governmental and market response and
reaction to COVID-19. In 2021, demand for equipment was stronger through the first nine months
of the year, on both delayed purchasing from 2020, as well as an acceleration of orders in light of
global supply chain disruptions, thus impacting revenues in the fourth quarter. In 2020, the second
quarter experienced the most significant slowdown in market activity.
Net earnings have generally followed the trend in revenues. Cost reduction and containment
strategies continue to be a focus, however have a delayed effect on net earnings.
SELECTED ANNUAL INFORMATION
(in thousands, except per share amounts)
Revenues
Net earnings
- Basic
- Diluted
Earnings per share ("EPS")
2021
2020
2019
$
3,886,537
$
332,710
$
3,478,897
$
3,678,705
$
254,915
$
286,800
$
4.03
$
3.10
$
3.52
$
4.00
$
3.09
$
3.49
Dividends declared per share
$
1.36
$
1.24
$
1.08
Total assets
Total long-term debt
basic (in millions)
Weighted average common shares outstanding -
$
3,583,796
$
3,346,792
$
3,371,337
$
646,337
$
646,299
$
645,471
82.5
82.2
81.6
Revenues increased 12% in 2021 versus the prior year. Equipment Group revenues
increased 11% on strong equipment sales, higher rental revenue and product support reflecting
the improvement in demand as pandemic restrictions eased compared to 2020. CIMCO revenues
were up 15% on execution of several large industrial construction projects while product support
activity was unchanged year-over-year.
Revenues decreased 5% in 2020 compared to 2019. Equipment Group revenues decreased 5%
on lower new equipment sales, rentals and product support revenues, reflecting a downturn in
economic activity as a result of the COVID-19 pandemic, slightly offset by higher used equipment
sales. CIMCO revenues were down 7% on reduced construction and product support activity
stemming in part from site restrictions and closures related to the pandemic.
Net earnings increased 31% in 2021, largely reflecting the 12% increase in revenues, improved
gross margins in the Equipment Group, and a lower relative level of selling and administrative
expenses to sales reflecting cost reductions implemented as a result of the pandemic. Financing
costs were lower on a lower total value of committed credit facilities year-over-year.
Net earnings decreased 11% in 2020 compared to 2019, largely reflecting the 5% reduction in
revenues on lower economic activity resulting from the pandemic and governmental response.
Selling and administrative expenses, while lower on the curtailment of non-essential expenditures,
increased as a percentage of revenues. Financing costs increased on an additional committed
credit facility and increased borrowings.
Dividends have generally increased in proportion to trailing earnings growth. The quarterly
dividend rate continued to increase - in 2019 by 17.4% to $0.27 per share, in 2020, by 14.8% to
$0.31 and in 2021 by 12.9% to $0.35 per share. The Company has paid dividends every year
since 1968.
Total assets increased 7% in 2021, largely on good free cash flow. Focus on accounts receivable
has resulted in a reduction in DSO, while inventory levels have been constrained as a result of
strong demand and supply chain delays. Investments in capital assets have been made to support
growth. In 2020, total assets decreased 1% compared to 2019, as equipment inventory was
intentionally reduced in reflection of lower economic activity. Investments in light equipment rental
fleet was also reduced due to prevailing market conditions, as well as in recognition of the time
required to absorb recent significant investments to full utilization.
Long-term debt was largely unchanged over the three year period noted. During 2021, the
Company renewed and extended the $500 million revolving credit facility to mature in November
2026. The additional credit facility of $250 million taken out in 2020 was not renewed.
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 on both a global and local level. 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
25
26
35
Toromont Industries Ltd.Management’s Discussion and Analysis
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 quality manufacturer, with excellent brand
recognition and customer support as well as strong market shares in many of the markets it
serves. However, there can be no assurance that Caterpillar will be able to maintain its reputation
and market position in the future. If Caterpillar is unsuccessful in developing and enhancing its
product lines to meet evolving and sophisticated customer needs, is unable to maintain the quality
of its products, or is unable to provide its products at competitive prices, market acceptance for
Caterpillar products may deteriorate over time. 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 to meet our
customers’ demand for equipment deliveries and product support services. From time to time
during periods of intense demand and/or supply chain disruptions, 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.
When supply constraints have occurred in the past, we have been able to lessen the impact by
utilizing our rental assets, used equipment, and other sources (such as the dealer network) to
meet demand, but there can be no assurance of continued success in this area. There can be
no assurance that Caterpillar will continue to supply its products in the quantities and timeframes
required by customers; a significant disruption to our supply chain could adversely affect our
business, results of operations and financial condition.
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.
27
36
Toromont Industries Ltd.Management’s Discussion and Analysis
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 quality manufacturer, with excellent brand
recognition and customer support as well as strong market shares in many of the markets it
serves. However, there can be no assurance that Caterpillar will be able to maintain its reputation
and market position in the future. If Caterpillar is unsuccessful in developing and enhancing its
product lines to meet evolving and sophisticated customer needs, is unable to maintain the quality
of its products, or is unable to provide its products at competitive prices, market acceptance for
Caterpillar products may deteriorate over time. 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 to meet our
customers’ demand for equipment deliveries and product support services. From time to time
during periods of intense demand and/or supply chain disruptions, 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.
When supply constraints have occurred in the past, we have been able to lessen the impact by
utilizing our rental assets, used equipment, and other sources (such as the dealer network) to
meet demand, but there can be no assurance of continued success in this area. There can be
no assurance that Caterpillar will continue to supply its products in the quantities and timeframes
required by customers; a significant disruption to our supply chain could adversely affect our
business, results of operations and financial condition.
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
customers engaged in various industries including construction, mining, food and beverage, and
governmental agencies. 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.
27
28
37
Toromont Industries Ltd.Management’s Discussion and Analysis
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$0.80 in 2021 and US$0.75 in 2020.
Foreign exchange contracts reduce volatility by fixing landed costs related to specific customer
orders and establishing a level of price stability for high-volume goods such as spare parts. The
Company does not enter into foreign exchange forward contracts for speculative purposes. The
gains and losses on the foreign exchange forward contracts designated as cash flow hedges are
intended to offset the translation losses and gains on the hedged foreign currency transactions
when they occur. As a result, the foreign exchange impact on earnings with respect to
transactional activity is not significant.
Interest Rate
Changes in market interest rates can cause fluctuations in the fair value or future cash flows of
financial instruments.
The Company has exposure to changes in interest rates on interest-bearing financial liabilities,
primarily from long-term debt. The Company has fixed-rate debt obligations outstanding with
maturities between 2025 and 2027. Fixed-rate debt exposes the Company to future interest rate
movements upon refinancing the debt at maturity. The fair value of fixed-rate debt obligations
fluctuates with changes in interest rates, 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 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.
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 is exposed to changes in interest rates on interest bearing financial assets,
primarily cash and cash equivalents. Due to the short-term nature of cash and cash equivalents,
the impact of fluctuations in fair value is limited but interest income earned can be impacted.
29
38
Toromont Industries Ltd.Management’s Discussion and Analysis
Foreign Exchange
Financing Arrangements
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$0.80 in 2021 and US$0.75 in 2020.
Foreign exchange contracts reduce volatility by fixing landed costs related to specific customer
orders and establishing a level of price stability for high-volume goods such as spare parts. The
Company does not enter into foreign exchange forward contracts for speculative purposes. The
gains and losses on the foreign exchange forward contracts designated as cash flow hedges are
intended to offset the translation losses and gains on the hedged foreign currency transactions
when they occur. As a result, the foreign exchange impact on earnings with respect to
transactional activity is not significant.
Interest Rate
financial instruments.
Changes in market interest rates can cause fluctuations in the fair value or future cash flows of
The Company has exposure to changes in interest rates on interest-bearing financial liabilities,
primarily from long-term debt. The Company has fixed-rate debt obligations outstanding with
maturities between 2025 and 2027. Fixed-rate debt exposes the Company to future interest rate
movements upon refinancing the debt at maturity. The fair value of fixed-rate debt obligations
fluctuates with changes in interest rates, 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 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.
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 is exposed to changes in interest rates on interest bearing financial assets,
primarily cash and cash equivalents. Due to the short-term nature of cash and cash equivalents,
the impact of fluctuations in fair value is limited but interest income earned can be impacted.
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.
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.
29
30
39
Toromont Industries Ltd.Management’s Discussion and Analysis
Pandemic Risk (Coronavirus COVID-19)
COVID-19 is an evolving risk, the duration and impact of which remains uncertain 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 discussed above could be particularly exacerbated by extraordinary
externalities such as the COVID-19 pandemic, 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;
issues delivering the Company’s products and services due to illness, Company or
government imposed isolation programs, restrictions on the movement of personnel and
other 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.
d)
e)
f)
g)
Any of these risks, and others, could have a material adverse effect on our business, operations,
capital resources and/or financial results of operations.
The Company continues to focus on ensuring the continued safety of our employees, while
continuing to serve our customers’ needs as an essential service, and protecting the business
and organization for the long-term. The Critical Incident Executive Response Team remains in
effect and focuses on monitoring and assessing developments in our markets and operations,
and developing appropriate plans in response. Updates are provided to employees on a frequent
basis, including general information as well as specific safety protocols in place. Safety protocols
(masking, social distancing, sanitization, etc.) are strictly enforced. The Company continues to
have an open dialogue with public safety and government officials at all levels, as well as
customers, key suppliers and other partners.
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
31
40
Toromont Industries Ltd.Management’s Discussion and Analysis
Pandemic Risk (Coronavirus COVID-19)
COVID-19 is an evolving risk, the duration and impact of which remains uncertain 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 discussed above could be particularly exacerbated by extraordinary
externalities such as the COVID-19 pandemic, 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;
d)
issues delivering the Company’s products and services due to illness, Company or
government imposed isolation programs, restrictions on the movement of personnel and
e)
the impact of additional legislation, regulation and other government interventions in
other supply chain disruptions;
response to the COVID-19 pandemic;
f)
the negative impact on global debt and equity capital markets, including the trading price
of the Company’s securities; and
g)
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.
The Company continues to focus on ensuring the continued safety of our employees, while
continuing to serve our customers’ needs as an essential service, and protecting the business
and organization for the long-term. The Critical Incident Executive Response Team remains in
effect and focuses on monitoring and assessing developments in our markets and operations,
and developing appropriate plans in response. Updates are provided to employees on a frequent
basis, including general information as well as specific safety protocols in place. Safety protocols
(masking, social distancing, sanitization, etc.) are strictly enforced. The Company continues to
have an open dialogue with public safety and government officials at all levels, as well as
customers, key suppliers and other partners.
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 2021 as a result of new standards and
interpretations which became effective during the year.
Pending Accounting Changes
A number of amendments to standards have been issued but are not yet effective for the financial
year ending December 31, 2021, 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, 2021.
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.
31
32
41
Toromont Industries Ltd.Management’s Discussion and Analysis
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, 2021,
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, 2021.
There have been no changes in the design of the Company’s internal control over financial
reporting during 2021 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.
33
42
Toromont Industries Ltd.Management’s Discussion and Analysis
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, 2021,
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, 2021.
There have been no changes in the design of the Company’s internal control over financial
reporting during 2021 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
Gross Profit is defined as total revenues less cost of goods sold.
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
results.
Gross Profit
Operating Income
segments.
33
($ thousands)
Net earnings
plus: Interest expense
less: Interest and investment income
plus: Income taxes
Operating income
$
Three months ended December 31
2020
88,950
7,286
(3,075)
34,021
127,182
2021
105,590
6,889
(2,827)
39,118
148,770
$
$
$
Years ended December 31
$
$
2021
332,710
28,161
(9,027)
124,093
475,937
2020
254,915
29,981
(9,083)
96,621
372,434
$
$
Total Revenues
Operating income margin
956,035
15.6%
992,185
12.8%
3,886,537
12.2%
3,478,897
10.7%
Net Debt to Total Capitalization and Net Debt to 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
$
2021
646,337
916,830
(270,493)
$
2020
646,299
591,128
55,171
1,953,329
1,682,836
$
1,698,652
1,753,823
$
-16%
-0.14:1
3%
0.03:1
Management believes that providing certain non-GAAP measures provides users of the
Company’s consolidated financial statements and MD&A 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 (where available), 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 may not be comparable to similar measures presented by
other issuers. Accordingly, these measures should not be considered as a substitute or alternative
for GAAP measures as determined in accordance with IFRS.
34
43
Toromont Industries Ltd.Management’s Discussion and Analysis
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
Non-Cash Working Capital
2021
2,108,441
813,702
1,294,739
$
$
2020
1,872,144
794,216
1,077,928
$
$
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
$
2021
2,108,441
916,830
1,191,611
$
2020
1,872,144
591,128
1,281,016
Total current liabilities
813,702
794,216
Non-cash working capital
$
377,909
$
486,800
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 common shares by the total number of common
shares outstanding.
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
2021
82,443,968
114.36
9,428,292
$
$
2020
82,474,658
89.20
7,356,739
$
$
$
$
646,337
916,830
(270,493)
646,299
591,128
55,171
$
$
Total enterprise value
$
9,157,799
$
7,411,910
35
44
Toromont Industries Ltd.Management’s Discussion and Analysis
Working Capital
Key Performance Indicators (“KPIs”)
Management uses key performance indicators to enable consistent measurement of performance
across the organization. These KPIs are non-GAAP financial measures, do not have a
standardized meaning under IFRS and may not be comparable to similar measures presented by
other issuers.
Gross Profit Margin
This measure is defined as gross profit (defined above) divided by total revenues.
Operating Income Margin
This measure is defined as operating income (defined above) divided by total revenues.
Order Bookings and Backlogs
Order bookings represent the retail value of firm equipment or project orders received during a
period. Backlogs are defined as the retail value of equipment units ordered by customers with
future delivery, and the remaining retail value of package/project orders remaining to be
recognized in revenues under the percentage of completion method. Management uses order
backlog as a measure of projecting future equipment and project 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, also referred to as total capitalization.
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
Non-Cash Working Capital
($ thousands)
Total current assets
less: Cash
2021
2020
$
2,108,441
$
1,872,144
813,702
794,216
$
1,294,739
$
1,077,928
2021
2020
$
2,108,441
$
1,872,144
916,830
1,191,611
591,128
1,281,016
Non-cash working capital is defined as total current assets (excluding cash) less total current
liabilities (excluding current portion of long-term debt).
Total current liabilities
813,702
794,216
Non-cash working capital
$
377,909
$
486,800
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 common shares by the total number of common
shares outstanding.
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
2021
2020
82,443,968
82,474,658
$
114.36
$
89.20
$
9,428,292
$
7,356,739
$
646,337
$
646,299
916,830
591,128
$
(270,493)
$
55,171
Total enterprise value
$
9,157,799
$
7,411,910
Average capital employed
Return on capital employed
$
1,796,703
26.6%
$
1,838,533
20.4%
35
36
45
($ thousands)
Net earnings
plus: Interest expense
less: Interest and investment income
plus: Interest income - rental conversions
plus: Income taxes
Adjusted net earnings
2020
254,915
29,981
(9,083)
3,529
96,621
375,963
2021
332,710
28,161
(9,027)
2,635
124,093
478,572
$
$
$
$
Toromont Industries Ltd.Management’s Discussion and Analysis
Return on Equity (“ROE”)
ROE is monitored to assess the profitability of the consolidated company and is calculated by
dividing net earnings by opening shareholders’ equity (adjusted for both shares issued and shares
repurchased and cancelled during the year).
($ thousands)
Net earnings
2021
332,710
$
2020
254,915
$
Opening shareholders' equity (net of adjustments)
Return on equity
$
1,695,008
19.6%
$
1,538,817
16.6%
37
46
Toromont Industries Ltd.Management’s Discussion and Analysis
Return on Equity (“ROE”)
MANAGEMENT’S REPORT TO THE SHAREHOLDERS
MANAGEMENT’S REPORT TO THE SHAREHOLDERS
ROE is monitored to assess the profitability of the consolidated company and is calculated by
dividing net earnings by opening shareholders’ equity (adjusted for both shares issued and shares
repurchased and cancelled during the year).
($ thousands)
Net earnings
2021
2020
$
332,710
$
254,915
Opening shareholders' equity (net of adjustments)
Return on equity
$
1,695,008
$
1,538,817
19.6%
16.6%
The accompanying consolidated financial statements and Management’s Discussion and
The accompanying consolidated financial statements and Management’s Discussion and
Analysis (“MD&A”) are the responsibility of the management of Toromont Industries Ltd. (the
Analysis (“MD&A”) are the responsibility of the management of Toromont Industries Ltd. (the
“Company”). The consolidated financial statements have been prepared in accordance with
“Company”). The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards
International Financial Reporting Standards as issued by the International Accounting Standards
Board, which have been adopted in Canada. The consolidated financial statements reflect certain
Board, which have been adopted in Canada. The consolidated financial statements reflect certain
amounts which are, necessarily, based on estimates and judgments. Management has
amounts which are, necessarily, based on estimates and judgments. Management has
determined such amounts on a reasonable basis in order to provide reasonable assurance that
determined such amounts on a reasonable basis in order to provide reasonable assurance that
the consolidated financial statements are presented fairly in all material respects. The financial
the consolidated financial statements are presented fairly in all material respects. The financial
Information presented in the Company’s MD&A is consistent, where applicable, with that
Information presented in the Company’s MD&A is consistent, where applicable, with that
contained in the consolidated financial statements.
contained in the consolidated financial statements.
Management is also responsible for establishing and maintaining appropriate systems of internal
Management is also responsible for establishing and maintaining appropriate systems of internal
control and procedures over the financial reporting process. Policies and procedures are designed
control and procedures over the financial reporting process. Policies and procedures are designed
to give reasonable assurance that transactions are appropriately authorized, assets are
to give reasonable assurance that transactions are appropriately authorized, assets are
safeguarded from loss or unauthorized use and financial records are properly maintained to
safeguarded from loss or unauthorized use and financial records are properly maintained to
provide reliable information for preparation of the consolidated financial statements.
provide reliable information for preparation of the consolidated financial statements.
Ernst & Young LLP, an independent firm of chartered professional accountants, were appointed
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
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
accordance with generally accepted auditing standards in Canada and provide an independent
professional opinion. Their report is presented with the consolidated financial statements.
professional opinion. Their report is presented with the consolidated financial statements.
The Board of Directors (the “Board”) is responsible for ensuring that management fulfills its
The Board of Directors (the “Board”) is responsible for ensuring that management fulfills its
responsibilities for financial reporting and internal controls. The Board carries out its
responsibilities for financial reporting and internal controls. The Board carries out its
responsibilities principally through its Audit Committee, which is composed solely of independent
responsibilities principally through its Audit Committee, which is composed solely of independent
directors. The Audit Committee recommends the independent auditor for appointment by the
directors. The Audit Committee recommends the independent auditor for appointment by the
shareholders. It meets regularly with management and the internal and external auditors to review
shareholders. It meets regularly with management and the internal and external auditors to review
internal accounting controls, internal and external audit matters and accounting principles and
internal accounting controls, internal and external audit matters and accounting principles and
practices. Internal and external auditors have full and unrestricted access to the Audit Committee.
practices. Internal and external auditors have full and unrestricted access to the Audit Committee.
The consolidated financial statements and MD&A have been approved by the Board of Directors,
The consolidated financial statements and MD&A have been approved by the Board of Directors,
based on the review and recommendation of the Audit Committee.
based on the review and recommendation of the Audit Committee.
.
.
/s/ S.J. Medhurst
/s/ S.J. Medhurst
/s/ M.S. McMillan
/s/ M.S. McMillan
Scott J. Medhurst
Scott J. Medhurst
President and
President and
Chief Executive Officer
Chief Executive Officer
Michael S. McMillan
Michael S. McMillan
Executive Vice President and
Executive Vice President and
Chief Financial Officer
Chief Financial Officer
February 9, 2022
February 9, 2022
Toronto, Canada
Toronto, Canada
37
1
1
Management’s Report to the Shareholders
47
Toromont Industries Ltd.
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, 2021 and 2020, 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, 2021 and 2020,
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,
and
commissioning of longer-term projects under
the customer’s control and can span from
installation
2
48
Independent Auditor’s Report
How our audit addressed the key audit
matter
For long-term refrigeration package contracts
that were open as of December 31, 2021, our
audit procedures
following,
among others:
included
the
Toromont Industries Ltd.
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, 2021 and 2020, 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, 2021 and 2020,
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
How our audit addressed the key audit
matter
The Group sells industrial and recreational
For long-term refrigeration package contracts
refrigeration packages, which involve the
that were open as of December 31, 2021, our
design, manufacture,
installation
and
audit procedures
included
the
following,
commissioning of longer-term projects under
among others:
the customer’s control and can span from
2
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
and
significant
assumptions is described in notes 1 and 2 of
the consolidated financial statements.
accounting
estimates
to
related
recognized
the estimated costs
The Group recognized $208.9 million of
revenues for the year ended December 31,
these contracts. The
2021
determination of
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
the period. These
significant judgements include those related to
labour, materials and
estimated
overhead costs
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.
for contracts. Given
future
in
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;
recognition,
We
reviewed contractual arrangements,
including pricing and billing terms, change
orders and terms and conditions impacting
revenue
if any, and 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
the areas of
We assessed the adequacy of disclosures in
judgement and
describing
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
Independent Auditor’s Report
49
Toromont Industries Ltd.
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
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.
4
50
Independent Auditor’s Report
Toromont Industries Ltd.
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.
Financial Statements
Responsibilities of Management and Those Charged with Governance for the Consolidated
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
•
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
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.
also:
4
• 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
February 9, 2022
Toronto, Canada
5
Independent Auditor’s Report
51
Toromont Industries Ltd.
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31 ($ thousands)
Assets
Current assets
Cash
Accounts receivable
Inventories
Income taxes recoverable
Derivative financial instruments
Other current assets
Total current assets
Property, plant and equipment
Rental equipment
Other assets
Deferred tax assets
Goodwill and intangible assets
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Provisions
Deferred revenues and contract liabilities
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 income (loss)
Total shareholders' equity
Total liabilities and shareholders' equity
Commitments - see note 22
See accompanying notes
Approved by the Board:
(signed) R. G. Roy
____________________
Richard G. Roy
Director
Note
2021
2020
3
4
12
5
5
6
15
7
$
916,830
451,944
720,421
-
5,252
13,994
2,108,441
450,825
525,521
23,735
231
475,043
3,583,796
$
$
591,128
541,580
728,404
135
-
10,897
1,872,144
423,282
539,412
33,263
504
478,187
3,346,792
$
6, 18
8
9
12
9
6
10, 12
19
15
11
$
573,363
25,404
199,696
-
15,239
813,702
27,254
11,780
646,337
82,712
48,682
1,630,467
$
584,003
26,645
149,109
11,043
23,416
794,216
16,383
16,565
646,299
149,451
25,226
1,648,140
539,677
16,352
1,392,551
4,749
1,953,329
3,583,796
$
516,591
14,243
1,169,239
(1,421)
1,698,652
3,346,792
$
(signed) C. E. Cranston
____________________
Cathy E. Cranston
Director
6
52
Toromont Industries Ltd.Consolidated Financial Statements
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
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31 ($ thousands)
Note
2021
2020
Accounts payable and accrued liabilities
6, 18
$
573,363
$
584,003
Assets
Current assets
Cash
Accounts receivable
Inventories
Income taxes recoverable
Derivative financial instruments
Other current assets
Total current assets
Property, plant and equipment
Rental equipment
Other assets
Deferred tax assets
Goodwill and intangible assets
Total assets
Liabilities
Current liabilities
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
Commitments - see note 22
See accompanying notes
Approved by the Board:
(signed) R. G. Roy
____________________
Richard G. Roy
Director
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total liabilities and shareholders' equity
3
4
12
5
5
6
15
7
8
9
12
9
6
19
15
11
10, 12
$
916,830
$
591,128
$
3,583,796
$
3,346,792
451,944
720,421
-
5,252
13,994
2,108,441
450,825
525,521
23,735
231
475,043
25,404
199,696
-
15,239
813,702
27,254
11,780
646,337
82,712
48,682
541,580
728,404
135
-
10,897
1,872,144
423,282
539,412
33,263
504
478,187
26,645
149,109
11,043
23,416
794,216
16,383
16,565
646,299
149,451
25,226
1,630,467
1,648,140
539,677
16,352
1,392,551
4,749
1,953,329
516,591
14,243
1,169,239
(1,421)
1,698,652
$
3,583,796
$
3,346,792
(signed) C. E. Cranston
____________________
Cathy E. Cranston
Director
$
$
2021
3,886,537
2,916,769
969,768
493,831
475,937
28,161
(9,027)
456,803
124,093
332,710
2020
3,478,897
2,643,151
835,746
463,312
372,434
29,981
(9,083)
351,536
96,621
254,915
$
$
$
$
4.03
4.00
$
$
3.10
3.09
82,547,961
83,269,451
82,152,788
82,620,461
6
7
53
Toromont Industries Ltd.Consolidated Financial Statements
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31 ($ thousands)
Net earnings
2021
332,710
$
2020
254,915
$
Other comprehensive income (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 gains (losses)
Income tax (expense) recovery
Actuarial and other gains (losses), net of income taxes
Other comprehensive income (loss)
Total comprehensive income
See accompanying notes
(12)
(1,124)
300
(824)
9,478
(2,472)
7,006
67,914
(17,996)
49,918
56,088
(339)
(2,911)
744
(2,167)
1,909
(483)
1,426
(15,213)
4,031
(11,182)
(12,262)
$
388,798
$
242,653
8
54
Toromont Industries Ltd.Consolidated Financial Statements
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 ($ thousands)
Net earnings
2021
2020
$
332,710
$
254,915
Other comprehensive income (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 gains (losses)
Income tax (expense) recovery
Actuarial and other gains (losses), net of income taxes
Other comprehensive income (loss)
Total comprehensive income
See accompanying notes
(12)
(1,124)
300
(824)
9,478
(2,472)
7,006
67,914
(17,996)
49,918
56,088
(339)
(2,911)
744
(2,167)
1,909
(483)
1,426
(15,213)
4,031
(11,182)
(12,262)
$
388,798
$
242,653
Years ended December 31 ($ thousands)
Operating activities
Net earnings
Items not requiring cash:
Note
2021
2020
$
332,710
$
254,915
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
6
Net change in non-cash working capital and other
Additions to rental equipment
Proceeds on disposal of rental equipment
Cash provided by operating activities
Investing activities
Additions to property, plant and equipment
Proceeds on disposal of property, plant and equipment
Decrease in other assets
Cash used in investing activities
Financing activities
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 the year
Cash, at end of the year
Supplemental cash flow information (note 21)
See accompanying notes
158,360
6,472
1,176
3,560
(21,533)
480,745
129,322
(118,183)
50,840
542,724
(71,203)
2,467
(133)
(68,869)
(961)
(109,053)
21,754
(50,003)
(9,880)
(148,143)
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)
(10)
325,702
591,128
916,830
$
(58)
225,539
365,589
591,128
$
8
9
55
Toromont Industries Ltd.Consolidated Financial Statements
TOROMONT INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Share capital
Accumulated other comprehensive income (loss)
Number
82,012,448
Amount
490,047
$
Contributed
surplus
13,088
$
Retained
earnings
1,031,097
$
Foreign
currency
translation
adjustments
2,219
$
Cash flow
hedges
(2,560)
$
$
Total
(341)
Total
shareholders'
equity
1,533,891
$
($ thousands, except share numbers)
At January 1, 2020
Net earnings
Other comprehensive loss
Total comprehensive income
-
-
-
-
-
-
Exercise of stock options
530,010
26,949
Stock-based compensation expense
-
Effect of stock compensation plans
Shares purchased for cancellation
Dividends declared
530,010
(67,800)
-
-
26,949
(405)
-
-
-
-
(4,576)
5,731
1,155
254,915
(11,182)
243,733
-
-
-
-
-
(3,638)
(101,953)
-
(339)
(339)
-
-
-
-
-
-
(741)
(741)
-
-
-
-
-
-
(1,080)
(1,080)
-
-
-
-
-
254,915
(12,262)
242,653
22,373
5,731
28,104
(4,043)
(101,953)
82,474,658
$
516,591
$
14,243
$
1,169,239
$
1,880
$
(3,301)
$
(1,421)
$
1,698,652
-
-
-
-
-
-
439,910
26,117
-
439,910
(470,600)
-
-
26,117
(3,031)
-
82,443,968
$
539,677
-
-
-
(4,363)
6,472
2,109
332,710
49,918
382,628
-
-
-
-
(46,972)
-
(12)
(12)
-
-
-
-
-
6,182
6,182
-
-
-
-
-
6,170
6,170
-
-
-
-
332,710
56,088
388,798
21,754
6,472
28,226
(50,003)
-
16,352
$
(112,344)
1,392,551
$
-
1,868
$
-
2,881
$
-
4,749
$
(112,344)
1,953,329
$
At December 31, 2020
Net earnings
Other comprehensive income
Total comprehensive income
Exercise of stock options
Stock-based compensation expense
Effect of stock compensation plans
Shares purchased for cancellation
Dividends declared
At December 31, 2021
See accompanying notes
10
56
Toromont Industries Ltd.Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
($ 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 6,400
people in approximately 160 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 9, 2022 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
Notes to the Consolidate Financial Statements
57
Toromont Industries Ltd.
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
12
58
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
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
Accounts Receivable
and refrigeration packages. These are transferred to receivables when the entitlement to payment
becomes unconditional.
Inventories
Inventories are valued at the lower of cost and net realizable value.
Cost of equipment, repair and distribution parts and direct materials include purchase cost and
costs incurred in bringing each product to its present location and condition. Serialized inventory
is determined on a specific-item basis. Non-serialized inventory is determined based on a
weighted average actual cost.
Cost of work-in-process includes cost of direct materials, labour and an allocation of
manufacturing overheads, excluding borrowing costs, based on normal operating capacity.
Cost of work-in-process (contracts) are costs specifically chargeable to customers that are
deferred in inventories and are probable of recovery.
Cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges,
recognized in other comprehensive income (loss), in respect of the purchase of inventory.
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.
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.
Rental Equipment
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.
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
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
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.
12
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
13
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
59
Toromont Industries Ltd.
Following initial recognition, intangible assets are carried at cost less any accumulated
amortization and accumulated impairment losses, as applicable.
Intangible assets with a finite useful life are amortized over their estimated useful lives and are
assessed for impairment whenever there is an indication that the intangible assets may be
impaired. The amortization period and the amortization method for intangible assets with finite
useful lives are reviewed at least at the end of each reporting period.
Amortization is recorded as follows:
• Customer relationships – 8 years, straight-line
• ERP system – 5 years, straight-line
• Customer order backlog – specific basis
• Patents and licenses – remaining life, straight-line
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually or when indicators of impairment are present. Distribution networks are considered to
have an indefinite life based on the terms of the distribution rights contracts. The assessment of
indefinite life is reviewed annually to determine whether the indefinite life continues to be
supportable.
Provisions
Provisions are recognized when the Company has a present obligation, legal or constructive, as
a result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions for warranty costs are recognized when the product is sold or service provided. Initial
recognition is based on historical experience.
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.
14
60
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
Following initial recognition, intangible assets are carried at cost less any accumulated
Financial Assets
amortization and accumulated impairment losses, as applicable.
Intangible assets with a finite useful life are amortized over their estimated useful lives and are
assessed for impairment whenever there is an indication that the intangible assets may be
impaired. The amortization period and the amortization method for intangible assets with finite
useful lives are reviewed at least at the end of each reporting period.
Amortization is recorded as follows:
• Customer relationships – 8 years, straight-line
• ERP system – 5 years, straight-line
• Customer order backlog – specific basis
• Patents and licenses – remaining life, straight-line
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually or when indicators of impairment are present. Distribution networks are considered to
have an indefinite life based on the terms of the distribution rights contracts. The assessment of
indefinite life is reviewed annually to determine whether the indefinite life continues to be
supportable.
Provisions
obligation.
Government Grants
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
Provisions for warranty costs are recognized when the product is sold or service provided. Initial
recognition is based on historical experience.
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.
Subsequent measurement of financial assets depends on the classification. The Company has
made the following classifications:
• Cash is classified as held for trading and as such is measured at fair value, with changes
in fair value being included in profit or loss.
• Accounts receivable are classified as loans and receivables and are recorded at amortized
cost using the effective interest rate method, less provisions for doubtful accounts.
The Company assesses, as at each consolidated statement of financial position date, whether there
is any objective evidence that a financial asset or a group of financial assets is impaired.
Financial Liabilities
All financial liabilities are subsequently measured at amortized cost using the effective interest
rate method or at FVTPL. Financial liabilities are classified as FVTPL when the financial liability
is: (i) contingent consideration of an acquirer in a business combination; (ii) held for trading; or
(iii) it is designated as FVTPL.
For financial liabilities that are designated as FVTPL, the amount of change in the fair value of
the financial liability that is attributable to changes in the credit risk of that liability is recognized in
other comprehensive income (loss) (“OCI”), unless the recognition of the effects of changes in
the liability’s credit risk in OCI would create or enlarge an accounting mismatch in the consolidated
income statements. The remaining amount of change in the fair value of the 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.
14
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
15
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
61
Toromont Industries Ltd.
Impairment of Financial Assets
Financial assets classified as amortized cost are assessed for impairment at the end of each
reporting period and a loss allowance is measured by estimating the lifetime expected credit
losses. Certain categories of financial assets, such as trade receivables, that are considered not
to be impaired individually are also assessed for impairment on a collective basis.
A financial asset is considered in default when contractual payments are 90 days past due. A
financial asset may also be considered to be in default if internal or external information indicates
that the Company is unlikely to receive the outstanding contractual amounts in full before taking
into account any credit enhancements held. A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash flows.
Derivative Financial Instruments and Hedge Accounting
Derivative financial arrangements are used to hedge exposure to fluctuations in exchange rates.
Such derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently measured at fair value. Derivatives are
carried as financial assets when the fair value is positive and as financial liabilities when the fair
value is negative.
At inception, the Company designates and documents the hedge relationship, including
identification of the transaction and the risk management objectives and strategy for undertaking
the hedge. The Company also documents its assessment, both at hedge inception and on an
ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective
in offsetting changes in cash flows of hedged items.
The Company has designated certain derivatives as cash flow hedges. These are hedges of firm
commitments and highly probable forecast transactions. The effective portion of changes in the
fair value of derivatives that are designated as a cash flow hedge is recognized in OCI. The gain
or loss relating to the ineffective portion is recognized immediately in the consolidated income
statements. Additionally:
•
If a hedge of a forecast transaction subsequently results in the recognition of a non-
financial asset, the associated gains or losses that were recognized in OCI are included
in the initial cost or other carrying amount of the asset;
• For cash flow hedges other than those identified above, amounts accumulated in OCI are
recycled to the consolidated income statements in the period when the hedged item will
affect earnings (for instance, when the forecast sale that is hedged takes place);
• When a hedging instrument expires or is sold, or when a hedge no longer meets the
criteria for hedge accounting, any cumulative gain or loss in OCI remains in OCI and is
recognized when the forecast transaction is ultimately recognized in the consolidated
income statements; and
• When a forecast transaction is no longer expected to occur, the cumulative gain or loss
that was reported in OCI is immediately recognized in the consolidated income
statements.
Impairment of Non-financial Assets
The Company assesses whether goodwill or intangible assets with indefinite lives may be
impaired annually during the fourth quarter, or when indicators of impairment are present. For the
16
62
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
Impairment of Financial Assets
Financial assets classified as amortized cost are assessed for impairment at the end of each
reporting period and a loss allowance is measured by estimating the lifetime expected credit
losses. Certain categories of financial assets, such as trade receivables, that are considered not
to be impaired individually are also assessed for impairment on a collective basis.
A financial asset is considered in default when contractual payments are 90 days past due. A
financial asset may also be considered to be in default if internal or external information indicates
that the Company is unlikely to receive the outstanding contractual amounts in full before taking
into account any credit enhancements held. A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash flows.
Derivative Financial Instruments and Hedge Accounting
Derivative financial arrangements are used to hedge exposure to fluctuations in exchange rates.
Such derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently measured at fair value. Derivatives are
carried as financial assets when the fair value is positive and as financial liabilities when the fair
value is negative.
At inception, the Company designates and documents the hedge relationship, including
identification of the transaction and the risk management objectives and strategy for undertaking
the hedge. The Company also documents its assessment, both at hedge inception and on an
ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective
in offsetting changes in cash flows of hedged items.
The Company has designated certain derivatives as cash flow hedges. These are hedges of firm
commitments and highly probable forecast transactions. The effective portion of changes in the
fair value of derivatives that are designated as a cash flow hedge is recognized in OCI. The gain
or loss relating to the ineffective portion is recognized immediately in the consolidated income
statements. Additionally:
•
If a hedge of a forecast transaction subsequently results in the recognition of a non-
financial asset, the associated gains or losses that were recognized in OCI are included
in the initial cost or other carrying amount of the asset;
• For cash flow hedges other than those identified above, amounts accumulated in OCI are
recycled to the consolidated income statements in the period when the hedged item will
affect earnings (for instance, when the forecast sale that is hedged takes place);
• When a hedging instrument expires or is sold, or when a hedge no longer meets the
criteria for hedge accounting, any cumulative gain or loss in OCI remains in OCI and is
recognized when the forecast transaction is ultimately recognized in the consolidated
• 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
income statements; and
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 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.
16
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
17
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
63
Toromont Industries Ltd.
• 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. 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
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
18
64
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
• 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. 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
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 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 their 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. The
Company 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.
18
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
19
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
65
Toromont Industries Ltd.
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
statements. 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’
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
statements is the amount of the contributions the Company is required to pay in accordance with
20
66
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
Toromont as Lessor
the terms of the plans.
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
statements. 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’
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
statements is the amount of the contributions the Company is required to pay in accordance with
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, changes in actuarial
assumptions and changes in the effect of the asset ceiling are recognized in retained
earnings and included in the consolidated statements of comprehensive income in the
period in which they occur.
Defined benefit plan assets or liabilities recognized in the consolidated statements of financial
position correspond to the difference between the present value of defined benefit obligations and
the fair value of plan assets. In the case of a surplus funded plan, these assets are limited
at the lesser of the actuarial value determined for accounting purposes or the value of
the future economic benefit by way of surplus refunds or contribution holidays. (
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
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.
20
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
21
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
67
Toromont Industries Ltd.
Standards Adopted in 2021
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, 2021, 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 financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
as at the end of the reporting period, and the reported amounts of revenue and expenses during
the reporting periods. 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.
Management evaluates its estimates and judgments on an ongoing basis, considering historical
experience, external information and observable conditions where possible, supplemented by
internal analysis as required. Revisions to estimates are recognized prospectively.
The uncertainties around the COVID-19 pandemic, the continuing resurgences and variants of
COVID-19, and related restrictions to contain its spread have been considered in management’s
estimates and judgments described below at December 31, 2021; however, estimates and
judgments made during periods of volatility are subject to a higher level of uncertainty and as a
result, there may be prospective material impacts in future periods. The breadth, duration, impact
and response of this pandemic are unknown and evolving. Staff shortages, reduced customer
activity and demand, supplier constraints, increased government regulations or intervention, are
some of the factors that have and may continue to negatively impact the business, consolidated
financial results and conditions of the Company. It is not possible to reliably estimate the length
and severity of these developments as well as the impact on the consolidated financial results
and condition of the Company in future periods.
The financial statement areas that require significant estimates and judgments are as follows:
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
22
68
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
The Company has not early-adopted any other standard, interpretation or amendment that has
Standards Adopted in 2021
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, 2021, 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 financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
as at the end of the reporting period, and the reported amounts of revenue and expenses during
the reporting periods. 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.
Management evaluates its estimates and judgments on an ongoing basis, considering historical
experience, external information and observable conditions where possible, supplemented by
internal analysis as required. Revisions to estimates are recognized prospectively.
The uncertainties around the COVID-19 pandemic, the continuing resurgences and variants of
COVID-19, and related restrictions to contain its spread have been considered in management’s
estimates and judgments described below at December 31, 2021; however, estimates and
judgments made during periods of volatility are subject to a higher level of uncertainty and as a
result, there may be prospective material impacts in future periods. The breadth, duration, impact
and response of this pandemic are unknown and evolving. Staff shortages, reduced customer
activity and demand, supplier constraints, increased government regulations or intervention, are
some of the factors that have and may continue to negatively impact the business, consolidated
financial results and conditions of the Company. It is not possible to reliably estimate the length
and severity of these developments as well as the impact on the consolidated financial results
and condition of the Company in future periods.
The financial statement areas that require significant estimates and judgments are as follows:
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.
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.
22
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
23
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
69
Toromont Industries Ltd.
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 creditworthiness, current
the
economic conditions, expectation of bankruptcies and
markets/locations of customers. COVID-19 has increased the measurement uncertainty with
respect to the determination of the allowance for doubtful accounts.
the economic volatility
in
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.
24
70
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
Toromont Industries Ltd.
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 creditworthiness, 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.
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
$
$
$
$
$
$
$
$
The movement in the Company’s allowance for doubtful accounts was as follows:
Balance, January 1
Provisions and revisions, net
Balance, December 31
$
$
$
$
The movement in the Company’s unbilled receivables was 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)
$
$
$
$
$
$
$
$
2021
409,222
(20,315)
388,907
49,516
13,521
451,944
2021
383,899
25,323
409,222
2021
20,661
(346)
20,315
2021
53,671
(22,997)
18,842
49,516
2021
403,105
223,059
6,035
68,943
19,279
720,421
2020
485,429
(20,661)
464,768
53,671
23,141
541,580
2020
461,908
23,521
485,429
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
24
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
25
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
71
The amount of inventory recognized as an expense in cost of goods sold (accounted for other
than by the percentage-of-completion method) during 2021 was $2.4 billion (2020 - $2.2 billion).
In 2021, cost of goods sold included inventory write-downs pertaining to obsolescence and aging,
net of reversal of write-downs of $4.6 million. In 2020, cost of goods sold included a net reversal
of write-downs of $4.0 million.
Toromont Industries Ltd.
5. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT
Land
Buildings
Equipment
Power
Generation
Property,
Plant and
Equipment
Rental
Equipment
Cost
January 1, 2021
Additions
Disposals
Currency translation effects
December 31, 2021
$
$
$
$
$
$
155,332
18,099
(348)
-
173,083
$
297,266
19,849
(2,048)
(12)
315,055
245,025
33,720
(5,871)
(35)
272,839
39,682
262
-
-
39,944
737,305
71,930
(8,267)
(47)
800,921
$
$
Accumulated depreciation
January 1, 2021
Depreciation expense
Depreciation of disposals
Currency translation effects
December 31, 2021
Net book value - December 31, 2021
$
-
-
-
-
$
-
$
173,083
114,226
13,054
(1,955)
(4)
125,321
189,734
165,404
28,917
(5,541)
(28)
188,752
84,087
$
$
$
$
34,393
1,630
-
-
36,023
3,921
314,023
43,601
(7,496)
(32)
350,096
450,825
$
$
$
$
$
$
932,979
117,759
(80,897)
-
969,841
393,567
100,647
(49,894)
-
444,320
525,521
$
$
$
$
Cost
January 1, 2020
Additions
Disposals
Currency translation effects
December 31, 2020
Land
Buildings
Equipment
Power
Generation
Property,
Plant and
Equipment
Rental
Equipment
$
$
$
$
$
$
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
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
$
$
718,528
43,689
(24,733)
(179)
737,305
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
$
$
$
$
$
$
$
$
$
$
$
$
During 2021, depreciation expense of $126.4 million was charged to cost of goods sold
(2020 - $128.6 million) and $17.8 million was charged to selling and administrative expenses
(2020 - $21.2 million).
Operating income from rental operations for the year ended December 31, 2021 was $57.9 million
(2020 - $38.4 million).
26
72
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
Net book value - December 31, 2021
$
173,083
$
189,734
$
84,087
$
3,921
$
450,825
$
525,521
$
-
$
125,321
$
188,752
$
36,023
$
350,096
$
444,320
Land
Buildings
Equipment
Generation
Equipment
Equipment
Power
Rental
Property,
Plant and
$
155,332
$
297,266
$
245,025
$
39,682
$
737,305
$
932,979
18,099
(348)
19,849
(2,048)
(12)
33,720
(5,871)
(35)
262
71,930
(8,267)
(47)
117,759
(80,897)
$
173,083
$
315,055
$
272,839
$
39,944
$
800,921
$
969,841
$
-
$
114,226
$
165,404
$
34,393
$
314,023
$
393,567
13,054
(1,955)
(4)
28,917
(5,541)
(28)
1,630
43,601
(7,496)
(32)
100,647
(49,894)
Land
Buildings
Equipment
Generation
Equipment
Equipment
Power
Rental
Property,
Plant and
$
147,701
$
292,553
$
239,134
$
39,140
$
718,528
$
940,708
11,084
(3,450)
(3)
8,570
(3,803)
(54)
23,493
(17,480)
(122)
542
43,689
(24,733)
(179)
88,942
(96,671)
$
155,332
$
297,266
$
245,025
$
39,682
$
737,305
$
932,979
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
102,140
$
155,098
$
32,763
$
290,001
$
348,305
13,326
(1,231)
(9)
27,707
(17,314)
(87)
1,630
42,663
(18,545)
(96)
107,122
(61,860)
Net book value - December 31, 2020
$
155,332
$
183,040
$
79,621
$
5,289
$
423,282
$
539,412
$
-
$
114,226
$
165,404
$
34,393
$
314,023
$
393,567
During 2021, depreciation expense of $126.4 million was charged to cost of goods sold
(2020 - $128.6 million) and $17.8 million was charged to selling and administrative expenses
Operating income from rental operations for the year ended December 31, 2021 was $57.9 million
Cost
January 1, 2021
Additions
Disposals
Currency translation effects
December 31, 2021
Accumulated depreciation
January 1, 2021
Depreciation expense
Depreciation of disposals
Currency translation effects
December 31, 2021
Cost
January 1, 2020
Additions
Disposals
Currency translation effects
December 31, 2020
Accumulated depreciation
January 1, 2020
Depreciation expense
Depreciation of disposals
Currency translation effects
December 31, 2020
(2020 - $21.2 million).
(2020 - $38.4 million).
5. PROPERTY, PLANT AND EQUIPMENT AND RENTAL EQUIPMENT
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
$
$
2021
18,752
1,857
3,126
23,735
2020
24,967
5,304
2,992
33,263
$
$
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, 2021
Additions and remeasurements
Depreciation expense
Disposals and expirations
Currency translation effects
Payments
December 31, 2021
January 1, 2020
Additions and remeasurements
Depreciation expense
Disposals and expirations
Payments
December 31, 2020
$
$
$
$
Properties
Right-of-use Assets
Vehicles
Total
Lease
Liabilities
$
$
$
$
9,689
(276)
(4,189)
(37)
-
-
5,187
15,320
230
(5,711)
(150)
-
9,689
24,967
4,102
(9,992)
(322)
(3)
-
18,752
30,975
6,247
(10,668)
(1,587)
-
24,967
25,716
4,102
-
(322)
(3)
(9,880)
19,613
31,423
6,247
-
(1,615)
(10,339)
25,716
15,278
4,378
(5,803)
(285)
(3)
-
13,565
15,655
6,017
(4,957)
(1,437)
-
15,278
$
$
$
$
The current portion of lease liabilities as at December 31, 2021 of $7.8 million (2020 - $9.2 million)
is included in accounts payable and accrued liabilities on the consolidated statements 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
$
$
2021
9,992
662
194
10,848
2020
10,668
905
176
11,749
$
$
26
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
27
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
73
Cash outflows for leases in 2021 were $9.9 million (2020 - $10.3 million).
The future cash outflows relating to leases are disclosed in note 22.
Toromont Industries Ltd.
7. GOODWILL AND INTANGIBLE ASSETS
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
$
$
$
$
206
30
236
30
266
$
$
5,198
722
5,920
555
6,475
$
$
$
2,333
2,000
4,333
667
5,000
$
$
$
4,091
1,892
5,983
1,892
7,875
-
$
-
$
-
-
$
-
-
$
-
$
-
-
$
-
$
$
$
11,828
4,644
16,472
3,144
19,616
$
$
264
234
$
$
2,771
2,216
$
667
$
-
$
$
9,154
7,262
$
$
371,551
371,551
$
$
93,780
93,780
$
$
478,187
475,043
Cost
January 1, 2020
December 31, 2020
December 31, 2021
Accumulated amortization
January 1, 2020
Amortization expense
December 31, 2020
Amortization expense
December 31, 2021
Net book value -
December 31, 2020
December 31, 2021
Goodwill
The carrying amount of goodwill has been allocated as follows:
2021
2020
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, 2021. 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, adjusted for current economic conditions. As a result of the analysis, management
determined there was no impairment of goodwill.
Intangible Assets with Indefinite Lives – Distribution Networks
The carrying amount of distribution networks has been allocated to the following CGUs and/or
group of CGUs:
2021
2020
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
$
$
28
74
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
7. GOODWILL AND INTANGIBLE ASSETS
Patents
Customer
and
Order
ERP
Customer
Distribution
Licenses
Backlog
System
Relationships
Networks Goodwill
Total
$
500
$
8,691
$
500
$
8,691
$
5,000
$
5,000
$
15,137
$
371,551
$
93,780
$
494,659
$
15,137
$
371,551
$
93,780
$
494,659
$
500
$
8,691
$
5,000
$
15,137
$
371,551
$
93,780
$
494,659
$
206
$
5,198
$
2,333
$
4,091
$
-
$
-
$
11,828
$
236
$
5,920
$
4,333
$
5,983
$
-
$
-
$
16,472
30
30
722
2,000
555
667
1,892
1,892
-
-
-
-
4,644
3,144
$
266
$
6,475
$
5,000
$
7,875
$
-
$
-
$
19,616
$
264
$
2,771
$
667
$
9,154
$
371,551
$
93,780
$
478,187
$
234
$
2,216
$
-
$
7,262
$
371,551
$
93,780
$
475,043
Accumulated amortization
Cost
January 1, 2020
December 31, 2020
December 31, 2021
January 1, 2020
Amortization expense
December 31, 2020
Amortization expense
December 31, 2021
Net book value -
December 31, 2020
December 31, 2021
Goodwill
Equipment Group
Toromont Cat
Battlefield Equipment Rentals
CIMCO
The carrying amount of goodwill has been allocated as follows:
2021
2020
$
89,270
$
89,270
4,060
450
4,060
450
$
93,780
$
93,780
The Company performed the annual impairment test as at December 31, 2021. 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, adjusted for current economic conditions. As a result of the analysis, management
determined there was no impairment of goodwill.
Intangible Assets with Indefinite Lives – Distribution Networks
The carrying amount of distribution networks has been allocated to the following CGUs and/or
group of CGUs:
Equipment Group
Toromont Cat - Quebec/Maritimes
Toromont Cat - all other locations
Battlefield Equipment Rentals - Quebec/Maritimes
2021
2020
$
352,434
$
352,434
13,669
5,448
13,669
5,448
$
371,551
$
371,551
the annual
intangible assets as at
The Company performed
December 31, 2021. 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 for current economic conditions. Based on the analysis, management
determined there was no impairment of indefinite-lived intangible assets.
impairment
test of
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 CGU or group of CGUs to exceed its recoverable amount.
8. PROVISIONS
Activities related to provisions were as follows:
Balance, January 1, 2020
New provisions
Charges against provisions
Balance, December 31, 2020
New provisions
Charges against provisions
Balance, December 31, 2021
Warranty
$
$
$
Warranty
13,117
28,640
(27,877)
13,880
30,593
(30,509)
13,964
Other
10,563
4,542
(2,340)
12,765
1,362
(2,687)
11,440
Total
23,680
33,182
(30,217)
26,645
31,955
(33,196)
25,404
$
$
$
$
$
$
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, 2021, the Company recognized as revenue $140.6 million
(2020 - $135.1 million) of
the deferred revenues and contract liabilities balance at
January 1, 2021.
28
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
29
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
75
Toromont Industries Ltd.
Management expects that 88% of the transaction price allocated to unsatisfied performance
obligations as at December 31, 2021 will be recognized as revenue during the year ended
December 31, 2022 and the remaining 12% between the years ended December 31, 2023 and
2028.
10. LONG-TERM DEBT
The Company’s debt portfolio is unsecured, unsubordinated and ranks pari passu.
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.
2021
2020
$
150,000
$
150,000
500,000
650,000
(3,663)
646,337
$
500,000
650,000
(3,701)
646,299
$
The Company maintains a $500.0 million committed revolving credit facility. In November 2021,
the Company extended this committed revolving credit facility to mature in November 2026, with
no material changes to the terms and conditions. Debt under this facility 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 this revolving credit facility as at December 31, 2021 or 2020. Standby
facility as at December 31, 2021
letters of credit
(2020 - $30.8 million).
issued utilized $28.8 million of
the
The Company entered into an additional $250.0 million committed revolving credit facility on
April 17, 2020 that matured in April 2021. This facility was never drawn and was not renewed at
maturity.
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, 2021 and 2020.
Scheduled principal repayments and interest payments on long-term debt are as follows:
2022
2023
2024
2025
2026
Thereafter
Principal
$
-
-
-
150,000
-
500,000
650,000
$
30
76
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Interest
24,765
24,765
24,765
23,374
19,200
16,000
132,869
$
$
Toromont Industries Ltd.
Management expects that 88% of the transaction price allocated to unsatisfied performance
obligations as at December 31, 2021 will be recognized as revenue during the year ended
December 31, 2022 and the remaining 12% between the years ended December 31, 2023 and
Interest expense includes interest on debt initially incurred for a term of one year or greater of
$27.5 million (2020 - $29.1 million).
2028.
10. LONG-TERM DEBT
The Company’s debt portfolio is unsecured, unsubordinated and ranks pari passu.
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.
2021
2020
$
150,000
$
150,000
500,000
650,000
(3,663)
500,000
650,000
(3,701)
$
646,337
$
646,299
The Company maintains a $500.0 million committed revolving credit facility. In November 2021,
the Company extended this committed revolving credit facility to mature in November 2026, with
no material changes to the terms and conditions. Debt under this facility 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 this revolving credit facility as at December 31, 2021 or 2020. Standby
letters of credit
issued utilized $28.8 million of
the
facility as at December 31, 2021
(2020 - $30.8 million).
The Company entered into an additional $250.0 million committed revolving credit facility on
April 17, 2020 that matured in April 2021. This facility was never drawn and was not renewed at
maturity.
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, 2021 and 2020.
Scheduled principal repayments and interest payments on long-term debt are as follows:
Principal
Interest
$
-
$
24,765
-
-
-
150,000
500,000
24,765
24,765
23,374
19,200
16,000
$
650,000
$
132,869
2022
2023
2024
2025
2026
30
Thereafter
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, 2021 and 2020.
A continuity of the shares issued and outstanding for the years ended December 31, 2021 and
2020 is presented in the consolidated statements of changes in shareholders’ equity.
Shareholder Rights Plan (“SRP”)
The SRP is a “new generation” shareholder rights plan, 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 was renewed at the annual meeting of
shareholders this year and expires at the end of the annual meeting of shareholders in 2024.
Normal Course Issuer Bid (“NCIB”)
The Company’s NCIB program commenced on September 15, 2021. The current issuer bid allows
the Company to purchase up to approximately 8.2 million of its common shares in the 12-month
period ending September 14, 2022, representing 10% of common shares in the public float, as
estimated at the time of renewal. All shares purchased under the bid will be cancelled.
In connection with the NCIB, the Company has entered into an Automatic Share Purchase Plan
(“ASPP’) with a broker that allows, in its sole discretion and based on parameters established by
the Company, the purchase of common shares for cancellation under the NCIB at any time during
predetermined trading blackout periods. At December 31, 2021, no liability was recorded in the
Company’s consolidated statements of financial position in connection with the ASPP.
Under this bid, the Company purchased and cancelled 470,600 common shares for $50.0 million
(average cost of $106.25 per share, including transaction costs) through to December 31, 2021.
During the year ended December 31, 2020, 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 in place at that time.
Dividends Paid
The Company paid dividends of $109.1 million ($1.32 per share) for the year ended
December 31, 2021, and $98.5 million ($1.20 per share) for the year ended December 31, 2020.
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
31
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
77
Toromont Industries Ltd.
Subsequent to the year ended December 31, 2021, the Board of Directors approved a quarterly
dividend of $0.39 per share payable on April 4, 2022, to shareholders on record at the close of
business on March 9, 2022.
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
2021
2020
$
646,337
$
646,299
Derivative financial instruments assets (liabilities), net:
Foreign exchange forward contracts
$
5,252
$
(11,043)
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 are as follows:
Long-term debt
Fair value
Carrying value
2021
695,285
650,000
$
$
2020
726,871
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, 2021 and 2020, 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, 2021, the Company was committed to: (i) US dollar purchase contracts with a
notional amount of $718.4 million at an average exchange rate of $1.2614, maturing between
January 2022 and July 2023; and (ii) US dollar sale contracts with a notional amount of
32
78
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
Toromont Industries Ltd.
Subsequent to the year ended December 31, 2021, the Board of Directors approved a quarterly
dividend of $0.39 per share payable on April 4, 2022, to shareholders on record at the close of
business on March 9, 2022.
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
2021
2020
$
646,337
$
646,299
Derivative financial instruments assets (liabilities), net:
Foreign exchange forward contracts
$
5,252
$
(11,043)
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 are as follows:
Long-term debt
Fair value
Carrying value
2021
2020
$
695,285
$
726,871
$
650,000
$
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, 2021 and 2020, 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, 2021, the Company was committed to: (i) US dollar purchase contracts with a
notional amount of $718.4 million at an average exchange rate of $1.2614, maturing between
January 2022 and July 2023; and (ii) US dollar sale contracts with a notional amount of
$2.9 million at an average exchange rate of $1.2183, maturing between January 2022 and
June 2022.
Management estimates that a net gain of $5.3 million (2020 - loss of $11.0 million) would be
realized if the contracts were terminated on December 31, 2021. Certain of these forward
contracts are designated as cash flow hedges and, accordingly, an unrealized gain of $3.9 million
(2020 - unrealized loss of $4.4 million) has been included in OCI. These gains will be reclassified
to net earnings within the next 12 months and will offset losses recorded on the underlying hedged
items, namely foreign-denominated accounts payable and accrued liabilities. Certain of these
forward contracts are not designated as cash flow hedges but are entered into for periods
consistent with foreign currency exposure of the underlying transactions. A gain of $1.4 million
(2020 - loss of $6.6 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.
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
32
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
33
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
79
Toromont Industries Ltd.
environment. Financial instruments affected by currency risk include cash, accounts receivable,
accounts payable and accrued liabilities and derivative financial instruments.
As at December 31, 2021, a 5% weakening (strengthening) of the Canadian dollar against the
US dollar would result in a $0.6 million (decrease) increase in OCI for financial instruments held
in foreign operations, and a $0.5 million (decrease) increase in net earnings and $29.0 million
(decrease) increase in OCI for financial instruments held in Canadian operations.
Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash, accounts
receivable and derivative financial instruments. The carrying amount of assets included on the
consolidated statements of financial position represents the maximum credit exposure.
The Company has deposited cash with reputable financial institutions, from which management
believes the risk of loss to be remote.
The Company has accounts receivable from customers engaged in various industries including
mining, construction, food and beverage, and governmental agencies. These specific customers
may be affected by economic factors that may impact accounts receivable. 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, 2021 or
2020.
The Company had no floating-rate debt outstanding as at December 31, 2021 or 2020.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations
associated with financial liabilities. As at December 31, 2021, the Company had unutilized lines
of credit of $471.2 million (2020 - $719.2 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 2022, 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.
34
80
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
$
$
$
$
$
$
The components of interest and investment income were as follows:
2021
2,253
25,246
662
28,161
2021
2,635
6,392
9,027
2020
3,833
25,243
905
29,981
2020
3,529
5,554
9,083
The Company has deposited cash with reputable financial institutions, from which management
believes the risk of loss to be remote.
Interest on conversion of rental equipment
Other
14. INTEREST INCOME AND EXPENSE
The components of interest expense were as follows:
Credit facilities
Senior debentures
Interest on lease liabilities
environment. Financial instruments affected by currency risk include cash, accounts receivable,
accounts payable and accrued liabilities and derivative financial instruments.
As at December 31, 2021, a 5% weakening (strengthening) of the Canadian dollar against the
US dollar would result in a $0.6 million (decrease) increase in OCI for financial instruments held
in foreign operations, and a $0.5 million (decrease) increase in net earnings and $29.0 million
(decrease) increase in OCI for financial instruments held in Canadian operations.
Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash, accounts
receivable and derivative financial instruments. The carrying amount of assets included on the
consolidated statements of financial position represents the maximum credit exposure.
The Company has 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. 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.
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, 2021 or
The Company had no floating-rate debt outstanding as at December 31, 2021 or 2020.
Interest Rate Risk
2020.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations
associated with financial liabilities. As at December 31, 2021, the Company had unutilized lines
of credit of $471.2 million (2020 - $719.2 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 2022, 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.
15. INCOME TAXES
Significant components of the provision for income tax expense were as follows:
Current income tax expense
Deferred income tax expense (recovery)
Total income tax expense
2021
120,506
3,587
124,093
$
$
$
$
2020
99,700
(3,079)
96,621
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
2021
26.5%
121,053
$
2020
26.5%
93,157
$
1,139
(54)
2,165
(881)
61
610
124,093
$
848
(65)
1,961
(1,242)
21
1,941
96,621
$
27.2%
27.5%
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, 2021
35
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
81
$
$
Toromont Industries Ltd.
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 was as follows:
Balance January 1
Tax (expense) recovery recognized in income
Foreign exchange and others
Tax (expense) recovery recognized in OCI
Balance December 31
$
$
$
$
$
$
2021
28,971
9,627
5,139
6,741
50,478
(82,983)
(24,503)
-
1,132
(1,011)
8,436
(98,929)
(48,451)
$
$
$
$
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)
$
$
2021
(24,722)
(3,587)
26
(20,168)
(48,451)
2020
(31,933)
3,079
(160)
4,292
(24,722)
$
$
The aggregate amount of unremitted earnings in the Company’s subsidiaries was $35.9 million
(2020 - $30.4 million). These earnings can be remitted with no tax consequences.
16. EARNINGS PER SHARE
Net earnings available to common shareholders
Weighted average common shares outstanding
Dilutive effect of stock option conversions
Diluted weighted average common shares outstanding
Earnings per share:
Basic
Diluted
2021
332,710
$
2020
254,915
$
82,547,961
721,490
83,269,451
82,152,788
467,673
82,620,461
$
$
4.03
4.00
$
$
3.10
3.09
For the year ended December 31, 2021, 367,957 outstanding stock options with a weighted
average exercise price of $104.91 were considered anti-dilutive (exercise price in excess of
average market price during the year) and, as such, were excluded from the calculation of diluted
earnings per share. For the comparative period in 2020, there were no anti-dilutive options for the
calculation of diluted earnings per share.
36
82
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
Toromont Industries Ltd.
The sources of deferred income taxes were as follows:
17. EMPLOYEE BENEFITS EXPENSE
Wages and salaries
Other employment benefit expenses
Stock-based compensation expense
Pension costs
$
$
2021
608,989
86,488
6,471
40,216
742,164
2020
563,043
81,000
5,731
37,419
687,193
$
$
18. STOCK-BASED COMPENSATION
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 (2021 - 824,746; 2020 - 820,124).
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, 2021 and 2020, was
as follows:
2021
Weighted
average
exercise
price
58.67
104.91
Number of
options
2,329,705
532,443
2020
Weighted
average
exercise
price
51.68
72.95
Number of
options
2,328,038
367,957
Options outstanding, January 1
Granted
Exercised (1)
Forfeited
Options outstanding, December 31
Options exercisable, December 31
(1) The weighted average share price at date of exercise for the year ended December 31, 2021 was $105.62 (2020 - $76.58).
(530,010)
(4,100)
2,328,038
855,675
(439,910)
(89,060)
2,167,025
837,687
49.45
57.59
68.44
52.76
$
$
$
$
42.21
65.95
58.67
46.61
$
$
Deferred tax assets on current assets and current liabilities
$
50,478
$
44,086
Deferred revenues and contract liabilities
Accrued liabilities
Accounts receivable
Inventories
Capital assets
Goodwill and intangible assets
Tax loss carryforward
Other
Cash flow hedges in OCI
Post-employment obligations
$
28,971
$
28,308
2021
9,627
5,139
6,741
(24,503)
-
1,132
(1,011)
8,436
2020
4,151
5,070
6,557
(18,617)
411
2,466
1,160
23,882
$
(82,983)
$
(78,110)
Deferred tax (liabilities) on non-current assets and non-current liabilities
$
(98,929)
$
(68,808)
Net deferred tax liabilities
$
(48,451)
$
(24,722)
The movement in net deferred income taxes was as follows:
Balance January 1
Tax (expense) recovery recognized in income
Foreign exchange and others
Tax (expense) recovery recognized in OCI
Balance December 31
$
(24,722)
$
(31,933)
2021
(3,587)
26
(20,168)
2020
3,079
(160)
4,292
$
(48,451)
$
(24,722)
The aggregate amount of unremitted earnings in the Company’s subsidiaries was $35.9 million
(2020 - $30.4 million). These earnings can be remitted with no tax consequences.
16. EARNINGS PER SHARE
Net earnings available to common shareholders
Weighted average common shares outstanding
Dilutive effect of stock option conversions
Diluted weighted average common shares outstanding
Earnings per share:
Basic
Diluted
2021
2020
$
332,710
$
254,915
82,547,961
721,490
83,269,451
82,152,788
467,673
82,620,461
$
4.03
$
3.10
$
4.00
$
3.09
For the year ended December 31, 2021, 367,957 outstanding stock options with a weighted
average exercise price of $104.91 were considered anti-dilutive (exercise price in excess of
average market price during the year) and, as such, were excluded from the calculation of diluted
earnings per share. For the comparative period in 2020, there were no anti-dilutive options for the
calculation of diluted earnings per share.
36
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
37
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
83
Toromont Industries Ltd.
following
The
December 31, 2021.
table summarizes stock options outstanding and exercisable as at
Range of exercise prices
$23.40 – $26.52
$36.65 – $39.79
$53.88 – $66.22
$66.23 – $72.95
$104.91
Number
102,240
222,700
965,945
508,183
367,957
2,167,025
Options outstanding
Weighted
average
exercise
price
25.45
38.41
63.65
72.95
104.91
68.44
Weighted
average
remaining
life (years)
2.2
4.1
6.8
8.6
9.4
7.2
$
$
$
$
$
$
Options exercisable
Weighted
average
exercise
price
25.45
$
38.41
$
62.77
$
$
72.95
$
-
$
52.76
Number
102,240
222,700
428,535
84,212
-
837,687
The fair values of the stock options granted during 2021 and 2020 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
$
$
2021
18.23
104.91
5.30
21.5%
1.33%
0.90%
$
$
2020
11.14
72.95
5.76
21.0%
1.70%
0.34%
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:
2021
2020
Outstanding, January 1
Units taken or taken in lieu and dividends
Redemptions
Fair market value adjustment
Outstanding, December 31
Number of
DSUs
394,154
26,748
(217,933)
-
202,969
Value
35,555
2,653
(21,751)
6,617
23,074
Number of
DSUs
388,547
29,084
(23,477)
-
394,154
$
$
$
$
Value
27,392
2,066
(1,527)
7,624
35,555
38
84
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
Range of exercise prices
price
Number
Options outstanding
Options exercisable
Weighted
average
remaining
life (years)
Weighted
average
exercise
Weighted
average
exercise
price
2.2
4.1
6.8
8.6
9.4
7.2
$
25.45
$
38.41
$
63.65
$
72.95
$
104.91
$
68.44
102,240
$
25.45
222,700
$
38.41
428,535
$
62.77
84,212
$
72.95
-
$
-
837,687
$
52.76
Number
102,240
222,700
965,945
508,183
367,957
2,167,025
The fair values of the stock options granted during 2021 and 2020 were determined at the time of
grant using the Black-Scholes option pricing model with the following weighted average
$23.40 – $26.52
$36.65 – $39.79
$53.88 – $66.22
$66.23 – $72.95
$104.91
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
2021
2020
$
18.23
$
11.14
$
104.91
$
72.95
5.30
21.5%
1.33%
0.90%
5.76
21.0%
1.70%
0.34%
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:
Outstanding, January 1
394,154
$
35,555
388,547
$
27,392
Units taken or taken in lieu and dividends
Redemptions
Fair market value adjustment
Outstanding, December 31
Number of
DSUs
26,748
(217,933)
-
2021
Value
2,653
(21,751)
6,617
Number of
DSUs
29,084
(23,477)
-
2020
Value
2,066
(1,527)
7,624
202,969
$
23,074
394,154
$
35,555
The
following
table summarizes stock options outstanding and exercisable as at
Employee Share Ownership Plan (“ESOP”)
December 31, 2021.
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
$3.3 million in 2021 (2020 - $2.9 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 4,400 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.
Pre-tax pension expenses recognized in net earnings were as follows:
Defined contribution plans
401(k) matched savings plans
Defined Benefit Plans
2021
16,193
327
16,520
$
$
$
$
2020
15,686
306
15,992
The Company sponsors
funded and unfunded defined benefit pension plans and
post-employment benefit plans as described below with approximately 1,300 active 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 full regulatory approval for
18 to 24 months, in which time the plans will continue to be valued separately.
In October 2021, an annuity purchase transaction was entered into in which the defined benefit
obligations associated with retired plan members were assumed by a third-party insurer.
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). Regulatory approval with
respect to the plan merger has been received for two of the prior plans and their assets were
transferred in November 2021. 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
38
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
39
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
85
Toromont Industries Ltd.
$5.8 million to secure obligations under one of the plans. Actuarial valuations were completed for
each prior plan as of December 31, 2020, with the next valuation scheduled as at
December 31, 2023.
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, 2021, the Company has posted letters of credit in the amount of $14.8 million to
secure the obligations under this plan. The most recent actuarial valuations were completed at
varying dates from December 31, 2020 to December 31, 2021. The next valuation is scheduled
as at December 31, 2022.
c) Post-employment Benefit Plans – These plans provide supplementary post-employment health
and life insurance coverage to certain employees as well as disability coverage for active
employees. The post-employment health and life insurance coverage covers a closed group of
approximately 500 retirees and no active employees will receive post-employment benefits. 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.
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.
40
86
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
$5.8 million to secure obligations under one of the plans. Actuarial valuations were completed for
each prior plan as of December 31, 2020, with the next valuation scheduled as at
Information about the Company’s defined benefit plans as at December 31, in aggregate, is as
follows:
Pension Benefit Plans
2021
2020
Other Post-employment
Benefit Plans
2021
2020
Defined benefit obligations:
Balance, January 1
Settlement due to buy-out annuity transactions
Current service cost
Interest cost
Actuarial remeasurement (gains) losses arising from:
$
614,183
(215,881)
14,662
14,258
Experience adjustments
Demographic assumptions
Changes in financial assumptions
Benefits paid
Contributions by plan participants
Balance, December 31
Plan assets:
Fair value, January 1
Purchase of buy-out annuities
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
Effect of asset ceiling limit
Fair value, December 31, net of asset ceiling limit
(6,726)
-
(51,514)
(29,802)
3,680
342,860
486,361
(220,913)
11,621
14,379
21,296
3,680
(29,802)
286,622
(5,999)
280,623
$
551,250
-
15,575
17,023
3,695
(4,965)
49,159
(21,652)
4,098
614,183
443,891
-
13,716
34,842
11,466
4,098
(21,652)
486,361
-
486,361
$
21,629
-
1,111
483
$
18,346
-
1,023
586
(365)
-
(1,158)
(1,225)
-
20,475
-
-
-
-
1,221
-
(1,221)
-
-
-
1,746
(184)
1,541
(1,429)
-
21,629
-
-
-
-
1,432
-
(1,432)
-
-
-
Net post-employment obligations
$
62,237
$
127,822
$
20,475
$
21,629
The funded status of the Company’s defined benefit plans at December 31 was as follows:
2021
2020
December 31, 2023.
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, 2021, the Company has posted letters of credit in the amount of $14.8 million to
secure the obligations under this plan. The most recent actuarial valuations were completed at
varying dates from December 31, 2020 to December 31, 2021. The next valuation is scheduled
as at December 31, 2022.
c) Post-employment Benefit Plans – These plans provide supplementary post-employment health
and life insurance coverage to certain employees as well as disability coverage for active
employees. The post-employment health and life insurance coverage covers a closed group of
approximately 500 retirees and no active employees will receive post-employment benefits. 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.
Risks
risks as described below:
Defined benefit pension plans and other post-employment benefit plans expose the Company to
•
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.
instruments.
•
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
• 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.
Obligations Plan Assets
280,623
$
Obligations Plan Assets
486,361
$
Defined
Benefit
Defined
Benefit
$
$
$
Defined Benefit Pension Plans
Executive Pension Plan
Post-employment Benefit Plans
325,529
17,331
20,475
363,335
$
-
-
$
280,623
595,471
18,712
21,629
635,812
$
-
-
$
486,361
Net Post-
employment
Obligations
(44,906)
$
(17,331)
(20,475)
(82,712)
$
Net Post-
employment
Obligations
(109,110)
(18,712)
(21,629)
(149,451)
$
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.
40
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
41
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
87
Toromont Industries Ltd.
Discount rate
Expected rate of salary increase
2021
3.05%
3.00%
2020
2.56%
3.00%
Pre-tax pension and other post-retirement benefit expenses recognized in net earnings were as
follows:
Service cost
Net interest expense
Remeasurements
Settlement charge
$
$
2021
15,773
3,120
(229)
5,032
23,696
2020
16,598
3,893
936
-
21,427
$
$
In October 2021, an annuity purchase transaction was entered into in which the defined benefit
obligations associated with retired plan members were assumed by a third-party insurer, in
exchange for a lump-sum payment of $221 million from plan assets. A settlement charge of
$5.0 million in connection with this transaction was recorded in selling, general and administrative
expenses. Toromont considers, for accounting purposes, that this buy-out transaction essentially
eliminates any further legal or constructive obligations for benefits, and that a settlement has
occurred. Following the transaction, benefits for plan participants are protected under Assuris, the
life insurance compensation association designated under the Insurance Companies Act of
Canada. Toromont considers the combined risk of a) the insurer going bankrupt and b) that
Toromont would be responsible for paying the portion of pensions not covered by Assuris should
the insurer go bankrupt, remote.
Pre-tax amounts recognized in OCI were as follows:
Actuarial (losses) gains arising from experience adjustments
Actuarial gains arising from demographic assumptions
Actuarial (gains) losses arising from changes in financial assumptions
Return on plan assets (excluding amounts included in net interest expense)
Effect of asset ceiling limit
$
$
2021
(7,091)
-
(52,443)
(14,379)
5,999
(67,914)
2020
4,791
(5,149)
50,413
(34,842)
-
15,213
$
$
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
2021
38.5%
42.8%
15.5%
3.2%
2020
48.2%
42.7%
9.1%
0.0%
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.
42
88
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
Discount rate
Expected rate of salary increase
follows:
Service cost
Net interest expense
Remeasurements
Settlement charge
Pre-tax pension and other post-retirement benefit expenses recognized in net earnings were as
$
15,773
$
16,598
2021
3,120
(229)
5,032
2020
3,893
936
-
$
23,696
$
21,427
In October 2021, an annuity purchase transaction was entered into in which the defined benefit
obligations associated with retired plan members were assumed by a third-party insurer, in
exchange for a lump-sum payment of $221 million from plan assets. A settlement charge of
$5.0 million in connection with this transaction was recorded in selling, general and administrative
expenses. Toromont considers, for accounting purposes, that this buy-out transaction essentially
eliminates any further legal or constructive obligations for benefits, and that a settlement has
occurred. Following the transaction, benefits for plan participants are protected under Assuris, the
life insurance compensation association designated under the Insurance Companies Act of
Canada. Toromont considers the combined risk of a) the insurer going bankrupt and b) that
Toromont would be responsible for paying the portion of pensions not covered by Assuris should
the insurer go bankrupt, remote.
Pre-tax amounts recognized in OCI were as follows:
Actuarial (losses) gains arising from experience adjustments
Actuarial gains arising from demographic assumptions
Actuarial (gains) losses arising from changes in financial assumptions
Return on plan assets (excluding amounts included in net interest expense)
Effect of asset ceiling limit
The Company’s pension plans actual weighted average asset allocations by asset category were
2021
2020
$
(7,091)
$
4,791
-
(52,443)
(14,379)
5,999
(5,149)
50,413
(34,842)
-
$
(67,914)
$
15,213
2021
38.5%
42.8%
15.5%
3.2%
2020
48.2%
42.7%
9.1%
0.0%
as follows:
Debt securities
Equity securities
Real estate assets
Cash and cash equivalents
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.
2021
3.05%
3.00%
2020
2.56%
3.00%
• Real estate assets – infrastructure valued based on appraisals performed by a qualified
external appraiser.
• Cash and cash equivalents – generally recorded at cost, which approximates fair value.
The actual return on plan assets for the year ended December 31, 2021 was $26.0 million
(2020 - $48.6 million).
The Company expects to contribute $28.0 million to pension and other benefit plans in 2022,
inclusive of defined contribution plans.
The weighted average duration of the defined benefit plan obligations at December 31, 2021 was
19.8 years (2020 - 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, 2021, 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
$
$
(68,748)
78,345
$
$
(1,976)
2,384
$
$
(70,724)
80,729
Mortality
Increase of 1 year in
expected lifetime of plan
participants
$
6,871
$
(327)
$
6,544
Trend rate
1% increase
NA
$
1,413
$
1,413
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.
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.
42
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
43
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
89
Toromont Industries Ltd.
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
$
2021
646,337
916,830
(270,493)
$
2020
646,299
591,128
55,171
1,953,329
1,682,836
$
1,698,652
1,753,823
$
-16%
-0.14:1
3%
0.03:1
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, 2021 and 2020.
There were no changes in the Company’s approach to capital management during the years
ended December 31, 2021 and 2020.
21. SUPPLEMENTAL CASH FLOW INFORMATION
2021
2020
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
$
89,636
7,983
(12,915)
(1,241)
61,458
(8,042)
(7,941)
384
129,322
$
(16,528)
183,782
(224,655)
2,965
8,187
32,556
(325)
3,922
$
(10,096)
$
$
$
26,162
132,109
$
$
26,085
75,812
$
$
8,692
3,712
$
$
8,515
9,494
44
90
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
$
$
$
$
$
Total
645,471
828
646,299
38
646,337
A reconciliation of liabilities arising from financing activities was as follows:
Long-term Debt
645,471
$
828
646,299
38
646,337
Balance, January 1, 2020
Other
Balance, December 31, 2020
Other
Balance, December 31, 2021
Government Grants
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
2021
2020
$
646,337
$
646,299
916,830
(270,493)
591,128
55,171
1,953,329
1,698,652
$
1,682,836
$
1,753,823
-16%
-0.14:1
3%
0.03:1
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, 2021 and 2020.
There were no changes in the Company’s approach to capital management during the years
ended December 31, 2021 and 2020.
21. SUPPLEMENTAL CASH FLOW INFORMATION
Net change in non-cash working capital and other
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Deferred revenues and contract liabilities
Derivative financial instruments
Provisions
Income taxes
Other
Interest
Income taxes
Interest
Income taxes
Cash paid during the year for:
Cash received during the year for:
2021
2020
$
89,636
$
(16,528)
7,983
(12,915)
(1,241)
61,458
(8,042)
(7,941)
384
183,782
(224,655)
2,965
8,187
32,556
(325)
3,922
$
129,322
$
(10,096)
$
26,162
$
26,085
$
132,109
$
75,812
$
8,692
$
8,515
$
3,712
$
9,494
No amounts were recognized under the Canada Emergency Wage Subsidy (“CEWS”) program
in 2021. During the year ended December 31, 2020, the Company recognized a $12.7 million
government grant under the CEWS program.
22. COMMITMENTS
Future minimum lease payments under non-cancellable leases as at December 31, 2021 were
$7.8 million within one year, $11.4 million within two and five years and $0.4 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
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.
44
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
45
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
91
Toromont Industries Ltd.
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.
The following table sets forth information by segment:
Years ended December 31
2021
2020
2021
2020
Equipment Group
CIMCO
Consolidated
2021
2020
Equipment/package sales
Rentals
Product support
Power generation
Total revenues
$
1,721,382
387,755
1,405,128
11,019
3,525,284
$
$
1,469,377
358,266
1,327,478
10,978
3,166,099
$
$
$
208,854
-
152,399
-
361,253
161,144
-
151,654
-
312,798
$
1,930,236
387,755
1,557,527
11,019
3,886,537
$
$
$
1,630,521
358,266
1,479,132
10,978
3,478,897
$
$
Operating income
$
450,950
$
345,953
$
24,987
$
26,481
$
475,937
$
372,434
Interest expense
Interest and investment income
Income taxes
Net earnings
28,161
(9,027)
124,093
332,710
$
29,981
(9,083)
96,621
254,915
$
46
92
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
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
• AgWest – supplies and provides product support services for specialized mobile
material handling lift trucks.
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.
Provides design, engineering, fabrication, installation, and product support services for industrial
and recreational refrigeration systems.
CIMCO
Corporate Office
The corporate office does not meet the definition of a reportable operating segment as defined in
IFRS 8 – Operating Segments, as it does not earn revenue.
The following table sets forth information by segment:
Years ended December 31
2021
2020
2021
2020
2021
2020
Equipment Group
CIMCO
Consolidated
Equipment/package sales
$
1,721,382
$
1,469,377
$
208,854
$
161,144
$
1,930,236
$
1,630,521
Rentals
Product support
Power generation
Total revenues
387,755
358,266
387,755
358,266
1,405,128
1,327,478
152,399
151,654
1,557,527
1,479,132
11,019
10,978
11,019
10,978
-
-
-
-
$
3,525,284
$
3,166,099
$
361,253
$
312,798
$
3,886,537
$
3,478,897
Operating income
$
450,950
$
345,953
$
24,987
$
26,481
$
475,937
$
372,434
Interest expense
Interest and investment income
Income taxes
Net earnings
28,161
(9,027)
124,093
29,981
(9,083)
96,621
$
332,710
$
254,915
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
2021
2,489,821
$
2020
2,563,391
$
2021
122,771
$
2020
151,526
$
$
780,072
$
742,550
$
70,039
$
107,143
Consolidated
2021
2,612,592
971,204
3,583,796
2020
2,714,917
631,875
3,346,792
$
$
$
$
$
850,111
780,356
1,630,467
$
$
849,693
798,447
1,648,140
$
Capital expenditures, net
$
114,653
$
54,518
$
21,729
$
14,735
$
136,382
$
69,253
Depreciation expense
$
147,482
$
154,011
$
6,736
$
6,486
$
154,218
$
160,497
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
$
$
2021
3,795,634
87,745
3,158
3,886,537
2020
3,396,536
80,710
1,651
3,478,897
$
$
2021
1,065,798
4,328
1,070,126
$
$
2020
1,051,965
4,509
1,056,474
$
$
24. RELATED PARTY DISCLOSURES
Key Management Personnel Compensation
Key management includes the Company’s directors and named executive officers. The
remuneration of key management is determined by the Human Resources and Health and Safety
Committee, having regard to the performance of the individual and Company and market trends.
The compensation paid or payable to key management for employee and director services is shown
below:
Salaries
Stock options and DSU awards
Annual non-equity incentive based plan compensation
Pension costs
All other compensation
$
$
2021
3,378
2,516
3,200
640
150
9,884
2020
3,029
2,508
1,713
684
132
8,066
$
$
46
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
47
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Notes to the Consolidate Financial Statements
93
Toromont Industries Ltd.
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.
48
94
Notes to the Consolidate Financial Statements
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Toromont Industries Ltd.
25. ECONOMIC RELATIONSHIP
Five-Year Financial Review
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.
For the years ended December 31
($ thousands, except ratios and share data)
2021
2020
2019
2018
2017(1)
OPERATING RESULTS
Revenues
Net earnings
Net interest expense
Capital expenditures, net
Dividends declared
FINANCIAL POSITION
Working capital
Capital assets
Total assets
Non-current portion of long-term debt
Shareholders' equity
FINANCIAL RATIOS
3,886,537
332,710
19,134
136,382
112,344
1,294,739
976,346
3,583,796
646,337
1,953,329
3,478,897
254,915
20,898
69,253
101,953
1,077,928
962,694
3,346,792
646,299
1,698,652
3,678,705
286,800
17,955
209,855
88,192
829,275
1,020,930
3,371,337
645,471
1,533,891
3,504,236
251,984
21,725
165,146
74,516
653,906
954,306
3,234,531
644,540
1,327,679
2,350,162
175,970
7,618
100,954
60,402
767,374
881,877
2,866,945
893,806
1,124,727
Working capital
Return on opening shareholders' equity (%)
Total debt, net of cash, to shareholders' equity
2.6:1
19.6
(.14):1
2.4:1
16.6
.03:1
1.8:1
21.4
.18:1
1.6:1
22.3
.23:1
2.1:1
19.3
.65:1
PER SHARE DATA ($)
Basic earnings per share
Diluted earnings per share
Dividends declared
Book value (shareholders' equity)
Shares outstanding at year end
Price range
High
Low
Close
Notes
4.03
4.00
1.36
23.69
82,443,968
3.10
3.09
1.24
20.60
82,474,658
3.52
3.49
1.08
18.70
82,012,448
3.10
3.07
0.92
16.35
81,226,383
2.22
2.20
0.76
13.89
80,949,819
115.23
84.61
114.36
94.86
52.36
89.20
71.15
52.71
70.59
68.11
46.24
54.26
58.44
41.10
55.10
(1) The Company completed the acquisition of the businesses and net operating assets of the Hewitt Group of Companies on October 27, 2017 for $1.02 billion.
Long-term debt and common shares were issued on October 27, 2017, to partially fund the aforementioned acquisition. Refer to note 25 of the 2018 audited
financial statements for more information.
48
Notes to the Consolidated Financial Statements
for the year ended December 31, 2021
Five-Year Financial Review
Toromont Industries Ltd.
95
Our Board of Directors
Richard G. Roy
Chair of the Board
Jeffrey S. Chisholm‡
Wayne S. Hill*
* Member of Audit
Corporate Director
Corporate Director
(Director since 2018)
(Director since 2011),
(Director since 1988)
Peter J. Blake‡*
Corporate Director
(Director since 2019),
Chair, Human Resources
and Health and Safety
Committee
Chair, Environmental, Social
Cathryn E. Cranston*‡
and Governance Committee
Corporate Director
Ben D. Cherniavsky*
Corporate Director
(Director since 2013),
Chair, Audit Committee
(Director since 2021)
James W. Gill ‡
Corporate Director
(Director since 2015)
Committee
Member of Human
Resources and Health
and Safety Committee
Sharon L. Hodgson*
Corporate Director
‡ Member of
(Director since 2019)
Environmental, Social
and Governance
Committee
Scott J. Medhurst
President and Chief
Executive Officer
(Director since 2012)
Katherine A. Rethy‡
Corporate Director
(Director since 2013)
Our Executive Operating Team
Scott J. Medhurst
David A. Malinauskas
Lynn M. Korbak
President and Chief
President,
General Counsel and
Executive Officer
CIMCO Refrigeration
Corporate Secretary
Michael McMillan
Michael P. Cuddy
Jennifer J. Cochrane
Executive Vice President
Vice President and
Vice President, Finance
and Chief Financial Officer
Chief Information Officer
96
Toromont Industries Ltd.
Corporate Directory
Toromont Cat
3131 Highway 7 West
P.O. Box 5511
Concord, Ontario L4K 1B7
T: 416.667.5511 F: 416.667.5555
5001 Trans-Canada Highway
Pointe-Claire, Québec H9R 1B8
T: 514.630.3100 F: 514.630.9020
www.toromontcat.com
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
1551 Corporate Drive
Burlington, Ontario L7L 6E9
T: 416.465.7581
www.cimcorefrigeration.com
Annual Meeting
The Annual and Special Meeting of the Shareholders
of Toromont Industries Ltd. will be held at 10:00 am
(EDT) on Thursday, April 28, 2022.
Visit www.toromont.com for more details.
How to Get in Touch With Us
T: 416.667.5511 F: 416.667.5555
E-mail: investorrelations@toromont.com
How to Reach Our Transfer
Agent and Registrar
Investors are encouraged to contact TSX Trust Company
(Canada) for information regarding their security holdings.
TSX Trust Company (Canada)
P.O. Box 700, Station B
Montréal, Québec H3B 3K3
Toll-Free North America: 1.800.387.0825
Local: 416.682.3860
E-mail: shareholderinquiries@tmx.com
www.tsxtrust.com
Common Shares
Listed on the Toronto Stock Exchange
Stock Symbol – TIH
Toromont’s 2021 Sustainability Report
is available at:
www.toromont.com/sustainability
Toromont Industries Ltd.
Corporate Office
3131 Highway 7 West
P.O. Box 5511
Concord, Ontario L4K 1B7
www.toromont.com